HOUSTON, March 4, 2024 /PRNewswire/ — Stellus Capital Investment Corporation (NYSE:SCM) (“Stellus” or the “Company”) today announced financial results for its fourth fiscal quarter and year ended December 31, 2023.
Robert T. Ladd, Chief Executive Officer of Stellus, stated, “I am pleased to report solid operating results for the quarter ended December 31, 2023, in which U.S. GAAP net investment income of $0.49 per share and core net investment income of $0.50 per share covered the regular dividend declared of $0.40 per share. Our loan portfolio is yielding 11.9%, as of December 31, 2023. We have concluded over eleven years of operations, during which our investors have received a total of $246 million in distributions, equivalent to $15.08 per share.”
FINANCIAL HIGHLIGHTS
($ in millions, except data relating to per share amounts and shares outstanding)
Three Months Ended
Three Months Ended
Year Ended
Year Ended
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net investment income
$11.91
$0.49
$9.71
$0.50
$42.21
$1.92
$28.59
$1.46
Core net investment income(1)
12.16
0.50
8.66
0.44
42.97
1.95
26.93
1.38
Net realized (loss) gain on investments
(30.54)
(1.26)
(1.00)
(0.06)
(30.21)
(1.38)
3.66
0.19
Net realized loss on foreign currency translation
(0.04)
—
—
—
(0.11)
—
(0.01)
—
Provision for taxes on realized gain on investments in taxable subsidiaries
2.99
0.12
—
—
2.99
0.14
—
—
Total realized income(2)
($15.68)
($0.65)
$8.71
$0.44
$14.88
$0.68
$32.24
$1.65
Distributions
(9.65)
(0.40)
(6.67)
(0.34)
(35.53)
(1.61)
(25.42)
(1.30)
Net unrealized change in appreciation (depreciation) on investments
27.13
1.13
(4.73)
(0.24)
2.79
0.13
(17.55)
(0.90)
Net unrealized change in appreciation (depreciation) on foreign currency translation
0.01
—
0.06
—
(0.01)
—
0.01
—
Benefit (provision) for taxes on unrealized depreciation (appreciation) on investments
in taxable subsidiaries
0.02
—
(0.06)
—
(0.13)
(0.01)
(0.21)
(0.01)
Net increase in net assets resulting from operations
$11.48
$0.48
$3.98
$0.20
$17.53
$0.80
$14.49
$0.74
Weighted average shares outstanding
24,125,642
19,604,040
22,004,648
19,552,931
(1)
Core net investment income, as presented, excludes the impact of capital gains incentive fees (reversal) and income taxes, the majority of which are excise taxes. The Company believes presenting core net investment income and the related per share amount is a useful supplemental disclosure for analyzing its financial performance. However, core net investment income is a non-U.S. generally accepted accounting principles (“U.S. GAAP”) measure and should not be considered as a replacement for net investment income and other earnings measures presented in accordance with U.S. GAAP. A reconciliation of net investment income in accordance with U.S. GAAP to core net investment income is presented in the table below the financial statements.
(2)
Total realized income is the sum of net investment income, net realized gains (losses) on investments, net realized gains (losses) on foreign currency, and loss on debt extinguishment; all U.S. GAAP measures.
PORTFOLIO ACTIVITY
($ in millions, except data relating to per share amounts and number of portfolio companies)
As of
As of
December 31, 2023
December 31, 2022
Investments at fair value
$874.5
$844.7
Total assets
$908.1
$898.2
Net assets
$319.9
$275.8
Shares outstanding
24,125,642
19,666,769
Net asset value per share
$13.26
$14.02
Three Months Ended
Three Months Ended
Year Ended
Year Ended
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
New investments
$44.2
$30.1
$183.9
$211.0
Repayments of investments
(55.2)
(53.2)
(134.2)
(127.5)
Net activity
($11.0)
($23.1)
$49.7
$83.5
As of
As of
December 31, 2023
December 31, 2022
Number of portfolio company investments
93
85
Number of debt investments
81
73
Weighted average yield of debt and other income producing investments (3)
Cash
11.0 %
10.3 %
Payment-in-kind (“PIK”)
0.5 %
0.4 %
Fee amortization
0.4 %
0.4 %
Total
11.9 %
11.1 %
Weighted average yield on total investments (4)
Cash
10.3 %
9.7 %
Payment-in-kind (“PIK”)
0.5 %
0.3 %
Fee amortization
0.3 %
0.4 %
Total
11.1 %
10.4 %
(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 in the Company’s 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 years ended December 31, 2023 and 2022 totaled $105.8 million and $75.1 million, respectively, most of which was interest income from portfolio investments.
Gross operating expenses for the years ended December 31, 2023 and 2022, totaled $63.9 million and $46.5 million, respectively. The increase was driven primarily by increased interest expense and income incentive fees. For the same respective periods, base management fees totaled $15.5 million and $14.8 million, income incentive fees totaled $10.2 million and $3.8 million, capital gains incentive fee reversals totaled ($0.6) million and ($2.8) million, fees and expenses related to our borrowings totaled $32.0 million and $24.5 million (including interest and amortization of deferred financing costs), administrative expenses totaled $1.9 million and $1.8 million, income tax totaled $1.3 million and $1.2 million and other expenses totaled $3.6 million and $3.2 million. For the year ended December 31, 2023, the Company waived income incentive fees totaling $0.3 million for net operating expenses of $63.7 million. No such income incentive fees were waived for the year ended December 31, 2022.
Net investment income was $42.2 million and $28.6 million, or $1.92 and $1.46 per common share based on weighted average common shares outstanding of 22,004,648 and 19,552,931 for the years ended December 31, 2023 and 2022, respectively. Core net investment income, which is a non-U.S. GAAP measure that excludes the capital gains incentive fee (reversal) and income tax expense accruals, for the years ended December 31, 2023 and 2022 was $43.0 million and $26.9 million, or $1.95 and $1.38 per share, respectively.
For the years ended December 31, 2023 and 2022, the Company’s investment portfolio had a net change in unrealized appreciation (depreciation) of $2.8 million and ($17.5) million, respectively, and the Company had net realized (losses) gains of ($30.2) million and $3.7 million, respectively. The full realizations for the year ended December 31, 2023 had previously been reflected as unrealized depreciation which were reversed during the year then ended and included in the $2.8 million of unrealized appreciation as of December 31, 2023.
Net increase in net assets resulting from operations totaled $17.5 million and $14.5 million, or $0.80 and $0.74 per common share, based on weighted average common shares outstanding of 22,004,648 and 19,552,931 for the years ended December 31, 2023 and 2022, respectively.
Liquidity and Capital Resources
On November 21, 2023, the Company entered into the Fourth Amendment to Amended and Restated Senior Secured Revolving Credit Agreement (the “Fourth Amendment Agreement”) by and among the Company, as the borrower, Zions Bancorporation, N.A. dba Amegy Bank (“Amegy Bank”), as the administrative agent, and the lenders that are party thereto from time to time (collectively, the “Lenders”). The Fourth Amendment Agreement, among other things, (i) decreases the maximum commitment under the Company’s credit agreement with the Lenders (the “Credit Facility”) from $265.0 million to $260.0 million, (ii) increases the maximum accordion limit from $315.0 million to $350.0 million, (iii) authorizes the replacement of Canadian Dollar Offered Rate with a Canadian Overnight Repo Rate Average benchmark rate to be agreed for advances in Canadian Dollars, (iv) extends the Commitment Termination Date (as defined in the Fourth Amendment Agreement) to November 21, 2027 and Final Maturity Date (as defined in the Fourth Amendment Agreement) to November 21, 2028, and (v) reduces the Company’s interest coverage ratio requirement from 2.00:1.00 to 1.75:1.00.
As of December 31, 2023 and December 31, 2022, the Company had $160.1 million and $199.2 million in outstanding borrowings under the Credit Facility, respectively.
The Company issued 4,458,873 shares during the year ended December 31, 2023 under the At-the-Market Program (“ATM Program”), for gross proceeds of $62.9 million. The average per share gross offering price of shares issued under the ATM Program during the year ended December 31, 2023 was $14.10. For the year ended December 31, 2023, net proceeds of $62.2 million, or $14.00 per share, exceeded net asset value per share, excluding the impact of offering expenses.
Distributions
During the three months ended December 31, 2023 and 2022, the Company declared aggregate distributions of $0.40 and $0.34 per share, respectively ($9.6 million and $6.7 million in the aggregate, respectively). During the years ended December 31, 2023 and 2022, the Company declared aggregate distributions of $1.60 and $1.30 per share, respectively ($35.5 million and $25.4 million in the aggregate, respectively). Tax characteristics of all distributions are reported to stockholders on Form 1099-DIV. Approximately $0.4 million of the dividends declared in 2023 are expected to be characterized as long-term capital gains. None of these dividends are expected to include a return of capital.
Recent Portfolio Activity
The Company invested in the following portfolio companies during the three months ended December 31, 2023:
Activity Type
Date
Company Name
Company Description
Investment Amount
Instrument Type
Add-On Investment
October 3, 2023
EH Real Estate Services, LLC*
Offers residential property brokerage, title & settlement, and
property and casualty insurance brokerage services to home buyers
and sellers
$
2,281,116
Revolver Commitment
$
3
Equity
Add-On Investment
October 11, 2023
Impact Home Services LLC*
Residential garage door, electrical, and plumbing services provider
$
539,718
Senior Secured – First Lien
$
13,398
Equity
Add-On Investment
October 16, 2023
Equine Network, LLC*
Provider of content, information, tech-enabled services, and hosts
competitions for the U.S. equine industry
$
955,516
Senior Secured – First Lien
Add-On Investment
October 26, 2023
Elliott Aviation, LLC*
Provider of maintenance, repair, and overhaul and fixed-base
operator services to the business aviation sector.
$
56,148
Senior Secured – First Lien
$
1,489
Equity
Add-On Investment
October 31, 2023
2X LLC*
Provider of outsourced digital B2B marketing-as-a-service
$
1,448,388
Senior Secured – First Lien
Add-On Investment
November 1, 2023
Advanced Barrier Extrusions, LLC*
Manufacturer of high barrier forming web films
$
10,584
Equity
Restructured Investment
November 6, 2023
ArborWorks, LLC*
A professional tree care firm
$
3,461,538
Senior Secured – First Lien
$
2,309,486
Revolver Commitment
$
3,610,847
Equity
Add-On Investment
November 15, 2023
Monitorus Holding, LLC*
Provider of media monitoring and evaluation services
$
5,532
Unsecured Convertible Bond
Add-On Investment
December 5, 2023
Amika OpCo LLC*
Branded haircare platform
$
9,705,893
Senior Secured – First Lien
New Investment
December 7, 2023
evolv Consulting, LLC
Digital transformation consulting firm
$
10,000,000
Senior Secured – First Lien
$
1,363,636
Revolver Commitment
$
473,485
Equity
New Investment
December 12, 2023
AdCellerant LLC
Provider of outsourced digital marketing software and services
$
10,000,000
Senior Secured – First Lien
$
875,995
Revolver Commitment
$
728,710
Equity
Add-On Investment
December 13, 2023
Unicat Catalyst Holdings, LLC*
Manufacturer and distributor of catalysts and other industrial products
$
21,103
Equity
Add-On Investment
December 20, 2023
Advanced Barrier Extrusions, LLC*
Manufacturer of high barrier forming web films
$
68,034
Equity
Add-On Investment
December 20, 2023
Tower Arch Infolinks Media, LP**
Advertising placement partner for small to mid-sized publishers
$
1,226
Equity
New Investment
December 21, 2023
Michelli, LLC
Provider of test and measurement services and equipment
$
5,000,000
Senior Secured – First Lien
$
3,888,228
Delayed Draw Term Loan Commitment
$
1,296,076
Revolver Commitment
$
509,215
Equity
Add-On Investment
December 22, 2023
Anne Lewis Strategies, LLC*
Provider of tech-enabled donor targeting and strategic digital
fundraising services for non-profit and political organizations.
$
492,905
Equity
*Existing portfolio company
The Company realized investments in the following portfolio companies during the three months ended December 31, 2023:
Activity Type
Date
Company Name
Company Description
Proceeds Received
Realized Gain/(Loss)
Instrument Type
Full Repayment
October 24, 2023
Interstate Waste Services, Inc.*
Provider of non-hazardous waste management, collection, and
recycling services
$
368,448
$
(577,677)
Equity
Restructured Investment
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