Q1 2024 Main Street Capital Corp Earnings Call
Operator: Greetings and welcome to the Main Street Capital first 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, Zach. You may.
Greetings and welcome to the main Street capital first quarter earnings Conference call. At this time, all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Sackboy. Thank you Zach you may begin.
Zach Vaughan: Thank you, operator. And good morning, everyone.
Sackboy: Thank you operator, and good morning, everyone. Thank you for joining us for main Street capital Corporation's first quarter 2024 earnings Conference call.
Zach Vaughan: Thank you for joining us for Main Street Capital Corporation's first quarter 2024 earnings conference call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Jesse Morris, Chief Financial Officer and Chief Operating Officer.
Sackboy: Joining me today with prepared comments are Duane Hughes Chief Executive Officer.
Sackboy: David Macdonald, President and Chief Investment Officer, and Jesse Morris, Chief Financial Officer, and Chief operating Officer.
Zach Vaughan: Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investments. Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results. This document is available on the Investor Relations section of the company's website at MainSTCapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 17th. Information on how to access the replay was included in yesterday's release.
Sackboy: Also participating for the Q&A portion of the call as Nick, Missouri, Managing director and head of main Street's private credit investment groups.
Sackboy: Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results the.
Sackboy: This document is available on the Investor Relations section of the company's website at Maine S T capital Dot com.
Sackboy: Today's call will be available beginning an hour after the completion of the call and will remain available until May 17.
Sackboy: Information on how to access the replay was included in Yesterdays release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage.
Zach Vaughan: We also advise you that this conference call is being broadcast live through the internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, May 10th, 2024, and therefore, viewers are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions.
Sackboy: Please note that information reported on this call speaks only as of today May 10, 2024, and therefore, you're advised that time sensitive information may no longer be accurate at the time of any replay listening or transcript reading.
Zach Vaughan: These statements are based on management's estimates, assumptions, and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law.
Sackboy: Today's call will contain forward looking statements. Many of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should may or similar expressions.
Zach Vaughan: During today's call, management will discuss non-GAAP financial measures, including Distributable Net Investment Income, or DNII. D-N-I-I is Net Investment Income, or N-I-I, as determined in accordance with U.S. Generally Accepted Accounting Principles, or GAAP, excluding the impact of non-cash compensation expenditures. Management believes that presenting DNII and the related per share amount is useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since non-cash compensation expenses do not result in a net cash impact on Main Street upon settlement.
Zach Vaughan: Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly total net asset.
Sackboy: These statements are based on management's estimates assumptions and projections as of the date of this call and there are no guarantees of future performance.
Sackboy: Actual results may differ materially from the results expressed or implied in these statements as a result of risks uncertainties and other factors, including but not limited to the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at SEC Dot Gov.
Sackboy: Main Street assumes no obligation to update any of these statements unless required by law.
Sackboy: During today's call management will discuss non-GAAP financial measures, including distributable net investment income or NII.
Sackboy: <unk> II is net investment income or NII as determined in accordance with U S. Generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses.
Sackboy: Management believes that presenting D NII and the related per share amount are useful and appropriate supplemental disclosures for analyzing main street's financial performance since noncash compensation expenses did not result in a net cash impact of main street upon settlement.
Sackboy: Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.
Sackboy: Two additional key performance indicators that management will be discussing on this call, our net asset value or an Eva and return on equity or Roe.
<unk> is defined as total assets minus total liabilities and has also reported on a per share basis main street defines ROE as the net increase in net assets, resulting from operations divided by the average quarterly total net assets. Please.
Zach Vaughan: Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. Now, I'll turn the call over to Main Street's CEO, Dwayne Hyzak.
Please note that certain information discussed on this call, including information related to portfolio companies was derived from third party sources and has not been independently verified and now I'll turn the call over to main Street's CEO Duane Hughes.
Dwayne Louis Hyzak: Thanks Jack.
Dwayne Louis Hyzak: Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call, and we hope that everyone's doing well. On today's call, I will provide my usual updates regarding our performance in the quarter while also providing updates on our asset management activities, our recent dividend declarations, our expectations for dividends going forward, our recent investment activities and current investment pipeline, and several other noteworthy updates. David and Jesse will provide additional comments regarding our investment strategy, investments, and financial results. Capital Structure and Leverage and our expectations for the second quarter of 2024, after which we'll be happy to take your questions.
Dwayne Louis Hyzak: Morning, everyone and thank you for joining US we appreciate your participation on this morning's call.
Dwayne Louis Hyzak: Hope everyone's doing well.
Dwayne Louis Hyzak: On today's call I'll provide my usual updates regarding our performance in the quarter, while also providing updates on our asset management activities.
Our recent dividend declarations.
Our expectations for dividends going forward.
Recent investment activities and current investment pipeline and.
Dwayne Louis Hyzak: And several other noteworthy updates.
Dwayne Louis Hyzak: Following my comments, David and Jesse will provide additional comments regarding our investment strategy.
David MacDonald: Restaurant portfolio.
David MacDonald: Financial results capital structure and leverage.
David: And our expectations for the second quarter of 2024.
Speaker Change: After which we'll be happy to take your questions.
Dwayne Louis Hyzak: We are pleased with our first quarter results, which were highlighted by an annualized return on equity of 17.2% for the quarter, a new record for NAV per share, and NII per share and DNII per share that significantly exceeded the dividends paid to our shareholders. In addition, our positive performance in the quarter increased our return on equity for the trailing 12-month period to an impressive 19.3%. Our D&II per share in the first quarter exceeded the monthly dividends paid to our shareholders by 54 percent and the total dividends paid to our shareholders by 9 percent, representing a significant level of dividend coverage.
Speaker Change: We're pleased with our first quarter results, which were highlighted by an annualized return on equity of 17, 2% for the quarter.
Speaker Change: A new record for NAV per share.
Speaker Change: And NII per share and D NII per share that significantly exceeded the dividends paid to our shareholders.
In addition, our positive performance in the quarter increased our return on equity for the trailing 12 month period to an impressive 19, 3%.
Speaker Change: Our D NII per share in the first quarter exceeded the monthly dividends paid to our shareholders by 54% and the total dividends paid to our shareholders by 9% representing a significant level of dividend coverage.
Dwayne Louis Hyzak: And this is after increasing the total dividends paid to our shareholders in the first quarter by 20% as compared to the same period last year. We believe that these positive results demonstrate the continued and sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business, and the continued underlying strength and quality of our portfolio companies. We are also very pleased that we generated growth in both our lower middle market and private loan investment portfolios and ended the quarter with attractive pipelines in both strategies, which we believe will be helpful as we work to maintain our positive momentum from the last few quarters into the future.
Speaker Change: And this was after increasing the total dividends paid to our shareholders in the first quarter by 20% as compared to the same period of last year.
Speaker Change: We believe that these positive results demonstrate the continued and sustainable strength of our overall platform.
Speaker Change: The benefits of our differentiated and diversified investment strategies.
Speaker Change: The unique contributions of our asset management business and the continued underlying strength and quality of our portfolio companies.
We are also very pleased that we generated growth in both our lower middle market and private loan investment portfolios and ended the quarter with attractive pipelines in both strategies, which we believe will be helpful. As we work to maintain our positive momentum from the last few quarters into the future.
Dwayne Louis Hyzak: We remain encouraged by the continued favorable performance of our diversified lower middle market and private loan investment strategies and remain confident that these strategies, together with the benefits of our asset management business and our cost-efficient operating structure, will allow us to continue to deliver superior results for our shareholders in the future. Additionally, with the continued support of our long-term lender relationships and the benefits of our January investment-grade debt offering, we continue to maintain strong liquidity, a conservative leverage profile, and more than adequate flexibility to fund our current prospects for growth in both our lower-middle market and private loan investment strategy.
Speaker Change: We remain encouraged by the continued favorable performance of our diversified lower middle market and private loan investment strategies and remain confident that these strategies together with the benefits of our asset management business and our cost efficient operating structure.
Speaker Change: Allow us to continue to deliver superior results for our shareholders in the future.
Speaker Change: Additionally, with the continued support of our long term lender relationships and the benefits of our January investment grade debt offering we continue to maintain strong liquidity.
Speaker Change: Conservative leverage profile.
Speaker Change: And more than adequate flexibility to fund our current prospects for growth in both our lower middle market and private loan investment strategies.
Dwayne Louis Hyzak: These positive results, combined with our favorable outlook for the second quarter, resulted in our recommendations to our Board of Directors for our most recent dividend announcements, which I'll discuss in more detail later. Our NAV per share increased in the quarter, primarily due to the impact of net fair value increases in our investment portfolio and our retention of excess NII above our total dividends paid, which Jesse will discuss in more detail.
These positive results combined with our favorable outlook for the second quarter resulted in our recommendations to our board of directors for our most recent dividend announcements, which I will discuss in more detail later.
Speaker Change: Our NAV per share increase in the quarter, primarily due to the impact of net fair value increases in our investment portfolio and our retention of excess NII above our total dividends paid which Jesse will discuss in more detail.
Dwayne Louis Hyzak: The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of significant net fair value appreciation in the equity investments in the lower middle market portfolio, and we are excited about the follow-on investments we made in several of our high-performing lower-middle market portfolio companies. During the quarter, we supported three lower-middle market portfolio companies in completing strategic acquisitions, each of which were funded by follow-on debt investments by Main Street for a total of $52 million of incremental debt investments in these portfolio companies.
Speaker Change: The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of significant net fair value appreciation in the equity investments in the lower middle market portfolio.
Speaker Change: And we are excited about the follow on investments we made in several of our high performing lower middle market portfolio companies.
Speaker Change: During the quarter, we supported three lower middle market portfolio companies and completing strategic acquisitions, each of which were funded by follow on debt investments by main street.
Speaker Change: For a total of $52 million of incremental debt investments in these portfolio companies.
Dwayne Louis Hyzak: We expect that these follow-on investments will help drive additional fair value appreciation in these portfolio companies in future quarters, in addition to the highly attractive interest income provided by these debt investments. We've also seen increased interest from potential buyers in several of our lower-middle market portfolio companies, which could lead to favorable realizations over the next few quarters, and which we believe highlights the strength and quality of our portfolio companies. We are pleased with our investment activity in the first quarter.
Speaker Change: We expect that these follow on investments will help drive additional fair value appreciation in these portfolio companies in future quarters.
Speaker Change: In addition to the highly attractive interest income provided by these debt investments.
Speaker Change: We have also seen increased interest from potential buyers in several of our lower middle market portfolio companies that could lead to favorable realizations over the next few quarters, and which we believe highlights the strength and quality of our portfolio companies.
Speaker Change: We are pleased with our investment activity in the first quarter.
Dwayne Louis Hyzak: This activity included total lower-middle market investments of $92 million, resulting in a net increase in lower-middle market investments of $67 million after repayments and other investment activity. Our private loan investment activities in the quarter included new investments of $155 million and slightly moderated repayment activity as compared to the significant level of repayment activity experienced in the fourth quarter, resulting in a net increase in our private loan investments of $55 million.
Speaker Change: This activity included total lower middle market investments of $92 million.
Speaker Change: <unk>, a net increase in lower middle market investments of $67 million after repayments and other investment activity.
Our private loan investment activities in the quarter included new investments of $155 million and slightly moderated repayment activity as compared to the significant level of repayment activity experienced in the fourth quarter.
Speaker Change: Resulting in a net increase in our private loan investments of $55 million.
Dwayne Louis Hyzak: As a result of our favorable investment activity, our total investment portfolio grew by approximately 6% on a cost basis. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio over the next few quarters. We've also continued to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the first quarter, resulting in significant incentive fee income for our asset management business for the sixth consecutive quarter and, together with our recurring base management fees, a significant contribution to our net investment income.
Speaker Change: As a result of our favorable investment activity.
Speaker Change: Total investment portfolio grew by approximately 6% on a cost basis.
Speaker Change: Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio over the next few quarters.
Speaker Change: We've also continued to produce positive results in our asset management business.
Speaker Change: The funds, we advised through our external investment manager continued to experience favorable performance in the first quarter, resulting in significant incentive fee income for asset management business for the sixth consecutive quarter and together with our recurring base management fees, a significant contribution to our net investment income.
Dwayne Louis Hyzak: We also benefited from significant fair value appreciation in the External Investment Manager due to a combination of the continued increase in fee income, growth in asset center management, and broader market-based drivers. We remain excited about our plans for the external funds we manage as we execute our investment strategies and other strategic initiatives. We are optimistic about the future performance of the funds and the attractive returns we are providing for the investors of each fund.
Speaker Change: We also benefited from significant fair value appreciation and the external investment manager due to a combination of the continued increase in fee income growth.
Speaker Change: Growth in assets under management.
Speaker Change: And broader market base drivers.
Speaker Change: We remain excited about our plans for the extra funds that we manage as we execute our investment strategies and other strategic initiatives and we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund.
Dwayne Louis Hyzak: We remain optimistic about our strategy for growing our asset management business within our internally managed structure and are actively working to increase the contributions from this unique benefit to our Main Street stakeholders. As part of this growth strategy, we continue to focus on the near-term growth of our assets under management and the related additional recurring base management fee and incentive fee opportunities as we work to create additional value for both the investors in these funds and Main Street in the future.
Speaker Change: We remain optimistic about our strategy for growing our asset management business within our internally managed structure.
Speaker Change: Actually working to increase the contributions from this unique benefit to our main street stakeholders.
Speaker Change: As part of this growth strategy, we continue to focus on the near term growth of our assets under management and the related additional recurring base management fee and incentive fee opportunities as we work to create additional value for both the investors in these funds and main street in the future.
Dwayne Louis Hyzak: Based upon our results for the first quarter, combined with our favorable outlook for each of our primary investment strategies and for our asset management business. Earlier this week, our board declared a supplemental dividend of $0.30 per share payable in June, representing our 11th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the third quarter of 2024 to 24.5 cents per share, our sixth increase to our monthly dividends over the last eight quarters.
Speaker Change: Based upon our results for the first quarter combined with a favorable outlook in each of our primary investment strategies and for our asset management business earlier. This week, our board declared a supplemental dividend of 30 cents per share payable on June representing our 11th consecutive quarterly supplemental dividend.
Speaker Change: And an increase to our regular monthly dividends for the third quarter of 2024 to 24 and a half cents per share.
Speaker Change: Our sixth increase to our monthly dividends over the last eight quarters.
Dwayne Louis Hyzak: The third quarter regular monthly dividends are payable in each of July, August, and September and represent a 6.5% increase from the third quarter of 2023. The supplemental dividend for June is a result of our strong performance in the first quarter and will result in total supplemental dividends paid during the trying 12-month period of $1.15 per share, representing an additional 41% paid to our shareholders in excess of our regular monthly dividends and a current total yield we are providing to our shareholders of over 8%.
Speaker Change: The third quarter regular monthly dividends are payable in each of July August and September and represent a six 5% increase from the third quarter of 2023.
Speaker Change: The supplemental dividend for June as a result of our strong performance in the first quarter.
Speaker Change: [noise] will result in total supplemental mental dividends paid during the trailing 12 month period of $1 15 per share.
Speaker Change: Representing an additional 41% paid to our shareholders in excess of our regular monthly dividends and a current total yield we are providing to our shareholders of over 8%.
Dwayne Louis Hyzak: After multiple increases to our monthly dividend and the significant supplemental dividend paid in March, our D&II per share for the first quarter still exceeded our total dividends paid by 9 cents per share, or 9%. We are pleased to be able to deliver this significant additional value to our shareholders while still conservatively retaining a portion of our excess earnings to support our capital structure and investment portfolio against the risks associated with the current general economic uncertainty and to further enhance the growth of our NAV per share.
Speaker Change: After a multiple multiple increase to our monthly dividend and the significant supplemental dividend paid in March our DNI I per share for the first quarter still exceeded our total dividends paid by <unk> <unk> per share or 9%.
Speaker Change: We are pleased to be able to deliver the significant additional value to our shareholders, while still conservatively retaining a portion of our excess earnings to support our capital structure and investment portfolio against the risks associated with the current general economic uncertainty.
Speaker Change: And to further enhance the growth of our NAV per share.
Dwayne Louis Hyzak: We currently expect to recommend that our board continue to declare future supplemental dividends to the extent DNII significantly exceeds our regular monthly dividends paid in future quarters and we maintain a stable to positive NAV. Based upon our expectations for continued favorable performance in the second quarter, we currently anticipate proposing an additional supplemental dividend payable in September 2024, have turned into our current investment pipeline. As of today, I would characterize our lower-middle market investment pipeline as above average.
Speaker Change: We currently expect to recommend that our board continue to declare future supplemental dividends to the extent D. NII significantly exceeded our regular monthly dividends paid in future quarters, and we maintain a stable to positive.
Speaker Change: Based upon our expectations for continued favorable performance in the second quarter. We currently anticipate proposing an additional supplemental dividend payable in September 2024.
Speaker Change: Now turning to our current investment pipeline.
Speaker Change: As of today, I would characterize our lower middle market investment pipeline as above average.
Dwayne Louis Hyzak: Consistent with our experience in prior periods of broad economic uncertainty, we believe that the unique and flexible financing solutions that we provide to our lower-middle-market companies and their owners and management teams, and our differentiated long-term to permanent holding periods, represent an even more attractive solution in the current environment, and we are confident in our expectations for strong lower-middle-market investment activity over the remainder of 2024. We also continue to be very pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business. And as of today, I would also characterize our private loan investment pipeline as above average. With that, I will turn the call over to David.
Speaker Change: Consistent with our experience in prior periods of broad economic uncertainty, we believe that the unique and flexible financing solutions that we provide to our lower middle market companies and their owners and management teams and our differentiated long term to permanent holding periods represent an even more attractive solution in the current environment and we are confident in our <unk>.
Speaker Change: Expectations for strong lower middle market investment activity over the remainder of 2024.
We also continue to be very pleased with the performance of our private private credit team and a significant growth. They are provided for our private loan portfolio and our asset management business and as of today I would also characterize our private loan investment pipeline as above average.
Speaker Change: With that I will turn the call over to David.
David L. Magdol: Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe that our strong first quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach, and our unique operating model. We are pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive first quarter financial results. Each quarter, we try to highlight key aspects of our differentiated investment strategy.
David: Thanks, Dwayne and good morning, everyone.
David: As Dwayne highlighted in his remarks, we believe that our strong first quarter financial results continue to demonstrate the strength of main street's platform, our differentiated investment approach and our unique operating model.
David: We are pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive first quarter financial results.
David: Each quarter, we try to highlight key aspects of our differentiated investment strategy.
David L. Magdol: This quarter, we'd like to revisit several reasons why we believe that our structure as a publicly traded BDC, with the significant benefits of permanent capital, is a great match with our focus on investing in both debt and equity capital in lower middle market businesses. First, on the new lower middle market investment side, we believe that our permanent capital structure allows us to be an ideal long-term to permanent partner for the owners of privately held businesses. One of the challenges of a typical, limited-term-specific private equity fund is that it cannot represent a long-term partnership solution for a retiring business owner or their management.
David: This quarter, we'd like to revisit several reasons why we believe that our structure as a publicly traded BDC with the significant benefits of permanent capital is a great match with our focus on investing in both the debt and equity capital in lower middle market businesses.
David: First on the new lower middle market investment side, we believe that our permanent capital structure allows us to be an ideal long term to permanent partner for the owners of privately held businesses.
David: One of the challenges of a typical limited term specific private equity fund is that they cannot represent a long term partnership solution for retiring business owner or their management teams.
David L. Magdol: Our permanent capital structure and long-term to permanent investment strategy in the lower middle market allows us the flexibility to compete for new investments by providing significantly more beneficial structural considerations as opposed to relying solely on price to gain a competitive advantage. Ultimately, we believe this can generate highly attractive investment structures that more traditional private equity funds cannot provide. In addition, our ability to be a long-term to permanent partner to the companies we invest in allows the long-term owners of these businesses and their management teams the ability to maintain the identity and independence of their companies while also achieving the best long-term outcomes for all of their company stakeholders.
David: Our permanent capital structure and long term to permanent investment strategy in the lower middle market allows us the flexibility to compete for new investments by providing significantly more beneficial structural consideration.
David: As opposed to relying solely on price to gain a competitive advantage.
Ultimately, we believe this can generate highly attractive investment structures that more traditional private equity funds cannot provide.
David: In addition, our ability to be a long term to permanent partner to the companies. We invest in allows for long term owners of these businesses and their management teams the ability to maintain the identity and independence of their companies. While also achieving the best long term outcomes for all of their company stakeholders.
David L. Magdol: Second, our long-term holding periods also help generate a diversified portfolio of mature companies that typically have lower relative leverage since they have generally used free cash flow from operations to deleverage over time. As our company is de-leveraged, we work proactively with our portfolio company executives and individual equity owners to decide how they can generate the best returns for the equity owners of their businesses. This tends to create three attractive opportunities for our high-performing, lower-middle market portfolio companies, the opportunity for long-term equity capital appreciation through the reinvestment of cash flows or through deleveraging, the opportunity to pay significant dividends to the shareholders of the business, and the opportunity to effectively take advantage of internal and external growth strategies and initiatives as they arise.
David: Second our long term holding periods also help generate a diversified portfolio of mature companies that typically have lower relative leverage since they are generally used free cash flow from operations to deleverage over time.
David: As our company has de Levered, we work proactively with our portfolio company executives and individual equity owners to decide how they can generate the best returns for the equity owners of these businesses.
David: This tends to create three attractive opportunities for our high performing lower middle market portfolio companies the.
David: The opportunity for long term equity capital appreciation through the reinvestment of cash flows or through deleveraging.
David: The opportunity to pay significant dividends to the shareholders of the business.
David: And the opportunity to effectively take advantage of internal and external growth strategies and initiatives as they arise.
David L. Magdol: In our more high-performing situations, we often see our portfolio company executives and equity owners take advantage of multiple value creation opportunities. We are well aligned with our portfolio company operating partners to evaluate and pursue the best alternatives to create shareholder value since we share in the benefits of equity ownership with, Alternatively, should our portfolio company face difficult industry headwinds or other challenges, since they have lower relative leverage profiles, they tend to be well positioned to work through any negative economic cycles as they arise, and they have the added benefit of a highly aligned partner in Main Street to help them work through a potential rough patch.
David: And our more high performing situations, we often see our portfolio company executives and equity owners take advantage of multiple value creation opportunities we.
David: We are well aligned with our portfolio company operating partners to evaluate and pursue the best alternatives to create shareholder value since we share in the benefits of equity ownership with them.
David: Alternatively shut our portfolio company faced difficult industry headwinds or other challenges since they have lower relative leverage profiles, they tend to be well positioned to work through any negative economic cycles as they arise and they have the added benefit of a highly aligned partner and main street to help them work through potential rough patch.
David L. Magdol: The first quarter of 2024 represented another strong period for add-on investments for our lower middle market companies, where we supported five portfolio companies with additional capital for growth or recapitalization initiatives. Because of Main Street's strong capital availability and ability to provide both debt and equity capital to our portfolio companies, we are well situated to move quickly to support our portfolio companies, not only on the initial transaction but also when they identify growth initiatives. Today, the environment for add-on acquisitions by our portfolio companies remains strong.
David: The first quarter of 2024 represented another strong period for add on investments for our lower middle market companies.
David: Goodbye, we supported five portfolio companies with additional capital for growth our recapitalization initiatives.
David: Because of main street's strong capital availability and ability to provide both debt and equity capital to our portfolio of companies. We are well situated to move quickly to support our portfolio companies not only on the initial transaction, but also when they identified growth initiatives.
David: Today, the environment for add on acquisitions by our portfolio companies remained strong.
David L. Magdol: We welcome the opportunity to make incremental investments in our most successful lower-middle market companies as we strive to create long-term value for Main Street shareholders alongside the other equity owners at the portfolio company. Our lower-middle market portfolio is currently comprised of 47 companies which have been in our portfolio for greater than five years, and 22 of which have been in our portfolio for greater than ten years. We are excited about our partnerships with companies that have proven long-term track records on Main Street.
David: Welcome the opportunity to make incremental investments in our most successful lower middle market companies as we strive to create long term value for main street shareholders alongside the other equity owners at the portfolio of companies.
David: Our lower middle market portfolio is currently comprised of 47 companies, which have been in our portfolio for greater than five years, and 22 of which who have been in our portfolio for greater than a decade.
David: We are excited about our partnerships with companies that are proven long term track records with main street.
David L. Magdol: A recent example of our supporting a seasoned portfolio company management team in executing their growth strategies took place when Main Street supported our portfolio company, Gulf Manufacturing, or GMI, in a highly strategic acquisition. We made our original investment in GMI over 16 years ago, and in the first quarter, Main Street was pleased to provide 100% of the cash needs for GMI to complete the strategic acquisition. This acquisition provides the combined company and its owners, including management, the opportunity to benefit from the significant equity value creation opportunities produced through combined cross-selling prospects, economies of scale, and other synergies that are expected to exist from the larger combined platform.
David: A recent example of our supporting a season portfolio company management team in executing their growth strategies took place with mainstreet supported our portfolio company golf manufacturing, our GMI and a highly strategic acquisition.
David: We made our original investment in GMI over 16 years ago and in the first quarter main shoot was pleats pleased to provide 100% of the cash needs for GMI to complete a strategic acquisition.
David: This acquisition provides the combined company and its owners, including management the opportunity to benefit from the significant equity value creation opportunities produced through combined cross selling prospects economies of scale and other synergies that are expected to exist from the larger combined platform.
David L. Magdol: GMI's acquisition is representative of the attractive opportunities we believe exist within our existing lower middle market portfolio to put incremental capital to work supporting both internal and external growth initiatives at the portfolio company level. We believe our seasoned lower-middle market portfolio will continue to provide attractive follow-on investment opportunities in the future. Now turning back to our lower middle market portfolio, the contributions from this portfolio continue to be well diversified, with 49 of our 81 lower middle market companies with equity investments having appreciation at quarter end, and 48 of these companies contributing to our dividend income over the last 12 months.
David: <unk> acquisition is representative of the attractive opportunities, we believe exist within our existing lower middle market portfolio to put incremental capital to work supporting both internal and external growth initiatives at the portfolio company level.
David: We believe our seasoned lower middle market portfolio will continue to provide attractive follow on investment opportunities in the future.
David: Now turning back to our lower middle market portfolio. The contributions from this portfolio continued to be well diversified with 49 of our 81 lower middle market companies with equity investments, having appreciation at quarter end.
David: 48 of these companies contributing to our dividend income over the last 12 months.
David L. Magdol: Additionally, more than half of our lower middle market companies experienced increases in their trailing 12-month EBITDA in the first quarter of this year when compared to the fourth quarter of last year, which we believe demonstrates the underlying strength of our lower middle market portfolio. Now turning to the overall composition and results of our investment portfolio as of March 31st, we continue to maintain a highly diversified portfolio with investments in 191 companies spanning across numerous industries and end markets.
Additionally, more than half of our lower middle market companies experienced increases in their trailing 12 month EBITDA in the first quarter of this year when compared to the fourth quarter of last year, which we believe demonstrates the underlying strength of our lower middle market portfolio.
David: Now turning to the overall composition of the results from our investment portfolio as of March 31st we continue to maintain a highly diversified portfolio with investments in 191 companies spanning across numerous industries and end markets.
David L. Magdol: Our largest portfolio companies, excluding our external asset manager, represented only 3.5% of our total investment income for the trailing 12-month period and 3.5% of our total investment portfolio fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our investment activity in the first quarter included total investments in our lower middle market portfolio of approximately $92 million, which after aggregate repayments on debt investments and return of invested equity capital resulted in a net increase in our lower middle market portfolio of $67 million.
David: Our largest portfolio companies, excluding our external asset manager represented only three 5% of our total investment income for the trailing 12 month period, and three 5% of our total investment portfolio fair value at quarter end.
David: The majority of our portfolio investments represented less than 1% of our income and our assets.
David: Our investment activity in the first quarter included total investments in our lower middle market portfolio of approximately $92 million, which after aggregate repayments on debt investments and return of invested equity capital resulted in a net increase in our lower middle market portfolio of $67 million.
David L. Magdol: Driven by the capabilities and relationships of our private credit team, we also made $155 million in total private loan investments, which after aggregate investment activity resulted in a net increase in our private loan portfolio of $55 million. Finally, during the quarter, we had a continued net decrease in our middle market portfolio of $22 million. At the end of the first quarter, our lower-middle market portfolio included investments in 81 companies representing $2.4 billion of fair value, which is 28% above our cost base.
David: Driven by the capabilities and relationships of our private credit team. We also made a $155 million in total private loan investments, which after aggregate investment activity resulted in a net increase in our private loan portfolio of $55 million.
David: Finally during the quarter, we had a continued net decrease in our middle market portfolio of $22 million.
David: At the end of the first quarter, our lower middle market portfolio included investments in 81 companies, representing $2 $4 billion of fair value, which is 28% above our cost basis.
David L. Magdol: We had investments in 88 companies in our private loan portfolio, representing $1.5 billion of fair value. And in our middle market portfolio, we had investments in 22 companies representing $239 million of fair value. The total investment portfolio at fair value at quarter end was 115% of the related cost base. In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term goals. Additional details on our investment portfolio quarter end are included in the press release that we issued yesterday. With that, I will turn the call over to Jesse to cover our financial results, capital structure, and liquidity.
David: We had investments in 88 companies in our private loan portfolio, representing $1 $5 billion of fair value.
David: And in our middle market portfolio, we had investments in 22 companies representing $239 million of fair value.
David: The total investment portfolio at fair value at quarter end was 115% of the related cost basis.
David: In summary main streets investment portfolio continues to perform at a high level and deliver on our long term goals additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday.
David: With that I will turn the call over to Jesse to cover our financial results capital structure and liquidity position.
Jesse Enrique Morris: Thank you, David. To echo Dwayne's and David's comments, we are very pleased with our operating results for the first quarter. Our total investment income for the first quarter was $131.6 million, increasing by $11.4 million, or 9.4%, over the first quarter of 2023 and by $2.3 million, or 1.8%, from the fourth quarter of 2023. The positive momentum we experienced during 2023 continued in the first quarter and resulted in strong levels of investment income, which we believe, as Dwayne and David touched on, demonstrates the continued strength of our differentiated investment and asset management
Jesse Enrique Morris: Thank you David to Echo Duane and David's comments, we are very pleased with our operating results for the first quarter.
Jesse Enrique Morris: Our total investment income for the first quarter was $131 6 million, increasing by $1 4 million or <unk>, 4% over the first quarter of 2023 and by $2 3 million or one 8% from the fourth quarter of 2023.
Jesse Enrique Morris: The positive momentum we experienced during 2023 continued in the first quarter and resulted in strong levels of investment income, which we believe is Duane and David touched on demonstrates the continued strength of our differentiated investment and asset management strategies.
Jesse Enrique Morris: The first quarter included elevated levels of certain income considered less consistent or non-recurring in nature, which included dividends from our equity investments and accelerated prepayment, repricing, and other activity related to our debt investment. In the aggregate, these items totaled $7.5 million and were $2.1 million higher than the average of the prior four quarters. $2.2 million higher than the fourth quarter and $1.8 million lower than the first quarter of 2023. Interest income increased by $6.7 million from a year ago and decreased $0.6 million from the fourth quarter.
The first quarter included elevated levels of certain income considered less consistent or nonrecurring in nature.
Jesse Enrique Morris: Which include dividends from our equity investments and accelerated prepayments repricing and other activity related to our debt investments.
Jesse Enrique Morris: In the aggregate these items totaled $7 5 million.
Jesse Enrique Morris: There were $2 1 million higher than the average of the prior four quarters too.
Jesse Enrique Morris: $2 2 million higher than the fourth quarter, and $1 8 million lower than the first quarter of 2023.
Jesse Enrique Morris: Interest income increased by $6 7 million from a year ago.
Jesse Enrique Morris: A decrease of <unk> 6 million from the fourth quarter.
Jesse Enrique Morris: The increase over the prior year was driven primarily by increases in benchmark index rates and increased Net Investment Activity. The decrease from the fourth quarter was primarily driven by a decrease in accelerated OID income, partially offset by increased net investment equity. Dividend income decreased by $1.4 million, or 5.9%, when compared to a year ago, driven primarily by a $5.3 million decrease in less consistent or non-recurring dividends. The $3.9 million increase in dividends deemed recurring is a result of the continued underlying strength of the majority of our portfolio companies and the recurring benefits from our asset management business. Dividends decreased by $1 million, or 4.2%, from the fourth quarter and included a $1.7 million increase in dividends we characterize as less consistent or non-recurring in nature.
Jesse Enrique Morris: The increase over the prior year was driven primarily by increases in benchmark index rates and.
Jesse Enrique Morris: And increased net investment activity.
Jesse Enrique Morris: The decrease from the fourth quarter was primarily driven by a decrease in accelerated OID income, partially offset by increased net investment activity.
Jesse Enrique Morris: Dividend income decrease by $1 4 million or five 9% when compared to a year ago, driven primarily by a $5 3 million decrease in less consistent or nonrecurring dividends.
Jesse Enrique Morris: The $3 9 million increase in dividends team recurring as a result of the continued underlying strength of the majority of our portfolio companies and the recurring benefits from our asset management business.
Jesse Enrique Morris: Dividends decreased by 1 million or four 2% from the fourth quarter and included a $1 7 million increase in dividends, we characterize as less consistent or nonrecurring in nature.
Jesse Enrique Morris: Fee income increased by $6.1 million from a year ago and $3.9 million from the fourth quarter. These increases were driven primarily from an increase in P's received from refinancing and prepayment of debt investments and P's related to higher portfolio investment activity. Pre-payment and other fee income considered non-recurring increased $3.8 million from a year ago and by $2.1 million from the fourth quarter. Our operating expenses increased by $2.5 million from a year ago, largely driven by increases in interest expense and compensation-related expenses, partially offset by an increase in expenses allocated to the external investment manager.
Jesse Enrique Morris: Fee income increased by $6 1 million from a year ago, and $3 9 million from the fourth quarter.
Jesse Enrique Morris: These increases were driven primarily from an increase in fees received for refinancing and prepayment.
Jesse Enrique Morris: Net investments and fees related to higher portfolio investment activity.
Prepayment and other fee income consider nonrecurring increased $3 8 million from a year ago and by $2 1 million from the fourth quarter.
Our operating expenses increased by $2 5 million from a year ago, largely driven by increases in interest expense and compensation related expenses, partially offset by an increase in expenses allocated to the external investment manager.
Jesse Enrique Morris: The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets was 1.3% per quarter on an annualized basis and continues to be among the lowest in our industry. Our external investment manager contributed $8.6 million to our net investment income during the first quarter, an increase of $0.5 million from a year ago and a decrease of $0.6 million from the fourth quarter. The manager earned $3.9 million in incentive fees during the quarter, increasing by $0.6 million over a year ago, as a result of the positive performance of the asset center management. The manager ended the quarter with total assets under management of $1.5 billion.
Jesse Enrique Morris: The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets was one 3% for the quarter on an annualized basis and continues to be among the lowest in our industry.
Jesse Enrique Morris: Our external investment manager contributed $8 6 million to our net investment income during the first quarter.
Jesse Enrique Morris: An increase of <unk> 5 million from a year ago and.
Jesse Enrique Morris: And a decrease of <unk> 6 million from the fourth quarter.
Jesse Enrique Morris: The manager earned $3 9 million in incentive fees during the quarter, increasing by <unk> 6 million over a year ago. As a result of the positive performance of the assets under management.
Jesse Enrique Morris: The manager ended the quarter with total assets under management of $1 5 billion.
Jesse Enrique Morris: During the quarter, we recorded net fair value appreciation, including net realized losses and net unrealized appreciation, on the investment portfolio of $28.3 million. This increase was driven by net fair value appreciation in our lower middle market portfolio and in our external investment manager, partially offset by net fair value depreciation in our private loan portfolio. The net fair value appreciation in our lower middle market portfolio was driven by the continued positive performance of certain of our portfolio companies.
Jesse Enrique Morris: During the quarter, we recorded net fair value appreciation, concluding net realized losses and net unrealized appreciation on the investment portfolio of $28 3 million.
Jesse Enrique Morris: This increase was driven by net fair value appreciation in our lower middle market portfolio.
Jesse Enrique Morris: Our external investment manager, partially offset by net fair value depreciation in our private loan portfolio.
Jesse Enrique Morris: The net fair value appreciation in our lower middle market portfolio was driven by the continued positive performance of certain of our portfolio companies.
Jesse Enrique Morris: The fair value appreciation in the external investment manager was a result of a combination of an increase in the fees generated by the manager, driven by the continued strong performance of our asset management business, and an increase in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes. The net fair value depreciation of a private loan portfolio was driven by the net impact of a specific portfolio company's underperformance, partially offset by the impact of decreases in market spread.
Jesse Enrique Morris: The fair value appreciation and the external investment manager was a result of a combination of an increase in the fees generated by the manager driven by the continued strong performance of our asset management business and an increase in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes.
Jesse Enrique Morris: The net fair value depreciation on our private loan portfolio was driven by the net impact.
Jesse Enrique Morris: Specific portfolio company under performance, partially offset by the impact of decreases in market spreads.
Jesse Enrique Morris: We recognize net realized losses in our private loan, rental market, and other portfolio of a combined 12.8 million in the quarter, which were related to longstanding underperforming investors. The majority of the unrealized depreciation related to these investments was taken in prior periods, and as a result, the net impact of these realized losses in the quarter, after taking into account the accounting reversals of previously recognized unrealized depreciation, was a net fair value decrease of $1.2 million.
Jesse Enrique Morris: We recognized net realized losses in our private loan middle market and other portfolio of a combined $12 8 million in the quarter.
Jesse Enrique Morris: Which were related to long standing underperforming investments.
Jesse Enrique Morris: The majority of the unrealized depreciation related to these investments what's taken in prior periods and as a result.
Jesse Enrique Morris: The net impact of these realized losses in the quarter after taking into account the accounting reversals of previously recognized unrealized depreciation was a net fair value decrease of $1 2 million.
Jesse Enrique Morris: We ended the first quarter with investments on non-accrual status comprising approximately 0.5% of the total investment portfolio at fair value and approximately 2% at cost. Net asset value, or NAV, increased by 34 cents per share in the fourth quarter and by $2.31 or 8.5% when compared to a year ago to a record NAB per share of $29.54, at the end of the first quarter. Our regulatory debt-to-equity leverage, calculated as total debt excluding our SBIC debentures divided by net asset value, was 0.7, and our regulatory asset coverage ratio was 2.4, and we're intentionally more conservative than our long-term target ranges of 0.8 to 0.9 times and 2.1 to 2.25 times.
We ended the first quarter with investments on non accrual status comprising approximately <unk>, 5% of the total investment portfolio at fair value and approximately 2% at cost.
Jesse Enrique Morris: Net asset value or NAV.
Jesse Enrique Morris: Increased by 34 per share over the fourth quarter.
Jesse Enrique Morris: And by $2 31, or eight 5% when compared to a year ago to a record <unk> NAV per share of $29 54 at the end of the first quarter.
Jesse Enrique Morris: Our regulatory debt to equity leverage calculated as total debt, excluding our Sps. He debentures divided by net asset value was 0.7, and our regulatory asset coverage ratio was two point for.
Jesse Enrique Morris: And we're intentionally more conservative than our long term target ranges of <unk> eight to <unk> nine times.
Jesse Enrique Morris: In 2.1 to 2.25 times.
Jesse Enrique Morris: In January of this year, we issued $350 million of unsecured notes maturing in March 2029 with a coupon rate of 6.95%. We used the proceeds to repay outstanding borrowings under our credit facilities, and on May 1st of this year, we repaid the $415 million due on our May 2024 notes at maturity through borrowings under our credit facilities. After giving effect to the investment and capital activities thus far this year, we continue to maintain strong liquidity, including cash and availability under our credit facilities of over $900 million.
Jesse Enrique Morris: In January of this year, we issued $350 million of unsecured notes maturing in March 2029, with a coupon rate of $6 nine 5%.
Jesse Enrique Morris: We utilized the proceeds to repay outstanding borrowings under our credit facilities and on May one of this year, we repaid the $450 million due on our May 2024 notes at maturity through borrowings under our credit facilities.
Jesse Enrique Morris: After giving effect to the investment and capital activities. Thus far this year, we continue to maintain strong liquidity, including cash and availability under our credit facilities of over 900 million.
Jesse Enrique Morris: We continue to believe that our conservative leverage, strong liquidity, and continued access to capital are significant strengths that have proven to benefit us historically and have us as well positioned for the future, while allowing us to continue to execute our investment strategy. With this current level of liquidity, we currently expect to fund our net new investment activity in 2024 through a greater proportion of debt financing, and as such, we would expect leverage to increase during the course of the year.
Jesse Enrique Morris: We continue to believe that our conservative leverage strong liquidity and continued access to capital our significant strengths that have proven to be a benefit us historically and.
Jesse Enrique Morris: And have us well positioned for the future.
Jesse Enrique Morris: While allowing us to continue to execute our investment strategy.
Jesse Enrique Morris: With its current level of liquidity. We currently expect to fund our net new investment activity in 2024 through a greater proportion of debt financing and as such we would expect leverage to increase during the course of the year.
Jesse Enrique Morris: Coming back to our operating results, as a result of our strong performance for the quarter, our return on equity for the quarter was 17.2% on an annualized basis. D&II per share for the quarter of $1.11 exceeded the D&II per share for the first quarter of last year by 4 cents or 3.7% and was 1 cent or 0.9% lower than the record D&II per share for the fourth quarter. The combined impact of surrendered investment income considered less consistent or non-recurring in age on a per share basis was $0.03 per share above the fourth quarter.
Jesse Enrique Morris: Coming back to our operating results as a result of our strong performance for the quarter. Our return on equity for the quarter was 17, 2% on an annualized basis.
<unk> per share for the quarter of $1 dollar in 11.
Jesse Enrique Morris: Exceeded the DNI per share for the first quarter of last year.
Jesse Enrique Morris: <unk> <unk> or three 7% and was one cent or 0.9% lower.
Jesse Enrique Morris: Then the record DNI per share for the fourth quarter.
Jesse Enrique Morris: The combined impact of certain investment income considered less consistent or nonrecurring in nature.
Jesse Enrique Morris: Share basis was <unk> <unk> per share above the fourth quarter.
Jesse Enrique Morris: $0.02 above the average of the last four quarters and $0.03 below the same quarter a year ago. Total dividends paid in the first quarter were $1.02 per share, including a supplemental dividend of $0.30 per share, an increase of 20% over the total dividends paid during the same period in the prior year. As Dwayne mentioned, given the strength of our operating results and the outlook for the rest of the year, our board approved a supplemental dividend of $0.30 per share, payable in June 2024.
Jesse Enrique Morris: Two cents above the average of the last four quarters and <unk> below the same quarter a year ago.
Jesse Enrique Morris: Total dividends paid in the first quarter were $1 <unk> per share, including a supplemental dividend dividend of <unk> 30 per share.
Jesse Enrique Morris: An increase of 20% over the total dividends paid during the same period in the prior year.
Jesse Enrique Morris: As Dwayne mentioned, given the strength of our results and the outlook for the rest of the year. Our board approved a supplemental dividend of <unk> 30 per share payable in June 2024.
Jesse Enrique Morris: With this supplemental dividend, total declared dividends for the second quarter were $1.02 per share, representing a 13 percent increase over the total dividends paid in the second quarter of last year. Our board also approved an increase in our recurring monthly dividends to $0.245 per share or a total of $0.735 per share for the third quarter. As we look forward, Given the strength of our underlying portfolio, we expect another strong top line in earnings per share in the second quarter with expected D&I per share of at least $1.03, with the potential for upside driven by the level of dividend income and portfolio investment activities during the quarter. With that, I will now turn the call back over to the operator so we can take any questions. Thank you. We will now be
Jesse Enrique Morris: With this supplemental dividend total declared dividends for the second quarter or $1 <unk> per share representing a 13% increase over the total dividends paid in the second quarter of last year.
Jesse Enrique Morris: Our board also approved an increase over of our recurring monthly dividends to 24, and a half cents per share or a total of 73 and a half cents per share for the third quarter.
Jesse Enrique Morris: As we look forward.
Jesse Enrique Morris: Given the strength of our underlying portfolio, we expect another strong top line and earnings quarter in the second quarter with expected DNI per share of at least $1 <unk> with the potential for upside driven by the level of dividend income and portfolio investment activities during the quarter.
Speaker Change: With that I will now turn the call back over to the operator, so we can take any questions.
Operator: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing start.
Speaker Change: Thank you we will now be conducting a question and answer session.
Operator: One moment, please, while we poll for questions. Our first question comes from Bryce Rowe with B. Riley Securities. Please proceed with your question.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Our first question comes from Bryce Rowe with B Riley Securities. Please proceed with your question.
Bryce Wells Rowe: Thanks, good morning. Morning Bryce.
Speaker Change: Thanks.
Bryce Wells Rowe: Morning, Brian.
Bryce Wells Rowe: Hey Dwayne, wanted to maybe start on the comment Jesse made around, you know, using more debt to fund growth here in 24. Maybe you could kind of help us think about that relative to where the regulatory leverage is now and where your target is. Do you expect to try to get back into that target range, or will you still run conservatively below that target?
Bryce Wells Rowe: Hey, Duane wanted to to.
Maybe start on the comment Jesse made around using more and more debt to fund growth here in 'twenty four.
Bryce Wells Rowe: Maybe you could kind of help us think about that relative to where where the regulatory leverage is now and where your target is.
Bryce Wells Rowe: Do you expect to.
Dwayne Louis Hyzak: Try to get back into that target target range or will it yet.
Dwayne Louis Hyzak: Still run conservatively below that target range.
Dwayne Louis Hyzak: Sure, Bryce, I'll give you a few comments there and then I'll let Jesse remind everyone what our long-term target expectations are for leverage. So I'd start off just saying we've been well below our targets for a while.
Speaker Change: Sure Brian I'll give you a few comments there and then I'll, let Jesse remind everyone. What our long term target expectations are for leverage so I'd start off just saying we've been well below our targets for a while that was really in anticipation of the may 1st of 2020 for maturity that we just had that we repaid here over the long.
Dwayne Louis Hyzak: That was really in anticipation of the May 1st, 2024 maturity that we just had that we repaid here over the last week or so. So we intentionally were being more conservative in advance of that because the markets, as you heard us say before, had been very uncertain and we weren't sure what we would be able to accomplish from an unsecured IG issuance standpoint. So we intentionally built more cushion, you know, more conservatism in that ratio over the last 12 months or so than what we would have otherwise, you know, kind of executed on from a leverage in overall capital structure standpoint. But as you've heard us say in the past, we're always going to be more conservative than the space.
Speaker Change: Last week or so should we intentionally were being more conservative in advance of that because the markets as you've heard us say before had been very uncertain and we werent sure. What we would be able to accomplish from an unsecured issuance standpoint. So we had intentionally built more cushion you're more conservatism in that ratio over the last 12 months or so than what we would have.
Otherwise yes.
Speaker Change: And kind of executed on from a from a leverage and.
Speaker Change: Overall capital structure standpoint, but as you've heard us say in the past, we're always going to be more conservative in our space, We view our ability to generate best in class best in industry ROE is fundamental it's a different investment strategy. It's good underwriting its a long term to permanent approach. So we really look at focusing on the fundamental investment strategies that we have to.
Dwayne Louis Hyzak: We view our ability to generate best-in-class, best-in-industry ROE as fundamental. It's a different investment strategy. It's good underwriting. It's a long-term to permanent approach. So we really look at focusing on the fundamental investment strategies that we have to produce our return on equity and not use excessive leverage or financial engineering to get there. So we'll always be more conservative than the space, and we don't think anything would change there. That being said, because we have been in a more conservative position for a while, what Jesse was trying to indicate or message in his comments was that we will be moving from our current position towards our long-term targets over the next 12 to 24 months as we continue to execute the growth of our investment portfolio. But maybe I'll let Jesse remind everybody what those long-term targets are. Sure.
Speaker Change: Produce our return on equity and not not use.
Speaker Change: Excessive leverage of financial engineering to get there. So we will always be more conservative than the space and we don't think anything would change there that being said because we have been in a more conservative position for a while what Jackie is trying to indicate or message in his comments was that we will be moving.
Speaker Change: From our current position towards our long term targets over the next 12 to 24 months as we continue to execute the growth of our investment portfolio, but maybe I'll, let Jesse remind everybody what those what those long term targets are.
Jesse Enrique Morris: Sure. Thanks, Dwayne. As I said on the call, our leverage targets are 0.8 to 0.9 times. As a reminder of the way we define that, we exclude our SBI seed funding for ventures due to our exemption there.
Jesse Enrique Morris: Sure. Thanks.
As I said on the call are our leverage targets are 0.8 to 0.9 times as a reminder, the way we define that we exclude our Sps seat adventures.
Jesse Enrique Morris: Due to our assumption there and at the end of the quarter. We had moved closer to that as you probably saw Bryce to 0.7 times. So we made the same comment in the last quarter. We've made some movement closer to those targets.
Jesse Enrique Morris: And at the end of the quarter, we had moved closer to that, as you probably saw, Bryce, to 0.7 times. So, you know, we made the same comment in the last quarter. We made some movement closer to those targets, and we're still more conservative with those and would expect to continue to move closer to those.
Jesse Enrique Morris: We're still we'll still more conservative to those and we would expect to continue to move closer to those.
Jesse Enrique Morris: Alright.
Jesse Enrique Morris: Maybe, you know, just on that same topic, looks like the SBA, DeVenture's outstanding, went down. Did you all prepay some, or was that just an existing maturity?
Speaker Change: Maybe just.
Speaker Change: Just on that same topic it looks like the SBA debentures outstanding went down.
Speaker Change: Where did you all prepay.
Speaker Change: Some or was that just an existing maturity.
Jesse Enrique Morris: Yeah, Bryce, those are just activities in relation to existing maturities. So we had two tranches that we paid off, and we'll be in the process of requesting new debentures to replenish that capacity from the SBA. We started that process. It just takes a while for us to get through the process with the SBA, but that's in the process. It's just a matter of time before we, hopefully, have access to the full 350 again.
Speaker Change: Yes, Brian So those are just activities in relation to existing maturities. So we had two tranches that we pay it off and we.
Brian: We'll be in the process of requesting new debentures to replenish that capacity from the SBA. We started that process. It just takes a while for us to get through the process with the SBA, but that's in process. It's just a matter of time before we hopefully have access to the full 350 again okay.
Bryce Wells Rowe: Okay. All right. And then I'll ask one more and maybe jump back in queue if others don't ask other questions. So in terms of kind of the non-recurring or less recurring income, especially on the fee side, is that more prepayment? type of activity or amendment activity, just help us think about that and, you know, kind of curious if it is prepay, prepayment type activity, you know, what's driving that, is that, you know, the tighter spreads that we've seen here recently, you know, giving opportunities for refinance opportunities for your borrowers.
Speaker Change: Okay Alright.
Speaker Change: And then I'll I'll ask one more and <unk>.
Speaker Change: Maybe jump back in queue, if others don't ask other questions.
Speaker Change: So in terms of kind of the nonrecurring or less recurring income.
Speaker Change: Specially on the fee side is that is that is that more prepayment.
Speaker Change: Type of activity or amendment activity.
Speaker Change: US think about that and kind.
Speaker Change: Kind of curious if it is prepay prepayment type activity.
Speaker Change: What's driving that is that.
Speaker Change: Spreads that we've seen here recently.
Speaker Change: Getting opportunity for refinance opportunities for your borrowers.
Bryce Wells Rowe: Sure, Bryce. When you look at that metric we provide over the long term, it would be a combination of each of the items that you referenced. Specifically, in the first quarter, there were two repayments that occurred, and they had protections or benefits upon prepayment or repayment that allowed us to accelerate, or not accelerate, but to receive some additional benefits from a fee income standpoint. So I'd say the first quarter was a little abnormal. Obviously, you see it in the number here, but each quarter there's going to be peaks and valleys in that number just based upon the normal investment repayment or prepayment activities that happen across that broad portfolio.
Sure Brian when you when you look at that.
Brian: That metric, we provide long term it will be a combination of each of the items that you referenced specifically in the first quarter.
Brian: It was two repayments that occurred and they they had protections or benefits upon prepayment or repayment that allowed us to accelerate or not accelerate but to receive some additional benefits from a fee income standpoint, So I'd say the first quarter was a little abnormal obviously you see it in the number there, but each quarter is going to it's going to there's going to be peaks in Val.
Brian: And that number just based upon the normal investment repayment or prepayment activities that happen across that broad portfolio. Okay.
Dwayne Louis Hyzak: Okay. And those were in the private loan portfolio, Dwayne, or the lower middle market?
Brian: Okay, and those were in the private loan portfolio, dwayne or or lower middle market. The two bigger ones that I'm referencing were both in the private loan portfolio.
Dwayne Louis Hyzak: The two bigger ones that I'm referencing were both in the private loan portfolio.
Bryce Wells Rowe: Okay, all right. I'll jump back in the queue and maybe get back in. Thanks.
Speaker Change: Alright, I'll jump back in queue, and maybe get back and thanks. Thank you.
Brian: Yeah.
Operator: Our next question comes from Robert Dodd with Raymond James. Please proceed with your question.
Our next question comes from Robert Dodd with Raymond James. Please proceed with your question.
Robert James Dodd: Hi, everyone. On the dividend income from the portfolio companies, not the assets, It was down a little bit this quarter, which you did highlight. It works out to like a 5.9% yield on portfolio company equity, down from last year, but the same as first quarter, 22, I think, right, from a yield perspective. So I think Jesse said something about the vast majority are doing fine, so reserve a little cash rather than distribute it. Is that becoming? an emerging theme in the portfolio, or is it just one of those random things?
Robert James Dodd: Hi, one.
Robert James Dodd: Dividend income from the portfolio companies the asset might be.
Robert James Dodd: It was it was down a little bit this quarter, which you did highlight.
Robert James Dodd: What kind of like a five 9% yield on portfolio company equity.
Down from last year, the segment's first quarter 'twenty, two I think youll.
Yield perspective.
Robert James Dodd: I think as he said something about the the vast majority of you're doing fine.
Robert James Dodd: Where they are at the margin a couple of portfolio companies.
Robert James Dodd: Now deciding to.
Robert James Dodd: But I didn't catch all of them distribute is that becoming.
Robert James Dodd: Yeah.
Robert James Dodd: An emerging theme in the portfolio or was it just one of those random thing.
Robert James Dodd: Yeah.
Dwayne Louis Hyzak: Thanks for the question, Robert. I'd say we point it out or attribute it more to just a random quarterly fluctuation. The companies that are contributing to our dividend income continue to be a broad group of people, just like it's been, or a broad group of companies, just like it's been in prior quarters, so we haven't seen the concentration increase materially. We haven't seen the composition of the companies that are contributing to that dividend income on a quarterly basis change materially.
Speaker Change: For the question Robert I would say, we pointed to are attributed more to just a random quarterly fluctuation. The companies that are contributing to our dividend income continues to be a broad group of people just like it's been a broad group of companies just like it's been in prior quarters. So we haven't seen.
Speaker Change: The concentration increased materially we haven't seen the composition of the companies that are contributing to that dividend income on a quarterly basis change materially. We do have from time to time, the nonrecurring stuff, which we always try to do our best to call that out, but if you look at the fundamental performance of the company is contributing to dividend income today versus what's been there the last couple of.
Dwayne Louis Hyzak: We do have, from time to time, the non-recurring stuff, which we always try to do our best to call that out. But if you look at the fundamental performance of the companies contributing to dividend income today versus what's been there the last couple of quarters, really over the last six or eight quarters, I wouldn't say that it's changed significantly. You just have fluctuations quarter to quarter that drive that dividend income.
Speaker Change: <unk> really over the last six or eight quarters I wouldn't say that it's changed significantly do you just have fluctuations quarter to quarter to drive drive that dividend income.
Dwayne Louis Hyzak: Got it. Thank you.
Speaker Change: Got it thank you.
Robert James Dodd: On the asset manager, and I'm not talking about this quarter, but kind of thematically, of the next couple of years, maybe, can you give us any indication if plans have developed about how you'd like to... handle MSC or if there are other initiatives that you plan on undertaking? I mean, obviously you have the two private loan funds in there as well. Just any more color on what you think is going to happen, the outlook for that. Really high return on risk-adjusted capital, if you will, for businesses within Maine over the next couple of years. Sure, Robert. So, similar to what you just said, there...
Speaker Change: Sure.
Speaker Change: On the asset manager and I'm not talking about this.
Speaker Change: This quarter, but kind of thematic.
Speaker Change: The next couple of years, maybe can you give us any indication.
Speaker Change: Plans have developed about how you'd like to.
Speaker Change:
Speaker Change: Handful MFC.
Speaker Change: Other initiatives.
Speaker Change: You plan on undertaking I mean, obviously you have to keep private loan funds in that as well.
Speaker Change: Just any more color on what you think's going to go.
Speaker Change: The outlook for that.
Speaker Change: Really hard to turn on on risk adjusted capital If you will business within.
Speaker Change: Within mainland over the next couple of years.
Dwayne Louis Hyzak: Sure, Robert. So, similar to what you just said there, we view the asset management business for us to be extremely attractive. It's something that's very unique to Main Street in relation to other BDCs. It has been and continues to be a very large contributor to our return on equity and our recurring net investment income. So, it's something that we put a lot of value on, and we find it highly attractive, just like we think most of our stakeholders do.
Speaker Change: Sure Robert So similar to what you just said there we view that the asset management business for us to be extremely attractive. It's something that's very unique to main street in relation to other bdcs.
Robert: It has been and continues to be a very large contributor to our return on equity and our recurring net investment income. So it's something that we put a lot of value on and we find it highly attractive just like we think most of our stakeholders do so when you look at that and you've heard US say this for the last couple of quarters, we have been and continue to be focused on trying to grow it and we can grow at a couple of ways.
Dwayne Louis Hyzak: So, when you look at that, and you've heard us say this for the last couple of quarters, we have been and continue to be focused on trying to grow it, and we can grow it in a couple of ways. One is through the private loan activities that we've had. Obviously, we're not planning to double the growth of that there. The growth through those private loans will be very, very deliberate, and as a result, it'll probably be more moderate.
Robert: One is through the private loan activities that we've had obviously, we're not planning to double the growth of that there are those the growth through those private loans will be.
Robert: Very very deliberate and as a result of a probably be more moderate.
Robert: Longer term, if we can find a solution that works for both us and for the shareholders of MFC income fund to grow that we think thats the biggest opportunity and we continue to look at different strategic initiatives or activities that we can take on that front.
Dwayne Louis Hyzak: Longer term, if we can find a solution that works for both us and for the shareholders of MSC Income Fund to grow that, we think that's the biggest opportunity, and we continue to look at different strategic initiatives or activities that we can take on that front to allow us to both deliver really, really good returns for their shareholders but also deliver additional benefits to Main Street through the growth of that entity or that fund. I don't have anything today that I can share with you, but I think you would expect, just given the comments I just provided and our prior comments, that we continue to work on that, and we're hopeful that at some point in the future, we'll have a really good outcome for all parties.
Robert: To allow us to both deliver really really good turn returns for their shareholders, but also deliver additional benefits to main street through the growth of that that entity that fund I don't have anything today that I can share with you, but I think you would expect just given the comments I just provided in our prior comments, we continue to work on that and we're hopeful that at some point in the <unk>.
Robert: We will have a really good outcome for all parties.
Speaker Change: Got it thank you.
Operator: Our next question comes from Mark Hughes with Truist Securities. Please proceed with your question.
Speaker Change: Our next question comes from Mark Hughes with <unk> Securities. Please proceed with your question.
Mark Douglas Hughes: Yeah, thank you. Good morning.
Yeah. Thank you good morning.
Dwayne Louis Hyzak: Dwayne, you talked about you're seeing more interest from several buyers. You also categorized your pipelines as above average as compared to average last quarter. What could you expand on that a little bit more? Up a tick, clearly, in deal activity that you're seeing. Do you think that's broader? What's driving all that?
Mark Douglas Hughes: Dwayne you talked about.
Mark Douglas Hughes: Youre seeing more interest from several buyers. They also categorized your pipeline as above average.
Mark Douglas Hughes: Compared to average last quarter, what could you expand on that a little bit more.
Speaker Change: Uh huh.
Speaker Change: A.
Speaker Change: Tick clearly in in deal activity that Youre seeing do you think that the.
Speaker Change: Broader what what's driving all that.
Dwayne Louis Hyzak: Sure, Mark. Thanks for the questions. I would say, taking those two questions in reverse order, when you look at the activity both on the lower middle market side and the private loan side, we have seen a noticeable uptick on both sides. As you heard in our script and you saw in the numbers, we had really good investment activity in both strategies in the first quarter. And as you can see from my comments, the pipeline in both situations or both cases continues to be positive.
Sure Mark Thanks, Thanks for the questions I would say.
Speaker Change: Taking those two questions in reverse order when you look at the activity both on the lower middle market side and the private loan side, we have seen a noticeable uptick on both sides as you heard in our script and you saw in the numbers, we had really good investment activity in both strategies in the first quarter and as you took from my comments the pipeline in both those situations.
Speaker Change: So both cases continues to be positive.
Speaker Change: Im not sure if you just attribute that to the overall market you know kind of becoming more active or if it's something that we've done specifically I think it's probably a combination of the two I think more broadly you've probably heard other.
Dwayne Louis Hyzak: I'm not sure if you just attribute that to the overall market kind of becoming more active or if it's something that we've done specifically. I think it's probably a combination of the two. I think more broadly, you probably heard other BDCs or other private equity, or private debt investors saying for the last couple of months that the market has become more active. We've definitely seen that on the front end of the funnel.
Speaker Change: <unk>, rather private equity private debt investors are saying for the last couple of months of the market has become more active and we've definitely seen that on the front end of the funnel and I think we've seen or experienced more success here recently, both in the lower middle market and private loan strategies and having more success on opportunities moving through the funnel and resulting an actionable items that we do we.
Dwayne Louis Hyzak: And I think we've seen or experienced more success here recently, both in the lower middle market and private loan strategies, and we have had more success with opportunities moving through the funnel and resulting in actionable items that we get the opportunity to execute on. So nothing huge or significant, just the market has improved, and we're doing a good job of capturing those opportunities. On your first question about the uptick in potential realizations, from time to time, we'll see that activity ebb and flow.
Speaker Change: Get the opportunity to execute on so nothing.
Huge significant just yet.
Speaker Change: The market has improved and we're doing a good job of capturing those opportunities on your first question about the uptick in potential realizations from time to time, we'll see that activity ebb and flow does not always mean that we get to an exit because theres a lot of things just like on our new investment activity a lot of things have to go well in order for us in our <unk>.
Dwayne Louis Hyzak: It does not always mean that we get to an exit because there are a lot of things, just like in our new investment activity; a lot of things have to go well in order for us in our portfolio company to get to a good outcome from an exit standpoint. But we have seen that increase, both in terms of at least one company where our partners in the business have an increased desire to seek liquidity, and then a couple of others where it's inbound activity, unsolicited activity from third parties that has prompted some activity there.
Folio a company to get to a good outcome from a from an extra standpoint, but we have seen that increase both in terms of at least one company, where our partners in the business have an increased desire to seek liquidity and then a couple of others, where it's inbound activity kind of unsolicited activity from third parties that has prompted some some activity. There. So we will continue.
Speaker Change: To.
Dwayne Louis Hyzak: So we'll continue to... execute on that, work to realize the best outcome for us and our partners in those lower middle market portfolio companies and hope for a good outcome. If we don't exit, the companies that we're referencing are all very strong, high-performance companies, and we'd be happy to continue to be invested in those companies long term.
Execute on that work to realize the best outcome for us and our partners in those lower middle market portfolio companies and hope for a good outcome if.
Speaker Change: If we don't exit these the companies that we're referencing are all very strong high performing companies and we'd be happy to continue to be invested in those companies long term.
Mark Douglas Hughes: Any observation about the kind of valuations? Are you seeing perhaps more attractive valuations that would prompt more realization?
Speaker Change: Any observation about the kind of valuations are you seeing perhaps more attractive valuation.
Speaker Change: Would.
Speaker Change: More realizations.
Dwayne Louis Hyzak: I don't know if I'd say there's a big change there. The market has gotten a little more heated or competitive, so overall, say today, valuations are probably a tick higher than they would have been 12 or 18 months ago, but I wouldn't say that there's anything that's materially different. I'll let David see if he has anything he wants to add, but it's a healthy market. It's a productive market, but not anything that we think is kind of a significant uptick. David, I don't know if you'd add anything.
Speaker Change: I don't I don't know if I'd say, there's a big change there I mean, the market has gotten a little more more heated a competitive. So overall I'd say today, you know valuations are probably at a tick higher than they would've been 12 to 18 months ago, but I wouldn't say that there's anything that's.
Speaker Change: You know materially different I'll, let David see if he has anything he wants to add but it's it's a it's a healthy market, it's a productive market, but not anything that we think is kind of.
Significant uptick so David I'll know, if you'd add anything on the only thing I'd add is that if you look at the longer term for our size transactions. There has not been a material change in recent past, we did see some reluctance for sellers to come to market when interest rates ticked up kind of more suddenly and there was concerns about the financing. So we saw some degradation in valuation multiples now that there are some.
David L. Magdol: The only thing I'd add is that if you look at the longer term for our size transactions, there has not been a material change in the recent past. We did see some reluctance for sellers to come to market when interest rates ticked up kind of more suddenly, and there were concerns about the financing, so we saw some degradation in valuation multiples. Now there's some normalcy in the new interest rate environment. It's stabilized, but it's back to historical norms for our lower middle market investment portfolio.
Speaker Change: Normalcy and the new interest rate environment, it's stabilized, but it's back to historical norms for our lower middle market investment portfolio.
Mark Douglas Hughes: I appreciate that. Thank you. Thank you, Mark.
Speaker Change: I appreciate that thank you.
Speaker Change: Okay.
Thank you Mark.
Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone. One moment while we poll for questions. Our next question comes from Erik Zwick with Hovda Group. Please proceed with your question.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Speaker Change: Our next question comes from Erik Zwick with Hovde Group. Please proceed with your question.
Erik Edward Zwick: Thanks. Good morning, everyone.
Erik Edward Zwick: Thanks, Good morning, everyone.
Erik Edward Zwick: First just wanted to start.
Erik Edward Zwick: When the second private loan funds. If you could just provide maybe an update on activity there in the first quarter.
Erik Edward Zwick: First, just wanted to start on the second private loan fund; if you could just provide maybe an update on activity there in the first quarter. And then also, I think you've previously indicated that you were targeting between $100 million and $300 million. And I'm curious if you've kind of narrowed that range or set a more kind of precise target. And ultimately, what factors do you consider in determining when to do the final closing? Is it just, you know, timing or size or change in market activity?
Erik Edward Zwick: And then also I think you've previously indicated that you were targeting between $100 million and $300 million in Q.
Erik Edward Zwick: If you've kind of narrowed that range or a set of more kind of precise targeted and you know ultimately what factors you consider in determining when to do the final closing is it just you know.
Erik Edward Zwick: <unk>, our size or a change in market activity.
Dwayne Louis Hyzak: Sure, Erik. Thanks for the question. When you look at the current activity in the first quarter, I'd say we didn't have a huge increase in equity commitments from LPs. We had some slight kind of moderate increase there, but we continue to have active dialogue with new investors about either joining the fund or existing investors about increasing their commitments. So, we hope to continue to add to that over the next year or so.
Speaker Change: Sure. Thanks. Thanks for the question when you look at the current activity in the first quarter. So we didn't have a huge increase in an equity commitments from Lps. Some some slight kind of moderate increase there, but continue to have active dialogue with new investors about either joining that.
Speaker Change: Find or existing investors about increasing their commitments. So we hope to continue to add onto that over the next year or so just to give you a number we're probably at about 80 million or just over $80 million of LP commitments.
Dwayne Louis Hyzak: Just to give you a number, we're probably at about $80 million or just over $80 million of LP commitments in that second fund. When you look at the range we provided, which was $100 to $300 million, as you indicated, today, I would say we're probably expecting to be somewhere closer to $150 million, which would be more realistic, unless we have significant success with some institutional investors coming in. It's unlikely we'll get to $300 million, but we still think it'll be larger than the first fund.
Speaker Change: Second fund when you look at that.
Speaker Change: The range, we provided which was 100 to 300 million as you as you indicated.
Speaker Change: Today, I would say, we're we're probably expecting to be somewhere closer to the $150 million would be more realistic unless we have significant success with some institutional investors coming in it's unlikely we get to 300, but we still think it'll be larger than the first fund and if we are successful in increasing it when you put leverage on top of that it is a.
Dwayne Louis Hyzak: If we are successful in increasing it, when you put leverage on top of that, it is a nice increase to our asset management business over the long term. So, we continue to be excited about the fund and continue to work on those fundraising activities. In terms of the timeline that you asked about, that's contractual. Like any other fund, when we go out and we start the fundraising period or process, you typically That fundraising process will continue for that 18-month duration we started, I believe, in September of last year, off the top of my head, so it'll last through March of 2025, at least directionally. I think if that's not exactly right, that's pretty close to what the time period is.
Erik Edward Zwick: Thanks, Dwayne. That's very helpful.
Speaker Change: It is a nice increase our asset management business long term. So we continue to be excited about the fund and continue to work on those fund raising activities in terms of the timeline that you asked about that.
Speaker Change: Thats contractual like any other fun when we go out and we start to fund raising period or process. You typically set a date for for how long that fund raising period will last so we're no different than when we said we set it for 18 months so the.
Speaker Change: Fundraising process will continue.
Speaker Change: Or for that 18 month duration, we started I believe in September of last year off the top of my head. So it'll it'll last through through March of 2025 at least Directionally I think thats it.
Speaker Change: That's not exactly right, but that's pretty close to what the time period is.
Erik Edward Zwick: And second one for me, just given the diversity, industry diversity within your existing portfolios, as well as, you know, the current pipelines, there's still, I think, you know, some degree of uncertainty over the economic trajectory and in which sectors or maybe industries are performing better or worse. Are you able to see, do you have kind of a glimpse through all of your activities of, you know, how the economy is underperforming? And are there any industries or sectors that you feel have kind of weakened and you're shying away from at this point?
Speaker Change: Thanks, Brian that's all very helpful and second one for me.
Speaker Change: Just given the diversity and industry diversity within your existing portfolios as well as the <unk>.
Speaker Change: Kirk pipelines.
Speaker Change: There's still I think some degree of uncertainty over the economic trajectory in which sectors or maybe industries are performing better or worse. I guess are you able to see do you have kind of a glimpse through all of your activities of <unk>.
Speaker Change: How the economy is underperforming and are there any industries or sectors that you feel has kind of weakened and youre shying away from at this point at all.
Dwayne Louis Hyzak: Sure, Erik. I would say there's not much of a change from what you've likely heard us say over the last 12 to 24 months. You know, if I were to look at the industries and the portfolio companies that we're invested in broadly, we have more companies today that are overperforming than underperforming. And if you look at the overperformance, I'd say the overperformance is pretty broad-based if you look at it from an industrial or kind of a B2B standpoint or even, you know, businesses that are focused on the higher-end consumers from a demographic or from a customer-based standpoint.
Speaker Change: Sure Eric I would say, there's not a change from what you've likely heard us say over the last 12 months to 24 months.
Speaker Change: If I was to look at the industries and the portfolio of companies that we're invested in broadly.
Speaker Change: We have more companies today that are over performing or underperforming.
Speaker Change: And if you look at the over performance I'd say the over performance is pretty broad based if you look at it from an industrial or kind of a beta b standpoint, or even businesses that are focused on the higher end consumers from a from a demographic or from a customer base standpoint.
Speaker Change: We have been and continue to be be risk off or shy away from.
Dwayne Louis Hyzak: We have been and continue to be risk-averse or, you know, shy away from companies that are more focused on the consumer, particularly the lower end of the consumer. I think you've probably heard this not just from BDC or investment firm calls over the last couple of quarters, but I think you're increasingly hearing it more broadly across the U.S. economy, that the lower end of the consumer is being cost-conscious; he or she's trading down in terms of what they're buying, how much they're buying, etc.
Speaker Change: Companies are more focused on the consumer, particularly the lower end of the consumer I think you've probably heard this not just from a BDC or investment firm calls over the last couple of quarters, but I think youre increasingly hearing it.
Speaker Change: More broadly across the U S economy that they're at the lower end of the consumer as being cost conscious he or she is trading down in terms of what they are buying how much they're buying et cetera, and we've definitely seen that in the quarter. We had really good performance broadly across the portfolio. We did have a couple of companies that had significant underperformance in <unk>.
Dwayne Louis Hyzak: And we've definitely seen that. In the quarter, we had really good performance broadly across the portfolio. We did have a couple of companies that had significant underperformance, and as a result, we recognized meaningful unrealized depreciation on those companies, and they were both businesses that had significant consumer exposure, and I would say, kind of broad, kind of lower-end consumer exposure. So the risk we've been concerned about for the last couple of years, I think that's an area you've seen really start to impact things here in the last three to But other than that, I wouldn't really hit on anything else, but that has been a headwind here more recently.
Speaker Change: As a result, we recognized no meaningful unrealized depreciation on those companies and they were both businesses.
Speaker Change: That have significant consumer exposure and I would say kind of broad kind of lower end consumer exposure. So the risk we have been concerned about for the last couple of years I think you are.
Speaker Change: That's an area you've seen really start to impact things here. The last three to six months or so but other than that I wouldn't really hit on anything else, but that that has been a headwind here more recently.
Erik Edward Zwick: I appreciate the color. Thanks for taking my questions today. Thank you, Erik.
Speaker Change: I appreciate the color. Thanks for taking my questions today. Thank you Eric we appreciate it.
Operator: Thank you, Erik. We appreciate it.
Bryce Wells Rowe: Our next question is from Bryce Rowe with B. Reilly Securities. Please proceed with your question.
Speaker Change: Our next question is from Bryce Rowe with B Riley Securities. Please proceed with your question.
Bryce Wells Rowe: I told you I'd be back. Dwayne, maybe just a couple more for me.
Bryce Wells Rowe: Pleasure to be back.
Bryce Wells Rowe: Duane maybe just a couple more for me can you talk about.
Bryce Wells Rowe: Can you talk about some of the yield dynamics within the three portfolios? And you lay it out in the press release, it looks like there was a bit of compression in the lower middle market for private loans. Just assuming that is, you know, reflective of where spreads have gone over the last, you know, three months or so. Thanks for joining us again. Thanks for the follow-up question. I'll give some color on the low middle market side, and then I've got Nick Meserve here who leads our private credit group. I'll let him give some additional color on the private side.
Bryce Wells Rowe: Some of the some of the yield dynamics within the three portfolios.
Bryce Wells Rowe: You laid out in the press release, it looks like there is a bit of compression.
Bryce Wells Rowe: In the lower middle market and the private loan just assuming that is.
Bryce Wells Rowe: Reflective of where spreads have gone over the last three months or so.
Dwayne Louis Hyzak: Sure, Bryce. Thanks for joining us again. Thanks for the follow-up question. I'll give some color on the lower-middle market side, and then I've got Nick Meserve here who leads our private credit group. I'll let him give some additional color on the private loan side. On the lower-middle market side, I wouldn't say that we've seen the interest rate environment, or our ability to get good yields on new investments, change. We're very disciplined, and we continue to be disciplined there and haven't really seen any impact.
Bryce Wells Rowe: Sure Brian Thanks for joining US again, thanks for the follow up question.
Speaker Change: I'll give some color on the aluminum market side, and then I have got Nick Meserve here with Hulu.
Nicholas T. Meserve: Who leads our private credit group I'll, let him give some additional color on the private loan side on the alumina market side I wouldn't say that we've seen.
Nicholas T. Meserve: The interest rate environment, our ability to get good yields on new investments changed you know, we're very disciplined and we continue to be disciplined there and haven't really seen any impact when you look at our lower middle market rates change if it is going down it's more results of our existing portfolio of companies.
Dwayne Louis Hyzak: When you look at our lower-middle market, rates change. If it is going down, it's more a result of our existing portfolio companies, particularly the ones that are performing really, really well. It's not uncommon for them to have an interest rate pricing grid in place, and as they perform, grow, delever, and move down that grid from a leverage standpoint, they'll see a benefit. So if you see some reduction in the rates on our lower-middle market portfolio, it's really going to be that, which we – obviously, we take a balanced approach.
Nicholas T. Meserve: Particularly the ones that are performing really really well, it's not uncommon for them to have an interest rate pricing grid in place and as they perform grow delever and move down that grid from a leverage standpoint, they'll see a benefit. So if you see some reduction in the rates on our lower middle market portfolio is really going to be that which we obviously, we take a balanced approach. We think we've got some great.
Dwayne Louis Hyzak: We think we've got some great companies, and we'd rather keep those companies in the portfolio longer term as opposed to having them exit. So we don't necessarily view that as a bad thing. On the private loan, private credit side, I do think, and you've probably heard this from others, I do think you're seeing some pressure there. The pressure is, in my opinion, more on the rate side, less on structure and leverage, but I'll let Nick give some additional color there.
Nicholas T. Meserve: Companies and we'd rather keep those companies in the portfolio longer term as opposed to have them exit. So we don't necessarily view that as a bad thing on.
Nicholas T. Meserve: On the private loan private credit side, I do think and you probably heard this from others I do think you're seeing some pressure there the pressure.
Nicholas T. Meserve: Is more in my opinion more on the res side less on kind of structure and leverage but I'll, let nic give some additional color there yeah, Brian I'd say.
Nic: We're probably back to 'twenty, one 'twenty two spreads after kind of the spread widening of last year.
Nic: So we're probably in what we're.
Nic: Between 50, and 75 basis points over the last six to nine months as the market has gotten a little more competitive and people are out there trying to put more money to work.
Nic: Okay.
Nic: It's really a focus on spreads so far and less on incremental debt leverage or deal terms.
Bryce Wells Rowe: Okay. All right. Yeah, I think that's pretty consistent with what we've heard throughout from the other BDCs. Maybe another one for Jesse. You guys have clearly out-earned the dividend even with the supplementals. Jesse, do you have a good estimate of where spillover is sitting at this point?
Speaker Change: Okay, Alright, yes, I think that's pretty consistent with what we've heard throughout.
Speaker Change: But from the other bdcs.
Speaker Change: Maybe.
Speaker Change: Another one for for Jesse.
Speaker Change: You guys have clearly out earned the dividend even with the supplemental Jesse do you have a good maybe an estimate of where spillover is sitting at this point.
Speaker Change: Okay.
Bryce Wells Rowe: Yeah Bryce, I think from memory spillover was around $70-80 million. I can pull that up for you and get it back to you.
Jesse Enrique Morris: Yeah, So I think from memory.
Jesse Enrique Morris: Spillover was.
Jesse Enrique Morris: Around 70, 80 million I can pull that up for you and came back to you.
Jesse Enrique Morris: Okay, okay. The last one for me, it looked like non-accruals were down for the quarter on a cost basis. Any color there, is it just normal ebbs and flows of non-accruals in and out of that bucket? Yeah, there's...
Speaker Change: Okay. Okay.
Speaker Change: And then last one for me.
Speaker Change: It looked like non accruals were down for the quarter on a on a cost basis.
Speaker Change: Any color there is it just normal normal ebbs and flows.
Speaker Change: Non accruals in and out of that bucket.
Bryce Wells Rowe: There's Bryce on the non-accruals. Nothing significant.
Speaker Change: There is a price on the non accruals nothing significant we had one.
Speaker Change: Company that we had a realized loss on obviously that company.
Dwayne Louis Hyzak: We had one company that we had a realized loss on. Obviously, that company, when it was on non-accrual, comes off non-accrual. And then we had one new addition, a small addition to the non-accrual, which is why you saw that stat go down when you look at it on a percentage basis. Going back to your question for Jesse, we're just under $80 million in spillover, so right at a buck a share from a spillover income standpoint at the end of the quarter.
Speaker Change: He was on non accrual comes off non accrual and then we had one.
Speaker Change: New addition of small addition to the non accrual which is why you saw that you that stat Youll go down and when you look at it on a on a percentage basis going back to Jesse's question for Jesse were just under 19, I'm sorry, just under under $80 million of spillover. So right at right at a buck of share from a from a spillover income standpoint at the end of the <unk>.
Speaker Change: <unk>.
Bryce Wells Rowe: Alright, cool. Thanks a lot. Thank you, Bryce.
Speaker Change: Alright. Thanks.
Speaker Change: Thanks, a lot thank you Bryce.
Operator: This concludes our question and answer session. I'd like to turn the floor back over to management for closing. We just want to say thank you.
Speaker Change: This concludes our question and answer session I'd like to turn the floor back over to management for closing comments.
Dwayne Louis Hyzak: We just want to say thank you again, everyone, for joining us this morning, and thank you for your continued long-term support of Main Street. We'll look forward to talking to you again in early August after our second quarter results.
Speaker Change: Just want to say thank you again, everyone for joining us this morning, and thank you for your continued long term support of main Street and we'll look forward to talking to you again in early August after our second quarter results.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Speaker Change: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Speaker Change: Okay.