Main Street Capital Corporation

Greetings and welcome to the Main Street Capital Corporation first quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughn, to our Alaska Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2020 earnings conference call. Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results. This document is available on the investor relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 15th. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, May 8, 2020, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions. These statements are based on management estimates, assumptions, and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements. As a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income, Please refer to yesterday's press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak.

Dwayne? Thanks, Zach. Good morning, everyone, and thank you all for joining us today. Joining me for our call today with prepared comments are David Magdol, our President and Chief Investment Officer, and Brent Smith, our CFO. Also joining us for the Q&A portion of our call are Vince Foster, our Executive Chairman, and Nick Masserve, our Managing Director and Head of our Middle Market Investment Group. Given the significant and unprecedented impacts to our society and economy over the last few months, the content for today's call will be a little different than our historical calls as we provide some details regarding the impact to date of COVID-19 on our business and the businesses of our portfolio companies and our collective responses. For today's call, I will start off with initial comments regarding the impact of COVID-19. I will then comment on our overall performance and results in the first quarter, our dividend announcements and future plans, our investment activities and current investment pipeline, and our investment portfolio before I conclude with comments regarding recent share purchases by our senior management team and board of directors. Following my comments, David and Brent will provide additional comments on our investment strategy and additional details on our investment portfolio and financial results, after which we'll be happy to take your questions. We want to start by saying that all of us at Main Street hope that you and your loved ones are safe and healthy. We recognize that the last few months have been a very challenging time for everyone, and that the near-term future continues to include significant uncertainty. We send our thoughts and best wishes to those individuals that have been most negatively impacted by the COVID-19 pandemic and our most sincere gratitude to those individuals who have sacrificed and risked their personal safety for the benefit of others and whose efforts are allowing us to collectively work through this difficult time. As we've previously communicated in our press releases in March and April, since the beginning of the COVID-19 impacts, We have placed significant focus on and attention to the health and safety of our employees. Our employees at Main Street are critical to our historical and future success and our ability to consistently generate our best in industry returns for our shareholders. We have been extremely fortunate at Main Street that our employees have been safe and healthy throughout the last few months. We implemented our remote working arrangements in mid-March and have successfully maintained our full operating capacities throughout the pandemic. We are greatly appreciative of the efforts of our employees and the strength of our team gives us significant confidence as we look forward to the future. For those of you that have been long-term investors in and followers of Main Street, each quarter you have heard us discuss our primary focus on our lower middle market strategy and its related benefits. Our belief that this strategy is very unique in comparison to other investment firms and our conviction that this strategy is the biggest driver to our ability to create value for our shareholders. One of the core tenets of our enrollment of market strategy is the strength and quality of the management teams of these portfolio companies and our strong alignment of interests with these individuals as our partners. In our investment underwriting processes, we focus more attention on evaluating these individuals as our future long-term partners than any other aspects of our underwriting or due diligence processes. We've also maintained a very consistent approach of aligning our interests directly with these individuals through our typical investment structure, and we believe this alignment is a significant strength and source of value for us and our shareholders. Throughout the last few months, as our Main Street investment teams have been extremely active in working with our portfolio companies, the strength of these portfolio company management teams has never been more evident or more valuable to us. We are extremely appreciative of the diligent efforts and proactive actions taken by our portfolio companies and we are more confident than ever in our core philosophies of both selecting the right individuals to partner with and ensuring a strong alignment of interest with these individuals. Now turning specifically to our results for the first quarter, the unprecedented effects of the COVID-19 pandemic on our economy have proved to be very challenging. Our first quarter results reflect the negative impact of the adverse economic effects of the pandemic on market conditions and the overall economy, most specifically in the amount of unrealized depreciation we experienced in our investment portfolio. Fortunately, our intentional strategy of maintaining a conservative capital structure and significant liquidity position has allowed us to manage through the challenges to date, support our existing portfolio companies, and continue to execute on new investment opportunities on a highly selective basis. In addition, we continue to believe that our highly diversified and mature investment portfolio will prove to be very beneficial as we work through the current environment. David and Brent will provide details on each of these points in their comments. Despite our challenging first quarter, as a result of our diversified investment portfolio, together with the advantages of our differentiated investment strategy, the alignment of our interests with our lower middle market portfolio company management teams, our efficient operating structure, and alignment of interests with our shareholders, combined with our conservative capital structure and strong liquidity position, we believe that we are well positioned to weather the current market conditions and provide a favorable outcome for all of our stakeholders. And we remain committed to maintaining a stable dividend payment level going forward. To that end, earlier this week, our board declared our third quarter 2020 regular monthly dividends of 20.5 cents per share, payable in each of July, August and September, an amount that is unchanged from our monthly dividends for the second quarter. As discussed in our mid-April press release, due to the challenges and uncertainty created by COVID-19, and our desire to maintain a conservative approach to our dividends and to preserve liquidity to support an active and opportunistic approach to new investments. Based upon our recommendations, our board agreed to suspend our semi-annual supplemental dividend indefinitely. We believe the suspension is prudent and in the best interest of all of our stakeholders and is supportive of our commitment to maintain a stable dividend payment level going forward through our recurring monthly dividends. Now turning to our investment activities in the first quarter, and our current investment pipeline. We completed lower middle market investments of $66 million in the quarter, including investments in two new companies. And as of today, mainly due to the impact of COVID-19, I would characterize our lower middle market investment pipeline as below average. Despite the impact of COVID-19, we continue to be very active in our lower middle market strategy as evidenced by our recent announcement of our $49 million investment in Pearl Meyer in late April. We also have several new investment opportunities in the pipeline and expect to continue to execute on new investments in the near term. More importantly, based upon our historical experiences over the last two decades as the industry leading partner for low and middle market companies and their management teams, we expect that our very unique debt and equity investment offering combined with our ability to be a long term to permanent partner to these companies will result in a significant increase in our low and middle market opportunities as the economy begins to recover. Given the current environment, we continue to focus on maintaining a disciplined and selective approach to new investment opportunities, and we remain confident in our ability to originate new investments consistent with our historical investment profile. During the first quarter, we continued the successful focus of our non-lower middle market investment portfolio growth on our private loan portfolio, resulting in this portfolio growing modestly on a net basis in the quarter, while our middle market portfolio decreased by over $30 million. As of today, I would characterize our private loan investment pipeline as slightly below average, but growing, given the reduction in the number of competitors with the liquidity and access to capital necessary to continue to be active in the current market. When looking at the performance of our investment portfolio during the quarter, and specifically our lower middle market portfolio, we are pleased that the vast majority of these companies were either deemed essential or critical, or were able to maintain full operating capacity on a remote work arrangement basis. As a result, these companies have been able to maintain a significant level of operations despite the various stay-at-home and shelter-in-place mandates, helping them navigate this difficult time period. And in closing, as a testament to the positive views our officer and director group continues to have regarding the strength of the Main Street platform, this group has continued to be regular purchasers of our shares, investing approximately $1.1 million during the first quarter, specifically including significant purchases by the executive and senior management team and our board during March when our stock price experienced the most significant negative impacts from COVID-19. On a collective basis, our director and officer group owns Main Street shares valued at approximately $68 million a quarter end or over $80 million today. With that, I will now turn the call over to David.