November 7, 2018 - 6:00 AM EST
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Stellus Capital Investment Corporation Reports Results for its third fiscal quarter ended September 30, 2018

HOUSTON, Nov. 7, 2018 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2018.

HIGHLIGHTS 

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




As of



Portfolio results

September 30,
2018



Total assets

$511.4


Investment portfolio, at fair value

$478.0


Net assets

$227.9


Weighted average yield on debt investments

11.0%


Net asset value per share

$14.29







Quarter


Quarter


ended


ended


September 30,
2018


September 30,
2017

Portfolio activity







Total investments made, at par

$31.9


$71.4

Number of new investments

3


4

Repayments and sale of investments, including amortization

$57.0


$53.4

Number of portfolio companies at




end of period

53


46





Operating results








Total investment income

$14.5


$10.0

Net investment income

$5.6


$4.5

Net investment income per share

$0.35


$0.29





Core net investment income(1)

$6.3


$4.5

Core net investment income per share(1)

$0.39


$0.29





Realized Gains per share

$0.17


$0.33

Distributions per share

$0.34


$0.34

Net increase in net assets from operations

$8.9


$5.6

Net increase in net assets from operations per share

$0.56


$0.36

Weighted average shares outstanding during the period

15,953,810


15,668,415



(1)

Core net investment income, as presented, excludes the impact of capital gains incentive fees.  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 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.

"We had a strong third quarter, generating core net investment income of $0.39 per share and a realized gain of $0.17 per share.  In addition, net asset value increased $0.22 per share to $14.29," said Robert T. Ladd, Chief Executive Officer of Stellus Capital.

Portfolio and Investment Activity

We completed the third quarter of 2018 with a portfolio of $478.0 million (at fair value) invested in  53 companies.  As of September 30, 2018, our portfolio included approximately 54% of first lien debt, 34% of second lien debt, 5% of unsecured debt and 7% of equity investments at fair value.  Our debt portfolio consisted of 90% floating rate investments (subject to interest rate floors) and 10% fixed rate investments.  The average size of our portfolio company investments was $9.0 million and our largest portfolio company investment was approximately $29.0 million, both at fair value.  The weighted average yield on all of our debt investments as of September 30, 2018 was approximately 11.0%. 

During the three months ended September 30, 2018, we made $31.9 million of investments in three new and three existing portfolio companies at par and received $57.0 million from amortization and repayments of certain other investments.

This compares to the portfolio as of September 30, 2017, which had a fair value of $355.3 million invested in 46 companies, comprised of 35% of first lien debt, 43% of second lien debt, 16% of unsecured debt and 6% of equity investments at fair value.  The weighted average yield on all of our debt investments as of September 30, 2017 was approximately 11.0%.  The debt portfolio consisted of and 77% floating rate investments (subject to interest rate floors) and 23% fixed rate investments.

Results of Operations

Investment income for the three months ended September 30, 2018 and 2017 totaled $14.5 million and $10.0 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended September 30, 2018 and 2017, totaled $8.9 million and $5.2 million, respectively. For the same respective periods, base management fees totaled $ 2.2 million and $ 1.5 million, income incentive fees totaled $ 1.6 million and $0.5 million, capital gains incentive fees totaled $0.7 million and $0, fees and expenses related to our borrowings totaled $ 3.4 million and $ 2.0 million (including interest and amortization of deferred financing costs), administrative expenses totaled $ 0.3 million for both periods, and other expenses totaled $0.7 million and $0.9 million, respectively.

Net investment income was $5.6 million and $4.5 million, or $0.35 and $0.29 per common share based on weighted average common shares outstanding for the three months ended September 30, 2018 and 2017 of 15,953,810 and 15,668,415, respectively.

The capital gains incentive fee of $0.7 million for the three months ended September 30, 2018 was accrued for GAAP purposes due to the increase in realized and unrealized gains over the quarter.  There can be no assurance that unrealized appreciation or depreciation will be realized in the future. Accordingly, 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.  Excluding this accrual, net investment income for the three months ended September 30, 2018 would be $6.3 million, or $0.39 per share.  There was no such fee for the three months ended September 30, 2017.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended September 30, 2018 and 2017, of $0.5 million and ($4.1) million, respectively.  For the three months ended September 30, 2018 and 2017, the Company had realized gains of $2.8 million and $5.2 million, respectively. 

Net increase in net assets resulting from operations totaled $8.9 million and $5.6 million, or $0.56 and $0.36 per common share based on weighted average common shares outstanding for the three months ended September 30, 2018 and 2017 of 15,953,810 and 15,668,415, respectively. 

Liquidity and Capital Resources

As of September 30, 2018 and 2017, our credit facilities provided for borrowings in an aggregate amount up to $180.0 and $120.0 million, respectively, on a committed basis.  As of September 30, 2018, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195.0 million. As of September 30, 2018 and December 31, 2017, we had $83.3 million and $36.0 million in outstanding borrowings under the credit facility, respectively.

For the nine months ended September 30, 2018, our operating activities used cash of $79.2 million primarily in connection with purchases and origination of portfolio investments, which was slightly offset by repayments of our investments.  For the same period, our financing activities provided cash of $84.0 million, due to borrowings under our credit facility, as well as SBA-guaranteed debentures drawn during the period.

For the nine months ended September 30, 2017, our operating activities provided cash of $29.0 million, primarily in connection with cash interest received and repayments of our investments, and our financing activities used cash of $26.5 million, primarily related to the repayments under our credit facility and distributions to stockholders, offset by an issuance of common stock.

Distributions

During the three months ended September 30, 2018 and 2017, we declared aggregate distributions of $0.34 per share ($5.4 million and $5.3 million, respectively) 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.

Recent Portfolio Activity

On July 5, 2018 we received $4.0 million in full realization on the equity of MBS Holdings, Inc., resulting in a realized gain of $2.8 million.

On July 31, 2018, we received full repayment on the second lien term loan of Sitel Worldwide Corporation for total proceeds of $10.1 million, including a $0.1million prepayment fee.

On August 3, 2018, we invested $7.5 million in the first lien term loan and $0.9 million in the unfunded delayed draw term loan of Adams Publishing Group, LLC, a platform of multiple newspaper and publishing businesses across the United States.

On August 8, 2018, we invested $11.4 million in the first lien term loan and $2.0 million in the unfunded revolver of Advanced Barrier Extrusions, a manufacturer of high barrier forming web films. Additionally, we invested $0.3 million in the common equity of the company.

On August 8, 2018, we invested $7.0 million in the first lien term loan and $5.4 million in the unfunded delayed draw term loan of Convergence Technologies, Inc., a reseller of value-added technology. Additionally, we also invested $0.4 million in the common equity of the company.

On August 16, 2018, we received full repayment on the second lien term loan of Resolute Industrial, LLC for total proceeds of $17.3 million, including a $0.2 million prepayment fee.

On August 27, 2018, we made an additional investment of $0.3 million in the first lien delayed draw term loan of Wise Holding Corporation, an existing portfolio company.

On September 25 2018, we received full payoff of our $21.4 million second lien term loan to Empirix, Inc. 

On September 26, 2018, we made additional investments of $3.9 million in the first lien term loan, $0.6 million in the unfunded revolver and $1.7 million in the unfunded delayed draw term loan of BFC Solmetex LLC, an existing portfolio company.

Events Subsequent to September 30, 2018

On October 1, 2018, we received full repayment on the second lien term loan of Roberts-Gordon, LLC for total proceeds of $7.2 million, including a $0.03 million prepayment fee.  We also received a distribution related to our equity of $0.9 million which resulted in a realized gain of $0.4 million.

On October 1, 2018, we invested $10.0 million in the second lien term loan of NGS US Finco, LLC, a manufacturer of rotary meters, pipeline distribution repair/upgrade products, electric actuators and chemical pumps to natural gas utilities and energy/industrial distributors.

On October 2, 2018, we invested $3.3 million in the first lien term loan of TechInsights, Inc., an existing portfolio company. 

On October 18, 2018, we invested $10.7 million in the first lien term loan and $3.7 million in the unfunded delayed draw term loan of Premiere Digital Services, Inc., a provider of digital media services to the entertainment industry.  Additionally, we invested $0.5 million in the equity of the company.

On October 23, 2018, we had a partial sell down of the first lien term loan of Good Source Solutions, Inc. for $9.9 million.

On October 31, 2018, we received full repayment on the second lien term loan of Keais Records Service, LLC for total proceeds of $7.9 million, including a $0.1 million prepayment fee.

Credit Facility

The outstanding balance under the credit facility as of November 5, 2018 was $62.1 million.

SBA-guaranteed Debentures

The total balance of SBA-guaranteed Debentures outstanding as of November 5, 2018 was $150.0 million.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Wednesday, November 7, 2018 at 10:00 AM, Central Standard 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 877-260-1479 (domestic).  Use passcode 9137982.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Thursday, November 15, 2018 by dialing (888) 203-1112 and entering passcode 9137982. The replay will also be available on the company's website.

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

PART I — FINANCIAL INFORMATION









STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES












September 30,






2018


December 31,



(Unaudited)


2017

ASSETS







Non-controlled, affiliated investments, at fair value








(amortized cost of $52,184 and $1,052,185, respectively)

$

55,000


$

990,000


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








(amortized cost of $470,695,036 and $367,401,021,








respectively)


477,949,195



370,849,772


Cash and cash equivalents


29,882,423



25,110,718


Receivable for sales and repayments of investments


81,683



26,891


Interest receivable


3,110,008



2,922,204


Other receivables


135,246




Deferred offering costs


17,898




Prepaid expenses


125,970



361,270



Total Assets

$

511,357,423


$

400,260,855

LIABILITIES







Notes payable

$

47,558,013


$

47,306,488


Credit facility payable


81,901,962



39,332,479


SBA-guaranteed debentures


146,235,472



87,818,813


Dividends payable


1,807,570



1,806,671


Management fees payable


1,422,948



1,621,592


Income incentive fees payable


1,795,933



371,647


Capital gains incentive fees payable


1,173,250




Interest payable


679,293



1,021,173


Unearned revenue


304,061



139,304


Administrative services payable


385,417



327,033


Deferred tax liability


34,353




Other accrued expenses and liabilities


154,067



268,413



Total Liabilities

$

283,452,339


$

180,013,613



Commitments and contingencies (Note 7)






Net Assets

$

227,905,084


$

220,247,242

NET ASSETS







Common Stock, par value $0.001 per share (200,000,000 shares








and 100,000,000 shares authorized; 15,953,810 and 15,945,879








 issued and outstanding, respectively)

$

15,954


$

15,946


Paid-in capital


228,160,772



228,066,762


Accumulated net realized loss from investments, net of








cumulative dividends of $4,246,819 for both periods


(5,603,190)



(10,786,240)


Distributions in excess of net investment income


(1,891,073)



(435,794)


Net Unrealized appreciation on non-controlled, non-affiliated 








investments and cash equivalents, net of provision for








taxes of  $34,353 and $0, respectively


7,219,806



3,448,753


Net Unrealized appreciation (depreciation) on non-controlled,








affiliated investments


2,815



(62,185)



Net Assets

$

227,905,084


$

220,247,242



Total Liabilities and Net Assets

$

511,357,423


$

400,260,855



Net Asset Value Per Share

$

14.29


$

13.81


 

STELLUS CAPITAL INVESTMENT CORPORATION
















 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


















For the


For the


For the


For the




three

three


nine


nine




months ended

months ended


months ended


months ended




September 30,

September 30,


September 30,


September 30,




2018

2017


2018


2017

INVESTMENT INCOME













Interest income

$

13,859,431


$

9,728,749


$

36,804,945


$

28,847,532


Other income


628,192



249,596



1,214,116



1,389,158



Total Investment Income

$

14,487,623


$

9,978,345


$

38,019,061


$

30,236,690

OPERATING EXPENSES













Management fees

$

2,172,948


$

1,546,781


$

5,970,867


$

4,634,318


Valuation fees


132,325



137,445



287,042



326,839


Administrative services expenses


348,901



313,256



1,008,293



933,214


Income incentive fees


1,565,301



462,743



3,846,441



2,718,586


Capital gains incentive fees


651,231





1,173,250




Professional fees


289,125



356,654



982,384



803,818


Directors' fees


73,000



83,000



244,000



254,000


Insurance expense


87,601



111,680



259,947



331,398


Interest expense and other fees


3,440,115



2,042,608



8,917,739



5,892,047


Other general and administrative expenses


117,102



145,494



516,509



481,700



Total Operating Expenses

$

8,877,649


$

5,199,661


$

23,206,472


$

16,375,920



Loss on extinguishment of debt




302,732





302,732



Net Investment Income

$

5,609,974


$

4,475,952


$

14,812,589


$

13,558,038



Net Realized Gain on Non-Controlled, Non-Affiliated















Investments and Cash Equivalents

$

2,771,817


$

5,211,960


$

5,183,050


$

4,499,963



Net Change in Unrealized Appreciation (Depreciation) on Non-















Controlled, Non-Affiliated Investments and Cash Equivalents

$

529,552


$

(4,011,314)


$

3,805,406


$

(248,293)



Net Change in Unrealized Appreciation (Depreciation) on Non-















Controlled, Affiliated Investments and Cash Equivalents


(1,667)



(40,000)



65,000



(112,185)



Benefit (provision) for Taxes on Net Unrealized Gain (Loss) on Investments

$

(25,159)


$

-


$

(34,353)


$

8,593



Net Increase in Net Assets Resulting from Operations

$

8,884,517


$

5,636,598


$

23,831,692


$

17,706,116



Net Investment Income Per Share

$

0.35


$

0.29


$

0.93


$

0.93



Net Increase in Net Assets Resulting from Operations Per Share

$

0.56


$

0.36


$

1.49


$

1.22



Weighted Average Shares of Common Stock Outstanding


15,953,810



15,668,415



15,953,491



14,510,408



Distributions Per Share

$

0.34


$

0.34


$

1.02


$

1.02

 


STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)










For the


For the




nine

nine




months ended

months ended




September 30,

September 30,




2018

2017

Increase in Net Assets Resulting from Operations







Net investment income

$

14,812,589


$

13,558,038


Net realized gain on investments and cash equivalents


5,183,050



4,499,963


Net change in unrealized appreciation (depreciation) on non-controlled,








non-affiliated investments and cash equivalents


3,805,406



(248,293)


Net change in unrealized appreciation (depreciation) on non-controlled,








affiliated investments and cash equivalents


65,000



(112,185)


Benefit (provision) for taxes on unrealized appreciation on investments


(34,353)



8,593

Net Increase in Net Assets Resulting from Operations

$

23,831,692


$

17,706,116

Stockholder distributions







Net investment income


(16,267,868)



(14,903,394)

Total Distributions

$

(16,267,868)


$

(14,903,394)

Capital share transactions







Issuance of common stock

$

94,788


$

47,491,626


Sales load




(1,340,131)


Offering costs




(299,960)


Partial Share Redemption


(770)



Net increase in net assets resulting from capital share transactions

$

94,018


$

45,851,535

Total increase in net assets

$

7,657,842


$

48,654,257

Net assets at beginning of period

$

220,247,242


$

170,881,785

Net assets at end of period (includes $1,891,073 and $1,781,150 of







distributions in excess of net investment income, respectively)

$

227,905,084


$

219,536,042

 

STELLUS CAPITAL INVESTMENT CORPORATION



 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)




For the


For the


nine

nine


months ended

months ended


September 30,

September 30,


2018

2017



(Unaudited)


(Unaudited)

Cash flows from operating activities






Net Increase in net assets resulting from operations

$

23,831,692



17,706,116


Adjustments to reconcile net increase in net assets resulting from








operations to net cash provided by (used in) operating activities:








Purchases of investments


(198,335,218)



(117,683,094)



Proceeds from sales and repayments of investments


102,813,575



133,380,057



Net change in unrealized depreciation (appreciation) on investments


(3,870,406)



360,478



Increase in investments due to PIK


(491,628)



(347,482)



Amortization of premium and accretion of discount, net


(1,152,487)



(881,710)



Deferred tax provision (benefit)


34,353



(8,593)



Amortization of loan structure fees


329,483



372,820



Amortization of deferred financing costs


251,525



165,763



Amortization of loan fees on SBA-guaranteed debentures


471,658



243,306



Net realized gain on investments


(5,183,050)



(4,499,963)



Loss on extinguishment of debt




302,732


Changes in other assets and liabilities








Decrease (increase) in interest receivable


(187,804)



457,744



Increase in other receivable


(135,246)



(3,058)



Decrease in prepaid expenses


235,300



318,054



Decrease in management fees payable


(198,644)



(61,514)



Increase (decrease) in incentive fees payable


1,424,286



(733,654)



Increase in capital gains incentive fees payable


1,173,250





Increase in directors' fees payable




83,000



Increase in administrative services payable


58,384



41,084



Decrease in interest payable


(341,880)



(278,895)



Increase in unearned revenue


164,757



108,139



Decrease in other accrued expenses and liabilities


(114,346)



(37,706)


Net cash provided by (used in) operating activities

$

(79,222,446)


$

29,003,624

Cash flows from financing activities








Proceeds from the issuance of common stock

$


$

47,491,626



Sales load for common stock issued




(1,340,131)



Offering costs paid for common stock issued


(17,898)



(299,961)



Proceeds from notes issued




48,875,000



Financing costs paid for Notes issued




(1,688,961)



Repayments on Notes issued




(25,000,000)



Stockholder distributions paid


(16,172,181)



(14,521,068)



Proceeds from SBA Debentures


60,000,000





Financing costs paid on SBA Debentures


(2,055,000)





Borrowings under Credit Facility


188,300,000



116,000,000



Repayments of Credit Facility


(145,750,000)



(196,000,000)



Financing costs paid on Credit facility


(310,000)



(47,453)



Partial Share Redemption


(770)




Net cash provided by (used in) financing activities

$

83,994,151


$

(26,530,948)


Net increase in cash and cash equivalents

$

4,771,705


$

2,472,676


Cash and cash equivalents balance at beginning of period


25,110,718



9,194,129


Cash and cash equivalents balance at end of period

$

29,882,423


$

11,666,805

Supplemental and non-cash financing activities







Interest expense paid

$

8,201,952


$

5,384,053


Excise tax paid


27,717



37,648


Shares issued pursuant to Dividend Reinvestment Plan


94,788




Conversion from debt to equity




864,101


Increase in Distribution Payable


899



382,326

 

Reconciliation of Core Net Investment Income

(Unaudited)





Quarter


Quarter



ended


ended



September 30,
2018


September 30,
2017

Net investment income

$5,609,974


$4,475,952


Capital gains incentive fee

$651,231


$-

Core net investment income(1)

$6,261,205


$4,475,952






Per share amounts:




Net investment income per share

$0.35


$0.29

Core net investment income per share(1)

$0.39


$0.29






 

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SOURCE Stellus Capital Investment Corporation


Source: PR Newswire (November 7, 2018 - 6:00 AM EST)

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