Main Street Capital (MAIN) 26 Feb 212020 Q4 Earnings call transcript

Greetings and welcome to the Main Street Capital Corporation's Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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 Mr. Lascar, Dennard with Vaughan Investors Relations. Zach you. Thank

may You begin.

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

activities asset I and and Magdol, Market in President year conference full the quarter Chief my and of activities Joining call cover are and our Head with Officer also updates the and our commentary recent Also pipeline, This our end our will expectations our announcement year within some investment business, prepared call. our Brent for our regarding while updates. management and our are for comments today for our our some David I our of fourth current performance for our Investment several Foster, providing Smith, me other Investment and dividend Director Meserve, results Chairman, Managing and normal Q&A CFO. our portion Executive Group. also Nick Vince on some of us our XXXX. and address Middle developments is quarter, will investment joining call the

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

difficult we in from the and believe with the recovery evidence We fourth which pleased ongoing to strength their COVID-XX to of impacts continue results, which the and portfolio a unusual our of our a companies year finish of quarter are pandemic. represented illustrate strong

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some to details and quarter activities additional on our pipeline. turning in fourth Now, the current investment investment our

two two companies. investments of market and of $XX middle portfolio our million lower by acquisitions companies Our for the existing investments included financing quarter in new in

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current find opportunities. the some our as be opportunities actively companies and the investments includes our continue to our market the very our pipeline. for and reinvesting creation the the look We beginning we as and current new dual they strategy investment these top these and growth in in portfolio with equity to on opportunity follow-on accretive meaningful opportunities to middle are investment companies companies very value about of performing since execute through lower follow us management of teams benefits the several allow activities and we the existing continue attractive, of various in acquisitions. pandemic, Consistent We excited on active pipeline

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

turn page the on continue the we market growth XXXX, maintain management middle our As our and to of our primary unique our focus simple, are the loan lower asset private our and both strategy business. strategy investment plans investment in growing

value plan this in will and that shareholders. our confident are significant strong for result performance creation We fellow

the worked over our turn thanks teams for management by their I and navigate again to the efforts provide we David, our as companies portfolio employees of Main collectively the employees and call Street to caused pandemic. I the our challenges to work wanted Before hard

of XXXX As and unexpected these individuals. of efforts the the challenges result appreciate pandemic, a was greatly of full we

teams management and also Our always partners owners have experiences reinforced last placed that we the on our equity companies. over the portfolio value significant relationships our these year the in with

the employees With XXXX provide Main I portfolio relationships these significant we will our and over David. and Our confidence expectations that, Street will achieve beyond. turn with call that companies us for our to with

and per Thanks, recap shareholders XX to our history take years at paid ago, $XX each our our increased February by our we've we month, monthly dividend payment Since XX% milestone. minutes of of have Dwayne, per and returns the believe dividends us investment structure and dividends year, over IPO total over have $XX attractive two unique per cumulative time, end everyone. what significant dividends of price over benefited good times addition Over significant morning, the the stock a to shareholders. a IPO from efficient enabled for our we is earlier few paid. appreciation, deliver shareholders like of back this to also our to price we look achieved our are our which share. strategy have At in and our share, we operating share this how to benefits With

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market our $XXX debt us $XXX During equity XXXX, portfolio capital principal both lower $XXX loan over allowed total and middle in aggregate increase our net companies, activities lower of with success new of repayments middle a $XXX continued million market million middle lower We portfolio originate to completed in total return in market middle after in including private and portfolio resulted million market investments. investment investments, investments. in new lower six which of million

completed $XXX total loan portfolio million debt Additionally, repayments in after investments, we principal net investments. which million exits increase in $XX of loan in private aggregate equity of portfolio investments private and resulted of

portfolio, investment net of we of segment stated middle Finally, million business. goal decrease in this $XX had our consistent deemphasize market prior our to with a our

XX portfolio XXX year investments than of companies different As across portfolio to maintain in continue highly a we end, spanning diversified industries. more with

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

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

calls, primarily end our and basis. activities investments discussed of investment given that market we've had these value investment we've business. seven at XXX% exist our private fair previous which X.X% the at And opportunities the As on our and middle equaled favorable loan cost related lower portfolio The view fair was of investment total of value non-accrual of year status, segments cost. on conference on we approximately focused total at of today, the X.X% portfolio

Additional the details I'll portfolio position. we our are call over included that investment issued and on to liquidity that, in our capital results, the structure With financial turn yesterday. release end year to Brent press cover

Thanks, David.

dividend includes Our last The total in fourth considered or million, the over quarter fourth of of interest income accelerated change by an million primarily compared in investment total income an of in by by driven a to generally decrease to income certain the a XX.X to for other of X% the same debt income in increase levels related investments, year. income X.X income. total when higher increased quarter in XXXX, partially fee investment period income offset and increase non-recurring

related by over a period in expense year the of expenses of prior to total primarily compensation non-cash expense share an million increase quarter. X.X the increased same XX.X excluding in million, the to operating Our compensation base

of the compensation expenses Street the in prior year total full October the the was as For named XXXX, is on a full HMS realized X.X of quarter, the we taking advisor decreased decrease realized year by allocation to assets The of activities operating Fund, X.X% Income primarily services operating million to XX.X X.X including non-accrual from were a loan net the ratio external relating increase Through than of market realized prior MSC by several This Holdings one X%. an a result We of non-accrual, private that accounted Media of and that percentage sole a the the of our of X.X% net for year. our manager net for the excluding quarter. to exit X.X total fourth our total over the fourth interest loss year expense from for average or during the fourth The Main million restructure we and expenses from quarter during Income losses the as provided several approximately our Access since recorded previously X.X% Fund. for been middle expense, of annualized losses of basis for investments in have income for the years at quarter. loan income. on million more investment investment it dividend and million the XX% benefited private

million realized during to on the Overall, non-accrual These loss a on NAV prior was media net no the quarter, with depreciation. the quarter activities resulted investments net net non-accrual a NAV recognized significant little our status However, less XX year realized that and this at as than the depreciation. losses in of We stats value net at from X.X% unrealized appreciation of of approximately net seven portfolio. XX.X on prior previously resulted of portfolio, recorded accuracy investment million X.X% loss at the comprising of fourth on access portfolio, total ended impact on net previously cost. related during manager market quarter improvement recognized from our had total impact quarter, XX.X due the in we the on appreciation million X.X their of quarter, XX.X to in the end, to positive unrealized depreciation appreciation investment investment our and loan X.X portfolio fair to our middle X.X and net million unrealized net portfolio, of on appreciation during relating million private the primarily our of net market on million on the other external lower our approximately appreciation middle portfolio

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

very overall of total our excess remained strong currently liquidity capitalization liquidity as XXX is in million. Our

issuance During maturity we the as have and and program. a fourth are in that investment significant in XX to in us recently believe then prior X% July strong net leverage liquidity XXX coupon proceeds million This issued a significant to a grade for million quarter, access under we the with of equity XXXX. notes approximately increase cash from strings liquidity service to we and future. continue January, raised pandemic positioned our our our conservative ATM position that well the continued capital And

covering our distributable long-term I investment consistent with questions. historical back over quarterly turn As $X.XX look net work we dividend so per on of quarter, a forward any we we to now with income we results. our expect that to investment as operator, that, the on the can call distributable generate monthly will the share, to to will take With we continue our basis, first income $X.XX net

line Robert be Ladies first we with Dodd will Thank time, a question Raymond gentlemen, comes from you. Instructions] at Our this the conducting session. James. and [Operator question-and-answer of

Congratulations quarter. on good a really

income so income is the within dividend to the I kind you management and better up of of year-over-year, there the is kind income dividend First to catch not time lack much that income may there sustained, tell, up and year a and at mean can hinted dividend obviously, the term fourth one this business, any of any this be way dividend quarter? earlier but, hard the snapback really asset one all in project quarter, in from the how on dividend of pronounced is on the then income

the have have instances income did they and fourth dividends What prior is quarters. and under, from you the driven certain elevated year-end clearly had income what dividend the of the dividends so say was in that largely But I it pay estimate think that were companies had been their companies. that on calculations you QX there quarter if consistently that we that a had in companies can were income would past, of paid it where evaluation or lot you in taxable may some tax in distributed by catch-up, dividend

So catch-up you then also had there you purely an some you in the a as business. activities elevated income one in the had from but in advisory have asset and management up recall was the say was that dividend seen increase time anything But you item, there or I activities. would wouldn't catch some

the capital on not Appreciate doing. you exactly increase work in And putting large at that. dividend a high return it's you're asset shareholders, the manager. it. Got risk, part obviously from income that really that the to mean, and I then can already

private term the given small to intent by target grow right accretive a fund? MSC and [ph] mean, now. to over what long-term itself, on your the the ROE? And the the can and back capital very it maybe from where it's equity Obviously, leveling be what on fund Is we is expectations how HMS, near obviously, the management, a [cars] I or asset new contribution from bit, that what would maybe then it now potentially be private So business in little grow can expect reopening but that to is a from we that should is time? position deploying can -- up

you to though MSC advisor, Fund, of was Income to sole assets did repayments heard for it the it, in we when you've very were the we ability of end at that the say MSC at us some would the not QX, became the contributions, there, as sub we or be when that the and the there we expect, the attractive business Robert, at significant to you Income look our outlined look we way even above the at because would reasons look Sure. part QX, as had year the they at Fund at time, the all past, find advisor, reinvest. elevated as opposed highlighted

assets the impact MSC declined, income. a total has you which know, So Income the negative Fund at fee obviously, on

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RBC Capital Kenneth [Operator with of the question Instructions] Our Lee next comes line from Markets.

further the and increase potential capital investments I'm prepared of flesh you middle remarks. seeing just rather in activity, more kind I'm some just portfolio, are that wondering there was Within you market the sectors based equity one if it? folks deployment. on could for any this potentially looking or drive further of mentioned Thanks. minority whether it on color you're you're lower specific any broad seeing what a pace could that lot this in comments just out seeing those the you're on

quick real follow some give David, I'll to comments. I'll on let And that.

just liquidity expect think think we but be, if past, our combined fund follow I'll lower our more think to activities the their let of flexibility we despite can us you opportunity when both investor there interested that about activity existing may David there we today's continue to importantly, going we think investor, about In in being companies they I portfolio likely think XXXX, point saw one add very more should private active from want partner, the owners more we our we where has? this to to in then of acquisitions minority comments activities that we and have where very, they or market, the to to our I long business on there. get middle good be I in he business be felt could elevated in equity marketplace as look additional see not a at On activities we pandemic, well. they really And necessarily on debt benefits you they the strategy in investments, that investment that want some we impacts investments the to completed our the forward. for companies as sell minority play environment, view their expect be that and want their your strategy and but scenario, like your on

Yes.

seeing business relates I some So frothy the EBITDA in in back we're community, think held visibility. as privately also increases valuations and to it 'XX,

pandemic, the we visibility. to As gotten there with less 'XX was

more to became transactions so difficult close. And

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any investment us of just if around in color could helpful, very That's very net improving thoughts there. would terms with interim? follow-up, may, updated you. be wonder over just if Got income one the distributable drivers key helpful I Thanks. the you what And share

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with David of line the Management. from comes Investment question next Confluence Our Miyazaki

on Congratulations a year. good a quarter good and

of me having you wind to guys this, knowing when can the is that in usually proportion the question, forgive [indiscernible], you granularity. Just you're of company? capital ownership the what providing equity more for little in, typically, up kind And a not

that the portfolio Yes, can say feel providing very ownership question. that, David. to we of for having or our on company end up we owners Thanks we're I'd customized, side we really that percentage make a to an our desires. side, equity when significantly, that that it's that vary on specific that solution investment, to highly

transaction So team and is achieve. a what by business of company, those result our ownership in really the trying what driven that our is as owners to management

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then, experience investments? of exit those And for your of on is transaction the what typically, kinds equity

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I'd This for to it closing session. question-and-answer turn concludes management our like remarks. back to

Thank us forward We everyone thank to week And just the in this for you again joining you. look to first talking want again morning. May. to we'll at

does participation. gentlemen, for teleconference. Thank your today's and conclude you Ladies this

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