Main Street Capital Corporation

Greetings and welcome to Main Street Capital first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the form of 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 Zach Vaughn. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2025 earnings conference call. Joining me today with prepared comments are Duane Hijak, Chief Executive Officer, David Magdahl, President and Chief Investment Officer, and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Mazur, 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. The replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 16th. 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 9, 2025, 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 NAV. 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. 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. We appreciate your participation on this morning's call, and 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 dividend declarations, our expectations for dividends going forward, our recent investment activities and current investment pipeline, and several other noteworthy updates. Following my comments, David and Ryan will provide additional comments regarding our investment strategy, investment portfolio, financial results, capital structure and liquidity, and our expectations for the second quarter, after which we'll be happy to take your questions. We are pleased with our performance in the first quarter, which resulted in an annualized return on equity of 16.5%, the NII per share that continued to exceed the dividends paid to our shareholders, and a new record for NAV per share for the 11th consecutive quarter. We believe that these continued strong results demonstrate the 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 continued underlying overall strength and quality of our portfolio companies. Additionally, we appreciate the continued support we receive from our long-term lender relationships as evidenced by the recent amendments and extensions of both our corporate facility and our SPV credit facility, which Ryan will discuss in more detail. As a result, we continue to maintain very strong liquidity and a conservative leverage profile, providing us significant flexibility in the current uncertain market. We continue to be encouraged by the favorable overall performance of the companies in our diversified lower middle market and private loan investment portfolios, and remain confident that these strategies, together with the benefits of our asset management business, our significant available liquidity, and our cost-efficient operating structure, will allow us to deliver superior results to our shareholders. And despite the significant current market uncertainty associated with tariffs and geopolitical events, we continue to be confident in the ability of our portfolio companies to successfully navigate the current environment, which David will discuss in more detail. Our favorable results in the first quarter, combined with our positive outlook for the second quarter, resulted in our recommendations to our board of directors for our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the impact of net fair value increases in our investment portfolio and the accretive impact of our equity issuances, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments. Over the last few quarters, we have commented about the increased interest we have been receiving from potential buyers in certain lower-market portfolio companies. We are pleased to announce that yesterday we closed the exit of our investments in one of our portfolio companies, Heritage Vet Partners, at a realized gain of over $55 million and a meaningful premium to our March 31st fair value. Similar to the significant realized gain we recognized in the fourth quarter of 2024 on the exit of our equity investment in Pearl Meijer, We believe our investment in Heritage Vet Partners is another great example of the highly unique benefits of our lower-minimum market investment strategy, which resulted in significant benefits for both Main Street and our Heritage Vet Management Team partners. The benefits for Main Street included significant dividend income, fair value appreciation, and the realized gain, resulting in best-in-class returns on our equity investment. In addition to the opportunity to back this best-in-class management team, by funding all of their growth initiatives with follow-on Main Street debt investments, which provided us highly attractive interest income. We look forward to sharing additional details on this realization in the near future. Now turning back to the first quarter, our lower middle market investment activity resulted in a net increase in our lower middle market investments of $57 million, and our private loan investment activity resulted in a net increase in our private loan investments of $26 million. which David will discuss in greater detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the future growth of our investment portfolio. We are excited about the current opportunities we are seeing in our lower middle market investment strategy. We've also continued to produce positive results in our asset management business. The funds we advise through our external investment manager continue to experience favorable performance in the first quarter. resulting in significant incentive fee income for our asset management business for the 10th consecutive quarter, and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage as we execute our investment strategies and explore 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 and about our strategy for growing our asset management business within our internally managed structure. As part of our efforts to grow our asset management business, we are very pleased that MSC Income Fund, a BDC advised by our external investment manager and our largest asset management business client, has been successful in growing its investment portfolio with a portion of the liquidity obtained through its listing on the New York Stock Exchange and its public equity offering in January. We are also pleased with the fund's favorable performance in the first quarter and we remain excited about the opportunity for significant future benefits to both the fund shareholders and our asset management business from the listing and equity offering. 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, earlier this week our board declared a supplemental dividend of 30 cents per share payable in June. representing our 15th consecutive quarterly supplemental dividend and an increase in our regular monthly dividends for the fourth quarter of 2025 to 25.5 cents per share. The third quarter regular monthly dividends are payable in each of July, August, and September and represent a 4% increase from the regular monthly dividends paid in the third quarter of 2024. The supplemental dividend for June is a result of our strong performance in the first quarter and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 40% paid to our shareholders in excess of our regular monthly dividends and a current total yield we are providing to our shareholders of approximately 8%. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII significantly exceeds our regular monthly dividends paid in future quarters and we maintain a stable to positive NAV. Based upon our expectations for continued favorable performance in the second quarter, we currently anticipate proposing an additional supplemental dividend payable in September. Now turning to our current investment pipeline, as of today, I would characterize our lower middle market investment pipeline as average, with several new investments targeted to close before quarter end. We believe that the unique and flexible financing solutions that we can provide to lower middle market companies and their owners and management teams, and our differentiated long-term to permanent holding periods, represent an attractive solution to the needs of many lower middle market companies. And despite the current broad economic uncertainty, we are confident in our expectations for favorable lower middle market investment activity over the next few months. We also continue to be 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 characterize our private loan investment pipeline as average. With that, I will turn the call over to David.