MAIN - Earnings call transcript Q2 2021 | Main Street Capital Corporation

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Operator

Greetings, and welcome to Main Street Capital Corporation 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. It is now my pleasure to introduce your host, Zach Vaughan with Dennard Lascar Investor Relations. you. Thank Mr. begin. may you Vaughan,

Zach Vaughan

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

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

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

Dwayne Hyzak

We Thanks, thank you you Zach. joining safe. us. us and Good time we staying hope well everyone healthy and to and that the everyone appreciate for join doing is morning, taking and

forward, our current my Market asset our our updates updates. regarding activities, Investment dividends will Credit formerly Chief are comments, are Officer; Operating I Smith, Also and Morris, performance prepared with several for and Head our investment Group; management our our increase, of On for Middle and our call, our the President today Foster, expectations providing joining on while and provide our me Director Nick recent normal Meserve, and and Brent activities Chief Executive Executive call, also other today's pipeline, Jesse quarter, Managing our Joining Investment CFO. the Officer. Magdol, Private in and Chairman; our portion and our dividend going David updates of Q&A investment Vice Vince us President

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

of our increase levels. investment strong significant their levels, we total second representing momentum our income platform sequential of consecutive portfolio diversified the and the and a pre-pandemic our for of total quarter third Main quarter, the quality companies. above of quarter in from our pre-pandemic believe and group The income with growth pleased income, with investment are quarter all and components demonstrate Street of strength We results, with which the represented our performance

income our Our quarter performance resulted DNII, significantly in shareholders or per last to dividends than value with higher our in continued asset along monthly well of during distributable improvement net investment paid the share. excess and year, in net

annualized results return assets quarter XX%, which included Main from are for $X.XX the share and also net net increase operations in over both on records. a Our of of per equity Street an

believe, our during of combined ongoing and strategies position. investment these and performance continue fair value capital positioned our across to attractive structure quarters. our the the quarter, net due on investment As liquidity loan well quarter. over NAV market most and or we increase our companies ability and per to current quarter us our The we portfolio at both portfolio companies several we our increases size provides excited with of our opportunities pipeline asset year, market in optimism investment organic execute continued and X.X% look forward investment our net middle to of over lower quality to are about significant activities the the improvement NAV are resulting middle generate million The appreciation growth in improve private and acquisition in few companies, our end our of value high-performing share the since per half next and performance share activity about strong of investment lower incremental in to conservative very second to a operating the of portfolio $XX portfolio and in

from about MSC made managed increase shareholders the about which paid we strategy declared growing the our during for and the an investors of fourth remain in with beneficial Management XX% accepted quarters plans to increase an expect in to October, ago we remain the and to MS fund's strategy Fund each we strong quarter asset increasing our during increased investment our other favorable as internally its At these advised business July. over growth from significantly on we performance increase external we of new second our This quarter. our operating for strategies benefits existing Street We share strategic investment future. our this strategies initiatives with the the quarter. shareholders. few and asset to Main for also and our a position, We liquidity week, the our management significantly our in to within for in outlook privately through our a future at that the fund. this of fund our excited our the management business execute Loan asset for quarter our our fund and has combined Income the Income optimistic outlook held increased continued to investment co-investment our third representing per non-traded strategy. dividends progress our monthly of been dividends November, payable developments launched Private structure companies loan continue our dividend MSC our includes private excited I, Fund at monthly Asset execute results capital Fund, from and through X.X% activities increased investment of We portfolio investment the our and manager $X.XX to quarter we grow management private efficient December, with growing by The business portfolio its BDC in in the our Board loan Street and earlier continue and our and second Main commitments its investment our core progress benefits for each to this our structure business ability for positive and the upon and portfolio contributions unique benefit Based to are

practices. DNII levels of position in our increased sufficient to we will XXXX We consistent dividends future generate with confident dividends are monthly at coverage provide to also long-term that our in and be a continued historical

activities turning quarter to quarter. the our second some We market pipeline. on middle additional Now, in investments million investment $XX current the investment our completed details of lower and in

view as forward. our opportunity continued and value we follow-on middle investment well they on investments accretive the portfolio on are We equity lower in pipeline as top-performing and activities market various these companies investments follow-on characterize the very the the As of market about current active I pandemic, meaningful through investments for these would we includes these appreciation current actively lower provide opportunities and fair with allow strategy very our beginning average. of and pipeline the middle companies attractive investments opportunities as opportunities. in We excited in investment Consistent our several some our investment growth teams value companies today, in look existing make remain pipeline. recent our and the to execute follow-on as acquisitions and management our going creation of since to above us

current the estate regarding several on concern over and industry-leading experiences believe quarter, tax the partner an factors market positions that partner for noted be with we comments These teams, planning difficult increasing significant business by particularly as lower these in management in future many XXXX, uncertainty unique our financial combined in two companies for we the and and us are our be to the their Consistent debt owners. that driving on our factors broadly invest decades increased since partner gains. owners pipeline. priorities offering across ability investment permanent capital the our our increase and economy for focus As investment we include equity last environment to experienced historical and last believe with after a favorite long-term we in companies, combined entrepreneur to significant rates, taxes early middle a activity the

this also for Street few to the middle lower value result end lower that exits in result originations gains of the our portfolio portfolio our experienced realized strength could in position quality and will robust and Due fair in which market of expect the year. additional number new platform over these to the year. a Main of We significant companies, middle the balance through attractive interest and companies continue appreciation we of market a have additional

our $XXX in our the level strategy and million second also originations representing this of totaling resulting the quarter, private we During a for investments continued investments approximately new focus loan record successful of strategy. in

I average. will the turn to call investment pipeline I private With above As as of over that, David. today, characterize would our loan

David Magdol

Thanks, Dwayne good and everyone. morning

the demonstrate quarter internally unique our managed results differentiated remarks, model. strength we As investment Dwayne and of in highlighted second our our approach platform, believe operating Street's Main financial his

to strong investment during high. of market middle lower was quarter our We pleased portfolio several the the strategy. increases overall in We're also share as all-time and resulted quarter of the per companies at operating are the excited, as an our in that majority generated significant in report, for that the income well both our NAV milestones our was in achievement significant positive performance

the primary focus middle success has the teams. past, the to and existing on specifically, underserved continues in the and driver of be and alongside discussed market our in in of both and our our we've strategy As management equity companies lower long-term middle been lower debt strong investing partnership market

Our upside equity as teams, Main our through in growth the perform. grow income. upon in a investments align the received share realized to periodic portfolio appreciation companies us equity and These on income through income Street's those of support current company closely a investments our through exit, And the businesses. and basis and we dividend the dividend interest realized management gains equity the long-term with our allow basis, equity on

an history, level of which This firm's strategy. our in unique, the investment middle milestone generated we companies and important highest income continued portfolio lower validation lower our market market of quarter, our as middle view dividend

realized of the benefits In as significantly also from appreciation, the we the lower paid invest appreciation dividends we portfolio equity from We our and value companies portfolio both achieved in middle history. our meaningful grow addition the Main in market companies, as quarterly milestone benefit investments overtime. greatest deleverage the the from level market and middle received second our both unrealized Street quarter, in fair to another of lower achieved

lower of Our pre-tax per over primary the quarter unrealized share. middle market net depreciation $X.XX significant this driver behind our investments were

million we creation fully second exited the good position a lower as Rental value we or in of in gain. our represented which we our Additionally $XX achieve ATRG Group investments example middle with can ownership market American equity Trailer a had realized quarter, the

and Street, investment minority typical investment middle a and Main accretive The debt ATRG of investments, on like it growth provided rate return company times fleet as acquisitions X.X additional gains utilized and a is a XX% including of a a investments of return executed and invested. change financing. transaction by money total XX% ATRG our equity a Realized our times expansion and represented On ATRG cumulative three or On with a internal internal when basis credit debt inevitable many money control invested. support equity opportunities. this non-investment portfolio. to our the majority grow experienced represented of for vast our provide rate in grade the multiple as equity in and of we made of in XXXX be an investing offset As we that losses against the in do, will debt debt lower capital to investments initially equity market

the last entities to XX% investment our tax turning prior months. our over and companies for quarter contributions purposes market at equity with dividend over continued are composition of our the with investments flow-through those consistent Now overall with results lower over from from end, to middle diversified market that having contributing appreciation XX to our of the companies income XX% and with middle quarters, be lower portfolio well portfolio

also to our have entities income the several In XX addition in investments contributed over months. we which equity dividend last have non-flow-through

strong pipeline portfolio second mentioned, lower the million. approximately included and Since and of other investments combination investments portfolio of and million our approximately investment activity our and market, from new, excess middle subsequently total current a very resulted of $XX repayment from successful invested debt in opportunities activity investments middle our of in ATRG of our capital return of portfolio middle our on in decrease totaling Our resulting of equity the in as aggregate the quarter repayments investments Dwayne the $XX market in remains add-on of $XX the in lower exit of second lower have which in a strong. after end investment we the market quarter, made companies million, performance net

our We in resulted also approximately debt total in in investments, portfolio of million $XXX private net made private increase a loan repayments which loan aggregate of million. $XXX after

a in our had net of million. $XX middle portfolio increase Finally, we approximately market

of proportion our is follow-on consistent grow in few private to the had We last investment continue execution our portfolio are years loan evidence achieve. private excited portfolio a credit as further results our our the that able in portfolio quarter and private the strategic of loan opportunities private team of overall the to with the has investment goal our private of the greater successful pace are strategy. team this of to new been growth and The loan with over credit stated

companies, As of June XX, industries. XX spanning we had investments in across over XXX portfolio

$X.X investment The X.X% of our Our investment XX at total for largest and approximately majority less than of is which XX the portfolio fair X.X% portfolio middle months. our our quarter our represented representing portfolio value market over cost X% company end At portfolio represented basis. of investments lower our of in XX% end, quarter income of vast investments assets our income. our last billion total value, over companies, included above fair and

in portfolio will investment at unique of turn we Our dividends our Main companies, million and financial portfolio in to fair our had over our us shareholders. summary, loan the portfolio a XX will of was market approximately that, which to investments through and level, and continues value to structure quarter significant investments approximately middle $XXX appreciation believe to capital on liquidity NAV million investment total position. at total related included With shareholder fair creating our paid achieving at Jesse representing high The stated value I perform companies, fair basis. XX Street's increasing goals value cover deliver to of call value. end results, XXX% allow In the of $XXX cost private portfolio approximately representing

Jesse Morris

Thank David. you,

results. of Turning to summary financial our a

nonrecurring. period both income. investment $XX.X more year million included $XX.X teams support or to second company's and of remarks. capital further particular million, that earlier $XX.X in by income less increased dividends in of in increase of by management to companies considered of income of dividend execute generally discussed success continued strength net the portfolio platform Street's XXXX, a level dividend is that over increases same and their portfolio our David total and the million which Main Dwayne quarter a increased the by driven and our total interest a new in ago investments doubled than initiatives underlying the and Our increase deploying growth $X.X income note, in investment consistent million, Of evidence This is and in their

investment benefited team. the related our the in operating Our million of to as expense The share-based excluding a in prior expense, second was compensation interest an period expense excluding on be $X.X and $X.X of during XX% over quarter incentive for directly interest income, increase to quarter. million primarily quarter, net percentage approximately provided personnel of is our investment the non-cash an annualized manager investment total from prior an compensation of expenses, additional and our for The through $X.X and is which performance primarily compensation activities continues due these lowest of $X.X industry. the X.X% increases, year. dividend by our increased of million to of and increase expense, increases the higher the grow income assets, the in amongst in it months, XX basis in second operating of our allocation by investment levels driven which compensation operating expense compensation external trailing average the million same services of the improved ratio to year, accruals, by Despite total expenses, for to we the our expense expenses

in Fund. the over the manager. our This prior external income the outpaced year, XXXX, of million investment a increased October total growth by renamed an from income year Main same of increase which since change took significant over period and sole in of has increase the Street has quarter adviser which rate the the second resulted investment Income the of XXXX As Fund HMS of Income responsibilities a reminder, in XX%, from been MSC last $XX.X the of Net benefits XX%. investment of

market six gain during leverage, of recorded operating income XX.X%, net We underlying investments, net resulting income was from year, million fiscal of demonstrates a gains the the full a year the lower XXX percentage portfolio. improving middle results. which realized during loss as of and an $XX Main XXXX, realized over of the Street's which from investment of included a points We months of investment investment. exit exit $XX.X realized was investment recorded gain portfolio portfolio portfolio For portfolio, offset appreciation net of of of on partial realized the a million other middle a million market second the total million our the quarter second of first overall quarter, from approximately net the $X.X investment improvement appreciation by basis middle in partially exit on our million middle $XX.X in in middle depreciation a our the net from million market $X.X and market the full our which net lower private market loan unrealized $X.X of two

of investment appreciation external million also the driven our addition, manager $X.X In funds assets managed. reflected by increased of

portfolio approximately with investments value resulted end status and an investment an $XX.XX in of total quarter per X.X% on the per $XX.X X.X% second in quarter the to at or We share at Our of fair cost. the NAV net comprising million increase increase of and operating net asset results non-accrual approximately quarter for $X.XX value with an the in second assets NAV ended share. of nine

We revolving capital liquidity $XXX million. very $XXX in an overall by were with enhanced facility as liquidity further is have our April remained total total our strong to in and credit increase to commitments in capitalization extending our excess pleased million. structure currently of Our very

of measure our We Coming share DNII future. share. same period over a continued to to first XXXX. have is share strong to conservative $X.XX well-positioned performance leverage, for the the our and quarter capital second a for quarter us net increase access are was believe our key operating liquidity that A per over the income continue X% or last distributable that per significant strengths $X.XX and per XX% the or back year results. DNII increase of

third as an share shareholders. noted, This for has paid that quarter quarter. earlier the to Board quarterly declared per the fourth DNII marks per also share dividend the And in increase per Dwayne of quarter Directors our share our to consecutive our our this dividends week $X.XX exceeded

to visibility, that we DNII per we generate $X.XX upside take for expect will in now third and we there that back of per that, turn we the I opportunity performance any additional Based forward, current look With strong quarter fourth can quarter. so we our will third share in to upon continued of the quarter. the share over roughly call in questions. expect operator As we the is DNII the believe expectations

Operator

Thank you.

question-and-answer conducting be is of session. Lee question. from Please Markets. We [Operator will Instructions] a state RBC Capital Our question Kenneth now first your

Kenneth Lee

double to that the Hi. bit of topic detail potentially just improvement, also what Thanks on Thanks. sounds little investment could in to upside but to my get third that want about for It question. income taking drive want like I on it's DNII more talk a the just and distributable DNII. quarter? sustainable the path net the check I of

Dwayne Hyzak

couple look $X.XX why feel the Sure. of Thanks, with good DNII Jesse guidance think to is for that where upside. some and next about his quarters, as sits we I and Ken. the potential which we good about forward comments today gave feel we do

up in many look and see of market income dividend about new the of middle XXX. when as can certain end we now how closed upside will of ends the dividend quarter think investment market past before those of middle the lower the volatility of we the the well as we the our companies coming how how at I transactions between new continue it that pipeline, in quarter-to-quarter we in from pace our of activity many much income the just by you lower have talked get be driven to in that

to drivers that some number. upside So $X.XX that those the be big could lead to two will

Kenneth Lee

other just helpful. Got you. And question. Very one

talked middle a markets lot follow-on of about seeing you investments. the for Within volumes segment lower

bit activity? little detail a get to wanted more around what's driving that Thanks. Just elevated

Dwayne Hyzak

Ken. Sure,

last we since of pandemic So certain our mentioned XX better that the particularly to companies the year of of months. the companies I throughout kind the were last think performing XX over the beginning

things to acquisition. embrace through our they historically the of than that, started One had growth companies more embraced was

looked those supporting companies have they've we've growth to or that them have as and through starting either the those those through been months. pay of acquisition or we're that been next activities at close So here finally closed alternatives, over some activities through, recently, see dividends transactions of going we're hopeful will couple

Dwayne Hyzak

you. Thank

Operator

Please [Operator from Our is question James. next your Robert Dodd Instructions] Raymond of state question.

Robert Dodd

Dwayne, guys. – well average. hearing mean, on the market, highs for I for a for in in the hearing where of of past least a say I pipeline well the averages averages, lot above – in I've terms on historic recall mean, right very averages. a It relative time. front now. of middle lot but at to Hi, heard potential just don't portfolio I call average said lower long the to relative above so I you a activity? optimistic mean would that characterize not you sounds above

Dwayne Hyzak

touched Yeah, which is actual we've million. right Robert, had at comments $XX on I David his today, closings the think in

in the for kind So to of million historically, put the $XXX Street current think with the middle Main an I origination together you annual market amount we've when lower that in pipeline, guided range.

to. under If with we've look quarter, that closing million look way the I'll go everything a other you to third to at it is times million that exclusively. quarter. you're basis we or at you timing we transactions on that upside the already $XX you same the There just X was I time, separate a the it the seller don't quarterly at that, have want these I at if involved. the that So current give a it take $XX parties for number you of quarter and the caveat think to was times if But control out, closed, looking of X.X potential for and

for number. us go to So upside that to things well have hit

Robert Dodd

for pipeline? Understood. what's drivers? potential mean, changes. it And of last factors in else or matter but there's the kind it those things both very something tax want you long can driving term. There's – because on much that I confluence two break to slow that's the can that, I just to I just is be the doesn't reasons. spill really the about – don't mean, was is there – QX of down Obviously, year that driving for obvious talking the QX,

of you on So right what of any are kind give factors kind the are now? color that driving that can

Dwayne Hyzak

we tax the When for potential increase after tax is the big look tax should that, be capital or you driver. at think the as So, significant he in do Robert she as a gains on amount. a rates, seller net focused

before significant a you rates see in be if to So increase could tax the year current year-end. motivator that a big transact in

from change, seeing as through we've seeing, around growth that the of focus or also uncertainty think of our So We're benefits we're healthy that, come a as some we are on seeing, activity of the touched the of potential it. pipeline amount I I well. think on acquisition do the companies.

we the opportunity have additional about love we put if because best our management follow-on seeing doing that. into capital We're and our best that through opportunities. excited these very we're companies, that, to teams acquisition So financing

David Magdol

Last pipeline. I'd come the were number market seeing our the there and that really COVID and of back just came as transactions pulled far us add of thing, we're from a one number all, last which year through Robert. market the helps with as transactions were to

Robert Dodd

can. one that. one, last And I Appreciate if it. Got then

as asset but growing in MSC up and by On not the well, It's maybe Asset what the of are about said, Management re-levering What be that's that's to in it today that fundraising not overstating obviously maybe business shareholders? performing fundraising but you fundraising. business by mode the raised be is accrues capital earnings to expectations managed and hopes – additional that the bulk management are obviously that can BDC which et or obviously. cetera, your aspirations

Dwayne Hyzak

Robert. Yes,

the and far, equity. business our And So a leverage capital. point their do drivers they primary think or debt the not largest. two Income are opportunity if MSC been at quite an Asset you leaves for not for by We Management is while additional sheet have raising for obviously your look to balance Fund

them fund, for So capital additional see I seen we through grow think, And you've through an continue additional for of there leverage. the the use and use the debt of opportunity to growth leverage.

MSC of fundraising remain one management that well equity side. raising that really process that's completed the and fund fundraising on for activity for asset growth, not on Income area put we optimistic been the leverage think and do top business back the contributor about the significant loan as debt side, some potential on get private have to to of today. has capital then, a come the we've the I opportunity equity. And we that that But as the pace seen through once Fund

us two for the positive us on the behind So factors those we big think two quarters. give asset that management tailwinds a Main a really quite business over four to should bit be of next Street

Robert Dodd

you. appreciate I it. it. Got Thank

Dwayne Hyzak

you, Thank Robert.

Operator

end reached comments. session. Ladies management, back now we like to over to and would I of question-and-answer turn the floor have the the closing gentlemen, for

Dwayne Hyzak

look in joining to to forward this us talking again, you everyone early we'll for And Thank November. morning. again

Operator

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

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

Main Street Capital (MAIN) 6 Aug 212021 Q2 Earnings call transcript