Q2 2025 Stellus Capital Investment Corp Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by.
At this time, I would like to welcome everyone to Stella's capital investment corporations conference call to report Financial results for its second fiscal quarter ended June 30th 2025.
At this time, all participants are on a listen-only mode and a question and answer session will follow the former presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded today. August 7th, 2025
It is now my pleasure to turn the floor over to Mr. Robert. Ladd, Chief Executive Officer of Stella's capital. Investment Corporation Mr. Lad, you may begin your conference
Yeah, thank you. Ally, good morning, everyone. And thank you for joining our call. Welcome to our conference call. Covering the quarter end of June, 3020, 2025
Joining me this morning is Todd huskinson. Our Chief Financial Officer, who will cover important information about forward-looking statements as well as an overview of our financial information.
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I'd also like to turn your attention.
To the customary, Safe Harbor disclosure in our press release regarding forward-looking information.
Today's conference call may also be 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.sc capital.com under the public investors link.
Or call us at 713-292-5400.
Now, I'll cover operating results for the quarter but would like to start with our life today activity.
Since our IPO in November 2012, we've invested approximately 2.7 billion dollars in over 210 companies and received the proximal approximately 1.7 billion of repayments while. Maintaining stable asset quality.
We've paid 306 million of dividends to our investors, which represent 17.35 per share to an investor. In our IPO, in November 2012, which was offered at $15 per share,
Turning down to the quarterly operating results in the second quarter we Jen generated 34 cents per share of gaap. Net investment income and Cornett. Investment income is 35 cents per share which excludes estimated excise taxes.
Net asset value per share decreased 4 cents during the quarter due to the reduction of spillover income.
During the quarter, we issued approximately 300,000 shares for 3.9 million of proceeds under our ATM program.
Year to date, we've issued approximately 900,000 shares, 13.2 million and all issuances, just for above net, asset value.
Turning to portfolio and asset quality. We ended the quarter with an Investment Portfolio. At fair value of 985.9 million across. 112 portfolio. Companies, slightly down from 9991 million, across 110 companies, as of March. 31st 2025
During the second quarter, we invested 15.4 million. In 3, new portfolio companies that had 7.4 million in other investment activity, at the park,
We also received 2 full repayments totaling, 21.7 million 1 Equity realization to to totaling $500,000, which resulted in a realized gain of $200,000 and we received 10.4 million of other repayments all at par.
At June 30th. 98% of our loans were secured. In 91% were priced at floating rates, the average loan for a company is to 9.2 million and the largest overall investment is 21.2 million. Both at fair value,
All, but 1 of our portfolio companies are backed by a private Equity Fund.
Overall, our asset quality is slightly better than planned at fair value. 84% of our portfolio is rated A 1 or a 2, or on or ahead of plan. And 16% of the portfolio is marked at an investment category of 3 or below. Meaning not meeting plan or expectations.
We did not add any new loans to our non-accrual list during the quarter.
Currently we have loans to 5 portfolio companies on nanoo, which comprise 6.8% of the total cost and 3.8% of the fair value of the total loan portfolio respectively, which represents a decrease from the prior quarter.
With respect to Capital is a reminder. We've received a green light letter from the small business administration for Stella's Capital sbic 3.
This is an important step in the process and we therefore expect to receive a license, although it's not guaranteed.
In general, is our existing debentures, or repaid. We intend to draw new leverage, under the SBI C3 license to continue funding qualifying portfolio, company Investments.
And with that, I'll turn it back over to Rob to discuss the overall Outlook.
Okay, thank you, Todd.
As we look ahead to the third quarter of 2025, I'll cover, portfolio, growth, equity, realizations, and dividends.
Investment activity is picked up meaningfully over the past 30 days or so.
We expect the second half of the year to be busy as evidenced by the 26 million dollars of new funding since June 30th.
Our portfolio now stands at approximately a billion dollars with 13013 companies. Now our largest number,
And based on new fundings and repayments, we should end the quarter at about the same level.
Over the next 5 months, our best estimate today is 12 million of proceeds, and approximately 10 million of gains.
finally, regarding dividends, we declared the dividend for the third quarter of 40 cents, per share payable monthly
We expect the fourth quarter to also be payable at this 40 cents per share rate for the quarter again, payable monthly of course subject to board approval.
And with that, we'll open up for questions and Ally. You may begin the question and answer session, please.
Thank you, ladies and gentlemen. At this time, we will begin our question and answer session.
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1 moment, please while we pull for questions.
Thank you.
Our first question is coming from Christopher Nolan with ladenburg Solomon. Your line is live.
Hey guys. Good morning Chris. Um,
the diff the EPS is not covering the dividend for the last few quarters. Um, 2 questions. How much spillover is there left over and um are what what's the what's the strategy in terms of um improve increasing your leverage to cover the dividend?
Yeah, Todd. Why don't you cover the spillover? And then I'll cover the question about leverage.
Okay. Yes, sounds good. So, good morning, Chris. Um, with respect to spillover, this year we have just under $45 million of spillover that we are working off through the dividend. And then, you know, going into next year, for next year's amount, we expect it to be about $38 million.
Um, and and, you know, we we'll continue to kind of reduce it from there, so that's that's what we're we're working on with, respect to the dividend.
And then, um, Chris relative to use of Leverage. So we're currently running at about 0.9 on a regulatory test.
And a total leverage for Gap about 1.7 times.
You know our Target leverage. We've stated for a good while is is about 1 to 1 on the regulatory test.
So we we don't intend to change that in the near term.
So we have the capacity to move leverage up out through the use of our bank facility. Um, we expect that um we have the capital base to really take the portfolio. What is currently about a billion up you know, 50 to 75 million higher.
Over time.
Does that help? Yes, it is. And, um, just as a quick follow-up, um, for the SBIC lights, how much of your deal flow is, um, eligible for the SBIC? And how quickly do you think you can fill that? Yeah, so interestingly, historically, um, roughly half of what we look at qualifies, so it's a meaningful part of our, um,
Of our deal flow and an important aspect of the company.
So you can wrap that up pretty quick order, I'd imagine.
yes, so so this is helpful for us and um you know we're anticipate we'll be able to get it approved as as taught indicated
Great. That's it for me. Thank you.
Okay. Thanks. Chris.
Thank you. Our next question is coming from Eric zwick with Lucid Capital markets. Your line is live.
Good morning, Eric.
Hey, good morning. This is Justin on for today. Uh, Rob, just going off your comments, obviously, good momentum to start the quarter with some sizable new investments. I'm just curious how the pipeline's looking for the remainder of the year and where you're seeing opportunities, whether that's new or add-on investments.
Yes. So so again, um, as I indicated quite a pickup in m&a activity, look like it started to happen after July 4th
The.
the um,
I guess the noise and the around the tariffs is, is, is quieted some, although there's more in the news, the last couple days, but but I think that certainly, the private Equity firms with whom we work exclusively or
Much more active in the marketplace looking at opportunities. So so things that picked up meaningfully. So again we we would expect and you know our pipeline runs you know typically I'd say 10 opportunity that are very actionable and we see 5 to 7 New Opportunities a week. So so we're very busy but but also very selective.
Here.
And um as indicated, the we have the capital to grow as well as part of that though. Of course we would expect repayments to speed up, which have been slower this year.
But we think uh, notwithstanding the repayments expected, um, we'll be able to grow the portfolio, between now and the end of the calendar year.
Okay, that's great. Um, and then you know just a a follow-up on credit quality I know you guys can't just go as much given the
Uh, you know, private aspect of of all your portfolio companies but any insight into any potential resolutions or progress that's being made with the current non ACR list.
Yeah, the uh and thanks for noting that the Privacy aspect um,
You know, continue to work through them. Uh, all have private Equity firms, associated with them, backing them.
So, um, you know, we'll need more time, but, uh, fortunately, this quarter, Todd noted we had no new non-accruals. So, uh, I think they'll all take more time, but, um,
I think generally in a good spot and where necessary, you know, we'll get more involved in the situation to make sure the company continues, but our experience has been good, private Equity firms. So we deal with typically put money in new money in a couple of times to support their businesses. So so these are ones working through that system.
if you, if you will,
Okay, great. That's all for me today. Thanks for taking my questions.
Yeah, thank you, Justin.
Thank you. Our next question is coming from Robert Dodd. With Raymond James, your line is live.
Uh, hi guys. Good morning. Um, on on
Morning on the potential equity realizations that I think you mentioned.
Maybe 12, 12 million Frozen, 10 million again, in the second half of the year.
What's the level of confidence on that? Because, I mean, it does, you know?
if the the market activities picked up, but
Who knows? Um like I mean how how high is the confidence level on realizing them this year? I mean you know if they don't get realized this year then they just have this later. But um you know what, what kind of how how's your feeling on on the certainty of those those things actually happening this year? Let me sure sure, sure, Robert. Yes, it's a great question,
So, when we indicate in the forecast, again, things can change. Those are businesses that are in the market, uh, being marketed—some further along than others—but all are being actively marketed.
By a banker or by a company. So
we would and all are well, performing businesses so we think the likelihood would be high.
and, uh, sometimes things don't happen, but and also, there could be things that were not aware of
Um specially if we're just in an equity only position, don't have the debt instrument anymore, but we we've saved fairly high again based on active marketing by the companies.
Got it, got it. Thank you. Then if I can go to the the not so much the non cool side, but the, the 15% of the portfolio is rated 3 or or lower. Uh, I not meeting plan. Um, I mean, if we exclude that on a pools, um, because there's a obviously already, you know, are having their issues currently. Um, what how much of of the remainder of that?
Are you are you? Uh Are you seriously nervous about versus yeah? It's not meeting plan but we're not that worried kind of kind of thing.
you know, given this category of being a 3 by definition, it it means that we expect to receive um
All of our principal and all the associated income.
To be a 4 it would be. We don't expect to receive the income and 5 to be, we don't expect the income or all the principal. So so our current thinking is by definition, we expect to receive all principal and income.
That'd be the best way to to characterize it. I think Robert.
To, to still grow the portfolio by year end. Um,
but,
How?
Uncertainty is in that.
Given the pipeline and kind of, you know, the timing of where we are, with 4 months left in the year in these processes, ramping up now, and I'm not talking about the echo, it's just been kind of the pipeline.
Sure, sure. So, the, the pipeline has indicated earlier is, is quite robust. So, um, number of opportunities that are what we would describe as a 75% or higher probability. So, so a lot in that bucket and then a lot of things that we're looking at that given that we're here in August, all of which have, you know, good chance if they move forward and we're selected to certainly close by the fourth quarter. So, so again, um, it's hard to predict these things on both ends. Um, we have found that that repayment sometimes happen more quickly than new fundings. But, but we, uh, we expect, we'll have both and, and can grow the portfolio, the balance of the year.
Thank you.
Yeah, thank you, Robert.
Thank you, as we currently have no further questions on the lines at this time. I would like to hand the call back over to Mr. Lad, for any closing remarks
Okay. Thank you very much and thank you everyone, for being on the call today and your support of our company. And we look forward to providing the update on our third quarter results, which will be in early November.
Take care.
Thank you, ladies and gentlemen, this does conclude today's call, you may disconnect your lines at this time and have a wonderful day and we thank you for your participation.