Good morning, ladies and gentlemen. And thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's conference call to report financial results for its fourth fiscal quarter ended December 31, 2024. At this time, all participants are on a listen-only mode. Anyone should require operator assistance during the conference, this conference is being recorded today, March 5, 2025. 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 your conference.

Yes. Thank you, Ali, and good morning, everyone. Thank you for joining the call. Welcome to our conference call covering the quarter and the year ended December 31, 2024. Joining me as usual this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements and then start off our discussion.

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 the press release announcing this call. 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. 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 any 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. Now I'll cover our operating results for the quarter. I would like to start off with our life-to-date activity. Since our IPO in November 2012, we've invested approximately $2.6 billion in over 200 companies and received approximately $1.6 billion of repayments while maintaining stable asset quality. We've paid over $288 million of dividends to our investors, which represents $16.69 per share to an investor in our IPO in November 2012, which was offered at $15 per share. Turning to our current operating results, in the fourth quarter, we generated $0.35 per share of GAAP net investment income and core net investment income of $0.37 per share, which excludes estimated excise taxes. Net asset value per share decreased $0.09 during the quarter due to net unrealized depreciation on our investment portfolio and reduction of spillover income, offset by net realized gains on our investment portfolio, primarily…

Okay. Very good. Thank you, Todd. As we look at the first quarter of 2025, I'll cover portfolio growth, equity realizations, and dividends. The active fourth quarter has continued into the first quarter of 2025. As of last Friday, we have funded an additional $47 million, bringing our portfolio to $1 billion for the first time in our firm's history. We expect that level to maintain and probably finish the quarter at the billion-dollar number. As Todd noted earlier, we had realized equity gains in the fourth quarter of $5.5 million. We expect we'll see more equity gains in 2025, with approximately $4 million to $5 million by June 30. And as a reminder, our equity co-invest business, we have equity co-investments across 92 companies with a cost basis of $59 million. We believe over time, that we should see meaningful uplift from here. Our historical results would indicate realizations in excess of two times our cost. And finally, regarding dividends, we declared the dividend for the fourth quarter, sorry, for the first quarter of 2025 at a rate of $0.40 per share, again, payable monthly. We do expect that level of dividend, again $0.40 per share payable monthly, to continue into the second quarter. And based on spillover or previous year's earnings that have not been distributed, we would expect this level to continue throughout the year. Of course, all of this is subject to approval. And with that, we'll open up for questions. Ali, begin the Q&A session, please.

Thank you. At this time, we'll be conducting our question and answer session. Thank you. Our first question is coming from Sean-Paul Adams with Raymond James. Your line is live.

Hey, guys. Good morning.

Good morning.

Good morning.

So when it comes to, you know, discussions about, you know, potential tariff impacts to, you know, companies within the portfolio. And also discussions about, you know, potential changes in credit quality. What are your thoughts on leverage, you know, going into 2025 and 2026 and, you know, just potential concerns about the magnification of that, you know, potential credit risk.

Yeah. Good morning. Good question. So as you know, we're operating at a lower leverage level than we've normally operated. Our target regulatory leverage is one to one. And the gap would be, you know, two to one. But we're certainly at a lower level than that now. So I'd say, you know, I think we continue to shoot for that target leverage. We're certainly cautious about the uncertainty that's being created by the executive branch of government. But I think that at this point, like to so to speak, wait and see. The impact of what's happening. But we're certainly cautious about what that could mean. You know, we certainly have most substantially all of our businesses are based in the United States, but some would touch government activity, some would have activities cross border. So we're certainly cognizant of that. But I think we're in a wait and see attitude and but cautious as you say.

Perfect answer. Thank you.

Thank you. Our next question is coming from Christopher Nolan with Ladenburg Thalmann. Your line is live.

Hey, guys. Good morning, Chris. Rob, could you give us a little thoughts in terms of given all the outlook information you gave, which is always appreciated, do you think the first quarter EPS will cover the dividend?

You know, we don't have quite a bit, but probably not fully covered. You know, we'll see what the balance of the quarter looks like, but probably not. But be close. And, again, I think part of this is we look at the dividend and we look at earnings. One, we have substantial earnings from the past that have not been paid so that's helpful. Effectively covering. And then we look at it over time. And as I mentioned, we likely to start seeing some equity realizations kick in that will be helpful. But I think as a technical matter, Todd, if we probably won't quite cover in the first quarter.

Yeah. That's right, Chris. We think we'll be off, you know, by a few cents, and that general trend will, you know, make kinda continue throughout the year. Just given kind of the rate environment and the spread environment.

Gotcha. And then on the topic of spreads, what was the driver for the decrease in investment yields in the first quarter?

So in terms of spreads, maybe as a macro thought, so as we started 2024, you know, we were seeing spreads of sixes, and as we end the year, it seems spreads in fives. So you probably that's one factor. Two, silver did decline quarter over quarter. And then probably some impact again for some additional non-accruals. But the good news is it's in excess of ten percent for.

And on the topic of leverage, your leverage is just so low. I mean, what's the thought here in terms of you know, your leverage is artificial seems to be artificially low. The EPS outlook doesn't quite cover the dividend and you're in a tightening spread environment. Why don't you just increase leverage a little bit?

Yes. So that good counterbalance to the first question. So, yes, so we as I say, our work targeting a one to one, you know, be cautious about it. And so you may see that come happen over time this year. And there's some different ways to achieve that leverage, but more to come.

Gotcha. Final question. I know you got you paid off part of an SBA maturity in the first quarter of 2025. Are you guys gonna re-up for more SBA lending capacity?

Yes. We are. We're moving forward with a third license. And thanks for noting that. After ten years, our first licensed debentures are starting to come due, and so we did prepay the first debenture payment in mid-February of roughly $16 million. So but we were in the process of obtaining hopefully, a third license, and we'll continue that program along the way.

Great. Thank you very much.

Yeah. Thank you, Chris.

Thank you. Our next question is coming from Erik Zwick with Lucid Capital Markets. Your line is live.

Good morning, Eric. Thank you. Good morning.

Good morning.

Wanted to start first on the pipeline. You obviously had some nice, excuse me, new origination activity in the fourth quarter. And seems like you're off to a good start here in the first quarter as well. So maybe just, you know, quantitatively, can you, you be kind of update us on kind of where the pipeline stands today relative to ninety days ago and additionally kind of what that mix looks like between new versus add-on opportunities.

Yes. So I'd say that, again, very busy fourth quarter and really the last month or two of the fourth quarter and then really through the first two months were this quarter, we're on a pace that's what would be exceptional. I think we said a little bit of slowness, but continued activity. As you know, our platform is a three-plus billion dollar platform overall. And so our investment teams are seeing a number of deals every. So I think, you know, good pipeline, good deal flow. Probably not expecting the same level every month that we had in the first two. But then I'd also say so following question about new investments versus follow-on. So the follow-ons are very helpful. They come in two ways. One would just literally be a new follow-on to the same company, and then, alternatively, or in addition to that, we'll have delayed draw term loans where someone is tapping an existing commitment that's been made. And this is helpful in that it's already in place, and everything's been negotiated. So it comes in both ways. I'd say the quantum of that is probably two-thirds are new transactions and roughly a third would be follow-ons or draws under DDTLs.

Great. Thanks. Appreciate the color there. And just a reminder, in terms of most of the delayed draw term loans you have, did the companies need to meet some sort of financial hurdles to be able to draw on that, or are they, you know, at the discretion of the company remind me how those are typically structured?

Right. They're typically structured that they're a true commitment. But they are subject to certain tests. So one, it would be in compliance with all the covenants. And they typically would have, in addition to that, what's known as an incurrence test. And so the leverage quotient at the time they draw would have to be similar to the time when the loan first closed. So keeping the leverage at where we started out. And then in addition to that, you could in addition to that, you mean, you could have what needs to be used for a certain purpose, and, typically, it's for an acquisition or some expansion.

Yep. That makes sense. Okay. And then transitioning to the spillover. I think you mentioned it in the prepared remarks with regard to the dividend and having some ability to support the dividend in the near term. With that, can you remind us of where dollar level of this spillover is, this quarter at or at the end of end of the fourth quarter?

Yeah. We had, Eric, we had $45 million of spillover at the end of the year. So that's kind of what we're working against during 2025.

Gotcha. Perfect. Thank you. That's all for me today. I appreciate it.

Thank you, Eric.

Thank you. Our next question is coming from Paul Johnson with KBW. Your line is live.

Morning. Thanks for taking my question. Just a little bit more on the just kind of tariff risk in general, higher level. But if you guys run any sort of analysis or assess the portfolio in any way in terms of just kind of how much of the portfolio might be at risk of, you know, any of the tariffs issues ongoing as well as just exposure to maybe kind of governments, government services or any sort of anecdotal data points you'd be able to provide.

Sure, Paul. So we've certainly analyzed it or been looking at it. It would appear that impact from tariffs would be more than the impact from the government kind of exposure. Probably, like, a two to one there. You know, our rough estimate is that it could be up to ten percent. I mean, depends how you grade them and what actually happens. But at this point, would not appear to be material. In terms of the overall activity, but we're I said at the outset, we're gonna wait and see what really comes through from what's said at the government level. What actually ends up happening.

I appreciate that. And then last one, on the realized gains this quarter, was there any additional markup at all from those investments that were exited in the fourth quarter?

Yes. And but it was a few million dollars. We have one equity position that is continuing to grow and in addition to the partial realization, its value was increased as well.

Got it. Great. Thank you very much. That's all for me.

Okay. Thank you, Paul.

Thank you. As we have no further questions on the line, I will now hand the call back over to Mr. Ladd for any closing comments.

Okay. Great. Thank you. And again, thank you everyone for your support of our company. We look forward to getting back with you in early May as we discuss the first quarter.

Thank you, ladies and gentlemen. This concludes today's conference and you may disconnect your lines at this time. We thank you for your participation.