Main Street Capital Corporation

and welcome to the Main Street Capital Corporation first quarter 2023 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 Laskar Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2023 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 Main Street's Private Credit Investment Group. 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 12th. Information on how to access this 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 5th, 2023, 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, or DNII. DNII is Net Investment Income, or NII, as determined in accordance with U.S. generally accepted accounting principles, or GAAP, excluding the impact of non-cash compensation expenses. Management believes that presenting DNII and the related per share amount are useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since non-cash compensation expenses do not result in net cash impact to Main Street upon settlement. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly total net assets. Please note that 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 Kijok.

Thanks, Zach. Good morning, everyone, and thank you for joining us today. We appreciate your participation on this morning's call, and we hope that everyone is 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 dividend declarations, our expectations for dividends going forward, our 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, and our expectations for the second quarter, after which we'll be happy to take your questions. We're very pleased with our performance for the first quarter, which was highlighted by a return on equity of 14.9% and includes new quarterly records for net investment income, or NII per share, and distributable net investment income, or DNII, per share, and net asset value, or NAV per share, for the third consecutive quarter. Our strong performance included continued positive results from our lower middle market and private loan investment strategies, and significant contributions from our asset management business. These results demonstrate the continued and sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business, and the underlying quality of our portfolio companies. We are also pleased that we've seen our pipeline of investment opportunities in both our low-eminent market and private loan investment strategies continue to grow over the last few months, returning to levels more consistent with our expected base investment activity levels. Our attractive investment pipeline, together with our conservative liquidity position and capital structure, provides us a continued favorable outlook for the second quarter. Our DNII in the first quarter exceeded the monthly dividends paid to our shareholders by 59% and the total dividends paid to our shareholders by 26%. This strong performance allowed us to deliver significant value to our shareholders while still conservatively retaining a meaningful portion of our income and growing our NAV per share. These positive results and the favorable outlook for the second quarter resulted in our recommendations to our board of directors for our most recent dividend announcements, which I'll discuss in more detail later. Our NAV per share increased in the quarter due to several factors, including our retention of the excess NII per share above our dividends paid in the quarter, the impact of the fair value increases in our lower middle market investment portfolio and our wholly owned asset manager, and the accretive impact of our equity issuances in the quarter. Our lower middle market portfolio companies continued their overall favorable performance which resulted in another quarter of net fair value appreciation in the equity investments in this portfolio. As we look forward to the next few quarters, we remain excited about the benefits we expect certain of our lower-middle-market portfolio companies to realize from the acquisitions they have completed over the last 12 to 18 months, largely funded by follow-on debt investments we made in those portfolio companies, and we expect to see continued fair value appreciation in these portfolio companies in the future. While our investment activity in the first quarter was a little slower than our normal quarterly activity, we were still pleased that we executed lower middle market investments of $59 million. These investments resulted in a net increase in our lower middle market investments after repayments of $8 million. Our private loan investment activities in the quarter included new investments of $44 million, which after aggregate repayments resulted in a net increase in our private loan investments of $24 million. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio over the next few quarters. We've also continued to produce attractive results in our asset management business. The funds we advised through our external investment manager continue to experience favorable performance in the first quarter. This positive performance resulted in a significant amount of incentive fee income for our asset management business for the second consecutive quarter, And as a result, we received a significantly higher contribution to our net investment income from our asset management business. We remain excited about our plans for these external funds that we manage as we execute our investment strategies and other strategic initiatives. And we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund. We also remain optimistic 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. As part of this growth strategy, we are happy to announce that we have formally launched our next private loan fund as a successor fund to our existing private loan investment fund, and we hope to have our first closing for the fund before the end of the second quarter. We look forward to sharing additional details and updates on the new fund on our next conference call. Based upon our results for the first 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 22.5 cents per share payable in June, representing our largest and seventh consecutive quarterly supplemental dividend. Our board also declared an increase to our regular monthly dividends for the third quarter of 2023 to 23 cents per share payable in each of July, August, and September representing a 7% increase from the third quarter of 2022. The increased supplemental dividend for June is a result of our strong performance in the first quarter, which resulted in DNII per share that was 39.5 cents, or 59% greater than our regular monthly dividends paid during the quarter. The June 2023 supplemental dividend will result in total supplemental dividends paid during the trailing 12-month period of 60 cents per share, representing an additional 23% paid to our shareholders in excess of our regular monthly dividends and significantly increasing the current yield we are providing to our shareholders. Including our supplemental dividends, our DNII per share for the first quarter exceeded our total dividends paid by 22 cents per share, or 26%. We are pleased to be able to deliver this significant additional value to our shareholders while also maintaining a significant portion of our excess earnings to support our capital structure and investment portfolio against risks from the current economic uncertainties that may be realized in the future and to further enhance the growth of our NAV per share. We currently expect to recommend that our board continue to declare future supplemental dividends to the extent DNII significantly exceed regular monthly dividends paid in future quarters, and we maintain a stable to positive Based upon our expectations for the continued favorable performance in the second quarter, we currently anticipate proposing an additional supplemental dividend payable in the third quarter of 2023. Now, turning to our current investment pipeline, as of today, I would characterize our lower middle market investment pipeline as average. Despite the current broad economic uncertainty, we expect to continue to be active in our lower middle market strategy. Consistent with our experience in prior periods of broad economic uncertainty, we believe that the unique and flexible financing solutions we can provide to lower middle market companies and their owners and management teams should be an even more attractive solution today and should result in very attractive investment opportunities for us. We are excited about these new investment opportunities and we expect our current pipeline will be helpful as we work to maintain our positive momentum from the last few quarters. 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. And as of today, I would also characterize our private loan investment pipeline as average. With that, I will turn the call over to David.