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Stellus Capital Investment Corporation Reports Results for Its First Fiscal Quarter Ended March 31, 2019

May 10, 2019 at 5:00 AM EDT

HOUSTON, May 10, 2019 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or the "Company") today announced financial results for its first fiscal quarter ended March 31, 2019.

HIGHLIGHTS 


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





As of



Portfolio results

March 31, 2019



Total assets

$545.2


Investment portfolio, at fair value

$517.4


Net assets

$267.8


Weighted average yield on debt investments

10.7%


Net asset value per share

$14.32







Quarter


Quarter


ended


ended


March 31, 2019


March 31, 2018

Portfolio activity







Total investments made, at par

$29.0


$73.2

Number of new investments(1)

1


4

Repayments and sale of investments, including amortization

$21.8


$15.6

Number of portfolio companies at end of period

55


52





Operating results








Total investment income

$13.8


$10.9

Net investment income

$4.3


$4.5

Net investment income per share

$0.27


$0.28





Core net investment income(2)

$5.5


$4.5

Core net investment income per share(2)

$0.34


$0.28





Realized Gains per share

$0.63


$0.08

Distributions per share

$0.34


$0.34

Net increase in net assets from operations

$10.1


$7.3

Net increase in net assets from operations per share

$0.62


$0.46

Weighted average shares outstanding during the period

16,351,032


15,952,841



(1)

For the three months endend March 31, 2019, we made investments in one new portfolio company and four existing portfolio companies.  For the three months ended March 31, 2018, we made investments in four new portfolio companies and four existing portfolio companies.



(2)

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 are pleased to report a strong quarter where core net investment income covered our $0.34 per share dividend and we generated $10.2 million of realized gains.  We completed a secondary offering resulting in approximately $38.5 million of net proceeds in the first quarter and an additional $2.8 million in the second quarter, that provides us with additional capacity to grow," said Robert T. Ladd, the Company's Chief Executive Officer.

Portfolio and Investment Activity

We completed the first quarter of 2019 with a portfolio of $517.4 million (at fair value) invested in 55 companies.  As of March 31, 2019, our portfolio included approximately 61% of first lien debt, 28% of second lien debt, 5% of unsecured debt and 6% of equity investments at fair value.  Our debt portfolio consisted of 91% floating rate investments (subject to interest rate floors) and 9% fixed rate investments.  The average size of our portfolio company investments was $9.4 million and our largest portfolio company investment was approximately $22.6 million, both at fair value.  The weighted average yield on all of our debt investments as of March 31, 2019 was approximately 10.7%. 

During the three months ended March 31, 2019, we made $29.0 million of investments in one new and four existing portfolio companies at par and received $21.8 million from amortization and repayments of certain other investments.

This compares to the portfolio as of December 31, 2018, which had a fair value of $504.5 million invested in 57 companies, comprised of 58% of first lien debt, 30% of second lien debt, 5% of unsecured debt and 7% of equity investments at fair value.  The weighted average yield on all of our debt investments as of December 31, 2018 was approximately 10.9%.  The debt portfolio consisted of 91% floating rate investments (subject to interest rate floors) and 9% fixed rate investments.

Results of Operations

Investment income for the three months ended March 31, 2019 and 2018 totaled $13.8 million and $10.9 million, respectively, most of which was interest income from portfolio investments. 

Operating expenses for the three months ended March 31, 2019 and 2018, totaled $9.5 million and $6.4 million, respectively. For the same respective periods, base management fees totaled $2.2 million and $1.7 million, income incentive fees totaled $1.4 million and $1.0 million, capital gains incentive fees totaled $1.2 million and $0, fees and expenses related to our borrowings totaled $3.7 million and $2.5 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.4 million for both periods, and other expenses totaled $0.6 million and $0.8 million, respectively.

Net investment income was $4.3 million and $4.5 million, or $0.27 and $0.28 per share of common stock, based on weighted average common stock outstanding for the three months ended March 31, 2019 and 2018 of 16,351,032 and 15,952,841, respectively.

The capital gains incentive fee of $1.2 million for the three months ended March 31, 2019 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 March 31, 2019 would be $5.5 million, or $0.34 per share.  There was no such fee accrued for the three months ended March 31, 2018.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended March 31, 2019 and 2018, of ($4.4) million and $1.5 million, respectively.  For the three months ended March 31, 2019 and 2018, the Company had realized gains of $10.2 million and $1.3 million, respectively. 

Net increase in net assets resulting from operations totaled $10.1 million and $7.3 million, or $0.62 and $0.46 per share of common stock based on weighted average common stock outstanding for the three months ended March 31, 2019 and 2018 of 16,351,032 and 15,952,841, respectively. 

Liquidity and Capital Resources

As of March 31, 2019 and 2018, our credit facilities provided for borrowings in an aggregate amount up to $180.0 and $140.0 million, respectively, on a committed basis.  As of March 31, 2019, our credit facility had an accordion feature which allowed for potential future expansion of the facility size to $195.0 million. As of March 31, 2019 and December 31, 2018, we had $76.1 million and $99.6 million in outstanding borrowings under the credit facility, respectively.

For the three months ended March 31, 2019, the Company issued 2,750,000 of additional shares of common stock in connection with a secondary offering. Gross proceeds resulting from the issuance totaled $39.7 million, and underwriting and other expenses related to the offering totaled $1.1 million. For the three months ended March 31, 2019, our operating activities used cash of $3.3 million primarily in connection with purchases and origination of portfolio investments, which was offset by repayments of our investments.  For the same period, our financing activities provided cash of $9.6 million, due to the capital raise during the quarter, offset by repayments on our credit facility.

For the three months ended March 31, 2018, our operating activities used cash of $51.8 million, primarily in connection with the purchase and origination of portfolio investments, which was slightly offset by repayments of our investments, and our financing activities provided cash of $72.2 million, due to net borrowings under credit facility.

Distributions

During the three months ended March 31, 2019 and 2018, we declared aggregate distributions of $0.34 per share ($5.7 million and $5.4 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 January 4, 2019 we received full repayment on the first lien term loan of EOS Fitness OPCO Holdings, LLC for total proceeds of $3.1 million. We also received a distribution related to our equity of $0.1 million.

On January 7, 2019 we received $0.3 million in full realization on the equity of OGS Holdings, Inc., resulting in a realized gain of $0.2 million.

On February 4, 2019 we invested $8.5 million in the first lien term loan of ASC Communications, LLC, an existing portfolio company.

On February 8, 2019 we invested $12.3 million in the first lien term loan, $1.5 million in the unfunded revolver, and $4.0 million in the unfunded delayed draw term loan of Exacta Land Surveyors LLC, a provider of land surveys and field management services used to facilitate the purchasing, selling, and development of residential real estate in the U.S. Additionally, we invested $1.0 million in the equity of the company.

On February 15, 2019 we received $0.05 million in full realization on the equity of Glori Energy Production, LLC.

On February 28, 2019 we invested an additional $1.4 million in the first lien term loan of Convergence Technologies, Inc., an existing portfolio company. Additionally, we funded $5.4 million under the existing delayed draw term loan and an additional $0.1 million in the equity of the company.

On March 7, 2019 we received $1.4 million in full realization on the equity of Resolute Industrial, LLC, resulting in a realized gain of $0.6 million.

On March 28, 2019 we received full repayment on the second lien term loan of Beneplace, LLC for total proceeds of $5 million.

On March 29, 2019 we received $9.4 million in full realization on the equity of MTC Parent, L.P., resulting in a realized gain of $9.4 million.

Events Subsequent to March 31, 2019

Exercise of Underwriter's Option

On April 11, 2019, we issued 202,149 shares of common stock through the underwriter's partial exercise of their option to purchase additional shares subsequent to our secondary offering. Gross proceeds totaled $2.9 million and underwriting and other expenses totaled $0.1 million. The Company used the net proceeds to pay off a portion of outstanding borrowings under the credit facility.

Portfolio Activity

On April 11, 2019, we invested $8.0 million in the first lien term loan of Munch's Supply LLC, a wholesale distributor of HVAC equipment, parts, and supplies primarily to dealers and contractors. Additionally, we committed $2.2 million in the unfunded delayed draw term loan, and we invested $0.5 million in the equity of the company.

On April 17, 2019, we received full repayment on the second lien term loan of U.S. Auto Sales, Inc. for total proceeds of $4.5 million.

On April 26, 2019, we invested $10.0 million in the first lien term loan of Whisps Brands, an importer of Italian cheese and a leading cheese manufacturer. Additionally, we invested $0.5 million in the equity of the company.

On April 30, 2019, we received full repayment on the second lien term loan of Livingston International, Inc. for total proceeds of $6.8 million.

On May 1, 2019, we invested $4.8 million in the first lien term loan of Exacta Land Surveyors, LLC, an existing portfolio company. Additionally, we invested $0.2 million in the equity of the company.

On May 2, 2019, we received full repayment on the second lien term loan of Magdata Intermediate Holdings, LLC for total proceeds of $15.1 million, including a $0.3 million prepayment fee.

On May 6, 2019, we invested $7.6 million in NS412, LLC, a provider of online curricula for health with a focus on weight loss. Additionally, we invested $0.8 million in the equity of the company.  

Credit Facility

The outstanding balance under the credit facility as of May 6, 2019 was $56.8 million.

Dividend Declared

On April 11, 2019, the Company's board of directors declared a regular monthly dividend for each of April, May and June 2019 as follows:











Declared


Ex-Dividend Date


Record Date


Payment Date


Amount per Share

4/11/2019


4/29/2019


4/30/2019


5/15/2019


$

0.1133

4/11/2019


5/30/2019


5/31/2019


6/14/2019


$

0.1133

4/11/2019


6/27/2019


6/28/2019


7/15/2019


$

0.1133

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Friday, May 10, 2019 at 10:00 AM, Central 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 855-719-5012 (domestic).  Use passcode 8305783.  Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Saturday, May 18, 2019 by dialing (888) 203-1112 and entering passcode 8305783. The replay will also be available on the company's website.

PART I — FINANCIAL INFORMATION









STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES












March 31,






2019


December 31,



(Unaudited)


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 $520,096,508 and $502,691,464, respectively)


517,411,814



504,433,668


Cash and cash equivalents


23,843,646



17,467,146


Receivable for sales and repayments of investments


212,822



99,213


Interest receivable


3,317,929



3,788,684


Other receivables


61,551



85,246


Deferred offering costs


7,609



18,673


Prepaid expenses


346,519



344,621



Total Assets

$

545,201,890


$

526,287,251

LIABILITIES







Notes payable

$

47,723,760


$

47,641,797


Credit facility payable


74,861,034



98,237,227


SBA-guaranteed debentures


146,536,821



146,387,802


Dividends payable


2,119,145



1,807,570


Management fees payable


972,645



2,183,975


Income incentive fees payable


1,634,588



1,936,538


Capital gains incentive fees payable


1,242,795



81,038


Interest payable


866,559



1,863,566


Unearned revenue


394,746



410,593


Administrative services payable


442,132



392,191


Deferred tax liability


80,554



67,953


Income tax payable


51,034



316,092


Other accrued expenses and liabilities


476,833



115,902



Total Liabilities

$

277,402,646


$

301,442,244

Commitments and contingencies (Note 7)








Net Assets

$

267,799,244


$

224,845,007

NET ASSETS







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

authorized; 18,703,810 and 15,953,810 issued and outstanding,

respectively)

$

18,704


$

15,954


Paid-in capital


266,703,785



228,160,491


Distributable earnings


1,076,755



(3,331,438)



Net Assets

$

267,799,244


$

224,845,007



Total Liabilities and Net Assets

$

545,201,890


$

526,287,251



Net Asset Value Per Share

$

14.32


$

14.09









 

STELLUS CAPITAL INVESTMENT CORPORATION










 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)












For the


For the




three

three




months ended

months ended




March 31,

March 31,




2019

2018

INVESTMENT INCOME







Interest income

$

13,625,399


$

10,730,748


Other income


209,530



181,033



Total Investment Income

$

13,834,929


$

10,911,781

OPERATING EXPENSES







Management fees

$

2,222,645


$

1,748,896


Valuation fees


107,322



134,410


Administrative services expenses


405,399



351,229


Income incentive fees


1,373,854



968,826


Capital gains incentive fees


1,161,757




Professional fees


344,340



469,138


Directors' fees


104,000



92,000


Insurance expense


85,697



85,697


Interest expense and other fees


3,674,787



2,464,980


Income tax expense


12,744




Other general and administrative expenses


8,725



121,226



Total Operating Expenses

$

9,501,270


$

6,436,402



Net Investment Income

$

4,333,659


$

4,475,379



Net realized gain on non-controlled, non-affiliated

investments and cash equivalents

$

10,246,098


$

1,335,269



Net change in unrealized appreciation (depreciation) on non-

controlled, non-affiliated investments and cash equivalents

$

(4,426,898)


$

1,466,614



Net change in unrealized appreciation on non-

controlled, affiliated investments and cash equivalents


2,185



66,667



Provision for taxes on net unrealized gain

on investments

$

(12,601)


$

-



Net Increase in Net Assets Resulting from Operations

$

10,142,443


$

7,343,929



Net Investment Income Per Share

$

0.27


$

0.28



Net Increase in Net Assets Resulting from Operations Per Share

$

0.62


$

0.46



Weighted Average Shares of Common Stock Outstanding


16,351,032



15,952,841



Distributions Per Share

$

0.34


$

0.34

 

STELLUS CAPITAL INVESTMENT CORPORATION









 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (unaudited)










For the


For the




three

three




months ended

months ended




March 31,

March 31,




2019

2018

Increase in Net Assets Resulting from Operations







Net investment income

$

4,333,659


$

4,475,379


Net realized gain on investments and cash equivalents


10,246,098



1,335,269


Net change in unrealized appreciation (depreciation) on non-controlled, non-affiliated investments and cash equivalents


(4,426,898)



1,466,614


Net change in unrealized appreciation on non-controlled, affiliated investments and cash equivalents


2,185



66,667


Provision for taxes on unrealized appreciation

on investments


(12,601)



Net Increase in Net Assets Resulting from Operations

$

10,142,443


$

7,343,929

Stockholder distributions

$

(5,734,250)


$

(5,422,500)

Capital Share Transactions







Issuance of common stock

$

39,682,500


$

94,788


Sales load


(935,000)




Offering costs


(202,891)




Partial share transactions


1,435



(327)

Net Increase in Net Assets Resulting From Capital Share Transactions

$

38,546,044


$

94,461

Total Increase in Net Assets

$

42,954,237


$

2,015,890

Net Assets at Beginning of Period

$

224,845,007


$

220,247,242

Net Assets at End of Period

$

267,799,244


$

222,263,132







 

STELLUS CAPITAL INVESTMENT CORPORATION










 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)










For the


For the



three

three



months ended

months ended



March 31,

March 31,



2019

2018

Cash flows from operating activities






Net Increase in net assets resulting from operations

$

10,142,443


$

7,343,929


Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:








Purchases of investments


(28,573,192)



(71,713,787)



Proceeds from sales and repayments of investments


21,794,726



15,618,134



Net change in unrealized depreciation (appreciation) on investments


4,424,713



(1,533,281)



Increase in investments due to PIK


(41,841)



(152,006)



Amortization of premium and accretion of discount, net


(400,064)



(343,739)



Deferred tax provision


12,601





Amortization of loan structure fees


123,807



66,223



Amortization of deferred financing costs


81,963



83,196



Amortization of loan fees on SBA-guaranteed debentures


149,019



100,668



Net realized gain on investments


(10,246,098)



(1,335,269)


Changes in other assets and liabilities








Decrease (increase) in interest receivable


470,755



(864,856)



Decrease (increase) in other receivable


23,695



(37,647)



Decrease (increase) in prepaid expenses


(1,898)



63,084



Increase in management fees payable


(1,211,330)



(46,226)



Increase (decrease) in incentive fees payable


(301,950)



793,088



Increase in capital gains incentive fees payable


1,161,757





Increase in administrative services payable


49,941



34,694



Decrease in interest payable


(997,007)



(337,193)



Increase (decrease) in unearned revenue


(15,847)



36,685



Decrease in income tax payable


(265,058)





Increase in other accrued expenses and liabilities


360,932



385,087

Net Cash Used in Operating Activities

$

(3,257,933)


$

(51,839,216)

Cash flows from Financing Activities








Proceeds from the issuance of common stock

$

39,682,500


$



Sales load for common stock issued


(935,000)





Offering costs paid for common stock


(191,827)





Stockholder distributions paid


(5,422,675)



(5,327,712)



Borrowings under Credit Facility


22,250,000



86,550,000



Repayments of Credit Facility


(45,750,000)



(9,000,000)



Partial share transactions


1,435



(327)



Net Cash Provided by Financing Activities

$

9,634,433


$

72,221,961



Net Increase in Cash and Cash Equivalents

$

6,376,500


$

20,382,745



Cash and cash equivalents balance at beginning of period


17,467,146



25,110,718



Cash and Cash Equivalents Balance at End of Period

$

23,843,646


$

45,493,463



Supplemental and Non-Cash Activities








Cash paid for interest expense

$

4,317,004


$

2,512,086



Excise tax paid


280,000



27,717



Shares issued pursuant to Dividend Reinvestment Plan




94,788



Increase in Distribution Payable


311,575



899



Decrease in deferred offering costs


(11,064)



 

Reconciliation of Core Net Investment Income

(Unaudited)





Quarter


Quarter



ended


ended



March 31, 2019


March 31, 2018

Net investment income

$4,333,659


$4,475,379


Capital gains incentive fee

$1,161,757


$-

Core net investment income(2)

$5,495,416


$4,475,379






Per share amounts:




Net investment income per share

$0.27


$0.28

Core net investment income per share(2)

$0.34


$0.28








(2)

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.

Contacts
Stellus Capital Investment Corporation
W. Todd Huskinson, (713) 292-5414
Chief Financial Officer
thuskinson@stelluscapital.com

 

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