Stellus Capital Investment Corporation Reports Results for its Second Fiscal Quarter Ended June 30, 2021

HOUSTON, Aug. 2, 2021 /PRNewswire/ — Stellus Capital Investment Corporation (NYSE: SCM) (“Stellus” or “the Company”) today announced financial results for its second fiscal quarter ended June 30, 2021.

Robert T. Ladd, Chief Executive Officer of Stellus, stated, “I am pleased to report that our second quarter net investment income of $0.28 per share covered our aggregate dividends of $0.25 per share.  Additionally, core net investment income was $0.30 per share. Based on the consistency of our dividend coverage, our Board of Directors approved an increase in the regular dividend to $0.27 per quarter and declared $0.03 of supplemental dividends for the third quarter.  Our portfolio at fair value grew to over $782 million, largely due to strong deployment of $92 million during the period.  Year to date we have invested $185 million, and our pipeline remains strong. We continue to have available capital at favorable terms in which to grow through our SBIC licenses.”

FINANCIAL HIGHLIGHTS




($ in millions, except data relating to per share amounts and shares outstanding)

















Q2-21


YTD-21



Amount

Per Share


Amount

Per Share








Net investment income


$5.53

$0.28


$10.60

$0.54








Core net investment income (1)


5.84

0.30


11.22

0.58








Net realized (loss) on investments


(1.78)

(0.09)


(1.32)

(0.07)








Loss on debt extinguishment



(0.54)

(0.03)








Total realized income(2)


3.75

0.19


8.74

0.45








Distributions


(4.87)

(0.25)


9.74

(0.50)

Net unrealized appreciation







(depreciation) on investments


1.67

0.09


1.79

0.09








Provision for taxes on unrealized gains







on investments in taxable subsidiaries


0.19

0.01


0.02

0.00








Net increase in net assets resulting







from operations


$5.60

$0.29


$10.54

$0.54








Weighted average shares outstanding


19,486,003


19,486,003



(1)

Core net investment income, as presented, excludes the impact of capital gains incentive fees and income taxes, the majority of which are excise taxes.  The Company believes that presenting core net investment income and the related per share amount is a useful supplemental disclosure for analyzing its financial performance.  However, core net investment income is a non-U.S GAAP measure and should not be considered as a replacement for net investment income and other earnings measures presented in accordance with U.S GAAP.  A reconciliation of net investment income in accordance with U.S GAAP to core net investment income is presented in the table below the financial statements.



(2)

Total realized income is the sum of net investment income and net realized gains on investments, including debt extinguishment; both U.S GAAP measures.

PORTFOLIO ACTIVITY










($ in millions, except data relating to per share amounts and number of portfolio companies)
















As of


As of









June 30,


December 31,









2021


2020







Investments at fair value


$781.9


$653.4







Total assets


$804.1


$674.9







Net assets


$274.2


$273.4







Shares outstanding


19,486,003


19,486,003







Net asset value per share


$14.07


$14.03

































Quarter Ended


Six Months Ended









June 30,


June 30,









2021


2021


















New investments


$91.5


$185.0







Repayments of investments


(24.8)


(58.4)







Net activity


$66.7


$126.6




























As of


As of









June 30,


December 31,









2021


2020














Number of portfolio company investments


76


66

Number of portfolio company debt investments


60


51






Weighted average yield of debt and other income producing investments (3)





Cash


7.6%


7.8%

Payment-in-kind (“PIK”)


0.1%


0.0%

Fee amortization


0.5%


0.5%

Total


8.2%


8.3%






Weighted average yield on total investments (4)





Cash


7.2%


7.4%

Payment-in-kind (“PIK”)


0.1%


0.0%

Fee amortization


0.5%


0.5%

Total


7.8%


7.9%
















(3)

The dollar-weighted average annualized effective yield is computed using the effective interest rate for our debt investments and other income producing investments, including cash and PIK interest, as well as the accretion of deferred fees.  The individual investment yields are then weighted by the respective cost of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio.  The dollar-weighted average annualized yield on the Company’s investments for a given period will generally be higher than what investors of our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company’s expenses or any sales load that may be paid by investors.



(4)

The dollar weighted average yield on total investments takes the same yields as calculated in the footnote above, but weights them to determine the weighted average effective yield as a percentage of the Company’s total investments, including non-income producing loans and equity.

Results of Operations

Investment income for the three months ended June 30, 2021 and 2020 totaled $15.1 million and $13.8 million, respectively, most of which was interest income from portfolio investments. 

Operating expenses for the three months ended June 30, 2021 and 2020 totaled $9.6 million and $8.4 million, respectively. For the same respective periods, base management fees totaled $3.3 million and $2.7 million, income incentive fees totaled $0.1 million and $0.2 million, capital gains incentive fees totaled $0.0 million and $0.0 million, fees and expenses related to our borrowings totaled $4.7 million and $4.1 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.5 million and $0.4 million, income tax totaled $0.3 million and $0.3 million, and other expenses totaled $0.7 million and $0.7 million, respectively.

For the three months ended June 30, 2021 and 2020, net investment income was $5.5 million and $5.4 million, or $0.28 and $0.28 per common share based on weighted average common shares outstanding of 19,486,003 and 19,484,217, respectively.

The capital gains incentive fee of $14.4 thousand for the three months ended June 30, 2021 was accrued for GAAP purposes due to the increase in realized and unrealized gains over the quarter.  Such fees, as calculated and accrued, would not necessarily be payable under the investment advisory agreement, and may never be paid based upon the computation of incentive fees in subsequent periods.  The income tax expense accrual of $0.3 million for the three months ended June 30, 2021 was accrued based on estimates of undistributed taxable income, which was generated largely from capital gains.  Core net investment income, which is a non-U.S GAAP measure that excludes these accruals, for the three months ended June 30, 2021 was $5.8 million, or $0.30 per share; and for the three months ended June 30, 2020, was $5.7 million, or $0.29 per share.

The Company’s investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended June 30, 2021 and 2020, of $1.7 million and $38.3 million, respectively.  For the three months ended June 30, 2021 and 2020, the Company had realized losses of ($1.8) million and ($3.9) million, respectively. 

For the three months ended June 30, 2021 and 2020, net increase in net assets resulting from operations totaled $5.6 million and $39.8 million, or $0.29 per common share and $2.04 per common share, based on weighted average common shares outstanding of 19,486,003 and 19,484,217, respectively. 

Liquidity and Capital Resources

As of both June 30, 2021 and 2020, our amended and restated senior secured revolving credit agreement with certain bank lenders and Zions Bancorporation, N.A. dba Amegy Bank, as administrative agent (as amended from time to time, the “Credit Facility”) provided for borrowings in an aggregate amount of up to $230.0 million on a committed basis. As of June 30, 2021, our credit facility had an accordion feature that allowed for potential future expansion of the facility size to $280.0 million. As of June 30, 2021 and December 31, 2020, we had $192.6 million and $174.0 million in outstanding borrowings under the credit facility, respectively.

For the six months ended June 30, 2021, our operating activities used cash of ($114.5) million primarily in connection with the purchase and origination of new portfolio investments, some of which was offset by repayment of portfolio investments.  For the same period, our financing activities provided cash of $114.7 million, due to the issuance of our 4.875% fixed-rate notes due 2026 (the “2026 Notes”) offset by the repayment of our 5.75% fixed-rate notes due 2022 (the “2022 Notes”), issuance of additional SBA-guaranteed debentures, and net repayments on our Credit Facility.

For the six months ended June 30, 2020, our operating activities used cash of $12.4 million, primarily in connection with the origination of portfolio investments, which was slightly offset by repayments of our investments, and our financing activities provided cash of $19.5 million, due to net borrowings under our Credit Facility.

Distributions

During both the three months ended June 30, 2021 and 2020, we declared aggregate distributions of $0.25 per share ($4.9 million) for each quarter. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year.  None of these dividends are expected to include a return of capital.

Portfolio Activity During the Quarter

On April 20, 2021, we invested $0.1 million in the equity of Venbrook Holdings, LLC, an existing portfolio company. On June 25, 2020, we invested an additional $0.1 million in the equity of the company.

On April 22, 2021, we received full repayment on the unsecured term loan of Skopos Financial, LLC for total proceeds of $14.0 million.

On April 27, 2021, we invested $7.5 million in the first lien term loan and committed $2.0 million in the unfunded revolver of Unicat Catalyst, LLC, a global formulator and distributor of heterogeneous, consumable catalyst products primarily serving the refinery, petrochemical, and other end markets. Additionally, we invested $0.8 million in the equity of the company.

On April 28, 2021, we invested $10.8 million in the first lien term loan and committed $0.1 million in both the unfunded revolver and delayed draw term loan of an HVAC and plumbing designer, installer, and service provider for new/existing DCs, fulfilment sortation facilities, and warehouses.

On May 7, 2021, we invested $15.6 million in the first lien term loan and committed $1.3 million in the unfunded revolver of Ad.Net Holdings, Inc., a digital marketing company that targets high-conversion consumers through cost-per-click (CPC) digital media advertising. Additionally, we invested $0.8 million in the equity of the company.

On May 19, 2021, we invested $16.5 million in the first lien term loan and committed $0.1 million in the unfunded revolver of MOM Enterprises, LLC, a provider of over-the-counter health and wellness products for babies, kids, and moms focusing on digestive health, wellness, and general care/remedies. Additionally, we invested $0.9 million in the equity of the company.

On May 28, 2021, we invested $1.2 million in the first lien term loan of Munch’s Supply, LLC, an existing portfolio company.

On June 1, 2021, we invested $1.2 million in the first lien term loan of Invincible Boat Company, LLC, an existing portfolio company. Additionally, we invested $0.4 million in the equity of the company.

On June 4, 2021, we invested $15 million in the first lien term loan and committed $0.1 million in the unfunded revolver of ADS Group Opco, LLC, a full-service manufacturer for OEMs, prime contractors, and Tier I suppliers across the defense, space, and aerospace industries. Additionally, we invested $0.5 million in the equity of the company.

On June 11, 2021, we received a paydown on the second lien term loan of GK Holdings, Inc. for total proceeds of $1.2 million and a $2.0 million first lien term loan of Software Luxembourg Acquisitions S.À.R.L., resulting in a realized loss of $1.8 million.

On June 25, 2021, we invested $14.3 million in the first lien term loan and committed $4.7 million in the unfunded delayed draw term loan and $0.1 million in the unfunded revolver of Xanitos, Inc, a provider and manager of outsourced environmental services to hospitals, medical campuses, and medical office buildings. Additionally, we invested $0.8 million in the equity of the company.

Events Subsequent to June 30, 2021

On July 16, 2021, we received full repayment on the first lien term loan of Software Luxembourg Acquisition S.A.R.L. (GK Holdings, Inc.) for total proceeds of $2.0 million.

On July 30, 2021, we invested $10.0 million in the first lien term loan and committed $0.1 million in the unfunded revolver of a provider of software solutions to automotive dealerships. Additionally, we invested $0.8 million in the equity of the company.

Credit Facility

The outstanding balance under the credit facility as of August 2, 2021 was $187.0 million.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed debentures outstanding as of August 2, 2021 was $250.0 million.

Distributions Declared

On July 20, 2021, our Board declared a regular monthly dividend of $0.09 per share for each of July, August and September for an aggregate of $0.27 per share for the quarter, which is an increase of $0.02 for the quarter as compared to the prior quarter.  In addition, the board declared a supplemental dividend of $0.01 for each of the months of July, August and September.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Tuesday, August 3, 2021 at 11:00 AM, Central Time.  The conference call will be led by Robert T. Ladd, chief executive officer, and W. Todd Huskinson, chief financial officer, chief compliance officer, treasurer, and secretary.

For those wishing to participate by telephone, please dial 800-353-6461 (domestic).  Use passcode 5908267.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Wednesday, August 11, 2021 by dialing (888) 203-1112 and entering passcode 5908267. The replay will also be available on the company’s website.

For those wishing to participate via Live Webcast, connect via the Public Company (SCIC) section of our website at www.stelluscapital.com, under the Events tab. A replay of the conference will be available on our website for approximately 90 days.

About Stellus Capital Investment Corporation

The Company is an externally-managed, closed-end, non-diversified investment management company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended. The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation by investing primarily in private middle-market companies (typically those with $5.0 million to $50.0 million of EBITDA (earnings before interest, taxes, depreciation and amortization)) through first lien (including unitranche) loans, second lien loans and unsecured debt financing, with corresponding equity co-investments. The Company’s investment activities are managed by its investment adviser, Stellus Capital Management. To learn more about Stellus Capital Investment Corporation, visit www.stelluscapital.com under the “Public (SCIC)” tab.

Forward-Looking Statements

Statements included herein may contain “forward-looking statements” which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release, including statements about COVID-19 and its impacts, may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission including the final prospectus that will be filed with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Contacts

Stellus Capital Investment Corporation
W. Todd Huskinson, Chief Financial Officer
(713) 292-5414
[email protected]

PART I — FINANCIAL INFORMATION









STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES












June 30,






2021


December 31,



(Unaudited)


2020

ASSETS







Non-controlled, non-affiliated investments, at fair value








(amortized cost of $785,364,583 and $658,628,966,








respectively)

$

781,947,972


$

653,424,495


Cash and cash equivalents


18,602,775



18,477,602


Receivable for sales and repayments of investments


480,552



215,929


Interest receivable


2,712,220



2,189,448


Other receivables


25,495



25,495


Deferred offering costs




90,000


Prepaid expenses


301,016



487,188



Total Assets

$

804,070,030


$

674,910,157

LIABILITIES







Notes payable

$

97,877,778


$

48,307,518


Credit facility payable


190,563,263



171,728,405


SBA-guaranteed debentures


228,969,256



173,167,496


Dividends payable


1,623,187




Management fees payable


2,278,479



2,825,322


Income incentive fees payable


178,398



681,660


Capital gains incentive fees payable


618,689



521,021


Interest payable


4,534,509



2,144,085


Unearned revenue


513,798



523,424


Administrative services payable


394,075



391,491


Deferred tax liability


339,673



359,590


Income tax payable


362,977



724,765


Other accrued expenses and liabilities


1,649,667



174,731



Total Liabilities

$

529,903,749


$

401,549,508


Commitments and contingencies (Note 7)








Net Assets

$

274,166,281


$

273,360,649

NET ASSETS







Common stock, par value $0.001 per share (100,000,000 shares








authorized; 19,486,003 and 19,486,003 issued and outstanding,








respectively)

$

19,486


$

19,486


Paid-in capital


276,026,667



276,026,667


Accumulated undistributed deficit


(1,879,872)



(2,685,504)



Net Assets

$

274,166,281


$

273,360,649



Total Liabilities and Net Assets

$

804,070,030


$

674,910,157



Net Asset Value Per Share

$

14.07


$

14.03

























STELLUS CAPITAL INVESTMENT CORPORATION
















 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


















For the


For the


For the


For the




three

three

six

six




months ended

months ended

months ended

months ended




June 30,

June 30,

June 30,

June 30,




2021

2020

2021

2020

INVESTMENT INCOME













Interest income

$

14,846,398


$

13,635,480

$


28,359,175


$

28,485,068


Other income


257,976



205,798



733,063



617,255



Total Investment Income

$

15,104,374


$

13,841,278

$


29,092,238


$

29,102,323

OPERATING EXPENSES













Management fees

$

3,278,479


$

2,743,195

$


6,242,340


$

5,462,249


Valuation fees


20,082



19,001



148,435



128,834


Administrative services expenses


463,102



436,594



916,491



903,529


Income incentive fees


55,899



168,749



55,899



1,508,386


Capital gains incentive fees (reversal)


14,387





97,668



(880,913)


Professional fees


236,212



150,514



505,177



537,228


Directors’ fees


74,500



110,566



166,000



242,816


Insurance expense


118,813



93,071



236,320



186,142


Interest expense and other fees


4,691,968



4,092,594



9,015,446



8,384,798


Income tax expense


286,276



289,000



526,257



485,795


Other general and administrative expenses


329,641



302,379



586,559



468,382



Total Operating Expenses

$

9,569,359


$

8,405,663

$


18,496,592


$

17,427,246



Net Investment Income

$

5,535,015


$

5,435,615

$


10,595,646


$

11,675,077



Net realized loss on non-controlled, non-affiliated















investments

$

(1,781,665)


$

(3,893,249)

$


(1,319,437)


$

(2,596,456)



Loss on debt extinguishment

$


$

$


(539,250)


$



Net change in unrealized appreciation (depreciation)















on non-controlled, non-affiliated investments

$

1,665,877


$

38,329,217

$


1,787,860


$

(13,175,729)



Benefit (provision) for taxes on net unrealized gain















on investments

$

187,721


$

(58,909)

$


19,917


$

(29,950)



Net Increase (Decrease) in Net Assets














Resulting from Operations

$

5,606,948


$

39,812,674

$


10,544,736


$

(4,127,058)



Net Investment Income Per Share

$

0.28


$

0.28

$


0.54


$

0.60



Net Increase (Decrease) in Net Assets Resulting















from Operations Per Share

$

0.29


$

2.04

$


0.54


$

(0.21)



Weighted Average Shares of Common Stock Outstanding


19,486,003



19,484,217



19,486,003



19,456,849



Distributions Per Share

$

0.25


$

0.25

$


0.50


$

0.59

STELLUS CAPITAL INVESTMENT CORPORATION















 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)
















For the


For the


For the


For the




three

three


six

six




months ended

months ended


months ended

months ended




June 30,

June 30,


June 30,

June 30,




2021

2020


2021

2020

Increase (Decrease) in Net Assets Resulting from Operations













Net investment income

$

5,535,015


$

5,435,615


$

10,595,646


$

11,675,077


Net realized loss on non-controlled,














non-affiliated investments


(1,781,665)



(3,893,249)



(1,319,437)



(2,596,456)


Loss on debt extinguishment






(539,250)





Net change in unrealized appreciation (depreciation) on














non-controlled, non-affiliated investments


1,665,877



38,329,217



1,787,860



(13,175,729)


Benefit (provision) for taxes on unrealized appreciation














on investments


187,721



(58,909)



19,917



(29,950)

Net Increase (Decrease) in Net Assets Resulting













from Operations

$

5,606,948


$

39,812,674


$

10,544,736


$

(4,127,058)

Stockholder Distributions From:













Net investment income

$

(4,869,552)


$

(4,871,501)


$

(9,739,104)


$

(11,490,798)

Total Distributions

$

(4,869,552)


$

(4,871,501)


$

(9,739,104)


$

(11,490,798)

Capital Share Transactions













Issuance of common stock

$


$

93,470


$


$

5,023,937


Sales load








(5,681)


Offering costs








(18,169)


Partial share transactions








(96)

Net Increase in Net Assets Resulting From













Capital Share Transactions

$


$

93,470


$


$

4,999,991

Total Increase (Decrease) in Net Assets

$

737,396


$

35,034,643


$

805,632


$

(10,617,865)

Net Assets at Beginning of Period

$

273,428,885


$

224,918,665


$

273,360,649


$

270,571,173

Net Assets at End of Period

$

274,166,281


$

259,953,308


$

274,166,281


$

259,953,308















STELLUS CAPITAL INVESTMENT CORPORATION


 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)










For the


For the



six

six



months ended

months ended



June 30,

June 30,



2,021

2,020

Cash flows from operating activities






Net increase (decrease) in net assets resulting from operations

$

10,544,736


$

(4,127,058)


Adjustments to reconcile net increase (decrease) in net assets 








from operations to net cash used in operating activities:








Purchases of investments


(182,822,853)



(68,247,468)



Proceeds from sales and repayments of investments


55,963,858



42,341,340



Net change in unrealized (appreciation) depreciation on investments


(1,787,860)



13,175,729



Increase in investments due to PIK


(360,003)



(552,245)



Amortization of premium and accretion of discount, net


(1,107,347)



(1,069,969)



Deferred tax (benefit) provision


(19,917)



29,951



Amortization of loan structure fees


239,700



318,039



Amortization of deferred financing costs


233,846



165,748



Amortization of loan fees on SBA-guaranteed debentures


501,885



342,550



Net realized loss on investments


1,326,105



2,596,456



Loss on debt extinguishment


539,250




Changes in other assets and liabilities








(Increase) decrease in interest receivable


(522,772)



588,854



Decrease in prepaid expenses 


186,172



101,378



(Decrease) increase in management fees payable


(546,843)



2,766,468



(Decrease) increase in incentive fees payable


(503,262)



42,353



Increase (decrease) in capital gains incentive fees payable


97,668



(880,913)



Increase in administrative services payable


2,584



383,490



Increase (decrease) in interest payable


2,390,424



(155,230)



Increase in director fees payable




9,000



(Decrease) increase in unearned revenue


(9,626)



86,232



Decrease in income tax payable


(361,788)



(461,000)



Increase in other accrued expenses and liabilities


1,474,936



163,207

Net Cash Used in Operating Activities

$

(114,541,107)


$

(12,383,088)

Cash flows from Financing Activities








Proceeds from the issuance of common stock

$


$

4,794,994



Sales load for commons stock issued




(5,681)



Offering costs paid for common stock issued




(18,169)



Stockholder distributions paid


(8,115,917)



(8,557,981)



Repayment of Notes Payable


(48,875,000)





Proceeds from issuance of Notes


100,000,000





Financing costs from bond issuance


(2,237,835)





Proceeds from SBA Debentures


57,500,000





Financing costs paid on SBA Debentures


(2,200,125)





Financing costs paid on Credit facility


(4,843)



(203,353)



Borrowings under Credit Facility


161,800,000



86,450,000



Repayments of Credit Facility


(143,200,000)



(63,000,000)



Partial Share Redemption




(96)

Net Cash Provided by Financing Activities

$

114,666,280


$

19,459,714

Net Increase in Cash and Cash Equivalents

$

125,173


$

7,076,626

Cash and cash equivalents balance at beginning of period


18,477,602



16,133,315

Cash and Cash Equivalents Balance at End of Period

$

18,602,775


$

23,209,941

Supplemental and Non-Cash Activities








Cash paid for interest expense

$

5,649,592


$

7,713,693



Excise tax paid


870,000



940,000



Shares issued pursuant to Dividend Reinvestment Plan




228,943



Increase in dividends payable


1,623,187



2,703,874



Decrease in deferred offering costs for Notes Payable offering


(90,000)





Gain on conversion of equity investment


6,668



Reconciliation of Core Net Investment Income (1)

(Unaudited)





Quarter


Quarter



ended


ended



June 30, 2021


June 30, 2020

Net investment income

$5,535,015


$5,435,615


Capital gains incentive fee

$14,387


$-


Income tax expense

$286,276


$289,000

Core net investment income

$5,835,678


$5,724,615






Per share amounts:




Net investment income per share

$0.28


$0.28

Core net investment income per share

$0.30


$0.29






Reconciliation of Realized Net Investment Income (2)

(Unaudited)





Quarter


Quarter



ended


ended



June 30, 2021


June 30, 2020

Net investment income

$5,535,015


$5,435,615


Net Realized Gain

$(1,781,665)


$(3,893,249)

Total Realized Net Investment Income

$3,753,350


$1,542,366






Per share amounts:




Net investment income per share

$0.28


$0.28

Realized net investment income per share

$0.19


$0.08






SOURCE Stellus Capital Investment Corporation

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