Stellus Capital Investment Corporation (NYSE:SCM) Q4 2022 Earnings Call Transcript
Stellus Capital Investment Corporation (NYSE:SCM) Q4 2022 Earnings Call Transcript March 1, 2023
Operator: Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to the Stellus Capital Investment Corporation's Conference Call to Report Financial Results for its Fourth Fiscal Quarter ended December 31, 2022. This conference is being recorded today, March 1, 2023. 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 the conference.
Robert Ladd: Thank you, Ali, and good morning, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter and year ended December 31, 2022. 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.
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 our 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. At this time, I'd like to turn the call back over to our Chief Executive Officer, Rob Ladd.
Robert Ladd: Thank you, Todd. We'll begin by discussing our operating results followed by a review of the portfolio, including asset quality and then the outlook. Todd will cover our operating results now.
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Todd Huskinson: Thank you, Rob. As interest rates have continued to rise in recent quarters, we continue to benefit from our favorable asset liability mix in which 97% of our loans are floating and only 32% of our liabilities are floating. As a result, we had solid results in the fourth quarter and for fiscal year 2022. First, I'll cover our annual results. For fiscal year 2022, we more than covered the dividend of $1.30 per share with realized income of $1.65 per share which included $3.7 million of net realized gains or $0.19 per share. Core net investment income was $1.38 per share and GAAP net investment income was $1.46 per share. As a reminder, core net investment income excludes the reversal of $2.8 million of capital gains incentive fees accrued on realized and unrealized gains, which are not included in net investment income and $1.2 million of estimated income taxes.
Net asset value decreased by $9.3 million, primarily -- or $0.59 per share year-over-year, primarily due to portfolio company specific issues, offset by realized earnings in excess of our dividends. Turning to the fourth quarter. Our total distributions of $0.34 per share were covered through core net investment income of $0.44 per share and GAAP net investment income of $0.50 per share. And with that, I'll turn the call back over to Rob.
Robert Ladd : Okay. Thank you, Todd. I'd like to now cover the following areas: life-to-date review, portfolio and asset quality, dividends and then outlook. So life-to-date review. Since our IPO in November of 2012, we've invested approximately $2.2 billion in over 175 companies and have received approximately $1.4 billion of repayments while maintaining stable asset quality. We have paid over $207 million of dividends to our investors, which represents $13.35 per share to an investor in our IPO in November of 2012. Now turning to the portfolio. We ended the year with an investment portfolio at fair value of $845 million across 85 portfolio companies. This is up from $773 million across 73 companies as of December 31, 2021.
During 2022, we invested $211 million in 22 new and 28 existing portfolio companies and received $90 million of repayments for net portfolio growth of $90.8 million for the year. With respect to the fourth quarter, we've invested $30 million in 4 new and 2 existing portfolio companies and have received repayments of $48 million. At December 31, 99% of our loans were secured and 97% were priced at floating rates. We continue to move toward first lien loans, which were 87% of our loan portfolio at year-end. This is up from 84% at the end of 2021. We are always focused on diversification. The average loan per company is $10.8 million and the largest overall investment is $21.1 million, both expressed at fair value. And 83 of the 85 portfolio companies are backed by a private equity firm.
Overall, our asset quality is stable at a 2 on our investment rating system or on plan. 17% of our portfolio is rated a 1 or ahead of plan, 17% of the portfolio is marked at an investment category of 3 or below plan. In total, we have 3 loans on nonaccrual, which comprised 2.3% of fair value of the total loan portfolio. Now turning to dividends. We've increased our regular dividend 43% from $0.28 per share per quarter in the first quarter of 2022 to now $0.40 per share per quarter beginning in the first quarter of 2023. This is payable, as you know, in monthly increments. This increase in our dividend reflects the greater earnings that we are generating in this higher interest rate environment in which our loan portfolio is over 97% floating and our liability structure is over 65% -- pardon me, over 65% fixed rate.
As a reminder, part of our 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. As our business has matured over the last 10-plus years, we've begun to see somewhat regular realized gains from our portfolio. And during 2022, we generated $3.7 million of net realized gains. And now turning to outlook. As a reminder, across our platform of Stellus Capital Management, our total assets under management is approximately $2.8 billion. This additional capital allows us to invest in larger transactions, remain active in the market when SCIC has limited capital and helps us build our portfolios in a diversified way. Since year-end, we funded $25.5 million at par in 2 new and 1 existing portfolio companies and have received no repayments.
This brings our portfolio to approximately $870 million today, which is where we would expect it will finish the quarter at the end of March. Finally, repayments and equity realizations seem to be slowing, but we expect to be able to maintain our investment portfolio between $850 million and $900 million throughout the year of 2023. And with that, we'll open it up for questions. Thank you. And Ali, would you please start the Q&A session?
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