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Stellus Capital Investment Corporation Reports Results for its Fourth Fiscal Quarter and Year Ended December 31, 2019

HOUSTON , March 3, 2020 /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, 2019 .

In describing the Company's 2019 activities, Robert T. Ladd , Chairman and Chief Executive Officer, stated, "Upon completion of our seventh full year of operations, we are pleased to report a strong year in which we covered our dividend from realized earnings, grew the portfolio by $124 million (at fair value), increased net asset value,  secured a second SBIC license, and generated net realized gains of $19.6 million . Approximately 60% of the 2019 dividends were characterized as long term capital gains on our shareholders' Form 1099. Finally, our credit facility was increased from a total commitment of $180 million to $220 million during the year positioning, us for continued growth in 2020."

FINANCIAL HIGHLIGHTS










($ in millions, except data relating to per share amounts and shares outstanding)































Q4-19


YTD-19


Q4-18


YTD-18



Amount

Per Share


Amount

Per Share


Amount

Per Share


Amount

Per Share














Net investment income


$6.89

$0.36


$22.44

$1.23


$7.82

$0.49


$22.64

$1.42














Core net investment income (1)


$6.08

0.32


24.14

1.32


6.73

0.42


22.99

1.44














Net realized gains on investments


0.42

0.02


19.57

1.07


0.09

0.01


5.27

0.33














Total realized income (2)


7.31

0.38


42.00

2.30


7.91

0.50


27.91

1.75














Distributions


(6.45)

(0.34)


(25.04)

(1.36)


(5.42)

(0.34)


(21.69)

(1.36)














Net unrealized appreciation













(depreciation) on investments


(5.45)

(0.29)


(15.50)

(0.85)


(5.52)

(0.35)


(1.65)

(0.10)














Provision for taxes on unrealized gains

on investments in taxable subsidiaries



(0.03)

(0.00)


(0.07)

(0.00)


(0.03)

(0.00)


(0.07)

0.00














Net increase in net assets resulting

from operations



$1.83

0.10


26.44

1.45


2.36

0.15


26.19

1.64














Weighted average shares outstanding


18,926,817


18,275,696


15,953,810


15,953,571



(1)

Core net investment income, as presented, excludes the impact of capital gains incentive fees 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 the Company's financial performance.  However, core net investment income is a non-U.S GAAP measure and should not be considered 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 and net realized gains on investments; both U.S GAAP measures.            

                                                                                                                                                               

PORTFOLIO ACTIVITY










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



























As of


As of









12/31/2019


12/31/2018







Investments at fair value


$628.9


$504.5







Total assets


$648.5


$526.3







Net assets


$270.6


$224.8







Shares outstanding


19,131,746


15,953,810







Net asset value per share


$14.14


$14.09



















































Q4-19


YTD-19


Q4-18


YTD-18










New investments


$73.6


$246.5


$74.6


$272.9

Repayments of investments


(26.6)


(128.2)


(44.7)


(147.6)

Net activity


$47.0


$118.3


$29.9


$125.3

































As of


As of









12/31/2019


12/31/2018














Number of portfolio company investments


63


57

Number of debt investments


51


44






Weighted average yield of debt and other income producing investments (1)





Cash


8.7%


10.2%

PIK


0.0%


0.1%

Fee amortization


0.5%


0.6%

Total


9.2%


10.9%






Weighted average yield on total investments (2)





Cash


8.3%


9.7%

PIK


0.0%


0.1%

Fee amortization


0.5%


0.5%

Total


8.8%


10.3%














(1)

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 costs 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 our common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company's expense or any sales load that may be paid by investors.

(2)

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, 2019 and 2018 totaled $58.9 million and $53.3 million , respectively, most of which was made up of interest income from portfolio investments. 

Operating expenses for the years ended December 31, 2019 and 2018, totaled $36.5 million and $30.6 million , respectively. For the same respective periods, base management fees totaled $9.7 million and $8.2 million , income incentive fees totaled $5.8 million and $5.5 million , capital gains incentive fees totaled $0.8 million and $0.1 million , fees and expenses related to our borrowings totaled $15.0 million and $12.3 million (including interest and amortization of deferred financing costs), administrative expenses totaled $1.7 million and $1.4 million , income tax totaled $0.9 million and $0.3 million , and other expenses totaled $2.6 million and $2.8 million , respectively.

For the years ended December 31, 2019 and 2018, net investment income was $22.4 million and $22.6 million , or $1.23 and $1.42 per common share based on weighted average common shares outstanding of 18,275,696 and 15,953,571, respectively.

The capital gains incentive fee of $0.8 million and $0.1 million for the years ended December 31, 2019 and 2018, respectively, was accrued for U.S. GAAP purposes due to the increase in realized and unrealized gains over the years.  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.  The income tax expense accrual of $0.9 million and $0.3 million for the year ended December 31, 2019 and 2018, respectively, was accrued based on estimates of undistributed taxable income, which was generated largely from capital gains.  Excluding these accruals, net investment income for the year ended December 31, 2019 would be $24.14 million , or $1.32 per share; and for the year ended December 31, 2018 , net investment income would have been $ 22.99 million , or $1.44 per share.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the years ended December 31, 2019 and 2018, of ($15.5) million and ($1.6) million , respectively.  For the years ended December 31, 2019 and 2018, the Company had realized gains of $19.6 million and $5.5 million , respectively. 

For the years ended December 31, 2019 and 2018, net increase in net assets resulting from operations totaled $26.4 million and $26.2 million , or $1.45 per common share and $1.64 per common share, based on weighted average common shares outstanding of 18,275,696 and 15,953,571, respectively.  

Liquidity and Capital Resources

As of December 31, 2019 and 2018, our credit facility provided for borrowings in an aggregate amount up to $220.0 and $180.0 million , respectively, on a committed basis.  As of December 31, 2019 , our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $250.0 million . As of December 31, 2019 and December 31, 2018 , we had $161.6 million and $99.6 million in outstanding borrowings under the credit facility, respectively.

For the for the year ended December 31, 2019 , our operating activities used cash of ($93.3) million primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments. For the same period, our financing activities provided cash of $92.0 million , primarily made up of proceeds from the issuance of common stock, proceeds from SBA-guaranteed debentures and net borrowings on our credit facility.

For the year ended December 31, 2018 , our operating activities used cash of ($102.4) million , primarily in connection with the purchase of portfolio investments, offset by sales and repayments of portfolio investments, and our financing activities provided cash of $94.8 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 and twelve months ended December 31, 2019 , we declared aggregate distributions for of $0.34 per share and $1.36 ( $6.5 million and $25.0 million , respectively). During the three and twelve months ended December 31, 2018 , we declared aggregate distributions of $0.34 and $1.36 per share ( $5.4 million and $21.7 million , respectively). Tax characteristics of all distributions are reported to stockholders on Form 1099-DIV.  None of these distributions are expected to include a return of capital.

Equity Offerings

The Company issued 2,952,149 shares during the year ended December 31, 2019 in a secondary offering on March 15, 2019 and the underwriters' exercise of their overallotment option on April 11, 2019 . Gross proceeds resulting from the secondary offering totaled $42,599,510 and underwriting and other expenses totaled $1,296,803 . The per share offering price for the secondary offering was $14.43 . The Company issued 225,787 shares under the At-the-Market ("ATM") Program in 2019, for gross proceeds of $3,262,729 and underwriting and other expenses of $240,040 . The average per share offering price of shares issued in the ATM Program during 2019 was $14.45 .

Recent Portfolio Activity

For the quarter ended December 31, 2019 , we funded $73.6 million in six new and five existing portfolio companies and received $26.6 million from four repayments, twenty-three pay downs, including amounts received from equity investments. The new investment transactions and repayments that occurred during the quarter are summarized as follows:

On October 1, 2019 , we converted Wise Holding Corporation's first lien term loan into common equity of the restructured company and all existing debt obligations were extinguished, and related claims were released as part of the restructuring.

On October 2, 2019 , we received full repayment on the first lien term loan of Good Source Solutions, Inc. for total proceeds of $18.9 million , including a $0.4 million prepayment fee.

On October 18, 2019 , we invested $13.3 million in the first lien term loan of GS HVAM Intermediate, LLC., previously Good Source Solutions, Inc., a marketer and distributor of food products to the corrections, education and other institutional foodservice markets. Additionally, we committed $1.6 million in the unfunded delayed draw term loan and $2.7 million in the unfunded revolver.  We also invested $0.6 million in the equity of the company.

On October 18, 2019 , we invested $17.5 million in the first lien term loan of Intuitive Health, LLC, an operator of freestanding urgent care/emergency room combination facilities.

On November 1 , we invested $10.0 million in the first lien term loan of DRS Holdings III, Inc., a provider of a wide variety of products across the insole, custom fit orthotic and foot care category. Additionally, we committed to $0.9 million in the unfunded revolver.

On November 5 , we invested $19.5 million in the second lien term loan of Bromford Industries Ltd, a supplier of complex, mission critical engine components, fabrications and assemblies for the global aerospace and power generation industries. We also invested $1.0 million in the equity of the company.

On November 22 , we invested $5 million in the first lien term loan of Pioneer Transformers, L.P., an engineer and manufacturer of a broad range of specialty liquid-filled and dry-type transformers for niche applications in the utility, industrial, commercial, and backup power markets.

On November 22 , we invested $3 million in the first lien term loan of Advanced Barrier Extrusions, LLC, an existing portfolio company.

On December 2 , we invested $1.7 million in the first lien term loan of Premiere Digital Services, Inc., an existing portfolio company.

On December 12 , we recognized a loss of $0.2 million in full realization on the equity of Dream II Holdings, LLC.

On December 24 , we received $2 million in the full realization on the equity of RecordXTechnologies Holdings, LLC, resulting in a realized gain of $1.2 million .

On December 26 , we committed an additional $0.6 million in the unfunded revolver of BFC Solmetex, LLC, an existing portfolio company.

On December 27 , we invested $0.1 million in the equity of USAF Blocker III, LLC, and existing portfolio company.

Events Subsequent to December 31, 2019

On January 3 , we received full repayment on the first lien term loan of APG Intermediate Sub 2 Corp. for total proceeds of $10 million , including a $0.1 million prepayment fee. We also received $2.4 million in full realization on the equity of the company, resulting in a $1.3 million gain.

On January 7, 2020 , we invested $14.4 million in the first lien term loan Sales Benchmark, LLC, $1.3 million in the unfunded revolver, and $3.3 million in the unfunded delayed draw term loan of Sales Benchmark, LLC, a provider of revenue growth management consulting services for private equity-owned and large enterprise clients.  Additionally, we invested $0.7 million in the preferred equity of the company.

On January 15, 2020 , Apex Environmental Resources Holdings, LLC was merged with a provider of non-hazardous waste management, collection, and recycling services, creating Interstate Waste Services, Inc. Our common and preferred ownership positions in Apex Environmental Resources Holdings, LLC was rolled into the combined entity.

On January 31, 2020 , we invested $18.9 million in the first lien term loan and $2.7 million in the unfunded revolver of Elliott Aviation, LLC, a provider of maintenance, repair, and overhaul and fixed-base operator services to the business aviation sector.  Additionally, we invested $0.9 million in the preferred equity of the company.

ATM Program

Since December 31, 2019 , we issued 332,591 shares under the At-the-Market ("ATM") Program, for gross proceeds of $4.8 million . The average per share offering price of shares issued in the ATM Program was $14.42 .

Credit Facility

The outstanding balance under the credit facility as of February 25, 2020 was $175.3 million .

SBA-guaranteed Debentures

The outstanding balance of SBA-guaranteed Debentures as of February 25, 2020 was $161.0 million .

Dividend Declared

On January 10, 2020 , the Company's board of directors declared a regular monthly dividend for each of January, February and March 2020 as follows:











Declared


Ex-Dividend Date


Record Date


Payment Date


Amount per Share

1/10/2020


1/30/2020


1/31/2020


2/14/2020


$

0.1133

1/10/2020


2/27/2020


2/28/2020


3/13/2020


$

0.1133

1/10/2020


3/30/2020


3/31/2020


4/15/2020


$

0.1133

Please refer to the website for regarding the U.S. federal income tax characteristics of our 2019 dividends. The information is posted on the website under Tax Information" ( http://www.stelluscapital.com/cgi-bin/credit/corporation/tax.pl ). 

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Tuesday, March 3, 2020 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 800-367-2403 (domestic).  Use passcode 9015965.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Wednesday, March 11, 2020 by dialing (888) 203-1112 and entering passcode 9015965. 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
thuskinson@stelluscapital.com

PART I  FINANCIAL INFORMATION









STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES



















December 31,


December 31,



2019


2018

ASSETS















Non-controlled, affiliated investments, at fair value (amortized cost of $0 and $52,185, respectively)

$


$

50,000



Non-controlled, non-affiliated investments, at fair value (amortized cost of $642,707,824 and $502,691,464,respectively)


628,948,077



504,433,668


Cash and cash equivalents


16,133,315



17,467,146


Receivable for sales and repayments of investments


123,409



99,213


Interest receivable


2,914,710



3,788,684


Other receivables


25,495



85,246


Deferred offering costs




18,673


Prepaid expenses


368,221



344,621



Total Assets

$

648,513,227


$

526,287,251

LIABILITIES







Notes payable

$

47,974,202


$

47,641,797


Credit facility payable


160,510,633



98,237,227


SBA-guaranteed debentures


157,543,853



146,387,802


Dividends payable


2,167,630



1,807,570


Management fees payable


2,695,780



2,183,975


Income incentive fees payable


1,618,509



1,936,538


Capital gains incentive fees payable


880,913



81,038


Interest payable


2,322,314



1,863,566


Unearned revenue


559,768



410,593


Administrative services payable


413,278



392,191


Deferred tax liability


134,713



67,953


Income tax payable


917,000



316,092


Other accrued expenses and liabilities


203,461



115,902



Total Liabilities

$

377,942,054


$

301,442,244

Commitments and contingencies (Note 7)








Net Assets

$

270,571,173


$

224,845,007

NET ASSETS








Common stock, par value $0.001 per share (100,000,000 shares authorized; 19,131,746 and 15,953,810 issued and outstanding, respectively)

$

19,132


$

15,954


Paid-in capital


272,117,091



228,160,491


Accumulated undistributed deficit


(1,565,050)



(3,331,438)



Net Assets

$

270,571,173


$

224,845,007



Total Liabilities and Net Assets

$

648,513,227


$

526,287,251



Net Asset Value Per Share

$

14.14


$

14.09









 

STELLUS CAPITAL INVESTMENT CORPORATION













 CONSOLIDATED STATEMENTS OF OPERATIONS















For the


For the


For the




year

year


year




ended

ended


ended




December 31,

December 31,


December 31,




2019

2018


2017

INVESTMENT INCOME










Interest income

$

56,895,990


$

51,463,033



38,071,449


...