Main Street Capital Corporation

Greetings, and welcome to 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, with Denard Lascar Investor Relations. Thank you, Mr. Vaughn. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2021 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 14th. 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 7th, 2021, 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's 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 CEO, Dwayne Hijat. Dwayne.

Thanks, Zach. Good morning, everyone, and thank you for joining us today. We appreciate you taking the time to join us. We hope that everyone is doing well and staying healthy and safe. Joining me today with prepared comments are David Magdahl, 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. On today's call, I will provide my normal updates regarding our performance in the quarter, while also providing updates on our overall capital structure and liquidity position, our asset management activities, our investment activities and current investment pipeline, our recent dividend announcement, and several other updates. Following my comments, David and Brent will provide additional comments on our investment strategy, investment portfolio, financial results, and future expectations, after which we will be happy to take your questions. We are pleased with our first quarter results, which we believe illustrate our portfolio company's continued recovery from the impacts of the COVID-19 pandemic. These first quarter results include the continued improvement in our net asset value per share and the generation of distributable net investment income, or DNII, per share in excess of our monthly dividends paid during the quarter. We also continued our success with investments in both our lower middle market and private loan investment strategies, with the two portfolios combining for almost $100 million in investment originations in the quarter, and we are excited about our current investment pipeline in both strategies. We believe that our conservative capital structure and significant liquidity position, which we further enhanced by our $300 million investment-grade notes issuance in January, and a significant expansion of our credit facility in April will allow us to continue to execute on our pipeline of attractive investment opportunities. We are also pleased to see the operating performance across the vast majority of our portfolio companies continue to improve during the quarter, resulting in net appreciation in each of our primary investment strategies and an increase in our net asset value per share of 1.3% in the quarter. We feel good about the overall quality of our investment portfolio We are excited about the organic and acquisition growth activities at several of our high-performing portfolio companies, which I'll discuss in more detail shortly. As a result, we are optimistic about our ability to continue generating incremental fair value improvement in NAV per share increases for the next few quarters. We also made additional progress in our asset management business during the first quarter. This includes progress at MSC Income Fund, the non-traded VDC we advised through our external investment manager, with the significant progress including the resumption of normal investment activities in the first quarter and dividend payments to the fund shareholders at the beginning of April. We remain excited about our plans for the fund as we execute on our investment strategies and other strategic initiatives. Our new privately held fund that we discussed last quarter, MS Private Loan Fund One, executed its first investments as a co-investor with Main Street and MSC Income Fund in our private loan strategy, and we are pleased with our progress on this initiative. We remain excited about this new opportunity and believe it is an integral part of our overall strategy to grow asset management business within our internally managed structure and continue to provide this unique benefit to our Main Street stakeholders. We also continued our progress in the last few quarters in relation to our non-accrual and underperforming investments, resulting in sequential improvement in our non-accrual stats during the quarter, as Brent will cover in his comments later. Our team is focused on working through these underperforming investments to realize the best possible outcome for our stakeholders. Based upon our results for the first quarter and the positive developments we have seen in our existing portfolio companies, coupled with the future benefits of our growing asset management business, the attractive new investment opportunities we are seeing in our lower middle market and private loan strategies, our efficient operating structure, and strong liquidity position, we remain confident with our expectations for continued improvement in our DNII per share in 2021 and our expectation to resume consistently generating DNII in excess of our monthly dividends later this year, followed by the eventual growth of our monthly dividends consistent with our long-term historical practices prior to the onset of the pandemic. To that end, earlier this week, our Board declared our third quarter 2021 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. Now turning to some additional details on our investment activities in the first quarter and our current investment pipeline, we completed lower-minimum market investments of $59 million in the quarter, including investments in two new companies. As of today, I would characterize our lower-minimum market investment pipeline as above average. We remain very active in our lower-minimum market strategy, and we are excited about the investment opportunities in the current pipeline. Consistent with our activities since the beginning of the pandemic, The current pipeline includes several follow-on investments in existing portfolio companies as we and our companies actively look to execute on various growth opportunities. We view these follow-on investment opportunities as very attractive as they allow us to make follow-on investments in some of our top-performing companies and management teams and provide the opportunity for meaningful equity value creation through these accretive acquisitions and continued fair value appreciation on these investments going forward. In the first quarter, we began to realize some of the benefits from the acquisitions completed by several of our portfolio companies over the last few quarters. We are excited about the prospects for continued increases in the fair values of these portfolio companies over the next few quarters as these companies continue to execute their growth strategies and realize these benefits. As we look forward, we believe that the difficult environment experienced broadly across the economy since early 2020 has caused many entrepreneur owners to refocus on their financial and estate planning priorities. We believe that these factors, coupled with the significant uncertainty and concern regarding increasing future tax rates, particularly taxes on capital gains, should be positive catalysts for the transaction activities in the lower middle market. Consistent with our historical experiences over the last two decades as the industry-leading partner for lower middle market companies and their management teams, We believe that our combined debt and equity investment offering and our ability to be a long-term to permanent partner for the companies we invest in positions us as a favorite investment partner for these business owners. During the first quarter, we also continued the successful focus on investments in our private loan strategy, resulting in total investments of approximately $40 million. Due to repayments in the quarter, the private loan portfolio decreased by approximately $5 million on a net basis. while our middle market portfolio decreased by $35 million. As of today, I'd characterize our private loan investment pipeline as above average. With that, I will turn the call over to David.