Main Street Capital Corporation

Greetings and welcome to the Main Street Capital Corporation's 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. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's third quarter 2022 earnings conference call. Joining me today with prepared comments are Duane Hijak, Chief Executive Officer, David Magdahl, President and Chief Investment Officer, and Jesse Morris, Chief Financial Officer and Chief Operating Officer. Also participating for the Q&A portion of the call is Nick Meserve, Managing Director and Head of the Private Credit Investment Group. 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 11th. 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 4th, 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 testaments, 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 CEO, Dwayne Ejok.

Thanks, Zach. Good morning, everyone, and thank you for joining us today. We appreciate everyone's participation on this morning's call. We hope that everyone's doing well. 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 another supplemental dividend payable in December and an increase to our monthly dividends for the first quarter of 2023, 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 in our third quarter and future net investment income, and our expectations for the fourth quarter, after which we'll be happy to take your questions. We're very pleased with Main Street's strong third quarter results. which include another quarter with records for net investment income per share and distributable net investment income, or DNII, per share, and with our results exceeding the net investment income per share records we set or matched over each of the prior four quarters. These positive results included contributions from each of our core investment strategies, and as a result of our strong performance, DNII per share exceeded our regular monthly dividends by 36%. We continue to be pleased with the performance of our lower middle market portfolio companies, which resulted in another quarter of fair value appreciation in the equity investments in this portfolio. We're also excited about the follow-on investments we made in existing lower middle market portfolio companies during the third quarter to support the growth strategies of these companies and the new platform investments we've made to date in the fourth quarter. Our private credit group also continued its success with its investment activities in the third quarter. These positive results and our favorable outlook for the fourth quarter resulted in our recommendations to our board of directors for our most recent dividend announcements, which I'll discuss in more detail later. We continue to be pleased with the performance of our diversified lower middle market and private loan investment strategies and remain confident that these strategies, combined with the benefits of our asset management business, will allow us to continue to deliver superior results for our shareholders. Our net asset value per share increased in the quarter due to the impact of mixed results in the fair value changes of the different components of our investment portfolio and the positive impact of our equity issuances in the quarter, which Jesse will cover in more detail. We are pleased with the continued favorable performance of our lower middle market portfolio companies, which resulted in another quarter of fair value appreciation in this portfolio. We also benefited from the exit of a previously restructured private loan investment which generated a significant realized gain in the quarter and a net fair value increase between the realized gain and unrealized depreciation in this portfolio. Despite the recent increased market volatility and uncertainty, we are very pleased that our lower middle market and private loan strategies have both continued to deliver attractive investment opportunities. Our lower middle market investments of $112 million in the quarter resulted in a net increase in lower middle market investments after repayments of $85 million for the quarter. Our private loan investment activities resulted in a net increase in private loan investments of $174 million for the quarter. We believe that our third quarter operating results reflect the benefits of the growth of our investment portfolio over the last two years. Given the continued strength and quality of our investment pipeline, we expect to have the opportunity to further grow our investment portfolio which we expect will continue to benefit our operating results in the fourth quarter and into 2023. To support the growth of our investment portfolio and to continue to plan for future investment portfolio growth, in the third quarter we increased our activities under our at-the-market or ATM equity issuance program and completed an incremental equity offering in August. We view these developments as positive enhancements to our capital structure which allows us to continue to execute on our attractive current and expected future investment pipeline. We've also continued to produce positive results in our asset management business. The funds we advise through our external investment manager, including MSC Income Fund, a non-traded BDC, and MS Private Loan Fund One, a private fund, continue to experience favorable performance in the third quarter. We remain excited about our plans for these funds as we execute on our investment strategies and other strategic initiatives. We are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund. We remain excited about our strategy for growing our asset management business within our internally managed structure and are actively working to increase the contributions from this unique benefit to our Main Street stakeholders. Based upon our results for the third quarter, combined with our favorable outlook in each of our primary investment strategies and for our asset management business and the benefits of our efficient operating structure. Earlier this week, our board declared a supplemental dividend of 10 cents per share payable in December and an increase in monthly dividends for the first quarter of 2023 to 22.5 cents per share payable in each of January, February, and March. These monthly dividends represent a 4.7% increase from the first quarter of 2022 and a 2.3% increase from the fourth quarter of 2022. Supplemental dividend for December is due to our strong performance in the third quarter, which resulted in DNII per share that was 23.5 cents, or 36%, greater than our monthly dividends paid during the quarter. The fourth quarter represents our fifth consecutive quarter of paying a supplemental dividend and will result in total supplemental dividends paid during 2022 at $0.35 per share, representing an additional 13.5% paid in excess of our monthly dividends. Including these supplemental dividends, our DNII per share for the third quarter still exceeded our total dividends paid by over $0.13 per share. We are pleased to be able to deliver this significant additional value to our shareholders. We currently expect to recommend that our Board declare future supplemental dividends to the extent DNII significantly exceeds monthly dividends paid in future quarters, and we maintain a stable to positive net asset value. Based upon our current expectations for continued favorable performance in the fourth quarter, we currently anticipate proposing an additional supplemental dividend in the first quarter of 2023. Now turning to our current investment pipeline, we are pleased to maintain attractive opportunities in our lower middle market and private loan strategies. As of today, and after recently closing several new investments in the fourth quarter, I would characterize our rural middle market investment pipeline as average. We remain excited about the quality of the investment opportunities in our current pipeline, and specifically about the prospects for future follow-on investments in existing portfolio companies. We also continue to be very pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business. As of today, I'd characterize our private loan investment pipeline as average. With that, I will turn the call over to David.