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Stellus Capital Investment (SCM) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 11, 2026

Source: earnings call transcript

Executive summary

Stellus Capital Investment Corporation Q2 FY26 — Dividend Aligned with NII, SBIC License Expansion, and Ridge Post Partnership

Stellus Capital reported a sequential increase in NAV, driven by positive portfolio marks and accretive share repurchases, despite a slight decrease in the overall investment portfolio. The company aligned its quarterly dividend with net investment income, signaling a sustainable payout moving forward. Strategic initiatives, including a new SBIC license and a partnership with Ridge Post Capital, are expected to drive future portfolio growth and origination activity, while management remains focused on reducing elevated nonaccrual loans.

Highlights

5

  • NAV increased by $0.26 per share or 2% sequentially, driven by net realized and unrealized gains of $0.30 per share and share repurchases adding $0.05 per share.

  • Dividend set to $0.25 per share, aligned with current NII trajectory, with expectation to earn or exceed this moving forward.

  • Received approval for a third SBIC license, expected to increase investment portfolio size by up to $100 million over time.

  • Partnership with Ridge Post Capital and RCP Advisors is expected to significantly increase origination opportunities annually.

  • Repurchased 467,000 shares for approximately $4 million under the $20 million program, immediately accretive to NAV and EPS.

Concerns

3

  • Nonaccrual loans remain elevated, comprising 8.5% of total cost and 5.4% of fair value of the total investment portfolio.

  • Dividend payments exceeded earnings by $0.08 per share in Q2 FY26 due to distributing remaining spillover income from 2025.

  • Investment portfolio decreased from $990 million to $968 million sequentially.

Guidance & targets

CategoryTargetConfidence
Portfolio growth
meaningfully increase the size of our investment portfolio
high materiality
High
Investment portfolio expansion from SBIC
expand the investment portfolio by up to $100 million over time or 10% of the current portfolio at fair value today
high materiality
High
Quarterly dividend
$0.25 per quarter per share
high materiality
High
Net investment income (NII)
earn our $0.25 quarterly dividend or more moving forward
high materiality
High
Origination pipeline activity
gross origination activity is set to increase toward the end of the year
medium materiality
Medium
Net portfolio growth
positive implications on net portfolio growth for the company over the next several quarters
medium materiality
Medium
Portfolio size (Q3 FY26)
slightly down from where we are today
medium materiality
High

Deals & partnerships

Ridge Post Capital External adviser, Stellus Capital Management, officially joined the Ridge Post Capital platform. Ridge Post is a leading alternative investment manager with over $50 billion of AUM.

The transition is going well with early integration underway, coordinating investment origination, management, investor relations, fundraising, and operations.

Risks & headwinds

Elevated nonaccrual loans Current

Comprised 8.5% of total cost and 5.4% of fair value of the total investment portfolio (5 portfolio companies).

Mitigation:Actively working each position, aiming to exit investments or return them to accrual status. Management and other lenders now control most nonperforming situations, working with management teams to improve operations and position companies for exit.

Dividend payments exceeding earnings Q2 FY26

Exceeded earnings by $0.08 per share in Q2 FY26.

Mitigation:Dividend has been reset to $0.25 per share for Q3 FY26 to align with the current trajectory of NII, with expectations to earn or exceed this moving forward.

Investment portfolio decline Q2 FY26

Decreased from $990 million to $968 million (fair value) sequentially.

Mitigation:Expect gross origination activity to increase towards the end of the year, with positive implications for net portfolio growth over the next several quarters. New SBIC license also expected to expand portfolio.

Market conditions fluidity and deal timing uncertainty Near term

market conditions remain fluid and the timing around future deal closings is never certain

Mitigation:Despite this, gross origination activity is expected to increase towards year-end, driven by seasonal trends and improving sponsor activity.

What to watch in Q3 FY26

Net portfolio growth

Next several quarters, increasing towards year-end
Current Decreased from $990M to $968M in Q2 FY26. Expected to be "slightly down" in Q3 FY26.
Target Positive net portfolio growth

Why it matters

Indicates the effectiveness of new origination efforts and the SBIC license in driving asset base expansion.

gross origination activity is set to increase toward the end of the year, which have positive implications on net portfolio growth for the company over the next several quarters.

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Q&A highlights

What is driving the optimism for an improving pipeline in the back half of the year? Is it the Ridge Post partnership, improved market activity, or other factors?

Rob Ladd attributed the optimism primarily to seasonal deal activity, with the second half and Q4 typically being busier. He noted a general pickup in activity and stable pricing. While the Ridge Post partnership is still early, it's starting to generate common opportunities and is expected to make a real difference over time, but current improvements are mainly from existing origination capabilities.

“I'd say 1 thing, it's generally true that the deal activity tends to be somewhat seasonable -- seasonal. And therefore, second half of the year is typically busier than the first. and the fourth quarter is typically the busiest of the 4 quarters.”

asked by Erik Zwick (Lucid Capital Markets) · answered by Robert Ladd

2 min read 5 chapters

Detailed narrative

Strategic Partnership with Ridge Post Capital

Stellus Capital Management officially joined the Ridge Post Capital platform on June 22, 2026. Ridge Post Capital, an alternative investment manager with over $50 billion in AUM, is expected to significantly enhance Stellus's origination capabilities. The integration leverages Ridge Post's RCP Advisors, which has relationships with over 200 lower middle market private equity firms, aligning directly with Stellus's direct lending strategy. This partnership is anticipated to provide significant incremental origination opportunities annually, additive to Stellus's existing pipeline.

SBIC License Expansion and Growth Opportunities

The company received approval for a third SBIC license, enabling it to contribute up to $125 million of equity and access $250 million of SBA-guaranteed debentures. This, combined with the SBA's increased maximum debenture amount for a family of funds from $350 million to $475 million, is projected to expand Stellus's investment portfolio by up to $100 million over time, representing a 10% increase from the current fair value. This expansion provides long-term, low-cost financing capacity for growth.

Share Repurchase Program

Stellus Capital's Board of Directors approved a common stock repurchase program of up to $20 million on March 3, 2026. Since then, the company has repurchased 467,000 shares for approximately $4 million. Management views these buybacks as an attractive and accretive use of capital, especially with the stock trading at a significant discount to NAV, immediately enhancing net asset value and earnings per share for shareholders.

Portfolio and Asset Quality Management

The investment portfolio ended Q2 FY26 at $968 million across 116 companies, a decrease from $990 million. While nonaccrual loans remain elevated at 8.5% of cost and 5.4% of fair value, management is actively working to reduce these positions and improve overall portfolio quality. The company removed one loan from nonaccrual status during the quarter and did not add any new ones, indicating ongoing efforts to manage underperforming investments.

Dividend Alignment and NII Outlook

Stellus has aligned its quarterly dividend to $0.25 per share for Q3 FY26, matching the current trajectory of net investment income. This adjustment follows a period where dividend payments exceeded earnings due to the distribution of spillover income from 2025. Based on the current NII outlook and expectations for short-term rates and spreads, management anticipates being well-positioned to earn or exceed this new dividend level moving forward.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.