Main Street Capital (MAIN) 28 Feb 202019 Q4 Earnings call transcript

Greetings. Welcome to the Main Street Capital Corporation Fourth Quarter Earnings Conference Call. [Operator Instructions].

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

begin. now may You

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

completion of replay on an the A replay today's hour available yesterday's remain be call how in release. the Information call beginning available the until of will access was X. will included and after March to

also and We being Internet can is be call accessed company's this you advise on conference page. the broadcast live through the that home

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

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

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

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

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

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

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

management our call, on also fourth I the today's will recent a recent of start some I quarter, activities overall investment our I On will investment some announcement providing performance comment our by dividend and activities on And discuss remarks recap current business. and I'll conclude our asset other current and pipeline. our in in with will developments.

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

the monthly We our are by distributable pleased or exceeding we XX%. year the dividends, fourth X% income the that monthly of full excess regular for in the by DNII generated again approximately net full share, for in quarter per dividends quarter year, and fourth and paid investment approximately

investments being our profile investment we of in our with previously our stated portfolio. and consistent market while executing transactions in our middle continued middle selective goal efforts that highly loan focus with are lower our the private quarter, During the to historical portfolio, investment on against market sourcing growing new

result, our team paid actual alignment when and on principle incentive years. And our team core senior our prior we of and ROE, in management as the to compensation below executive to successes management of our shareholders compared an a maintaining our equity, between reducing on amount by our XXXX, goals were stated results of Despite executed with return our or X.X%. long-term cash

portfolio, efficient conservative and very capital liquidity investment advantages the strategy, have for with the shareholders, that with of well-positioned believe interest alignment to strong continue operating growth position, success. our and our long-term our future We structure structure diversified continued investment us of combined differentiated and

steps taken we several expect in in strategic strategy ongoing our management this past we asset business. significant in new And near grow to efforts the our Over organically part the initiative of to to position a months, have be future. in announce our

we acquisition continue review also to viable business. actively grow our options We to as opportunities evaluate management asset multiple

payable our in and Earlier first quarter an from is X.X% quarter the from quarter a XXXX unchanged April, dividends May and per $X.XXX regular our declared second this June, of each amount monthly for Board representing week, that monthly of increase second the of our year. dividends share prior

and practice, of share, our our part recommend the currently into decrease our from our representing we Board a semiannual prior declared regular payable December dividends, per $X.XX $X.XX monthly supplemental XXXX plan our with absorb dividends dividend in to of supplemental our a execution Consistent June expect as to dividend. of of that

ultimate of overall environment our several the transition, of portfolio, and our and that the overall repayments, interest expect of investment performance with by our in will level take plan transition We this and dividend changes originations economy. and years, the timing the outcome impacted continue rate investment to the

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

continue we and consistent new with to originate We on our be to ability to historical new in selective maintaining our future approach remain investment investment confident investments, continue and focused opportunities, disciplined profile. to a

activities increased activities could exits over lower we existing market In and third-party the our portfolio over companies. attractive middle few these ongoing next our interest have result in a quarters. comments in we that continued, These last additional experiencing quarters, the few noted of few are

market also middle portfolio our of net on non-lower over over our decreased million resulting We $XX portfolio investment this by continued million. in growing basis focus growth quarter, loan on the our middle private successful $XX the portfolio, market by in a while

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

that, David. turn will call to With I over the

and the Dwayne, structure and morning, at everyone. our our of shareholders of history period discuss how time. our a unique factors and benefits an operating enabled recap opportunity back returns year-end good strategy look efficient over attractive provides extended good The have deliver to Thanks, investment to those us to and

years XXX% dividends price of cumulative of share $XX for increased IPO share per shareholders monthly by our our we we and over share. Since our IPO per XX declared total of our ago, per or have have $XX dividends XX%, over

As investing and shareholders, our we has equity economics, we be the been both long-term discussed, and primary of our the low-cost management meaningful focus on we directly have in that investments shareholders previously underserved stock through organization. strong to and asset and structure middle debt the our in benefit believe lower market, our that which our drivers interest third-party have exists throughout continue between of our ownership the industry-leading related our business and alignment management team success our

management us through of provides on lower to our Most uniquely, yields the equity teams companies attractive market ownership allowing debt our partner and points to strategy also investments be first-lien middle portfolio notably a our true our leverage and positions.

benefiting our significant investments, while have believe protection In significant short, first-lien investments. through equity from debt downside our still potential we we upside with that

this to of XXXX, $XX gains income of approximately net result business. approximately a of from dividend $XX segment generate million we As in realized our strategy, were and of million able this

pleased we market, success in market. find lower are to opportunities the our that investment middle Given attractive new we in the continue

customized provide and to the businesses market strong for capital to solutions in the a for us differentiator predominantly family-owned lower continues marketplace. that exist ability Our has the middle in been be

as forward the about middle of above at mentioned future currently announcements time. X very volume given would This invested That lower exciting the lumpy market our making be We have pace what press in Street in market final slower new we Main middle Dwayne in of reiterate characterize was And middle that opening what remarks, period some we companies. investments the stages achieve we said, XXXX, in our origination annual to near market. look in pipeline to in any expect today, lower can new significantly lower In than to average. completing. portfolio his of

value Main Street Annual of As effort lower our constant last President's we Fourth part a provide middle to to Day fall. market our our event portfolio hosted companies,

portfolio broader from portfolio received of being company to best who very a from leaders those and our each For with lower market share part market Main each positive middle from feedback Street The and other executives. of we year, Main Day, our continues benefit we which is company a event you may improve President's the portfolio. event, to be Street middle lower majority learn practices, of unfamiliar invite hosted

for sales bring briefings such Topics matters community are ago, covered able companies. not XX portfolio industry-oriented have our and other meeting we in build be of years recent cybersecurity to included benefits event our of would workgroups, mind and this company could collaborative techniques, our timely robust executives. we most portfolio imagined that to generation type top

referred result, a portfolio and business together, our done made As to companies invaluable. have business are that friendships each other

companies topics market in will X in benefit approximately our group Presidents platform that expense savings ago. to voluntary on companies, is own. savings years XX can categories lower a Day initiative of difficult each participation replicate covered at our for middle undertook One that of other we example be With from cost their several

include savings examples and shipping, insurance. parcels, for Some travel, small

to are highly participate companies to event. As middle grow, we Street lower excited annual our to effective the Main in provide continues opportunity this portfolio market

Now turning portfolio. to current our investment

companies XX industries. investments in As of XXX spanning had portfolio than December we across XX, more different

of company income X.X% of largest than total value income and investment represent less year-end. investment portfolio our and investments, Our companies, at our majority of the fair The for portfolio total portfolio our assets. X% our our X.X% of year represented

representing the the of value, was to and companies market In EBITDA Our XX% net cost billion level, and a months, well-diversified XX portfolio in basis. X.X:X of middle portfolio from XXXX. the exited which contributions continue XX approximately million. total portfolio's portfolio XX ratio lower to generated our of market net market interest year-end XX above median our At we approximately contributed X conservative gain lower past successfully included companies market senior middle unrealized companies, middle having was ratio is lower the debt-to-EBITDA middle companies, $X.X lower with dividend The middle these approximately which be our a senior in appreciation of X.X:X. market lower $XX realized XX to the investments fair income at

As to we XX investments in of investments our in representing we XX middle lower approximately had million our middle loan and in million value portfolio, of $XXX fair companies, a our companies $XXX representing portfolio, in had fair value. market complement portfolio, private market approximately

favorable our today, our market of given As highly calls, business with loan we opportunities primarily of the have lower private view these that middle segments on on we activities exist have discussed previous conference and the with loan portfolios. focused our investment investments a middle middle a selective of private relative to market intent market our on the shrink market instead growth-oriented to focused and portfolio strategy the on compared middle lower basis activities

during equaled at was fair value portfolio As of portfolio X.X% XX% XXXX, decreased and nonaccrual had a on the the and basis, market our we of total investments investment by total status, private X%. at cost. middle at X value year-end which by XXX% loan portfolio increased X.X% our approximately fair The related result, of cost we and portfolio investment

release press on the our portfolio year-end yesterday. issued Additional are investment details we in at included

will our positions. turn capital Brent call and I liquidity structure, that, over With results, cover the to financial to

David. Thanks,

of dividend lower quarter investments interest from overall pleased investment to primarily are million, LIBOR certain to of after $XX.X when our The over of is income income income quarter change total to driven to year. by the after also in income compared of The same the $X.X the investment accelerated in related to million negative a increase rates for last fourth in lower levels year. fourth total to debt in impact total compared the last income. a that when an We investment XXXX is income increased increase of report period decrease

to nonrecurring total X.X% was of quarter net grant. and efficient into million combination the noncash strategy assets was of price expense compensation a of X.X% expense assets, on in recorded expense share-based paid the deferred an impact of that The for based The unrealized and expenses, the It an the the an decrease noncash stock plan million that our our the year increased primarily excluding distributable investment average our no in increase basis of over the operating excluding interest exceeded which expenses, period a compensation income plan expense of compensation our approximately market primarily the a total to investment value of to our for to benefit year. deferred as X%. resulted fair solely same dividends these income $XX.X per which ratio due $X.X expense. $XX.X related on million, expense increase assets. is of income interest prior net in operating leverage structure in a an our in assets stock relating on due to of bonus and conversion net is to of compensation has on appreciation an same or the compensation cash reduction is annualized for restricted in a increase our full public unique or share, and monthly those by movement quarter percentage Our $X.XX fourth by The expense, operating the total increase offsetting

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

our market realized depreciation the to realized a million, We private relating a on realized quarter, middle of the from loss the a exit during investment, by loss of the lower net appreciation of related gain net of resulting of recorded million market fourth net investment. $X.X portfolio million net depreciation and unrealized partially restructure offset to portfolio, manager. partially offset We to loan investment recorded depreciation portfolio, net $XX.X primarily the portfolio middle on primarily our external our million depreciation $XX.X middle $X.X of $X.X our from million other million $X relating on net to depreciation loan private our our of million of related investment of market by portfolio, $X.X on

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

at total Our of overall was liquidity capitalization million the $XXX the and liquidity year. approaching remains strong, as our end

During repaid very also the quarter, million. this in increase $XXX were that $XXX pleased $XX be million December, to issuance debt our fourth past investment-grade matured from we April we investment-grade by million to and able our notes

view the at yield to our million brought investment-grade markets to of as an The was million, a deal we capital additional milestone. $XX index issued maturity what first important representing X.XX% issuance eligible total $XXX debt and in

sale program our million during under raised also with quarter, We share. $XX of nearly $XX proceeds approximately price in net the fourth ATM equity per average an issuance

first the of XXXX. XXXX previously net first As upcoming the XXXX, activity, year, $X.XXX during rates above for -- $X.XXX from expected we generate impact account look compared into net per quarter the of to a and $X.XX per dividends forward impact into to distributable first for during our to that repayment share share will $X.XX and we income negative as quarter estimate taking of results X% is approximately the in approximately net taking This in LIBOR the of first estimate per quarter origination quarter that X% occurred share last decline of when expected or first our account a the $X.XX our per announced to of monthly share. to quarter the and $X.XXX we is we investment expect which

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

line Raymond the Robert of question James. from And Instructions]. our first [Operator is Dodd with

lower thing on where And of concentration domestic give discussions if both well, exposure color your to there's side, About China, questions supply supply not would particularly with in had they And on portfolio First, -- middle but market China have because, your same the -- touches to any that particular can do relate kind I primarily any really any any the companies, Hubei their areas on chain there's of us chain you exposure? it's if they're if supply province? you've businesses? their obviously, With say? companies, chain any in COVID-XX.

as the about market is, also say we would largely customers, and most is only I predominantly lower talked touched What we're not our of in past, U.S.-based the companies on, and to U.S.-based. as be domestic their Robert. going Thanks, vendors Yes. portfolio you middle U.S.-based,

look have the or to than companies as would as current I broader some impact. on the supply be continues from less that for see way not issue this again, and We economy. expectation our significant play we we might will and significant, I significant issues, on the the topic. broader side with impact out economy. is and definitely portfolio think its market works conversations had it it the our overall the think not is And you have the that through overly all impact would chain at We be expect But will do say as

think heavy where think a position would of expect work I more think you until its to where area I way got areas be the where we're you've the really got some impact supply chain through. first. would of until would That's areas an -- in their wait-and-see But a I these electronics. more again, expect see see issues we impact to

And Got I -- it. of that. I then, mean tied appreciate thing. the sort same to

things Because reducing to it have again, any planning your have family-owned today, significantly out middle Do to I kind as pipeline that you of little a either you average. think mean, impact noise and market and on on hands that wait with you decide -- above kind is been businesses people think time said sit bit? last it? characterized this You increasing may maybe but week. And likely lower or of

our I as of is very earlier have The it's is as be pipeline of and is something we the supply chain we've of impact the in robust. with I would our historically types I middle -- I the due that the through the that average. executed Obviously, a said above take impact coronavirus into pipeline wait-and-see. indirect it lower consistent pipeline, is bit to we to current in of say processes. little say significantly Yes. work diligence should say market. would consideration comments, our today characteristics But think I would that companies again, my current

that back you from economy So significant not impact it's have see earlier to going watch, while something a response, standpoint. something as a broader an it's might my to we has

same to topic. then it's if Right, right. to still And can, follow-up since one that the I related

it's last any On the many again, movement typically, private this whatever take, the to businesses there's of cases either over an one very seen week but... But days. M&A, variety been whole the exit, of these equity, literally as days -- any I have exits. when on you've anything And things? you potential seen for But in early somebody an into has coming or in of that, that of mean, far, add-on so a there it's

Today, Yes. we've not.

over again, we coming to the that either. how interesting it sit be material things But So will we here out have not seen front weeks. play today, see a on as impact

line The Rowe next Securities. National with of question is from Bryce the coming

obviously, Is so highlighted about can from the helpful? am in to Obviously, how that And situation? here near probably you're that asset you But I of what the it a Dwayne, a initiative curious be will that would you around color kind deviation HMS initiative management hope that? any talk future. management you the comparable to constrained say. be asset bit in

Sure.

years, what overall limited as It's actively our talked But our Bryce, expected, say. ways looking part business. number a core we you grow we've of be management as going for to we've a of asset strategy. been for on to So we're can about

on we've the do worked made fund. of process most the So looking is what I'd progress recent new that through say a private at could we we

different an -- industry than we we what So I'd or fund what an do HMS And say in from put standpoint, at private place. that. private on a we do prelaunch in were From if we it new be with be it -- BDC that from the a kind from M&A something of different standpoint. we're would would of do to would stage can will the the looking

today. to to we is manage. the In dictated diversify happens -- opportunity asset the management say terms through and that be we of size our that the phase goal get business would obviously, after it's by we're funds that And to what continue the grow will prelaunch in the this of goals, largely I

comp Okay. a fluctuate when have, And highlighted being us an on you Could here we there fourth really quarter. That's year set that comp, you target about helpful. the does year remind questions. Or Number doesn't out? annual of incentive more in then couple you ROE change think basis? down a in, one, obviously incentive that that is

portfolio. fluctuates specifically going and say, what's annual the would based in in on it an on I economy the upon our marketplace, basis overall

or -- So I of do ROE an say would say, I move as on term, kind not annual goals that's much. long year-to-year would basis. targets the

I'd that be continue our given we've the what to So past. in say with consistent goals

think I percent that would the we long So in be range in something which to from an mid-teens same expect range. term, be XX-plus to ROE standpoint,

I goals So a of basis, long think we those on can upon continue ROE going believe on period. types time I do that what's do But you adjust the think, year-to-year term, current based targets. in we achieve or that to

Got it.

that lastly, continue Is relative it and portfolio, where there to private over -- of years absolute about market this see prepared ongoing absolute and shrink? there relative is to terms terms? maybe kind middle in think You in of the the talked any loan it next in going your portfolio, then you the terms with middle way curious And market dollars of growing. just is shrinking of relative couple been trend in kind about will of and an there but in remarks, Okay.

Yes.

are the when by That's In attractive opportunities private seeing we market to in we're we dictated believe closer largely before. to loan or So general, due it's you management to you to opportunities, middle the to the what say believe legal you've standpoint. the us of private loan space. the that's the say the opportunities legal of heard what would it's compare ability I to what or this whether terms, protections is, kind better more or an overall closer in sponsor, just diligence can terms be from team or company, closer underwriting do a if business documentation whether closer the

So the favor the continues like the in to middle opportunities I there's terms, loan loan acceptable say to see above couple whether been it's to for up market. us opportunities years. be continue move and see feel being today legal We the it's to market, private you'll the all opportunities. good in we middle the middle we we That private last said, the But -- opportunities extent docs position think us from take as what middle or they the in away you've continue otherwise, in heard and more see come things the our you'll general, equal, as us being opportunities past, market of towards also market.

The Instructions]. will Lee with be next the question [Operator Capital coming Markets. line RBC from of Kenneth

updated over expectations leverage under near-term you get if your for on thoughts Just any have current want the conditions? sense the to

that We take I'll year the X.Xx. total on and just regulatory Brent. is this at question. ended X.XXx debt-to-equity over Yes, a basis, on a

with I prudent maintaining increase track significantly that we leverage We environment. profile. forward. our intent economic uncertain don't we're any historical initiative certainly the conservative it's have record, think So believe maintain given I consistent going do And leverage forward. so to that to is our a move as to

Okay, if very may. X helpful. And just follow-up, I

current funding you changes rate saw issued further forward? do and notes, you I and recently going mix the any expect that levels, Just given in some funding terms the interest costs, of just your on

not. say, would I generally,

a X I think we'll XXXX. thing is utilize more little bit do revolver probably in

notes repay we last one of If April first in you those did recall, when proceeds revolver. to used the investment-grade we year, offering in the the

or the balance than we balance the on we on whole, XXXX, do. revolver lower a of had So typically

a out revolver So to debt we obligations have -- variable and think good will and to the floating some more equity I'd which have rate expect of going But leverage profile there. be a -- expect speaking, balance, rate conservative the to a maintain generally I forward. mix higher debt

James. question from line with next of Robert a is Our Raymond follow-up Dodd the

just Yes, a follow-up.

HMS? business, management and much, On of kind kin -- Hypothetically, I structure show treatment? expect that, be that would dividend you kind the asset as the a offset accounting the you're differ something there the then about -- and would from you from of would if to same? say but to is Or again, fees would can't be it up cost getting just a some treatment there that mean, contemplated

Robert, standpoint, would I from the would a the through we asset have HMS we Yes, that to us consistent Main the Street, to or it fees management expect really to receive is come asset what to the form and benefit that front. in goal grow largely business, the and management similar benefit on

And management will I'll you. This the back Thank question-and-answer session. comments. call our turn conclude to for closing

you. after We results are quarter Thank thank everyone for talking our joining to us again this morning, issued. forward and we'll first look

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

may now your day. disconnect a wonderful have and You lines