MAIN - Earnings call transcript Q2 2020 | Main Street Capital Corporation

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Operator

Greetings and welcome to Main Street Capital Corporation’s Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I'd like to turn the conference over to Zach Vaughan with Dennard Lascar, Investors Relations. ahead. go Please

Zach Vaughan

yesterday will and is us operator XXXX everyone. you operating press Thank conference second the Thank financial on quarter Main an was good Investors the remain access the will Street joining be call and release a replay issued of for Main This Relations section quarter that Capital today's for XXth. of details August of until call. the yesterday's company’s completion the beginning document you, available results. Street morning company's afternoon release. available hour, in Corporation’s Information website earnings second call to the and at included mainstcapital.com. A how earnings after available on in replay

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

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

Dwayne Hyzak

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

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

value to the focused on on economy, been able shareholders. and timing long a to and long-term for that these Street All pandemic and to uncertainty hope and term recognize committed fellow COVID-XX normal. that have time healthy. impact remain and six last the the stay everyone about society the our we near you our at the your We for to significant very are and eventual Main challenges, loved ones of return generating us of safe months term exist and challenging for that continues Despite

several other some on our current dividend our to the investment call, impact. similar and impact ongoing developments start our recent second business, in our will asset the call in within some of quarter’s last updates. I pandemic, with quarter, activities today's I will pandemic’s comment comments announcement, regarding the Given the investment then management pipeline, performance

the our than significant continued in for efforts since Since of to of David the more to believe our the been my maximize feel with individuals we our after results, the well-being to key conference management comments opportunities days in very investment the in that cases, our the people of health ability We call future. employees, and the employees economic which historically pandemic. many your our continue will environment our But portfolio a Brent the of greatly efforts firm, and be be very to teams and portfolio pandemic. and will companies. of additional and good envisioned questions. in we has the and to confidence prioritize we challenging the to We our and and the our they happy portfolio. companies most of continue last these current across early Following has and, beginning last strategy, the likely overall appreciate continue take portfolio, investment give comments, performance environment stabilized, financial activities, most have quality our our in individuals, a of since to and be pleased strength and our about These on provide call, challenging investment continue

managed to we significant execute our both the We the of that challenges, opportunities successfully confident companies and private manage We million offering through Fund. also have transition of our management to provide middle our also And the strategies. grow with are structure, and asset private while and agreement, position the very despite announcement recently pleased current overall we which to fund exist already that us benefit Income for allow would in lower the believe strong to that we’ve liquidity recent our market to pleased our very HMS to with investment to portfolio natural internally ongoing We of that loan conservative our on become a HMS, also continue our historical and pipeline executing our success unique July. executing strategy opportunities. continue with and attractive structure lower will this to our new stakeholders. Street remain and with future, our investment capital is positioning the impacts position and bond We're under pandemic, our progression on are $XXX adviser investments this our loan Main middle we liquidity within excited about the the role of business continued enhanced sole in market,

being of specifically specifically for results the investments, second most overall broader Now market. the our the that the investments impact turning number we an dividend the negative across in of end, number and equity at to are decreased the the income experienced quarter the results quarter, in and of pandemic of consistent increase with realized economy, reflect results from on the status our on in non-accrual investments amount these underperforming

of Despite our the middle impact our interests investment issue, alignment teams, We together on a the dividend of our amount monthly pandemic investments our December. which we of going recover are monthly strategy, management our dividends to unchanged quarter Board impacts An significant provide our and working advantages from current and are that confident of comfortable $X.XXX of for all possible commitment per a is our the our market of well-positioned realize And end, portfolio believe underperforming a payment of maintaining stakeholders. our continues with will third and each outcome operating with with investment weather is income capital the strong and in stakeholders. conditions the outcome our combined on these that and as differentiated lower result that interest declared to to we shareholders, diversified temporary company earlier forward. as XXXX the our stable the for through maintain liquidity with our structure conservative best fourth October, with level efficient focus our alignment for dividends To investment subside, of the the regular this the monthly share structure decrease a market favorable payable position, items, that week, portfolio, remain of to we quarter. November team our dividend

our portfolio several the that one including companies Despite investment investment companies, attractive the continue as we lower the in pandemic, to and Now in as market investment in existing our several in future. we middle we market the an these activities company. strategy, investment investments in this opportunities. completed execute characterized impact of lower be quarter, middle complete have investment follow-on we average. pipeline, the our second Included to the of our in on pipeline various new new of in today, investments in are as lower market quarter near active very million investment opportunities and our expect current pipeline, to And $XX turning pipeline middle

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

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

our quarter. the at basis, us our the valued As On Main most quarter pleased of the end. to begin continued officer to has end, I When has and unrealized of regular at officer average. recovery And shares owns portfolio purchases group today, first the of director the Street approximately and due investment the that, stabilized, looking investing quarter approximately a is turn the characterized pipeline since portfolio pandemic. with quarter call during performance experienced With investment million will over our depreciation David. group allowing during to director $XXX at our our loan million to $X.X companies in across and the collective second the our in private of of we're quarter our we closing, do performance shares,

David Magdol

Thanks, Dwayne good everyone. morning, and

support company investments. we difficult our very for in management to conditions. their responding and during improvement rapidly was strategy investment us challenging portfolio, to our the portfolio stabilization intentional created in the very unexpected We saw as our the to We've joint well. of and portfolio impacts middle challenging portfolio interests our has work As nature this executives work a we modest Despite we Dwayne Street, our tirelessly highlighted company with remarks, approach. portfolio for pandemic, with and pleased and investment our respond although lower these the environment, continue partners and to diversified much been overall, teams times. portfolio quarter closely negative market his company the by partners proactive grateful extremely our how responsive market and Main and In company appreciate our across company partnership changing assessing are served

market, industry, philosophy years This diversification of end by cornerstone permanent over public nearly the diversified or been vintage and of the Our because our structure. true as benefit a security company, is and portfolio capital of Most type. notably, has XX season nature ratio debt-to-EBITDA our remains of middle a to portfolio, of our to portfolio median EBITDA a of median ratio this lower leverage company segment senior in a senior X.X modest, of total expense and with to our net X. business X.X X our interest market as

we XXX investments XXth, June companies portfolio of industries. across As than spanning a more in XX had

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

quarter, the diversified disruption, income investments expected second In with at received market our be companies our we was quarter companies continued period XX lower what end. contributions than the middle instead maintain making portfolio prior to cash from with flow support year. During the lower middle was experienced unrealized our with portfolio distributions. as our This in same of choose lower well periods market companies equity XX of purposes of to have having and appreciation our recent the significantly market liquidity consistent portfolio quarter, dividend most with our last of from

improve, conditions periods. the we continues from in company market future to will build cash that increased distributions level are confident As we portfolio and benefit

our market equity lower market $XX investments the million, including a market second net from portfolio. of an $XX middle return of in investment which in one market of lower of Our new activity quarter investment, principal included after and investment middle invested in increase middle aggregate resulted of investments $XX capital several lower middle approximately in debt repayments million million lower

X.X of exited in in we our $X debt times XX.X% Broker, is our which During return the a cost debt gain companies quarter, At representing lower invested value, lower $X.X investments approximately billion of and of of XXX% and money our middle in internal million, middle rate equity realizing market accumulative portfolio XX and end, quarter fair fully total IDX resulting approximately a our in market investments. of equity basis. investments included

investments, XX As a quarter million. of of representing the that net fair in our companies, And the net exist during conference relative market during decrease middle portfolio highly value portfolio, XX to portfolio $X our of at the given we focused basis, previous we fair the of approximately XXX% loan comprised middle discussed value of at today, quarter, In opportunities we the have private $XX investments value. related on on the shrink X.X% had fair X.X% had favorable approximately activities loan approximately with XX investments status, intent in portfolio selective our and and approximately The in portfolio, had fair we our we primarily which million on total increase at $XXX million. cost middle had our of total a market basis. in middle And our segments value. cost. had investment investment market quarter, on million investments within investment a In this calls, representing this was these $XXX lower a have end focused portfolio companies, on business, market view and portfolio non-accrual the of activities private of we of we

focus of and our primarily Turning investments opportunities. market while lower on continuing outlook in to XXXX, intend making remainder middle the the loan portfolio support for companies to efforts we existing our thoughtfully to new private

key for our business the smaller speak capital provide of and in the their that equity for sheets and to middle Our transaction debt outside advisors. a is ability XXX% long-term the to differentiator to and privately environment, provide ability solutions current always held flexible lower important us But in equity market. are close for term debt the particularly owners

market Our for has together times investment and worked XX prolific dislocation. of times committee in years nearly in

to with we are the cover capital an Brent profiles our We adjusted activities. return deploy very in and new that, remainder financial confident in of turn I'll XXXX over liquidity investment effort capital create to XXXX, the will that with With for attractive results, structure to significant and value prudently our risk be call able to shareholder position.

Brent Smith

David. Thanks,

the of the earnings in cash the of flows and income, mentioned The as consistent portfolio $XX with the our lower due quarter generally in impacted period due is total pandemic. interest XXXX, we as to has companies decline driven been negatively income primarily decrease degrees say primarily the to to second pandemic, varying were investment in some over total a by a COVID-XX. impacted to commentary the call, dividend LIBOR first Our our take where quarter income in the from decided we And by due million, decreased conservative and a same portfolio decrease our to COVID-XX decrease David the of dividend which approach in rates. additional liquidity, companies negatively income to associated that significant with a expected our uncertainty maintain as

annualized million X.X% realized average income. middle realized investment partially our basis the excluding The of a market the by million, by basis. offset a the a primarily operating dividend recorded exit during private quarter, losses operating million due based realized cash compensation from quarter. of appreciation increase assets total $X.X deferred net to manager was total on quarter, relating compensation relating fair investments, net loan second decreased second an as of XX-month $XX.X our of ratio excluding and offset We investment. we $X.X $X.X the year $X.X to X.X%, $X.X investments, decrease of our portfolio $XX.X on middle during expenses million related of net at expense, it, to period investment exit lower the a partially three levels on trailer services second net net the plan expenses to the assets allocation operating second second $X.X to to compensation approximately our related market related of by the the and for external of million million Our prior appreciation of share primarily of market same of two middle on the the exit unrealized the during and investment $XX.X lower of portfolio. net We compensation a quarter, million our increase our Partially by million portfolio. $X.X portfolio, activities million in to non-cash on benefited of primarily expense to middle loss recorded of of our income of on offsetting $X.X over depreciation during was expenses million the appreciation in our on incentive the of $X.X market interest for the appreciation our percentage in quarter, partial external to of manager. net The million deferred expense, gain our middle value net and another a net of portfolio depreciation an lower total appreciation market investment other million the provided

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

portion continues currently as follow-on by enhance capitalization able a position of and strong, overall grade total proceeds current of debt XXXX, follow using the was of mature this we addition a investment April million. in to the liquidity of It that revolving Our notes a support X.X% excess liquidity in illustrate million be were the to an grade outstanding brought our remain We million institutional past to executed the is to outstanding investors. $XXX million. to issuing at to of of $XX credit follow-on our notes $XXX our recently our and amount liquidity follow-on to pleased repay our issued notes was facility. $XXX The investment December. and yield-to-maturity total approximately those on This

to access in in positioned $XX leverage, challenging net million only to program, but also approximately to our and continue capital raise market. through strong be proceeds us also equity Overall, feel opportunistic We has capital, continue structure. in ATM well under continued not opportunities our that conservative we to this issuance investment of enhancing liquidity the further navigate terms period, successfully to

look to income, the third quarter, consistent and exists overall companies. second with our not net operating of we quarter, the in of the to and economy the investment relation for guidance the ongoing to and forward As impacts that we're COVID-XX still related uncertainty distributable providing portfolio the results due

consistent lower results, monthly below of we income dividends, take turn now will equity investment be the our income net can to from the I will With that, quarter primarily distributable middle questions. However, due financial call any we continued second so with over operator, our lower investments. the our to a market that level expect dividend back

Operator

you. Thank

question-and-answer [Operator We will instructions] a now conducting you. Thank be session.

with the Dodd is from James. of question first line Raymond coming Our Robert

Robert Dodd

may on was portfolios equity, us the XX%. expectations or I it color you on, different couple the concentrated be. very XX guys than the number, about about from give and in commentary then. obviously, indications back was income Hi, those portfolio that a it us a I the did the even recession than But a then mean, anything the dividend XXXX. the year-over-year, was but -- from your a and from retaining it down color congratulations it was think from on NOI lot there I because, it year on can give And the the If less the down mean good recognize companies today of but well odd income, last very of was thought mean, any dividend Can XXXX, for as have quarter. last portfolio I remember is it you quarter frankly better any than would can cash back I given exceeded curvy I you kind weathering quarter. was I

helpful? really any additional So, there color would be

Dwayne Hyzak

Sure. Robert.

our I what dividend in in income part non-COVID stream say hardest would us to income you've the as heard of predict. say So, the even kind of is, type environment, a is past, always

quarter, most of quarters. this always going one they to of environment. of to given, look what well, companies associated were these the uncertainty smaller I as Obviously, pleased quarter income about this significant And was some than and to amounts into in that significant that what continued I wouldn't it's it than So, while what see we has is despite of number we of said, income. do first with lower a in cash quarters. was it's they make at, concentration the a COVID you situation amounts. middle would think this perform, was different And I with dividend we companies with time materially definitely flow. to always names have generate It say dividend the it, the you the four continue with continue there say was portion I leverage, it it amount, say periods, What companies have continue it. prior COVID pay dividend kind market was, perform the what as of up talked in in second are that income. quarter, our few do prior a less out of period but modest always a composition we've that the than less

pre-COVID. many of And How continue investment can be look or going performances, how those QX? that's again couple contributing QX at to variable them we income when next forward of were you companies in look perform. can quarters, then, many either to biggest for As the contributing companies net start to dividend the how that us to well income our

Robert Dodd

be the to single agreement HMS any you largest sources I if of then, color. income I be goes say. point limited through it one realized Main. appreciate all might amounts Is there on there one and of And that I obviously, advisory will can -- that mean,

that the Main strategy, to as covenants, can can the give in on basically us and intention duplicate and precisely any now, income right you portfolio is to to future, dividend Main is that, and change shareholders? that or over you mentioned, color could fund you same Main you're degree that the there understood Main with to Main going the as and for a positioning the any the there maintain it's So because shareholders is impact co-invest be

Dwayne Hyzak

the Yeah, would Robert, there that, here that we that today, I is do we the But as we'll as we side. strategy changes opportunities any have and own long-term expect not what HMS today HMS going have that changes and to with on the do we deliver not the Board on believe forward. HMS the say income going sit historical Income something to opportunities something we from the is That's look sit strategy expect Fund, we here at to our can Obviously, work decision. that's not we forward. that

Robert Dodd

you. it. Thank Got

Dwayne Hyzak

Robert. you, Thank

Operator

Thank you.

proceed Bryce Please National of your is line with with Securities. Row the Our question. next from question

Bryce Row

an what -- that and perspective to And XX-day a get industry? of regulatory period what next be happen us expenses, question. Thanks. I all to maybe Good you that dividend steps from the the for all to know might process, so level fund morning much the to to ask rule that get everyone. wanted really Thanks. to and regulatory asked involved what proposal. through fees as here wanted may proposed kind of next very view you acquired are your Robert get this I in regulatory comment my about

Dwayne Hyzak

Sure, thanks Bryce.

typically programs, very Vince, able Counsel, of he Congressional was morning lending the Committee Oversight kind us. on join we our involved those an hearing Jason at on industry do Main know, Executive extensively our response testify AFFE. give and there. regarding to General He invited he Jason you always Street I'll As update Chairman, Beauvais, has would give activities. been the this But works activities. to regulatory Vince, the have with But standpoint from not also he's let the so who our

Jason Beauvais

Bryce. Hey,

changes as a toward this back can we week the step AFFE that you indices. extremely out proposed came and view into positive imagine, the getting As big BDCs

took digesting on that industry other our an out still But document BDCs those AFFE since as XXX-page on SBIA we on are you the put with We're work rules. AFFE expect very pleased As know, we appropriate working and has and fully fix the action. XXXX, been Wednesday. to to comment proposed this they

Dwayne Hyzak

definitely even a if when There's the all overall a positive. participate the look in Bryce, index there are helps net-net, at positive, a this of it, the get we in funds based, going be shareholders inclusion it's to indexes. bunch BDC you industry them it don't be that should of out being that not

Bryce Row

is curious, re-included the there, beyond a index, says mean, know Yeah, this of totally that I propose and agree. or now And get step Jason, don't those proposal with was steps in or S&P, next the Dwayne which what what obviously above proposal even organizations out BDCs with for in Russell terms communication are is I now? to them the that

Dwayne Hyzak

would the obviously say are I activities Bryce, Yes, recent. very

once something of would any a we're approved. Jason aware unless activity heard entities. or there passed not rule We Obviously, significant you new be have step, knows else. of next new of activities of any But with not those that any the get big

Jason Beauvais

not. I'm No,

a a as threshold something the last the different SEC Although, the Bryce, rules been little you've different rule did on always be and We've probably for eight excluded to little pushing noticed, a XX% exclusion. and than we've BDC the asked years, put years. are six from

we those But communications so, yet. indices. Dwayne works yeah, or -- it’s And haven’t that the said, indexes like S&P for and not hopefully Russell we're

Bryce Row

wanted gets your there be fully in in a MAIN of curious, to will HMS coming the up Okay. within question. I for change terms the within accounted just with both whole we'll follow essentially And is now of advisory potentially income on Obviously, that administrative since kind expenses, relationship health? how relationship, see to just general level relationship and an a recognizing of statement? you're and those of of full then just if so doubling in income curious, offset the some dividend coming that

Dwayne Hyzak

is what opposed the advisory reporting. change XX% our the that, do a the or we say financial advisory up into obviously the Yeah, is expect that full accounting we don't fee What as of as fee. go historically up pick would expect picking up will in income subsidiary I Bryce, fee we to

additional will I but fee G&A think incremental income. be have some We likely costs, less they than will the

the we net-net, entity increase the our forward expect income would becoming post dividend sole going us see from to adviser. So advisory to

Bryce Row

COVID what one prepared pipeline, the Okay. does better look could. it if then beyond within stable middle that environment? talked the kind better good pricing I of curious your pricing relatively and second about more Dwayne, quarter. pricing seeing the market, like, you Are within now combination or you structure? more of in this we've even moved activity is a lower kind just in And remarks of But

Dwayne Hyzak

some to or describe working lower say at opportunity. fitting better. is that it. types investment just we Yeah, market, the each not would a are let Bryce, middle I them the I better the would across the pricing, middle of initial strategies, deals I'll equity But market. seeing our the that David I'll But in of opportunity lot some as say we I we're structure but say, the and environment, lower you're whether give comments in looking in debt add this would would on biggest benefit our

operator side. some this would on owner be and its alignment lower comment lot the interest with a So, team, the management that middle structure initial of of the of my market so

think XX on But and add investment most attachment kind do standpoint we're influence middle lower lower market? to some beneficial think us structure leverage new a I middle seeing would pricing. of on additional points some from the definitely be comments than six excited it have also we're the ability private for about or you lower On David, months market, been more to generally us to benefit to ago. on want more

David Magdol

Yeah.

in that -- are was it gosh, pricing a the out and of that little the On margin, be but to this of in the competitive environment. debt term a in bit debt impacted. say for on equity of remarkably world. better, is it's is transact would our price idea in it equity because on these the and different enhanced and particularly can not we separately. I'd our do of people financing current processes The ability environment. a transactions Whereas, that the sheet prevail And coming type with was more year to me, non-contingent the beginning powerful a to some What

think close a with close just I our today, really, So it this to ratios. helped certainty

Dwayne Hyzak

Bryce, about you've just the mine and on in actually, but seeing. add to both I opportunities think excited So are we heard and David's it comments, we're

talked out about Our heard again. impact teams Obviously, COVID, of teams, was at travel the the the the say ability to one of and in had meet of we quarter in or members the when you've concerns we are quarters the at critical which getting get are prior But last these teams, out least senior we owners opportunities QX. us And, starting here least our in on to and side. person to is middle underwriting management executing looking of businesses and to that. with their doing QX in forward the lower on market we're those

Bryce Row

time. the for all you thank Well, Excellent.

Dwayne Hyzak

Bryce. you, Thank

Operator

next Lee Please The with of Kenneth Markets. RBC question. Instructions] question [Operator your Capital the with proceed from is line

Kenneth Lee

Hi, you I'm any of thanks you taking just within for within kind amendment that saw Thanks. talk if your activity wondering question. the about could portfolio. my quarter,

Dwayne Hyzak

from been amendments either, from had it covenants. relief amortization requirement. of or could Sure, our of the other precisely in amendment to some driver have really what It just I second the payment what other had varying across would an type been go is. aren't know a portfolio, numbers interest perfect But have never on you Or could changes, the about some degrees we some XX Those movement pick. quarter. financial of have relief because it companies cash cash say, amendment of every these through been of could principal

of What we're and wide of -- be relief. So that even activities it’s undertaking we looked undertaken underperformed, have to that that amendments. to those that, our would through you range always when the is heard not last at quarter companies I us say this sole source a is us say prior goal have and

flexibility. cash be management those just have a personal come activities, whether the other structure. from to other of be it's group team, private contribution in standpoint business middle support the private making and to or parties our taking steps to loan equity our company it's concessions with or with would Whether -- involved supportive in conjunction contributing in So some the portfolios, from all a the the capital market

Kenneth Lee

if the just any share of us income? I could taxable And Great, Thanks. if wondering follow-up with undistributed very helpful. estimate one may, you just updated

Brent Smith

Sure.

Our spill over at approximately was $XX quarter the end of the share. second $X.XX million or per

Kenneth Lee

very Thank much. you Great.

Dwayne Hyzak

Ken. you, Thank

Operator

to for remarks. and segment, closing and management our you. it Thank concludes I'll This answer now question back turn

Dwayne Hyzak

continue to shareholders. and our uncertain hope everything forward We'll everyone navigate and healthy a to everyone, environment And for months. as stays joining we'll to few do can us this today. in we value create on We again Thank possible. side for talking safe to continue you, our look

Operator

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

and a lines your wonderful have day. disconnect may You

Main Street Capital (MAIN) 7 Aug 202020 Q2 Earnings call transcript