MAIN - Earnings call transcript Q1 2019 | Main Street Capital Corporation

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Operator

Greetings, and welcome to the Main Street Capital Corporation First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan with Dennard Lascar Investor Relations. Thank you. Mr. begin. may you Vaughan,

Zach Vaughan

and Main everyone. quarter Street conference operator, joining XXXX you us call. for Capital good you, Thank morning, for earnings Thank Corporation's first

and are on mainstcapital.com. financial Financial the section A be until Relations the Chief will how and first of the was document afternoon on Smith. call hour website a This at to Dwayne remain Information of call that the will replay me issued replay Brent Officer, Investor included available after is Company's today today's operating the Street call available release Joining Hyzak; an Magdol; results. the yesterday's beginning in Officer, President XX. available access quarter press completion Chief Main May and of and detailed Investment David release. Company's CEO on yesterday the

performance. call or information information that the note the are you call that expressions. of advise therefore of found materially Internet also no statements implied the today, of results of update assumes are date as and you these no as contain reading. or this sec.gov. management's replay transcript Actual including and future unless listening statements. the longer the filings similar Today's these sensitive website the required May as anticipates, with as uncertainties and by by and such assumptions XX, of not words will, obligation which to at projections can advised of in this can in a Company's be there forth be to estimates, and through XXXX may this or Company's We being These law. on based and time reported intends, any speaks of call accessed limited conference no time at differ may expressed of the Many result be other broadcast from Main the Securities statements may but only should, Street these any results that use Exchange can on live Please on risks, statements forward-looking are on homepage. set forward-looking identified will accurate the of guarantees the expects, Commission, Company's believes, be factors is factors or call statements,

this distributable During was management income. Please including and GAAP today's release non-GAAP discussed information turn to has to sources Certain the on reconciliation Dwayne. derived comparable verified. measures. now, directly measures, refer And companies, call, to over not information including yesterday's net been call, financial these the from of financial discuss will third-party independently for will portfolio measures press related to most call investment I

Dwayne Hyzak

Zach, and thank for joining Thanks, us you today. all

our on our overall Brent Middle with performance Joining few portion our performance recent Chief discussing and will Group. and the developments, other quarter, I providing President dividend a the Officer; by our Magdol, are in our call, on us Meserve, Investment call for CFO. call On start of our a and Market Investment and investment conclude by recent first I announcement investment of today's will commenting recap our pipeline. commenting Foster, portfolio, David Head Smith, Vince comments me Managing Director Nick Executive the our Chairman; Also Q&A of our and are joining of prepared our today and for our

approximately be take happy questions. on provide financial income exits, our to our our my in and or recent our David same share which, certain XX%. pleased for with net we'll statistics. key year, exceeding Brent the originations position dividends our current investment liquidity investment total the distributable and and additional first a our with period Following your prior portfolio by over which After comments DNII during results, increased quarter per comments, quarter, We're DNII will we operating our and income results regular the monthly

our results per increase capital also believe with investment success. that grade benefits for we completed meaningful asset debt significant net addition, to markets highlight activity these structure. recent to have provided the we our us well value a our third very of continued positive a continue share enhancement structure, offering, operating during After generated which of We which our and our In advantages investment in capital the strategy together the positioned quarter-end, quarter. differentiated the debt

a quarter the during our our middle the appreciating the investment our portfolio performance appreciated of first $X investments the market of lower and net on for at specifically quarter. with quarter, during XX Looking basis depreciating approximately million portfolio by XX

lower companies relative conservative basis, market in which detail. on credit continue middle a exhibit cover will very profiles collectively David Our greater to

Our million portfolios. net to had impact specific increase of the from market significantly in these previously a spreads portfolios and approximately offset collectively credit in middle the the from also appreciated private which quarter caused reversal December, the by market on by issues depreciation factors loan of partially during certain basis net due to credit $X primarily appreciation,

we September prior increase each asset increase per with share per of a XXXX of quarter for X.X% value from payable $X.XXX our asset our of of value July, the quarter quarter in a in week, the half month August year. our Board finished increase declared net third from per one share. quarter second the share cent the this third or $X.XX dividends monthly net As a and result, and Earlier of regular per quarter XXXX of $XX.XX, per share, an X.X%

a announced $X.XX previous into this over the semi-annual in December. share for are dividend dividends second guidance from our quarter. supplemental transition our paid April, addition, supplemental the plan of per June In these with prior in per dividends in our consistent with both cases, In our supplemental and our Board previously $X.XXX beginning declared declared monthly share, dividends decrease of XXXX several years transitioning semi-annual our dividend

period, take successful the be we long-term And historical dividend our our total with at a will in years. of the several this delivered we shareholders. we remain transition the will by that our delivering expect that growth growth goal level with to We continue dividends consistent confident to of have annual transition end

turning activities the first lower quarter. to investment market pipeline. as our investment approximately in I'd the of current average. our $XX investment for million lower market completed as of middle We middle quarter And Now first our and investments characterize today, pipeline

average we have investments. seek equity position equity as middle to in lower continue And of diluted exposure. owned We which investments ownership XX% fully lower middle participation in and currently significant quarter-end, our receive equity of an in we the market market

lower increased we believe the and several of this portfolio existing company also We quarters. companies, over exits have interest experienced middle several market third interest few party result that in could in portfolio next our attractive

market the a non-lower our private portfolio, approximately continued million quarter on success with We with focusing portfolio. a investment $X loan portfolio net this portfolio coupled our growing basis our on our million in growth decrease $XX in by middle in approximately market of middle

like would at first investing loan the As during of And director private turn average. approximately officer characterize $XXX at call owning I million above quarter in our and purchasers to over shares our pipeline the valued as $XXX,XXX today, David. I'd Main quarter to Street group of and shares, closing, investment With to be continued that, our end. over regular has

David Magdol

report quarter and income grew our Thanks, another total distributable during which Dwayne, investment we and pleased good investment We're to morning, income. net everyone.

market. investment middle structure focus net and in BDC peers. demonstrated generate unique our been lower shareholders total net This the This differentiates share, illustrate in through in our in investing for consistent stock combined our Street of our benefits this lien benefits Main meaningful and We increased in appreciation. value generate our the of value through debt of market. and asset success management our see that strategy our our provide debt business. middle to a dividends segment the strategies and value asset both continues we the ability our share our with We per significant be efficient returns of activities, lower among the share. driver our Primary underserved operating investment has our proposition on a per income securities to continue price our results investment strategy equity believe first complementary when distributable positively are asset produced our significant that long-term We the increase from excess monthly in premium net to dividends per our growth

support investments our with portfolio -- provide and in our lien closely $XXX yield interest while teams the are unrealized protection. to us company through to as these upon growth our middle first million exit both investments NAV growth the market size dividends align significant income our total perform, and equity Our contributing investments allow our These scope, the debt periodic equity By dividend also in the attractive profile significant primary per behind downside investments. our an management appreciation, our we upside $X.XX gains companies and share. equity realized the approximately lower or our pre-tax driver receive investments public in shareholders the share of paid and net and equity

debt appreciation will offset losses securities. making from gains grade that inevitable investments and unrealized investments the against addition, non-investment the realized equity In an these in provides be credit when experienced

middle the market in for our strategy. the tax operating at the investments XX received unrealized be of are purposes market quarter Notably, that past lower has of appreciation XX to was believe We key And Turning market companies months recent continue to market we last $XX years. in the diversity total XX end. XX% a this income and equity time. lower benefits five XX% lower when from of diversified results, dividend income with contributed of visibility the during to grown for market investments this this dividend these of well at middle our that received our from of dividend middle rate is entities contributions portfolio most our in annual our our provides the with income diversity compounded back the our million during having over our lower middle the our recurring companies period nature believe lower from benefits that pass-through portfolio over future. middle analyzing investments

invested Our quarter a after in investments the market first a portfolio in net had million middle approximately million, return increase middle in approximately market which investment our in million. resulted $XX increase aggregate of of of our market on $X total net lower lower loan private and portfolio portfolio approximately capital equity of included of $XX decrease activity investments debt in million. portfolio and net approximately repayments middle our We our $XX in a

than at had result, more industries. investments XX a companies, XXX As across spanning March in XXst, we

of Our value The months. our XX income. less X.X% majority our total fair and total than company represented represented portfolio of largest our our at the X.X% of portfolio quarter-end of investments last for and our investment investment approximately of X% income assets portfolio

at release Additional details portfolio that in issued included a few yesterday, we now. but on investment the our on press end quarter highlights touch are I'll

including senior approximately comprised in in million to EBITDA to investments EBITDA X.X% that, of fair The With investments six portfolio $XXX approximately Our value long-term our the X, companies, was over of was X.X summary, and continues and of lower a and in investments I'll middle mean to in the to that fair portfolio our we junior representing Main had value. had X. to high of fair $XXX at over approximately liquidity value and basis at at to deliver financial capital portfolio private debt is priority to portfolio debt and call our is conservative total market to cost representing net cost investment to And our the which turn cost. fair in results, investment investments XX we Street's middle lower the basis. to total $X.X companies, portfolio, representing portfolio, our In level, we X.X debt quarter-end interest middle position had market value, ratio Brent on of senior perform XXX% In loan approximately portfolio level structure, non-accrual continues value. X or the our fair was billion XX% cover goals. company position. on XX At at the at included investment X.X related portfolio XX portfolios above market which X.X% million ratio a status total approximately companies,

Brent Smith

Thanks, David.

interest the by XX% We XXXX offset lower an a considered investments includes decrease over first investment a income in to total related and pleased a consistent $X.X $X.X investment report increased million, a in $X.X to elevated be decrease change in less in primarily income income levels our certain quarter income $X.X $XX.X by million, fee driven The period dividend debt a or to of decrease same $X million income total of that for and non-recurring. to are in of by accelerated basis of increase is of on income dividend decrease in the million million that for of a million. recurring of total income partially

market for The and non-cash the over quarter the of X% increase realized during first as compensation income the and SBIC of our structure gain the debentures, debentures realized expense, net quarter, total share resulted net and of to the due $XX.X $X and expense year investment rates, provided fair months. for of The our to primarily impact was were $X.X million X.X% exit compensation losses market investment, X.X% we private expense first of million loan our a per first expense interest middle discussed, partial value. these net expenses, for unrealized operating recurring $X.XX primarily quarter through External exceeded and the of expenses quarter relating million $XX.X the million paid of of portfolio reversal our was resulting million The our a trailing primarily prior quarter, share, of appreciation the certain and maturity by our $X.X $X.X of their $X.X for total which The to investment relating million. investment on realized to on NAV, first approximately increase middle activities Partially assets. to realized recorded dates our a the approximately based unrealized million in the relating recognized ratio the distributable to by on net appreciation interest loss to Investment loss by the higher a by to as first Dwayne monthly quarter prepayment the of market or exit as during relating offsetting leverage accounted as a benefited our our was XXXX in were in middle accounting primarily previously a lower in appreciation a portfolio. portfolio, plan of percentage depreciation of a on had XX increase portfolio it losses first it the related of of at total certain dividend of manage The annualized value increased loss the income. a deferred million the investment our offset middle average of an expenses, offset income of million depreciation, market exit of the on and combination of SBIC from million, $X.X $X.X excluding compensation from net to million minimal We of operating the Manager excluding to a partially $X.X the recorded realized for XX%. million assets, for $XX.X The by debentures. quarter on basis realized operating $XX.X $XX.X investment, we operating of lower fair net increase of in a loan services was private investment. And efficient strategy to net dividends which total interest their unique primarily increase the our XXXX relating allocation repaid of million

for million per of resulted a increase $XX.X quarter net or $X.XX net Our the share. operating results in in first assets

to end million excess of facility, strong, $XX as $XXX liquidity front, and $XX $XXX On under had overall liquidity SBIC million first remaining the million unused we and elevated our in million for debenture X.X% million credit million the million, quarter. April, December, as of investment maturing we maturity repay total balance notes then December. Currently, capacity the from cash, in in portion a to make-whole Due $XXX the capacity credit resources issuance in provision net approximately under facility notes will of recent total $XXX notes at have unsecured proceeds facility our our the upon term grade a the the a of we our of under five-year used of with of we $XXX of reborrow grade notes to and coupon. investment million repay fixed and remained the $XXX outstanding liquidity capital capitalization is revolving issued the which this

debt secured rate was increase the our than time with the in November rate the pleased our as unsecured under since are last in interest We period. over our in less credit XXXX this investment transaction, notes the significantly same increase grade interest facility issuance

providing program, our We fixed an future. long-term us capital per structure issuance the with believe under the ATM also of enhanced $XX.X our additional net well-positioned equity quarter capital during million sale rate approximately average $XX.XX active has raising in for also share. debt price We're and proceeds first

offering, turn dividends. of our the is our second in when the monthly back share recent operator, the I per prior now take to will grade our approximately the so increase expect after that, $X.XX we second expense incremental by This questions. conservative can net we any generate dividends $X.XX to to This of per $X.XX is the our per previously distributable quarter. of approach quarter investment or $X.XX we X% XXXX, the expect of $X.XX announced will to our for that share, above forward maintaining per income quarter With X% which will expectations. quarter to during to cash to debt share As look our the estimate cost over we compared $X.XX monthly call second we estimate investment approximately interest share

Operator

Raymond of your proceed Our you. from comes first question. with the [Operator James. Leslie Please Instructions] with line question Vandegrift Thank

Leslie Vandegrift

Hi. Good morning.

Dwayne Hyzak

Good morning.

Leslie Vandegrift

look middle market slight each. in portfolio lower companies release, the of EBITDA in noticed is incremental had and -- in you a the My I loan portfolios, market when press each one at and private the question those middle average decrease

due contraction portfolios is in EBITDA So quarter, from that to or or a fourth there? to in of a that due of is a those each is that mix changing bit

Dwayne Hyzak

a Yes. I detail of would the -- real a bit a say decline movement or the in little answer. it's we're underlying seeing trend companies. mix we little in to as I'd look detail at portfolio opposed But more your say would be you look give downward in to -- that it as anything at precise to you portfolio a a more in EBITDA it's that have a

Leslie Vandegrift

the Okay. you. a on was of decrease that some paying was quarter, due quarter? the mix equity just of issue this And portfolio then, Thank were -- some yield dividend of that income repayments, or the there the companies simply this of to again, a lower

Dwayne Hyzak

parts I activity. year's of we than be higher quarter that the we communicate to seen including do we identify comments, recurring to some or our year's were given think would have look each from comments you maybe not last and back last look kind some to that if recurring be income expect we activity may you income trying could that the if And you dividend we at nature. at quarter, in an of this elevated had unusual be try

quarter some comparison it's a dividend think So a caused income basis. to more decline that year-over-year or in on comp last that less nature I recurring having year's that was just a fourth

Leslie Vandegrift

That's you. Okay. question. my Thank

Dwayne Hyzak

you. Thank

Operator

proceed from line question. B. next the Our Hayes Instructions] [Operator with Please Tim Riley FBR. your of comes question from

Tim Hayes

good the that guys. had non-accrual you was the Corbin expected MH one, in taking resolution quarter on for with of those morning know that quarter. that mentioned you my flat the investment still non-accrual, I on was another the one replaced Is placed have first or investments year. questions. of over quarter six half last My Thanks Hi, first one? still

been just not wondering get we that there, update an So if replaced? if can indeed has

Dwayne Hyzak

middle of investments Sure. one was Corbin and the came market it end actually on Yes, of off by SiTV. replaced MH of non-accrual the by our quarter

why that's SiTV but And numbers quarter. flat, the them each did so, replace

Tim Hayes

investment? you your just And with -- SiTV maybe on Okay. and bit Got that what's what outlook on could then, is or a expand going why it. that for little

Dwayne Hyzak

but SiTV's the end that be structure of too investment exit needed should the bankruptcy, debt. It a it there, this fairly restructuring quarter. expect cash expecting entered like and we'd long-term, a before the to much X/XX. (inaudible) quick restructuring We

to three to be in So we two next a that expect months. result the

Tim Hayes

Got it.

limited you of exits Okay. expand estimate your what just in And can quarters? you maybe in gains driving if you potential have rough you but drive? these then, that a I say, upcoming could can comment events understand events, these may around on the What's the be coming and

Dwayne Hyzak

inbound in Yes, I you to robust we're we is the to of expected, that overall can there say. given what limited But as what the think nature fairly going are have we're be trying so, communicate has seen third M&A an value from interest markets compared that standpoint, or valuation structures a we from our and inbound more to favorable have levels fair pretty marks. been interest parties that

So discussions. the expect in but in of be the over exits have process, do quarters. Those two situation of engaged activities stages we would we would to different lead that those next discussions in each some

So expect in tried comments I as favorable. my we to those exits communicate be to would

what or that us fair marks they specific is for those comparison specific value that historical to for means those companies be in or would favorable So investments.

Tim Hayes

Okay.

don't you're potential clear talking March, about, those M&A XXst, though, they be did companies as valuations on they current of March currently? targeted in to reflect these any Just the don't

Dwayne Hyzak

they reflect the that in say where would levels they different potential based each M&A are for upon I at process. would the

exit closer you the reflect some standpoint. to are to if fair So between value be. we in what a process, be at hope the -- probably have bigger would earlier fair will valuation values they're delta X/XX that to what realize from Others, exit the would we and an would expect

Tim Hayes

that. mentioned be volatility, maybe the Appreciate bulk that you to was appreciation you unrealized helpful. I of would of us? XQ but for to And due then, able that That's reversal size market the know understood. Okay, the

Dwayne Hyzak

credit marketing I What is that would say perfect. split that, is that never of between breakdown

we be if are way loan I market, reflect there the you in would that that we would the private real of market the credit depreciation looked QX. is, portion slower So of specific to it at issues resulted the hesitate would continue in negative loan you appreciation give that's precise, from categorize the a the market but that impact that segment reversal numbers And portfolio significant QX. of the the the that why a to portfolio. in private at and look to middle recovery middle you to And values the market have market portfolio seen private fair see to comparison think if market, some in we've be or loan return

Tim Hayes

Okay. then, Thanks the rising I'll do health sneak in today you they the would are? of labor describe biggest problem problems your for or today just face And you of wars, think rates, here. that. input borrowers trade anything How or economy, else, potential one what the more interest between shortage costs,

Dwayne Hyzak

Nick to would credit we you to But very quality have positive say issues and overall, strong. comments portfolio certain some we I from have non-accruals specific view gave, the look companies the a of our on our quality of the time. that that that continues and the portfolio -- time the perspective experience credit have would performance the be do very overall, our we they from -- view at companies. Obviously, of

company to middle our likely some be basis that on at biggest lower the from labor it reasonable of expense. portfolio issues market of quality hear were If would a accessibility the look you consistent we managers, at primarily

portfolio, we issue market the the last and as portfolio that middle lower say would of the over quarters company face. our couple that would point the mentioned consistent thing I across most think concern we've that managers that's or I that before

Tim Hayes

morning. I helpful. appreciate That comments, taking questions for it. the thanks Got and this my

Dwayne Hyzak

Thank you.

Operator

comments. the back no like in queue. questions the management call to for hand closing to There I'd are further

Dwayne Hyzak

this appreciate everyone the We Thank and talking again forward we'll questions few you to all to a look for months. joining in morning. us again

Operator

participation. Ladies does teleconference. and conclude for this your you today's Thank gentlemen,

You time and day. at have wonderful a your may lines disconnect this

Main Street Capital (MAIN) 10 May 192019 Q1 Earnings call transcript