Main Street Capital Corporation

Greetings, and welcome to the Main Street Capital Corporation third 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 Lasker 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 third quarter 2021 earnings conference call. Main Street issued a press release yesterday afternoon that details the company's third 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 November 12th. 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, November 5th, 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. Now I'll turn the call over to Main Street's CEO, Dwayne Hijak.

Thanks, Zach. Good morning, everyone, and thank you for joining us today. We appreciate you taking the time to join us, and we hope that everyone's doing well. Joining me today with prepared comments are David Magdahl, our president and chief investment officer, and Jesse Morris, our chief financial officer and chief operating officer. Also participating for the Q&A portion of our call are Vince Foster, our executive chairman, and Nick Meserve, our managing director and head of our private credit investment group. On today's call, I will provide my normal update regarding our performance in the quarter, while also providing updates on our asset management activities, our recent declarations of a monthly dividend increase and a December supplemental dividend, our expectations for dividends going forward, our recent investment activities and current investment pipeline, and several other noteworthy updates. Following my comments, David and Jesse will provide additional comments on our investment strategy, investment portfolio, financial results, and future expectations, after which we'll be happy to take your questions. We are very pleased with our third quarter results. which demonstrate the continued strength and momentum of our Main Street platform, the benefits of our unique investment strategies, and the quality and strong performance of our diversified group of portfolio companies. This quarter represented another quarter of sequential growth in total investment income and included a record level of dividend income from our portfolio equity investments. In addition, primarily due to the continued favorable performance of our portfolio companies, our net asset value per share increased by 3.6% during the quarter. Our net investment income and distributable net investment income for the quarter of 71 cents and 76 cents per share are both new Main Street records. And together with the gains realized on the exit of several equity investments and the fair value appreciation in the quarter resulted in an annual gap return on equity for the quarter of over 20% for the second consecutive quarter. Our gross lower middle market investments of $159 million for the quarter also represented a new Main Street quarterly record. We are also very pleased with our capital markets activities in October, which Jesse will cover in more detail, which provided further improvement to our strong capital structure and additional liquidity to fund the continued growth of our investment portfolio. As we look forward to the fourth quarter and next year and take into consideration the strength of our existing investment portfolio, current investment pipeline, and liquidity position, we believe we are very well positioned to continue to provide superior results. The operating performance across most portfolio companies has continued to improve, and this strong performance, combined with our ongoing organic and acquisition growth activities at several of our high-performing portfolio companies, provides us continued optimism about our ability to generate incremental fair value and NAV per share increases over the next few quarters. We've also continued to make progress in our asset management business. This includes progress at MSC Income Fund, the non-traded BDC we advise through our external investment manager. which grew its investment portfolio by over 3% and meaningfully increased its NAV per share during the third quarter and maintained its dividend to the fund's shareholders in November. We also significantly improved the fund's overall capital structure and liquidity position over the last several months through several activities, including the receipt of an investment-grade rating for the fund and the execution of a new $150 million series of unsecured fixed-rate long-term notes. These activities provide the fund the opportunity for continued growth and positive operating performance moving forward. We remain excited about our plans for the fund as we continue to execute on our investment strategies and other strategic initiatives, and we are optimistic with our outlook for the future performance of the fund. At MS Private Loan Fund 1, we have continued to grow both its capital commitments from investors and its investment portfolio through its co-investment activities with Main Street and MSC Income Fund and our private loan investment strategy. The continued growth of both funds provides us visibility to increase future contributions from our asset management business. The growth of our asset management business has also been significantly beneficial to our ability to execute our private loan strategy, and we expect these benefits to continue to increase in the future. We remain excited about our strategy for growing our asset management business within our internally managed structure and increasing the contributions from this unique benefit to our Main Street stakeholders. Based upon our results for the third quarter and the positive performance of our existing portfolio companies, combined with our favorable outlook in each of our core investment strategies and for our growing asset management business, and the benefits of our efficient operating structure and strong liquidity position, earlier this week our board declared another increase to our monthly dividends in the first quarter of 2022 to 21.5 cents per share, payable on each of January, February, and March, representing a 2.4% increase from the fourth quarter and a 4.9% increase from the first quarter of 2021. In addition, due to the favorable performance in the third quarter, which resulted in DNII per share that was 14.5 cents greater than our monthly dividends paid during the quarter, our Board also declared a supplemental dividend of 10 cents per share payable in December of 2021. While we may recommend that our Board declare future supplemented dividends to the extent DNII significantly exceeds monthly dividends paid in future quarters, Our current expectation is to retain capital from realized gains on our equity investments for future reinvestment purposes, as opposed to paying these realized gains out as supplemental dividends. Now, turning to some additional details on our investment activities to date in the fourth quarter and our current investment pipeline. Since September 30th, we have completed total lower middle market investments of over $60 million. As of today, I would characterize our lower middle market investment pipeline as well above average. We remain very active in our lower middle market strategy, and we are excited about the investment opportunities in the current pipeline. Consistent with our activities over the last two years, our recent investments and the current investment pipeline include 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 with some of our best management teams, and provide the opportunity for meaningful future equity value creation through these accretive acquisitions and continued fair value appreciation on these investments going forward. As we've previously noted in prior quarters, we believe that several factors are driving the significant increase in activity in our current pipeline. These factors include an increased focus on financial and estate planning priorities by many entrepreneur owners after the difficult environment experienced broadly across the economy since early 2020. combined with a significant uncertainty and concern regarding increasing future tax rates, particularly taxes on capital gains. 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 unique 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 the favorite investment partner for these business owners. We expect that this position will continue to result in attractive new lower middle market originations for our Main Street platform going forward. Due to the strength and quality of our lower middle market portfolio companies, we are also continuing to experience robust third-party interest in a number of these portfolio companies. These activities have resulted in realized gains on exits of lower middle market investments in both the third quarter and the fourth quarter, and based upon ongoing activities, could result in additional exit and realized gain opportunities in the near-term future. We've also continued to grow our private loan portfolio, and as of today, I would characterize our private loan investment pipeline as about average. With that, I will turn the call over to David.