Main Street Capital Corporation

Greetings. Welcome to Main Street Capital's second quarter earnings conference call. At this time, all participants are in a listen-only mode. A 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, Mr. Vaughn, proceed.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's second quarter 2025 earnings conference call. Joining me today with prepared comments are Dwayne 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 second 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 August 15th. 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, August 8th, and therefore, you are advised that any 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 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 a net cash impact to Main Street upon settlement. Please refer to yesterday's press release for 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 average quarterly NAV. Please note that 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 Hichot.

Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone's doing well. On today's call, David, Ryan, and I will provide you with our key quarterly updates after which we'll be happy to take your questions. We are pleased with our performance in the second quarter, which resulted in another quarter of strong operating results, highlighted by an annualized return on equity of 17.1% DNII per share that continued to exceed the dividends paid to our shareholders, a new record for NAV per share for the 12th consecutive quarter, and our largest realized gain in Main Street's history. 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 strength and quality of our portfolio companies, particularly those in our highly unique lower middle market investment strategy. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, will allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the second quarter combined with our current expectations for the third 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 asset management business and our low and middle market investment portfolio, and the accretive impact of our equity assurances in the quarter, which Ryan will discuss in more detail. The majority of our low and middle market portfolio companies continued their favorable performance, resulting in another quarter of strong dividend income contributions and continued net fair value appreciation in our low middle market equity investments. As I discussed on our call last quarter, and as David will discuss in more detail, we are pleased to have closed the partial exit of our investments in Heritage Vet Partners in the second quarter among the company's majority recapitalization with a new financial sponsor, resulting in the largest realized gain in Main Street's history and at a meaningful premium to our March 31st fair value. As noted in prior quarters, we have experienced underperformance in certain of our private loan portfolio companies, particularly those with direct consumer discretionary spending exposure, and this is having a negative impact on the contributions from our private loan portfolio. We continue to actively monitor these investments and are working with the portfolio companies to achieve the best possible outcome for each investment. Now turning to our investment activity. We are excited about the new and follow-on investments we made in our lower middle market portfolio companies during the quarter, which resulted in a net increase in lower middle market investments of $108 million. Our private loan investment activity in the quarter was slower than our expected normal quarterly activity, primarily due to lower overall levels of private equity industry investment activity, resulting in a net decrease in private loan investments of $35 million. David will discuss our investment activity for the quarter in more detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the future growth of our investment portfolio, and we are excited about the current opportunities we are seeing, particularly those in our lower middle market investment strategy. We have also continued to produce positive results in our asset management business. The funds we advised through our external investment manager continue to experience favorable performance in the second quarter, resulting in significant infinity income for our asset management business for the 11th 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 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 these efforts, we remain focused on growing the investment portfolio of the MSC Income Fund a publicly traded BDC advised by our external investment manager and our largest asset management business client. Through the increased current liquidity and path to additional debt capacity obtained through the fund's successful listing on the New York Stock Exchange and the related equity offering in January. In addition to deploying the fund's current liquidity into new private loan investments, we also continue to focus on maximizing the benefits of the fund's legacy lower middle market investment portfolio. We remain excited about the opportunity for significant future benefits to both the fund's shareholders and our asset management business as the fund executes its growth plans. Based upon our results for the second quarter, combined with our current outlook in each of our primary investment strategies and for our asset management business, earlier this week our board declared a supplemental dividend of $0.30 per share payable in September, representing our 16th consecutive quarterly supplemental dividend. and regular monthly dividends for the fourth quarter of 2025 of 25.5 cents per share. The fourth quarter regular monthly dividends are payable in each of October, November, and December and represent a 4% increase from the regular monthly dividends paid in the fourth quarter of 2024. The supplemental dividend for September is a result of our strong performance in the second 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. 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 third quarter, we currently anticipate proposing an additional significant supplemental dividend payable in December 2025. Now turning to our current investment pipeline, as of today, I would characterize our lower middle market investment pipeline as above average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that the unique and flexible financing solutions that we can provide to lower middle market companies and their owners and management teams in our differentiated long-term to permanent holding periods represent an even more attractive solution to the needs of many lower-middle-market companies in the current economic environment, and we are confident in our expectations for strong lower-middle-market investment activity over the remainder of 2025. In addition, we have an increased number of existing portfolio companies that are actively executing on acquisition growth strategies that we hope will provide attractive follow-on investment opportunities for us in the near-term future, and significant value creation opportunities for these portfolio companies in the longer term future, consistent with the successes we've experienced with other portfolio companies. 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 over the last few years. As of today, given the continued slower overall private equity industry investment activities, I would characterize our private loan investment pipeline as slightly below average. With that, I will turn the call over to David.