MAIN - Earnings call transcript Q2 2019 | Main Street Capital Corporation

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Operator

Greetings, and welcome to the Main Street Capital Corporation, Second 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, sir.

You may begin.

Zach Vaughan

good and operator, you, morning everyone. Thank for second quarter you joining us Corporation's Capital Street Main XXXX for Thank earnings call. conference second issued Street detailed results. a release quarter company's yesterday operating financial Main and afternoon press the that document company's at the This section website available Investor mainstcapital.com. on Relations is of the

hour We also of A homepage. an call were call. completion available telephone webcast replay this release. that call the is through will live beginning company's broadcast in advise included to on so and Internet the you today’s of be on the yesterday's Information features can access conference after being or be accessed and replay the the how

that accurate or transcript today, sensitive of that note only time listening reported XXXX at speaks any may replay are call as August longer no the advised Please information of time be on and information reading. this XX, therefore you

anticipates, by should, be Today's of words call statements forward-looking will can as expects, contain these forward-looking the expressions. use of or similar Many believes, intends, identified statements. such may will,

the website in These management's Actual Exchange risks, date are expressed estimates, and the a projections of and as call at Commission, set limited materially sec.gov. this to which forth implied factors, of guarantees be on are differ as from the may or of of uncertainties Securities including can or result on future factors with filings no in based other and but results these assumptions performance. company's the statements the not the found and statements results there company's

law. statements obligation unless Street of by any no these assumes Main to update required

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

Main to Dwayne. the call And I’ll Street’s over Hyzak. CEO, now turn Dwayne

Dwayne Hyzak

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

Magdol Joining call our and Meserve, me the our Chief Investment Middle Market Chairman; for Foster, today Group. Nick CFO. Director David our are and Q&A our us portion Smith and Managing call prepared Officer; Also Head Executive joining and our for comments Investment our President are our of Vince of with Brent

On commenting a I activities second today's the of other and the I overall quarter; performance announcements investment in pipeline. few a call and by of dividend commenting on on will portfolio, our investment start providing recent recap our our developments conclude by performance recent and will discussing our

will provide which Following certain my after portfolio liquidity David comments to happy stats, we take your questions. and current be results, financial and our Brent will key additional on position comments our

We which our continued structure, favorable facilitated with investment leverage results. and were of and for our the of financial our the strategy during execution quarter continued pleased operating the a second operating low quarter, results efficient, differentiated cost operating performance

investment of XX%. of results per exceeding monthly our distributable generated excess DNII again monthly share in our performance, dividends by regular dividends, income net our As or regular we approximately

and strategy future investment operating significant our have success. capital well and differentiated conservative efficient structure very our of continued position for advantages combined the us that positioned structure, believe We with liquidity

appreciating basis, market of lower the by second with our our net XX on portfolio portfolio in million quarter, investment a of and performance $XX XX at specifically the middle over investments depreciating. Looking appreciated our

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

we our specific credit depreciated though issues million collectively investments approximately by market portfolio. been private $XX middle due certain depreciation a working from basis, loan portfolios net have on the in impact and primarily that to Our middle of market with

December, payable fourth Board and year. our of on from third amount an dividends the is share X.X% monthly that the of fourth a dividends our for November per quarter $X.XXX and monthly regular week quarter quarter from increase prior unchanged October, declared our this each Earlier of

with our monthly guidance a reduction over our of Consistent our plan currently dividends to dividend per years, dividend several supplemental share, supplemental of for semi-annual share. we that expect into in prior dividends and recommend announced per transitioning June supplemental $X.XX December Board $X.XX our our declare from payable a previously rate

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

pleased the are first incentive management that about these fees of quarters. time and performance in benefits meaningful potential excited generated activities during we're fees the asset We second the our incentive future quarter for

are next integrating the we our team Jesse Executive newly our our hired pleased Jesse into about are recently We also and management addition over executive with Operating few Chief the expanded and Officer, that as Morris excited team of months. President Vice

$XX I activities to turning investment lower market investment middle investments pipeline, the current our middle would Now we in characterize of quarter and in market quarter, the million average. approximately lower as and our completed investment our pipeline of as today

a to in quarter second to continue new consistent ability with we and and investments, our opportunities our new historical current profile. a originate confident result future disciplined to remain pipeline of and our selective Our our are investment investment of activity maintenance approach

last third party existing these interest the activities In has several attractive portfolio noted middle lower we third portfolio experiencing quarter that in result next additional beginning and in and this interests believe resulted could quarter companies ongoing the we company exits, exits over of two quarters. two quarter, of one second lower increased our of comments the our in that market attractive middle at the market we were and one

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

characterize as would I investment loan pipeline today of average. private our above As

$X.X And group during million million in continued quarter has and owning closing, quarter Street investing at $XXX end. director and purchasers valued shares, the be over our regular shares approximately of officer at to Main our

I the turn like David. to call that, to over would With

David Magdol

Thanks Dwayne good and morning everyone.

quarter our to investment are we and We distributable investment report grew while which income our pleased net total during another generate of income, income net distributable to in continuing excess monthly dividends. investment

of differentiate that Street unique Main are our activities provided the strategies We market. asset our BDC peers. operating believe strategy significant and complementary in middle debt results strategy our combined the This with illustrate investment when our benefits structure among management our efficient in that lower firstly positively value proposition investment

our net been for ability our demonstrated asset and our has our per price share through in dividends premium value increased This the generate through to appreciation. consistent total our shareholders stock per share, returns growth

from driver of underserved Primary significant equity our the lower We of benefits focus long-term on market. our success to in the be middle this the debt see continues business. and both investing our segment in securities

Our debt downside yield with equity the us protection. equity our company and align lien closely perform, an portfolio profile our our provide allow teams management to first upside and attractive companies while investments interests significant our investments as share in

are a million or our approximately growth and size market June share primary pre-tax per driver and our XX, unrealized significant $X.XX share. middle NAV lower $XXX net at By per scope, investments behind both appreciation our contributing

through dividend realized group support we the and upon our market in dividend the total our middle these lower paid investment income Our exit received equity gains also from investments. shareholders periodic

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

our the total annual equity months; from purposes our lower entities companies diversified dividend time, market since dividend having received results, end. investments during appreciation year Turning growth back to at compounded representing in with middle of of with $XX period our lower have approximately be our XX market contributions unrealized quarter continued middle XX% our middle million recent most income ended XX% to our companies for tax portfolio from income market to the the pass operating XX of was through last our contributed a that XX this lower XXXX. and investments well

believe diversity believe benefits and analyzing of We future. diversity the nature the recurring our when of strategy the critical this to this in we middle the visibility market benefits is portfolio provide these that lower from

we As investments industries. in at portfolio had a XXX June XX companies than XX result, more expanding across

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

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

over debt, net $X.X lower junior portfolio our is XX% portfolios a in XX At middle to lower senior total fair included Our debt-to-EBITDA basis. investments value, or conservative which the is companies, in X.X:X. billion was the middle to approximately company of X.X:X was position priority market interest senior EBITDA our which and median cost the ratio representing ratio debt level, including X.X:X, portfolio market portfolio above

$XXX In investments XX loan representing companies, $XXX our investments middle market private fair representing of in value, in XX had approximately fair we million approximately portfolio portfolio had companies we in million value. of and our

total X.X% cost. fair the comprised at cost status on at of investments value had The quarter-end seven X.X% and value of portfolio total was at approximately XXX% investment basis portfolio non-accrual we approximately related which and fair the investment of

Main long-term summary, a portfolio high deliver investment and goals. level our Street's at continues overall to perform In to on continues

Brent the structure I'll and financial call results, liquidity to turn to that, position. over capital our With cover

Brent Smith

David. Thanks

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

over non-cash to grade primarily issuance in investment expense prior $XXX April. to excluding expense $X.X share expenses of to year million compensation by million total debt $XX.X related operating period our in Our related a million, interest same the based increase the of increased an

was an as X.X% average quarter months. of the assets our The operating basis for XX second excluding a the for on trailing of expense our and annualized total ratio X.X% percentage interest total expenses

income investment leverage in efficient our XX%. monthly combination investment dividends of for quarter which or distributable net resulted our paid operating $X.XX the of The structure unique our exceeded and of share, $XX million strategy by approximately per

income expenses operating $X.X for $X.X of The million services activities the through of our million dividend provided income. million Investment benefited of it approximately by $X.X investment we our and Manager External net of to allocation

dividend income incentive fees in increase the is primarily As due discussed, Dwayne to earned.

recorded the a partially the exit gain $X.X We market net quarter, of market during realized related offset million the of loss exit realized from relating a by to the primarily a loss investment, to a investment. of lower middle realized middle

we relating million of As portfolio million, middle and market million appreciation million net External Investment investment recorded of portfolio of net discussed, partially million depreciation depreciation market net by lower appreciation appreciation primarily of Manager, $XX.X $XX.X Dwayne offset $X.X our middle portfolio. our of to and on private net portfolio loan $X.X from our unrealized $X.X on resulting our the on on

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

in at quarter. was Our as liquidity million end second and $XXX the total of remains overall capitalization excess liquidity the strong of our

revolving repay that re-borrow outstanding call, our elevated April, portion notes under December. a as we expect facility, then As in $XXX due to liquidity the million the our $XXX on investment we to of and of mature we the use grade conference to quarter our previously the the credit grade issued earnings to repay million balance we facility, first investment discussed proceeds in net under is notes

issuance average net Due price to $XX an ATM, sale per our under program raising in proceeds liquidity, under approximately the active million less just share. of elevated during quarter, were our we with $X equity second

of approximately quarter third the per $X.XX to share $X.XX X% we XXXX X% distributable estimate income the our $X.XXX to quarter we of will expect per $X.XXX we that net is to monthly investment of third above for dividends the quarter. As previously to look or share. forward generate share announced $X.XXX This during per

call over With the we any operator, that, turn back so will I take to can now questions. the

Operator

[Operator Thank you. Instructions].

of question. Robert James. line your Our first question from comes the with Please Raymond Dodd with proceed

Robert Dodd

you at can. of portfolio, the middle guys, If market middle if since lower and further got some from down. ask from look on lower Hi the congrats market, If middle I quarter. can you a semi-macro kind we questions separate if large we you diversified can the market

even. appreciated, the the today or depreciated, middle lower businesses. the revenue what Are the than downs. you've that’s I versus What EBITDA any seen growth the trends market like were there On of six But months kind mean in ago obviously fairly those are or say XX bigger trends anything side, ups seen; that? you’ve XX are trends growth determinable from

Dwayne Hyzak

there’s there six have say months compared would not would a in change to that I today place what Robert. ago. Thanks been big

broader issue. I it’s think either than it issue you well we are that industry of to where companies companies an others we and is company that know really see of and as say well, performing continue overall, I'd know not are are specific as see not a performing bifurcation performing more you well

have lower kind lower being that always your I think exhibit companies companies we mature these you that the in know market growth. pointed we've middle to of

that consistent side. anything past, the add know nothing a months path the is see versus that we we're let know saying And trend on ago. else with have David – you see he’d say you change that’s his that six I'd or that but I'll in what you we So the material

David Magdol

think we’ve and such and companies industries versus Dwayne the ago months restaurants struggled retail with other six in picked and of trends I some only I’d agreed up. No, that have like have seen

Robert Dodd

terms market clustering are issues with place? said I all in mean obvious Okay, got the side, seeing credit or some the question, there credit is Dwayne on it. any specific in just of the all you the And industries you issues. at over middle depreciation

Dwayne Hyzak

specific headwinds say I’d issues situations the but referring been consist are David your type there with just that industries being you to that to, that what know Yeah, one opposed multiple David across say the was you company spread have of outside restaurant they retail said, know more thing. some faced specific where as and I'd

Robert Dodd

if can. appreciate I I that color one and more

can you talked last was management to full or quarter the terms or mean start asset you in fees. the mean us – this incentive – expect level of on give business, feel a kind incentive continue you at I of meaningful to it it remain mean fees On we expectations, but I about that should is ramping quarter incentive and I color this performance was partial steady-ish up. know going any that

Dwayne Hyzak

because very to is to that that going related be incentive performance be say you always the to would I fees in specific know going quarter. hard predict, to it's

we I incentive first meeting think just for the will earned second a quarter, it was and paid the quarter that fee. you know be

in We have recognized in of quarter. in to of whereas that in earned you where that year this incentive fund those and fee no enough past the quarter know generated the agreed there where earnings also we an we're and second waive just waiving longer that the have second in would a fees, incentive fee XXXX we had significance with justified had quarters that manager know had would the you fee, you periods have

Robert Dodd

Okay, appreciate thank it, you. I

Dwayne Hyzak

you. Thank

Operator

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

Tim Hayes

Hey, good morning guys.

Just on up question there. wanted follow Robert’s first to

the appreciation quality? You market EBITDAs we market stable reflect trailing downward the in but Does appreciation trend continue broader middle and know middle to and lower primarily middle credit market unrealized the unrealized this see portfolio. underlying in portfolio portfolio, in EBITDAs

market be – is characterize you the know market quotes a that portfolio or relates to that. versus there lower how middle there health borrowers just technical to like know you the that in portfolio. involved sure the or I you then, would no want of anything And it the depreciation make will factors when middle

Dwayne Hyzak

some I in some think had, to to names. on But when market, additional no-market. I'll the know comments middle you so at look let Nick try really comment, get we and earlier it’s we've I’ll related Meserve I address the the as initial several know you add comments Sure, we depreciation think specific

back couple you movement. quarters of to have would of technical I the last over you some say looked going fourth quarter the back did if XXXX,

issues QX you do in fair specific had and in of that and some we've cause but working year that would been through, more issues movement third and know continue the month specific know to second first, really in quarter. in names QX several that from were say value the You credit we’ll the I the December this of standpoint, a we've

say I it that companies, continues So something with more, to would specific individual you to know be issues as opposed is broad-based.

of cash to covered be companies positive see very and be portfolio. continue the can quality I in the those income, think we've continue the pleased with performing performance you profiles the we the from overall generation portfolio, so market know results attractive companies of overall the very to middle in dividend well, and of we we credit lower are the benefits that are with pleased the flow that our the

anything I’ll said. on let market add he Nick would else add the middle

Nick Meserve

I think Dwayne you few and fourth have that from instances say would that quarter driver really movement, I issuers it covered know to it been of fairly is well the specific there a and today.

we’ve news forward. through the or are those think will quarter, the third I names is going good watching businesses we point restructured of look kind our this at at most and it so mainly of if

downside I the in. might think have seen that in some more than we issues names we’ve upside

Tim Hayes

some that happened get in what the and you was mark there. of nonaccrual was if investment I exit color one about the I think on to there. this put that's then of you credits appreciate us. on there we quarter, and one an And know was helpful, I since maybe I SiTV Could get what think update was quarter And added the another you that was to have the and so comments investment nonaccrual could restructuring that front soon. think Okay, which last potentially that talked and looking don't we SOI

Nick Meserve

during restructured we quarter and going that basically took around the believe, it forward by either a towards was I is an it that auction business forward today where is plan down SiTV we likely existing We is through loss going in realized or the there, $X.XX and that asset monetize position. more so than process. small Yes, restructured to debt tip the a equity and holders the sale that which

Dwayne Hyzak

to non-accrual follow-up new added being of so portfolio being end Guerdon status to market non-accrual off of portfolio and quarter, the a overall by and Nick on the is middle just is middle market as Joerns. the investments we XX a company one June SiTV And at lower just the and explained Guerdon came non-accrual, other Joerns second two company.

Tim Hayes

And around any two and comments let know what placing non-accrual around and credits on you non-accrual. you them those guys on putting to them

Dwayne Hyzak

we issue a the customer going a Guerdon non-accrual. to with So had related led specific on to that company

management We investors with to better on are team a the and the ongoing. position trying working company success discussions in for and are those put other

Brent Smith

a basically a model is squeeze the equitize liquidity of sale rental on you more from Joerns from business business tradition capital structure a in to and based perspective to of debt. need

in So sheet. balance in days second the with expect we exit to quarter, restructured XX to next XX the that entered bankruptcy and the company here

Tim Hayes

Got I appreciate it, taking okay morning. the comments questions this for my and

Dwayne Hyzak

Tim. Thanks

Operator

Thank Instructions]. [Operator you.

the Our SunTrust. with of Ramirez Michael next with proceed your comes question. question from line Please

Michael Ramirez

taking morning guys, thanks questions. Thanks. Good our for

Dwayne Hyzak

morning. Good

Michael Ramirez

business long frankly us and here, of possibly help additionally, on investment few that maybe better sort the the strategy, attractive deals, recently maybe income it guess the but you asset management term could that know M&A market to I and forward. seen you incremental seems on for your impact seems in have anything first you on you a understand you just wondering net maybe going business, this passed thinking

Dwayne Hyzak

hard it growing would would you at to standpoint. but opportunity Yes, it also organic we're us heard we know because in grow both at past that upon looking you’ve from to the to business depended an are grow in sure. opportunities know it, looking you the an as from and the you standpoint M&A predict avenues all say interested was. be say But it’s point, know I what last

that and know that see come industry, to sit active from in active We to is ways significant we we’ll they come because it's to is nothing about, business. say to we continue but us there's anything you the that you M&A Where we you opportunities but know that to eminent, actionable company as is that say we the know in find today near the the for longer on at very opportunities particularly about and wouldn't think you the they term. as I We before, look to remain something place that's grow that now know and in continue be and a do you benefit come, know said right side. we business there's want would we shareholders as to want grow the term,

Michael Ramirez

of one changed maybe great for that that. Maybe your thanks environment. this Okay strategy, middle has more lower on in market sort how

are you remained recently been and sort it's So I equity of a environment frankly of for with a companies we've debt take a repetitive; strong have to equity with the or economy, rate seeing relative portion on to close has greater asking six same quarters. getting investment, But cycle initial most strategy now your lower just position. the or your lower of regarding middle market the we're new you interest of to kind like end know BDCs that guess four and this saying know last I hearing been coupled

Dwayne Hyzak

Yeah, there. I wouldn’t say significant that there change is a

very case want be that to would very to provide I the the be that's middle specific to that each opportunity, proposals market to the and we customized very, to lower structure pursue been see in the to continues be always today. are we going continue solutions so the case and opportunities We to position the and say in

know continue We to And historical end – right that just see opportunities our can the find you add that the can there? cover I’ll we that want When tractive to up anything he solution you with that else in opportunities phase we are getting the on. investments into we execution need to we any would pursued. let consistent the you and and structure most find that opportunities the David our look profile at recent and see new pipeline, we

David Magdol

add. to else Nothing

Michael Ramirez

great. guys. Okay, you Thank

Dwayne Hyzak

Thank you.

Operator

Our proceed next with question. Rowe a of comes Baird. question W. your from Robert Please Bryce with line

Bryce Rowe

Hi, with Securities. good morning. National I’m actually now affiliated

Dwayne Hyzak

Good morning Bryce.

Bryce Rowe

was I speak then exit marks portfolio and Dwayne values you the middle if lower where to or four recent be maybe exits and And two you the hoping quarters compare could David, in to could third comment is ago. of some guess interest market lower that two have to in you know I quarters would relative party and your existing on also you middle to stacking up market interest ago. those four Thanks. may companies marks how seen

Dwayne Hyzak

Bryce. Thanks

exit exits second our So a we in through that conservative on the, products the been in kind for that you had of two. of our know occasions, the investment a It’s so you fair time on to what actually and the in process, we this heard have a marks with number were know there had transaction comments been and had realized mentioned Earth value a name have you've we was portfolio exits third have the that One company was the actual by we’ve in going in partial been that prior long consistent was quarter results. of comparison us say in would Solutions. past, company the

prior have interest exit million that, transaction because press that have transaction it you seen but $X was not know was not a value. fair would if compare So gain release, the two fairly which million quarter, for out residual our the us, second put you and why company a was is been small, a had we about material quarters from between it would the our of difference in you to the $X.X mark to actual the and in us

and had third that in The for also a it exit in of exit. we was $X million company been was and the the a Lamb's a quarter Tire It beginning we was time. was have second which Automotive, long

for period You ongoing know had longer activity time. exit that of a been

know you I attractive have let an ongoing value also between very from overall a the of exit say from an versus So as other just but of found valuation it are we that and color basis on value, fair standpoint, delta fair the the David exit you also some from seeing, standpoint comparison I’ll a value would wouldn't value we the the and you of transaction large on but of standpoint. kind give activities exit an our know was

David Magdol

So more calls portfolio companies. on consistent where in we've a question, incoming we to got negative such, we activity Bryce from as characterize market of from availability a from on market acquirers of with but the continue the recent lot feel than I'd a in. are incoming benefiting call a we're strategic but past, lot credit historical of our the and currently certainly that basis

Bryce Rowe

decisions long makes to and And I that got these the kind as hold sense. it well just lower preference in you performing being to management you as your assume teams companies of are from be with the all can, for with and but would made consistent where monetize previous market strategy middle that clearly you calls coming

Dwayne Hyzak

to call a with hold thoughtful discussion our get the in term no specific not unmatched but partners to very should calls is investments and think in income whether see to know over we look we real belief intentions our certainly is one we and in what exit and stay of in we know – when and to a you can period is our a exceeds interest market had weeks the income a from extended discussions dividend enter just, think that have our example, to have ago we seriously. management, three could had company that take not, we long an investment it benefit in know about on but come a here we and period our significant we've get preference, We you ability That about we the these for of incoming of have selling. those valuation is time the time, these far reason we get you the or

Bryce Rowe

Excellent! Thank comments, it. the I you for all appreciate

Dwayne Hyzak

Thank Bryce. you,

Operator

you. Thank

questions the management to comments. like over We back have to would floor now at this for time. no turn I further closing

Dwayne Hyzak

for us forward again we talking everyone a few this in to again Thank joining months. quarter you look and to

Operator

gentlemen, This you thank today's and teleconference. your conclude for participation. does Ladies

have You disconnect a and lines may your day! wonderful

Main Street Capital (MAIN) 9 Aug 192019 Q2 Earnings call transcript