Stellus Capital Investment Corp (SCM)·Q1 2014 Earnings Summary

Executive Summary

• Q1 2014 delivered solid topline growth with Total Investment Income up 21.8% YoY to $7.85M, while Net Investment Income (NII) was $3.76M ($0.31/share), flat YoY; net increase in net assets from operations was $4.34M ($0.36/share) . NAV/share slipped modestly to $14.49 from $14.54 in Q4 2013 as higher operating expenses (notably interest and incentive fees) offset portfolio appreciation .
• Deployment re-accelerated: five new investments ($40.6M) and portfolio FV grew to $296.6M across 28 companies, up from $277.5M across 26 companies at 12/31/2013; weighted average debt yield was 10.7% (vs. 11.4% at 12/31/2013) .
• Balance sheet capacity improved post-quarter: credit facility upsized to $150M (from $135M) and $25M of 6.50% notes due 2019 issued—providing funding flexibility for growth and dividend coverage .
• Watch item: first loan placed on non‑accrual (3.8% of loan FV; 4.5% of cost), and effective debt yields edged down; expect slightly higher run‑rate interest expense with leverage at $130M drawn vs. $110M at year-end .

What Went Well and What Went Wrong

What Went Well

• Strong revenue growth and stable per-share NII: Total Investment Income rose to $7.85M from $6.45M YoY; NII held $0.31/share despite higher interest expense as the portfolio scaled .
• Robust origination momentum: $40.6M invested in five new portfolio companies; portfolio FV increased to $296.6M across 28 companies (from $277.5M, 26 companies) .
• Improved funding stack post-quarter: facility increased to $150M and $25M 6.50% senior notes issued, enhancing liquidity and duration .

Management statements supporting the above:

• “We expect that the total dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases.”
• “The Company intends to continue to declare and make monthly distributions of available net investment income to its stockholders.”

What Went Wrong

• Non‑accrual emergence: one loan moved to non‑accrual, 4.5% of loan portfolio at cost and 3.8% at FV—an asset quality headwind to interest income if unresolved .
• Yield compression: weighted average debt yield decreased to ~10.7% (from 11.4%), implying modest pressure on gross earning power absent continued deployment or fee income .
• Higher operating and financing costs: interest expense rose with average borrowings ($113.4M vs. $40.5M YoY) and incentive fees accrued, pressuring the net increase in net assets ($4.34M vs. $5.53M YoY) .

Financial Results

Income statement comparison (YoY; $ in millions except per-share)

Balance sheet and portfolio metrics

Key performance indicators

Note: Estimates vs. actuals were not compared this quarter due to S&P Global consensus being unavailable via API at time of retrieval.

Guidance Changes

SCM did not provide quantitative revenue/EPS guidance in filed materials.

Earnings Call Themes & Trends

Direct Q1 2014 call transcript was not available; themes below rely on Q1 2014 10‑Q and related disclosures.

Management Commentary

• Strategy and portfolio scaling: “We originate and invest primarily in privately‑held middle‑market companies... through first lien, second lien, unitranche and mezzanine debt financing, often times with a corresponding equity investment.”
• Dividend policy: “The Company intends to continue to declare and make monthly distributions of available net investment income to its stockholders.”
• Revenue outlook tied to growth: “We expect that the total dollar amount of interest and any dividend income that we earn to increase as the size of our investment portfolio increases.”

Q&A Highlights

The Q1 2014 earnings call transcript was not available in our document set or external sources we can cite. As a proxy, we reviewed Q1 2014 filed materials and dividend/financing updates; no additional Q&A clarifications can be reliably reported this quarter.

Estimates Context

• Wall Street (S&P Global) consensus for Q1 2014 EPS and revenue could not be retrieved due to service limits at time of request. As a result, we cannot quantify beats/misses versus consensus this quarter. If you want, we can re‑pull once access is restored.

Key Takeaways for Investors

• Core earnings power stable: NII/share of $0.31 covered the regular payout run‑rate (~$0.34/qtr equivalent), aided by portfolio growth; watch yield drift and financing costs as leverage normalizes .
• Growth capacity strengthened post‑quarter: facility increase to $150M and $25M 6.50% notes expand dry powder and term out funding—supportive for continued deployment and dividend coverage .
• Asset quality needs monitoring: emergence of a single non‑accrual (3.8% FV) warrants attention; ratings mix still predominantly “within expectations” (86% at rating 2) .
• Modest NAV slippage: $14.49 vs. $14.54 prior quarter reflects higher expenses offsetting realized/unrealized gains; sustained origination and equity co‑investments could support NAV stability over time .
• Rate sensitivity constrained by floors: near‑term asset yield upside from base rates is limited; however, higher funding costs would pressure NII if rates rise without asset‑level resets .
• Dividend visibility: monthly cadence maintained with Q2 declarations; management reiterates intent to continue monthly distributions of available NII .

Sources and document notes:

• Q1 2014 8‑K (Item 2.02) disclosed preliminary ranges for TII, NII, NAV/share prior to 10‑Q; final results reflected in Q1 2014 10‑Q .
• Q1 2014 press release (May 9, 2014) aligns with 10‑Q figures for TII ($7.8M) and NII ($3.8M, $0.31/share) https://stelluscapital.gcs-web.com/static-files/c06f7206-531b-4a6a-a01f-197edf6f9a48.
• Facility upsizing, notes issuance, and Q2 dividend declarations disclosed as subsequent events in Q1 2014 10‑Q .