MAIN - Earnings call transcript Q1 2020 | Main Street Capital Corporation

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Operator

Greetings and welcome to the Main Street Capital Corporation First Quarter Earnings Conference Call. [Operator Instructions].

It is now my pleasure to introduce your host, Zach Vaughan with Dennard Lascar Investor Relations. Thank you, You may begin.

Zach Vaughan

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

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

contain are on will are such of use statements date should, may no expressions. Many by of and as of future or expects, will, guarantees of statements. assumptions words identified be the this forward-looking performance. there intends, based these call similar can management's statements call estimates, forward-looking and the projections as of believes, anticipates, Today's These

other a results or any implied or as with statements Securities results these may the website risks, limited result Street the found but sec.gov. including, at and law. to of expressed company's the of by filings the forth Main differ update company's no uncertainties statements these Actual Exchange be in Commission, can unless on which the assumes not required in obligation materially and to, factors, set from factors

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

Dwayne Hyzak

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

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

our Given unprecedented over last our for and COVIDXX the to impact collective society of business as and our a and responses. the call on significant of our little few details some the different we historical companies and our will the date impacts economy than portfolio today's be content provide months, calls businesses to the regarding

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your questions. on our take comments, my and results we'll David additional provide on strategy will and additional details after and be happy which financial our comments investment Following investment portfolio Brent to

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week unchanged To of amount XXXX dividends September in declared third our our from July, for monthly that quarter August per our this the $X.XXX that and payable share end, regular Board second an monthly is dividends each of quarter.

to an our mid supplemental and investments, our COVIDXX new As to our and discussed by to agreed dividend indefinitely. approach maintain recommendations, due active our in conservative upon to based press our to preserve created dividends semiannual challenges and uncertainly support desire liquidity our the opportunistic Board to a and to April approach release, suspend

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in market companies lower current two Now middle of pipeline, and new quarter today turning investments the COVIDXX, to of quarter middle Despite activities very strategy announcement of the in as in be characterize in investment market would and continue our our market is in investment lower of we impact evidenced mainly investment we below including as our to of our our to [indiscernible] our impact in I lower completed April. million the average. due $XX $XX million late first COVIDXX, investments by active recent pipeline investment the

expect in new We in execute investment continue the opportunities on near-term. new to the several pipeline and to have also investments

our be last as unique as these two industry will lower and decades in More in with importantly long-term companies market our result companies a leading increase our investment to the the experiences that our economy partner to over equity and a management historical lower for opportunities expect very based upon to market begins we combined their teams, offering permanent debt middle partner the significant ability recover.

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market portfolio successful net growing the middle our first of by our portfolio $XX modestly portfolio in over resulting the investment focus we a loan quarter, our growth continue market with quarter, middle During basis on in this portfolio to private on million. decreased non-lower

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our end basis, shares director On of owns value or quarter [ph] at million million today. in $XX a $XX collective over Main approximately group Street

over With the I'll now turn that, call David. to

David Magdol

morning, Thanks Duane and everyone. good

nearly for XX strategy his purposeful permanent our negative cornerstone intentional capital a portfolio quarter challenging As well we partners served sudden philosophy time. years our to during public company remarks, the impact, Dwayne unexpected as over highlighted and company impact our investment has the our for by us Despite in as been prepared of is enter COVIDXX. respond It benefit has a Street this created Main the structure. this and and of negative diversified this and

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

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debt portfolio equity including on which decrease lower market and totaling portfolio invested quarter investments in $XX lower portfolio approximately result in $X.X Our investment investments a investments new approximately middle companies, middle two market total our first in activities our capital of in aggregate in of million. included after $XX the million middle repayments market million, return of lower net

loan our portfolio Total private $XX new loan had approximately million repayments net our million million decrease in $X.X our in result of follow-on after of portfolio of and million in middle $XX aggregate increase investment a of private approximately $XX we and in million. were portfolio investments, which market net a $XX including

investments fair of in billion market middle companies XX% approximately of company of of XXX% most middle is equity lower conservative our equity capitalize included such lower market The approximately of value our the cost portfolio cost ratios. with these with XX fair $X.X Our basis. was value leverage investments investments portfolio investments which over above representing

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

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our Turning outlook efforts to XXXX, we primarily support new to our investment thoughtfully lower on for market opportunities. while existing remainder middle the focus of the to capital intend investing in continuing

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

Brent Smith

David. Thanks

investment period interest decreased dividend both million income the were negatively areas by in the quarter a of driven income investment first decrease XXXX as a total to $XX.X over Our in primarily total and same in income income increase impacted after related total is The accelerated in $X.X levels for first by certain to an change compared quarter million investments year. income of last COVIDXX. of when of higher debt to the

million compensation to excluding a levels and of over prior the fair period cash the expenses due operating Our to a expense by incentive year $X.X deferred expense in share-based deferred our compensation assets. decrease decreased the compensation value of to plan million, $XX.X primarily decrease total compensation of non-cash a related in decline same

of percentage stakeholders. quarter on The structure our unique an as expense total was of the basis. This operating interest percentage our for and annualized ratio our low average total expenses excluding cost managed X.X% with first alignment a assets highlights internally

Our income structure significant to share. or leverage net efficient income environment in and the a portion ability investment decline during offset investment resulted $XX.X per of this in challenging our $X.XX operating million distributable of

manager it The our operating million approximately for services our $X.X provided $X.X investment of investment we of expenses benefited and activities We million through net income the million income. external dividend of two the the partial first realized by exit of allocation million to $X.X $XX.X recorded a realized relating loss the a quarter, to investment middle of exit market investments. during market losses lower middle net primarily lower other from of of and

$XXX.X market of our primarily depreciation external lower other include investment $XX.X of million $XX.X net depreciation market $XX.X $XX.X impact net portfolio, annualized of portfolio $XX.X and million middle our relating net depreciation of to from depreciation portfolio. on appreciation resulting manager relating the of depreciation our recorded appreciation on middle portfolio, million on of We million net net the million, unrealized investment our on net COVIDXX private million portfolio, to loan our of

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

Our raised overall prior approximately $X capitalization total liquidity and the as is we Early room. ATM million the our COVIDXX impacts and to proceeds per current approximately $XXX liquidity during in our equity issuance remained quarter million. strong net under from

levels is expect our continue to with under that is to Street. middle be to for and lower our active Main new equity investments market continue we as conservative capital permanent believe program raise appropriate the forward factor equity funding believe at Moving ability to we another differentiating we

that and strong access not Overall conservative in liquidity continued well-positioned to also to our us through the in successfully market. navigate have continue but leverage, opportunistic challenging capital we investment to be to opportunities terms of only feel strategy this

we to to second impact and to economy we increased as guidance companies the of our relation the our level a not forward result, ongoing are for of quarter and there's our results amount to of quarter. portfolio uncertainty a of the exists expected uncertainty providing significant distributable operating As in look operating the Therefore, and due net of investment related second results. COVIDXX, typical overall for the income an the

and release press our for in that second expect mid-April, our be monthly investment dividends below in the do we However, income mentioned our we quarter. as previously will net distributable

period dividend the conservative an companies expect portfolio of appropriately of approach Specifically, in are taking varying income during a a companies of general, this cash our uncertainty. managing of decline negatively some have equity portfolio impacted to their been overall degrees investments in liquidity our we of flows and in as the from

in first a liquidity we in during a to very fee our manner. origination conservative our activity of in the to our our capital In decline in and the expect pandemic a interest manage rates income continue that the occurred we primarily due decrease addition, decrease LIBOR as and income decreased quarter during due to addition

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

Operator

Raymond [Operator instructions] with is from question Our James. first Tjaden Matt

Matt Tjaden

usual the COVID affects First so was question of the or strokes hit and that restaurants quarter broad any pandemic expected been kind were suspects I then forth? guess post by the industries retail in or were kind like there end more beyond of leisure, quarter and

Dwayne Hyzak

shut had expect outside that impacted. would if it surprises referenced where the I would place that that no huge you say or require be you or look there shelter significantly would to you stay-at-home industries either a geographic been companies would in mandates you of have outliers, greater down more stronger totally to that say for I extent. that would

it it been industry be say the the Outside to expect would've that outlier. would that that I I of lower So would be you impacted.

Matt Tjaden

not about through terms amendment quarter? in post first scale give any you relief that month any or in or or quarter requested the the of What there has end not of can as whether were and quarter whether accelerated the to

Dwayne Hyzak

something principle is most would along other in they've to making temporary some with company would do consistent they're middle has would company part say approach there investors private to I I tandem activity some the there that portfolio is cutting I go also that been market got a or to and have whether to what the in interest would some say to group with confession deferrals on has looking repayment. or of fair management think of and for our request. business of its with owners the activity private always which or do the been loan either request around or for if at say type equity equity and that the something internally We're is our this as I been you basis cost of there. request

Matt Tjaden

any receivable scale of if Paycheck as to been and kind for whether the what My how portfolio, apologies many companies the thank applied not Protection could you? the and last LMM rate been just so, give you or on question have has have such, on briefly applying Program

Dwayne Hyzak

loan which given PPP would a that standpoint of companies you program, of be and lower to be size market given program. loan the assume on primary and and an the EBITDA safe and for significant focus the revenue the I scale a middle from PPP companies would an our from of companies profiles our standpoint So eligible the both number this, employee I yes, say rather on would the profile think these

would minority companies in lower it's typically are I our I management say, individuals people remind private on majority the team. owner. institutional situations investor would that commonly It's these individuals of to going are we most investor, also be typically equity another in and another equity most and also that the not the middle the market

at been companies decide cases, these it's have you loans when companies for COVIDXX loans, very they've whether source a and that also loans the more with by look I their for companies I would the impacted, liquidity not PPP pandemic. help PPP decision been issues application impacted think So in the ultimately our in are of companies to access to they significantly these clearly through on and situations where the these solely those say the associated

other believe there are payroll market of they we loan also the we lower that including loans use portfolios, the middle point of and that of actively and these programs the some evaluating that not and credits middle market I the that the part programs The we look in that can under but out is PPP deferrals. for private just opportunities they these tax in just areas or we are companies I out think would believe be should say the that stimulus are thing majority vast our all

can are opportunities significant provide also the company. our of operating exploring state There and to is that companies and reinstatement have back our loss also benefits a a you of that tax carry then local number net

and evaluate we're all So the these them we we acting helping are opportunities. opportunities can, they when expect on

Operator

[Operator RBC instructions] is Our Capital Kenneth with Markets. next question from Lee

Kenneth Lee

quarter of for related wondering the how Just much the thank COVIDXX by one adjustments valuation, could of frame factored were process, the were credit in the just you? losses out if idiosyncratic most you on driven valuation us but net widening any just into of presumably the unrealized spreads,

Dwayne Hyzak

and I COVID the would reflected market see significant impact market valuation both earnings say our the our would portfolio. the as COVIDXX definitely able and very in the have our was that's that will process, would the looking across of as private have our at the in expect, you portfolios impacts markets of detailed XX-Q middle probably part be we that to lower you think portfolio release loan and I been of we middle in and

the spreads private the a to specifically think loan should first on here and depreciation appreciation. middle that credit I that and recover in we part second portfolios the back impactful significant was some of see we unrealized private loan the portion as of impact of us market portfolio, think we've some most quarter, back the of spreads in appreciation terms seen come into in and already that unrelated recovery there's flipping

Kenneth Lee

And economic then the just for you the be us the within portfolio dividend uncertainty, that near-term, from uncertainty could potential your if if expense I given income follow-up just could may, one kind receiving wondering LMM give on thanks. thought any of you

Dwayne Hyzak

taken associated a hard liquidity companies through lower middle market withstand work I would have got in impacts very to say that it's probably the including at making with COVIDXX. that enough structure a is look no and or surprise to anybody challenges given portfolio conservative sure and position the of they've companies they're COVIDXX all liquidity our the

we coming see lasts third and how by the at think have companies expect you and long portfolio long-term that long stay-at-home COVIDXX quarters this seen in we mandates really shelter of you'll for would look look the last. dictated will our be think second you at that how I results from in that and place lot our market impact continue dividend received you these of and to pandemic results, lower our portfolio of through that companies income when middle So if and and the I

Operator

Our with is Ramirez Michael next SunTrust. question from

Michael Ramirez

that interest quarter? I during the how and compare apologize if classified I income of missed quarter was this or does it much was curious discussed collected earlier, how as ticked to your last just

Brent Smith

pick I to the and with by increased we it quarter X% certain this interest quarter switch work companies let agreed time as was to this them as think pandemic. we for around of to work through period about X% during

Michael Ramirez

I about X% believe that So last quarter flat I believe is I guess. so relatively

Brent Smith

think might I quarter. last close was X.X% to this like be I believe it around it X.X% Yeah, -- it believe quarter.

percent. overall So an huge jump it wasn't

Michael Ramirez

may, usual uncertainty the the interest your it's I your inability about of prospects color of going dividend, to more of fees, you're interest but passing regarding quite to are fees you variable policy? high a your just the dividend pay not and so if portfolio maybe to origination, thanks understandable temporarily so around Follow-up collect thoughts guidance, for income could provide to level with inventory on curious future dividend and income what and that and

Brent Smith

to portfolio supplemental Mike, that the semiannual not if we've the our our to and so, your with current at I recommend across about quarters our at the to I feel intent. spillover ability income look or think our think position think month actions action least our steps stable really we dividend. over position, and taken pay good I we That's our for couple that monthly of continue a you and maintain current next the last plan board and our

over to and if all COVIDXX communicate about looking we issues again that in but today think factors what our to that's couple pretty next the good at last we'll we're longer, pandemic previous that comments. across think that everything monthly we're obviously feel the I quarters, dividend reevaluate given have of I trying

Michael Ramirez

I and think helpful me. guys. that's Thanks Okay. all That's for

Operator

back session. floor the to question-and-answer closing This I will for you. the Thank remarks. concludes management turn

David Magdol

call. We healthy possible. hope We everyone for us you. few conference as our we Thank thank months joining forward to talking in as for and again and everyone remains safe here again look

Operator

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

your day. a disconnect and have lines may You great

Main Street Capital (MAIN) 8 May 202020 Q1 Earnings call transcript