Stellus Capital Investment Corporation Q4 FY2025 earnings call

• Life-to-date activity: Since IPO in 2012, invested ~$2.8 billion in over 220 companies, received ~$1.8 billion repayments, paid $333 million in dividends. • Fourth quarter operations: Generated net investment income, realized gains. • Portfolio and asset quality: Stable portfolio, certain investment and repayment activity, details on loan security, rate, average loan per company, industry sectors. • Software exposure: No large-scale SaaS exposure, small number of software companies with specific characteristics, monitored closely. • Outlook topics: Q1 and Q2 outlook, Ridge Post Capital acquisition, share buyback program, private credit sector view.

In the fourth quarter, generated 29 cents per share of GAAP net investment income and core net investment income, both excluding excise taxes. Realized gains of $5.5 million on five equity positions, total realized income 48 cents per share. Net asset value per share decreased 23 cents due to dividend payments exceeding earnings and net realized losses. Portfolio at fair value $1.01 billion across 115 portfolio companies. 99% of loans secured, 92% priced at floating rates. 81% of portfolio rated one or two, 19% three or below. 7.5% of total cost and 4.1% of fair value of portfolio on non-accrual. Approximately 10% in high-tech industries. Exposure to small number of software companies related to SaaS space, 6.8% of loan portfolio, well capitalized with private equity sponsors, risk rate one or two.

• Expect to end Q1 2026 with portfolio at current level or slightly less, continued equity realizations ~$2 million resulting in ~$1 million realized gain. • Dividend of 34 cents per share declared for Q1, expected to keep at 34 cents for Q2 subject to Board approval. • Ridge Post transaction expected to close mid-2026 subject to approvals. • Share repurchase program of up to $20 million authorized, remains in place for at least one year. • Anticipate benefits from Ridge Post transaction in second half of 2026, SBA capacity growth, improving NII through various levers.

• Exposure to software companies related to SaaS space, though monitored, potential impact if AI negatively affects them. • Non-accrual loans, with resolution taking time, ranging 12 to 18 months or more. • Potential changes in market conditions affecting private credit sector, such as capital flows and perceived risk.

Q: Given the change in the ownership of the external manager and the share repurchase initiative, will there be a change in the leverage targets for SCM?

A: No, there will not be a change in the targeted leverage for SCM.

Q: What's the remaining capacity in the SBA and should we be looking at that to be a growth engine?

A: Have quite a bit of new capacity in SBA, paid down $39 million of debentures on March 1st, $65 million of new debentures available plus more with third license.

Q: Can you give detail of subsequent investments to Venbrook and EH Real Estate Services which are non-accrual?

A: Companies working with others to provide additional capital, EH Partners is a realtor business, Venbrook is an insurance agency, small advances to further operations during slow period.

Q: What are you hearing from institutional investors regarding incremental exposure to lower middle markets?

A: Increasing interest in lower middle market where we operate from large institutional investors.

Q: What past experiences can you lean on to manage business in current environment?

A: Historically important to not be over levered, focused on strong underwriting, selective about opportunities, spreads may widen.

Q: When do you expect to see full benefits of increased deal flow from Ridge Post transaction?

A: Expect to hit the ground running after closing in summer 2026, likely kick in second half of 2026.

Q: What about portfolio companies prioritizing growth or operational issues and strategies to get borrowers back to cash pay?

A: PIC income increase due to companies needing cash flow relief, typically from private equity owner contributing new capital, PIC to come down when companies improve performance or are exited.

Q: What levers to pull to get earnings back to or above new distribution?

A: Striving to improve NII, SOFR staying, new SBA leverage, best returns on loans.

Q: Exposure in portfolio to AI and higher energy prices?

A: No direct exposure to oil and gas, limited impact on consumer spending from higher energy prices.

Q: Timeline for resolution of stressed assets and non-accrual loans?

A: Gradual change over 12 to 18 months, some coming off non-accrual, process varies by company.

Q: Confidence in spreads widening?

A: Public markets reflecting widening, ingredients for widening in private area where we operate but not yet seen