Stellus Capital Investment Corporation (NYSE:SCM) Q1 2024 Earnings Call Transcript May 10, 2024
Stellus Capital Investment Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its first fiscal quarter ended March 31st, 2024. This conference is being recorded today, May 10th, 2024. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference.
Robert Ladd: Thank you, Kelly, and good morning, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter ended March 31st, 2024. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements.
Todd Huskinson: Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and PIN provided in our press release announcing this call. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to differ materially from these projections.
We will not update any forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at 713-292-5400. Now I'd like to turn the call back over to our Chief Executive Officer, Rob Ladd.
Robert Ladd: Thank you, Todd. We'll begin this morning by discussing our operating results, followed by a review of the portfolio, including asset quality. I'll then talk about dividends and outlook.
Todd Huskinson: In the first quarter, we more than covered the dividend of $0.40 per share with GAAP net investment income of $0.42 per share. Core net investment income was $0.44 per share, which excludes estimated excise taxes. Net asset value per share increased $0.15 during the quarter as a result of net unrealized appreciation on our investment portfolio as well as generating NII in excess of the dividend. Life-to-date review. Overall, since our IPO in November 2012, we have invested approximately $2.5 billion in over 190 companies and received approximately $1.6 billion of repayments while maintaining stable asset quality. We've paid over $252 million of dividends to our investors, which represents $15.35 per share to an investor in our IPO in November 2012.
A business person pointing to a graph displaying a company's projected EBITDA growth.
Turning to portfolio and asset quality. We ended the quarter with an investment portfolio at fair value of $876 million across 94 portfolio companies, up from $874 million across 93 companies at December 31st, 2023. During the first quarter, we invested $23.8 million in three new portfolio companies, $5.8 million in other investment activity at par. We also received two full repayments totaling $26.2 million and $5 million of other repayments, both at par, resulting in net portfolio growth at value of $1.4 million, including the impact of net unrealized gains of $3.1 million. At March 31st, 99% of our loans were secured and 98% were priced at floating rates. The average loan per company is $9.9 million and the largest overall investment is $19.5 million, both at fair value.
Substantially all of the portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. 25% of our portfolio is rated a one or ahead of plan, and 19% of the portfolio is marked at an investment strategy - investment ad category of three or below, meaning not meeting plan or expectations. Currently, we have four loans on nonaccrual, which comprise 2.1% of the fair value of the total loan portfolio. And with that, I'll turn it back over to Rob to discuss dividends and the overall outlook.
Robert Ladd: Yes. Thank you, Todd. As a reminder, part of our investment strategy has been to invest in the equity of our portfolio companies in a modest way in order to generate realized gains sufficient to offset losses over time. Although we did not have any realizations in the first quarter, so far in the second quarter, we have realized one equity position and expect to realize one more, which will mean combined proceeds of about $5.3 million and expected to generate $3.8 million of realized gains and a slight uptick in NAV. Worth noting the combined multiple of these two realizations is just over three times our original cost basis. At the end of the quarter, we have $60.6 million of equity investments at cost that were marked at $74.9 million.
Our historical performance would indicate that the ultimate realization for this portfolio would be greater than two times our portfolio's cost basis. Of course, however, the ultimate performance of our current equity positions will be dependent on a variety of factors, including, among other things, the economic environment and sponsors' exit strategies. Now about dividends. As you see, we continue to cover our dividend of $0.40 per share per quarter. And to this end, looking forward to Q3 of 2024, we expect, subject to our Board of Directors' approval, to continue our monthly dividend of approximately $0.13 per share, resulting in aggregate dividends of $0.40 per share for the third quarter. And now to outlook. Since quarter end, we have funded $10.9 million in two new and two existing portfolio companies at par.
Additionally, we did receive one repayment of $11.4 million at par and one equity realization previously noted. Proceeds for that were approximately $3 million, which resulted in a realized gain of $2 million. You then combine this activity with our other net funding of about $2.8 million, this brings our total portfolio to approximately $875 million at fair value with 95 portfolio companies. Again this is as of today. Now looking forward to the balance of the quarter. We are expecting a meaningful increase in fundings and no known loan repayments. As a result, we expect to end the quarter with a portfolio which will be in excess of $925 million, in other words, $50 million higher than where we are today. And with that, I'll open it up for questions.
