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, with Dennard Lasker Investor Relations. Thank you, Zach. You may begin.

Thank you, Operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2022 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 13th. 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 6, 2022, 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, a factor 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 Hyzak. 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's doing well. Joining me today with prepared comments are David Magdol, 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 is Nathan Masserve, our Managing Director and head of our Private Credit Investment Group. On today's call, I will provide my usual updates regarding our performance in the quarter, while also providing updates on our asset management activities, our recent declarations of our supplemental dividends in June and monthly dividends for the third quarter, 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 regarding our investment strategy, investment portfolio, financial results, capital structure and leverage, the impact of rising interest rates on our future net investment income, and our expectations for the second quarter, after which we'll be happy to take your questions. We are pleased that Main Street delivered very strong first quarter results with net investment income per share and distributable net investment income, or DNII, per share amounts that matched our quarterly record set in the fourth quarter and with a DNII per share that exceeded the monthly dividends paid to our shareholders during the quarter by over 19%. The continued strong performance of our underlying portfolio companies resulted in additional fair value appreciation of our investments in these companies and when combined with our continued success in executing new lower middle market and private loan investments, increased the fair value of our total investment portfolio at quarter end to $3.7 billion and resulted in a record net asset value per share of $25.89. These positive results and the continued momentum in each of our core strategies provided us with the confidence to recommend that our board of directors approve another supplemental dividend payable in June 2022 representing our third consecutive quarter with a supplemental dividend. Our lower middle market and private loan strategies, which we consider to be our primary investment strategies, both delivered positive investment originations in the quarter, resulting in a net increase in lower middle market investments of $57 million and a net increase in private loan investments of $114 million. We continue to believe that the strength of our differentiated investment strategies including our highly unique lower middle market strategy combined with our diversified group of portfolio companies and our growing asset management business will allow us to consistently deliver superior results for our shareholders and we are very excited about our outlook for the remainder of 2022. The operating performance across most of our portfolio companies has continued to be strong and this strong performance combined with ongoing organic and acquisition growth activities at several of our high performing portfolio companies also provides us continued optimism about our ability to generate incremental fair value and add asset value per share increases in the future. We've also continued to make considerable progress in our asset management business. This includes progress at MSC Income Fund, the non-traded BDC we advised through our external investment manager, which maintained a fully invested portfolio at the end of the first quarter. 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 continue to grow both its capital commitments from investors and its investment portfolio through its co-investment activities with Main Street and MSC Income Fund in our private loan investment strategy, and we are excited about the growing benefits we expect to receive from this relationship in 2022. After completing our fundraising activities for the fund, We expect a total portfolio of approximately $200 million when fully invested. The continued growth and favorable performance of both funds provides us confidence that we will receive increased 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 increase in the future. With our fundraising activities for MS Private Loan Fund now complete, We are excited about moving on to the next stage in the growth of our asset management business. 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 first 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 are for efficient operating structure and strong liquidity position. Earlier this week, our board declared a supplemental dividend of 7.5 cents per share payable in June and monthly dividends for the third quarter of 2022 of 21.5 cents per share payable in each of July, August and September, representing a 4.9% increase from the third quarter of 2021. The supplemental dividend for June, which is our third consecutive quarter with the supplemental dividend, is due to our favorable performance in the first quarter, which resulted in DNII per share that was 13 cents, over 19%, greater than our monthly dividends paid during the quarter. As a reminder, we currently expect to recommend that our board of directors declare future supplemental dividends to the extent DNII significantly exceeds monthly dividends paid in future quarters, consistent with our practice for the last three quarters. As we've previously communicated, As a result of the combination of our favorable outlook for the year and our current expectations for future supplemental dividends, we currently expect a significant increase in total dividends paid to shareholders over the next few quarters when compared to the prior year. Now turning to our current investment pipeline, we are pleased to maintain a number of attractive opportunities in our low and middle market and private loan strategies. As of today, I would characterize our low and middle market investment pipeline as average. We remain excited about the quality of the investment opportunities in our current pipeline and about the prospects for follow-on investments in existing portfolio companies as we and our companies actively look to execute on various growth opportunities. Based upon the combination of these highly attractive opportunities for follow-on investments in some of our top performing companies and with some of our best management teams and our position as the industry leading partner for lower middle market companies and their management teams, which results from the benefits of 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. We are confident in our expectations for continued attractive new lower middle market originations in 2022. We're also very pleased with the performance of our private credit team over the last few years and the significant growth they have provided for our private loan portfolio and our growing asset management business. And as of today, I characterize our private loan investment pipeline as above average. With that, I will turn the call over to David.