Earnings call transcript: Stellus Capital’s Q1 2026 EPS meets forecast, revenue misses

Stellus Capital Investment Corporation (SCM) reported Q1 2026 earnings with mixed results, meeting EPS expectations but missing revenue forecasts. The company’s EPS stood at $0.26, aligning with forecasts, while revenue reached $23.29 million, falling short of the anticipated $24.91 million. Following these results, the stock price experienced a decline, closing at $9.39 post-earnings, a 3.69% drop from its pre-earnings value.

Stellus Capital’s Q1 2026 performance reflected stability in earnings but highlighted challenges in revenue generation. The company’s portfolio, valued at $990 million, saw a slight decrease from the previous quarter. Despite these challenges, Stellus maintained its focus on the lower middle market, leveraging relationships with private equity firms.

Stellus Capital’s EPS of $0.26 met analyst expectations, while revenue fell short by 6.5%. This revenue miss may have contributed to the stock’s decline, as investors reassess growth prospects.

Following the earnings report, Stellus Capital’s stock price fell by 3.69% to $9.39. The stock continued to decline, closing at $9.07, a 1.73% drop from the last close. This movement contrasts with broader market trends, indicating investor concerns over revenue performance. The recent decline is part of a broader downward trend, with the stock down 25% year-to-date and trading near its 52-week low of $8.43. According to InvestingPro analysis, which tracks over 1,400 US equities with comprehensive metrics, the stock has fallen significantly over the last three months. For deeper insights into SCM’s valuation and complete financial health assessment, investors can access the detailed Pro Research Report, which transforms complex data into clear, actionable intelligence.

Stellus Capital projects its portfolio to remain steady at approximately $970 million through Q2 2026, with repayments expected to match new fundings. The company anticipates portfolio growth capacity of $75 million to $100 million, driven by potential re-award of a third SBIC license and resolving non-accrual loans. Notably, InvestingPro data reveals that 2 analysts have revised their earnings downwards for the upcoming period, suggesting cautious near-term expectations. The platform offers 4 additional ProTips for SCM subscribers, along with Fair Value analysis and financial health scores.

CEO Robert Ladd remarked, "We are optimistic about the opportunities presented by our partnership with Ridgepost Capital, which will enhance our access to private equity-sponsored companies in the lower middle market."

During the earnings call, analysts questioned the sustainability of current dividend levels and the potential for share repurchases. CEO Robert Ladd indicated that while dividends may decline to align with net investment income, the company sees share repurchases as a value opportunity given the current stock discount to NAV.

Holly, Conference Operator: 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 first fiscal quarter ended March 31st, 2026. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. This conference is being recorded today, May 12th, 2026. 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.

Robert Ladd, Chief Executive Officer, Stellus Capital Investment Corporation: Okay. Thank you Holly. Good morning, everyone, thank you for joining the call. Welcome to our conference call covering the quarter ended March 31st, 2026. We have six topics to cover this morning. First, the financial results for the quarter, portfolio and asset quality, outlook update, opportunities with Ridgepost Capital, our share buyback program, and future growth in the portfolio. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward-looking statements as well as an overview of our financial information.

Todd Huskinson, Chief Financial Officer, Stellus Capital Investment Corporation: Thank you Rob. I’d like to remind everyone that today’s call is being recorded. Please note that the 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 our press release announcing this call. I’d 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, and 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 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. I’ll cover our operating results for the quarter, but would like to start with our life-to-date activity. Since our IPO in November 2012, we’ve invested approximately $2.8 billion in over 225 companies and received approximately $1.8 billion of repayments while maintaining stable asset quality. We’ve paid $339 million of dividends to our investors, which represents $18.49 per share to an investor in our IPO in November 2012.

In the first quarter, we generated $0.26 per share of GAAP Net Investment Income, and core Net Investment Income was $0.27 per share, which excludes estimated excise taxes. During the quarter, we also realized gains of $750,000 on one equity position, which resulted in total realized income for the quarter of $0.29 per share. Net Asset Value decreased $0.28 per share during the quarter from two components. The first was $0.08 per share of dividend payments that exceeded earnings, which was necessary to continue to pay out the spillover balance from 2025. The second was a net realized and unrealized loss of $0.20 per share related primarily to two debt investments.

We ended the quarter with an investment portfolio at fair value of $990 million across 116 portfolio companies, a decrease from $1.01 billion across 115 portfolio companies as of December 31st, 2025. During the first quarter, we invested $18 million in 3 new portfolio companies and had $9 million in other investment activity at par. We also received 3 full repayments totaling $35 million, 1 equity realization, which resulted in a realized gain of $750,000 and received $6.6 million of other repayments at par. In March 31st, 99% of our loans were secured and 92% were priced at floating rates.

The average loan per company is $9 million, and the largest overall investment is $18.5 million, both at fair value. Substantially, all of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. At fair value, 81% of our portfolio is rated a 1 or a 2 or on or ahead of plan, and 19% of the portfolio is marked at an investment category of 3 or below, meaning not meeting plan or expectations. We added one new loan to our non-accrual list during the quarter. Currently, we have six loans to six portfolio companies on non-accrual, which comprise 9.2% of the total cost and 5.2% of the fair value of the total investment portfolio respectively, which represents a slight increase from the prior quarter.

We recognize that the level of non-accrual loans is higher than we would like. We’re focused on reducing the number and dollar magnitude of these loans. We’re actively working each position and are making progress in exiting the positions or bringing them back onto an accrual status. There’s been much speculation about the impact of artificial intelligence on the large-scale SaaS software industry. As we mentioned on our last call, Stellus does not have exposure to the large-scale SaaS software sector. We do have portfolio companies in the[audio distortion]

Enhance the software and information they provide, in many cases, deal with proprietary data. We believe AI will enable these and many of our portfolio companies across a variety of industry sectors to improve the speed information. Each of these companies is rated on our risk rating system as either a 1 or 2, meaning on plan or ahead of plan. Now I’d like to turn the call back over to Rob to cover a number of other topics.

Robert Ladd, Chief Executive Officer, Stellus Capital Investment Corporation: Thank you Todd. As we look ahead to the second quarter of 2026, I’ll cover four topics: the outlook for Q2, our advisor’s plans to join the Ridgepost Capital’s platform, our $20 million share buyback program, and opportunities for growth. With respect to outlook. As of today, our portfolio is approximately $970 million across 117 portfolio. The balance of the quarter, we would expect repayments to equal new fundings, thus ending the quarter approximately where we are today. We expect to continue realizations throughout the year. At this point, we estimate $9 million for the balance of the year, with approximately $6 million of this in realized gains. Regarding dividends, in April, we declared the dividends for the second quarter of this year of $0.34 per share in the aggregate payable monthly.

Looking forward, we are making progress in reducing the amount of spillover income, and we expect that over time, our dividend will approximate our net investment income plus realized gains. At this point, that would be at a lower level than th