HOUSTON, Nov. 7, 2019 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE: SCM) ("Stellus" or "the Company") today announced financial results for its third fiscal quarter ended September 30, 2019.

"We posted another strong quarter of earnings in which we generated realized income of $12 million, or $0.63 per share, as compared to our dividend of $0.34 per share. Core net investment income was $0.35 per share. Year to date we have generated realized income of $34.7 million, or $1.92 per share, as compared to our distributions of $1.02 per share. We also had an active quarter of originations in which our portfolio, at fair value, increased $55.3 million to $586.4 million, including fundings of $94.7 million and repayments of $43.0 million. Finally, in August we received a license to operate our second SBIC subsidiary, which provides long-term, cost effective capital for us to grow," said Robert T. Ladd, Chief Executive Officer of Stellus Capital.

Results of Operations

Investment income for the three months ended September 30, 2019 and 2018 totaled $15.5 million and $14.5 million, respectively, most of which was interest income from portfolio investments.

Operating expenses for the three months ended September 30, 2019 and 2018, totaled $9.7 million and $8.9 million, respectively. For the same respective periods, base management fees totaled $2.5 million and $2.2 million, income incentive fees totaled $1.6 million and $1.6 million, capital gains incentive fees totaled $0.5 million and $0.7 million, fees and expenses related to our borrowings totaled $3.8 million and $3.4 million (including interest and amortization of deferred financing costs), administrative expenses totaled $0.4 million and $0.3 million, income tax totaled $0.4 million and $0.0 million, and other expenses totaled $0.5 million and $0.7 million, respectively.

For the three months ended September 30, 2019 and 2018, net investment income was $5.8 million and $5.6 million, or $0.31 and $0.35 per common share based on weighted average common shares outstanding of 18,905,959 and 15,953,810, respectively.

The capital gains incentive fee of $0.5 million and $0.7 million for the three months ended September 30, 2019 and 2018, respectively, was accrued for GAAP purposes due to the increase in realized and unrealized gains over the quarters. 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 $0.4 million for the three months ended September 30, 2019 was accrued based on estimates of undistributed taxable income, which was generated largely from capital gains. There was no such accrual for the three months ended September 30, 2018. Core net investment income, which is a non-U.S GAAP measure that excludes these accruals, for the three months ended September 30, 2019 was $6.7 million, or $0.35 per share; and for the three months ended September 30, 2018, was $6.3 million, or $0.39 per share.

The Company's investment portfolio had a net change in unrealized appreciation (depreciation) for the three months ended September 30, 2019 and 2018, of ($3.5) million and $0.5 million, respectively. For the three months ended September 30, 2019 and 2018, the Company had realized gains of $6.2 million and $2.8 million, respectively.

For the three months ended September 30, 2019 and 2018, net increase in net assets resulting from operations totaled $8.5 million and $8.9 million, or $0.45 per common share and $0.56 per common share, based on weighted average common shares outstanding of 18,905,959 and 15,953,810, respectively.

Liquidity and Capital Resources

The credit facility was amended on September 13, 2019 to provide an additional $20.0 million of committed borrowings. The accordion was also increased by an additional $55.0 million allowing for potential future expansion of the facility size to $250.0 million. As of September 30, 2019 and 2018, our credit facility provided for borrowings in an aggregate amount up to $200.0 and $180.0 million, respectively, on a committed basis. As of September 30, 2019 and December 31, 2018, we had $136.1 million and $99.6 million in outstanding borrowings under the credit facility, respectively.

For the nine months ended September 30, 2019, our operating activities used cash of $53.5 million primarily in connection with the origination of portfolio investments, which was slightly offset by repayments of our investments. For the same period, our financing activities provided cash of $59.1 million, due to a secondary offering during the period, offset by repayments on our credit facility.

For the nine months ended September 30, 2018, our operating activities used cash of $79.2 million, primarily in connection with the origination of portfolio investments, which was slightly offset by repayments of our investments, and our financing activities provided cash of $84.0 million, due to net borrowings under credit facility and proceeds from the issuance of SBA-guaranteed debentures.

Distributions

During the three months ended September 30, 2019 and 2018, we declared aggregate distributions for each quarter of $0.34 per share ($6.4 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.

Portfolio Activity During the Quarter

On July 1, 2019, we invested $17.3 million in the first lien term loan of PCS Software, Inc., a provider of integrated transportation management software for the inland trucking industry. Additionally, we committed $3.8 million in the unfunded delayed draw term loan and $1.5 million in the unfunded revolver. We also invested $0.3 million in the equity of the company.

On July 17, 2019, we invested $16.7 million in the first lien term loan of Integrated Oncology Network, LLC, a provider of radiation oncology center management services. Additionally, we committed $2.8 million in the unfunded delayed draw term loan and $0.6 million in the unfunded revolver.

On July 23, 2019, we invested $0.1 million in the equity of J.R. Watkins Holding, Inc., an existing portfolio company.

On August 13, 2019, we received full repayment on the second lien term loan of Mobileum, Inc. for total proceeds of $21.5 million.

On August 14, 2019, we invested $0.1 million in the equity of APG Holdings, LLC, an existing portfolio company.

On August 28, 2019, we invested $17.6 million in the first lien term loan of Café Valley, Inc., one of the largest independent wholesale bakeries in the U.S. serving the in-store bakery, Foodservice, Club, Mass, C-store and international channels. We also invested $0.9 million in the equity of the company.

On August 28, 2019, we invested $12.5 million in the first lien term loan of Invincible Boat Company LLC, a manufacturer and marketer of ultra-premium saltwater fishing boats targeting a high-net worth and ultra-high-net worth customer base. Additionally, we committed $1.4 million in the unfunded revolver, and we invested $1.0 million in the equity of the company.

On August 30, 2019, we invested $15.5 million in the first lien term loan of Naumann/Hobbs Material Handling Corporation II, Inc., a material handling (forklift) equipment dealer and aftermarket parts and services provider. Additionally, we committed $2.6 million in the unfunded revolver, and we invested $0.4 million in the equity of the company.

On September 11, 2019, we received full repayment on the first lien term loan A, the first lien term loan B, and the revolver of Refac Optical Group for total proceeds of $8.2 million, including $0.3 million in exit fees.

On September 30, 2019, we invested $13.8 million in the first lien term loan of Lynx FBO Operating, LLC, an operating company that provides aviation fuel to owners of corporate and private jet aircraft, fueling services for commercial airlines, aircraft ground support services, aircraft hangar rental, and office rental. Additionally, we committed $1.9 million in the unfunded revolver and invested $0.5 million in the equity of the company.

Events Subsequent to September 30, 2019

On October 1, 2019, we converted Wise Holding Corporation's first lien term loan into common equity of the restructured company and all existing mezzanine 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 $1.8 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.

Credit Facility

The outstanding balance under the credit facility as of November 6, 2019 was $158.1 million.

SBA-guaranteed Debentures

On October 9, 2019, our Stellus SBIC II subsidiary was approved to draw its first $20.0 million of SBA-guaranteed debentures. On October 17, 2019, we drew $6.0 million of debentures, bringing the total consolidated balance of debentures outstanding to $156.0 million as of November 6, 2019.

Dividend Declared

On October 15, 2019, the Company's board of directors declared a regular monthly dividend for each of October, November and December 2019 as follows:

We anticipate that when the tax character of our dividends is reported in January 2020, all of the fourth quarter 2019 distributions will be classified as long term capital gains for our shareholders. The final determination of the tax attributes of our distributions is made annually as of the end of the year based on taxable income for the full year, therefore this information is an estimate only.

Conference Call Information

Stellus Capital Investment Corporation will host a conference call to discuss these results on Thursday, November 7, 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 800-367-2403 (domestic). Use passcode 6850369. Starting approximately twenty-four hours after the conclusion of the call, a replay will be available through Friday, November 15, 2019 by dialing (888) 203-1112 and entering passcode 6850369. The replay will also be available on the company's website.

FORWARD-LOOKING STATEMENTS

Statements included herein may contain "forward-looking statements" which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission including the final prospectus that will be filed with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Contacts Stellus Capital Investment Corporation W. Todd Huskinson, (713) 292-5414 Chief Financial Officer [email protected]

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SOURCE Stellus Capital Investment Corporation