Q1 2025 Main Street Capital Corp Earnings Call

Operator: Greetings and welcome to Main Street Capital first quarter 2025 earnings conference call. At this time, all participants are in a listen only mode.

Greetings and welcome to main Street capital first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star Zero and you kind of some key pad.

Operator: A question and answer session will follow the form of 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.

sack fun: As a reminder, this conference is being recorded its now my pleasure to introduce sack fun. Thank you you may begin.

Zach Vaughan: It is now my pleasure to introduce Zach Vaughan. Thank you. You may begin. Thank you, operator, and good morning, everyone.

sack fun: You operator, and good morning, everyone. Thank you for joining us for main Street capital Corporation's first quarter 2025 earnings Conference call.

Zach Vaughan: Thank you for joining us for Main Street Capital Corporation's first quarter 2025 earnings conference.

sack fun: Joining me today with prepared comments are Duane Hughes, Chief Executive Officer, David Macdonald, President and Chief Investment Officer, and Ryan Nelson Chief Financial Officer.

Zach Vaughan: Dwayne Hyzak, Chief Executive Officer, David Magdol, Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group.

Nick Missouri: Also participating in the Q&A portion of the call as Nick, Missouri, Managing director and head of main Street's private credit investment group.

Zach Vaughan: 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. 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 6th. Information on how to access the replay was included in yesterday's 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.

Nick Missouri: Thanks Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results.

Nick Missouri: This document is available on the Investor Relations section of the company's website at Maine S T capital Dot com.

Nick Missouri: A replay of today's call will be available beginning an hour. After the completion of the call and will remain available until May 16.

Nick Missouri: Information on how to access the replay was included in yesterday's release.

Nick Missouri: 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: Please note that information reported on this call speaks only as of today, May 9th, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading.

Nick Missouri: Please note that information reported on this call speaks only as of today may nine 2025, 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: Today's call will contain four 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. 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.

Nick Missouri: 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.

Nick Missouri: 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.

Nick Missouri: 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.

Zach Vaughan: Main Street assumes no obligation to update any of these statements unless required by law.

Nick Missouri: Main Street assumes no obligation to update any of these statements unless required by law.

Zach Vaughan: During today's call, management will discuss non-GAAP financial measures, including Distributable Net Investment Income, or DNII. The NII is Net Investment Income, or NII, as determined in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. excluding the impact of non-cash compensation. Management believes that presenting DNII and the related per share amount are useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since non-cash compensation expenses do not result in net cash impact to Main Street upon settlement.

Nick Missouri: During today's call management will discuss non-GAAP financial measures, including distributable net investment income or DNI.

Nick Missouri: The NII as net investment income or NII as determined in accordance with U S generally accepted accounting principles or GAAP.

Nick Missouri: Excluding the impact of noncash compensation expenses.

Nick Missouri: Management believes that presenting the 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 net cash.

Nick Missouri: Impact of 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.

Nick Missouri: Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Zach Vaughan: 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 NAV.

Nick Missouri: Two additional key performance indicators that management will be discussing on this call our net asset value or a navy and return on equity or Roe.

Nick Missouri: <unk> is defined as total assets minus total liabilities and has also reported on a per share basis.

Nick Missouri: Thanks Redefines Roe.

Nick Missouri: The net increase in net assets, resulting from operations divided by the average quarterly NAV.

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.

Nick Missouri: 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.

Dwayne Hyzak: And now I'll turn the call over to Main Street's CEO, Dwayne. Thanks, Zach. Good morning, everyone. And thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone's doing well.

Nick Missouri: And now I'll turn the call over to main Street's CEO Dwayne Asia.

Speaker Change: Thanks Zack.

Nick Missouri: Good morning, everyone and thank you for joining US. We appreciate your participation on this morning's call. We hope that everyone is doing well.

Dwayne Hyzak: 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.

Nick Missouri: 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 are expectations for dividends going forward, our recent investment activities and current investment pipeline and several other noteworthy updates.

Dwayne Hyzak: Following my comments, David and Ryan will provide additional comments regarding our investment strategy, investment portfolio, financial results, capital structure and liquidity, and our expectations for the second quarter, after which we'll be happy to take your questions. We are pleased with our performance in the first quarter, which resulted in an annualized return on equity of 16.5%, BNII per share that continued to exceed the dividends paid to our shareholders, and a new record for NAV per share for the 11th consecutive quarter. We believe that these continued strong results demonstrate the 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 overall strength and quality of our portfolio companies.

Speaker Change: Following my comments, David and Ryan will provide additional comments regarding our investment strategy investment portfolio financial results capital structure and liquidity and our expectations for the second quarter after which we'll be happy to take your questions.

Speaker Change: We are pleased with our performance in the first quarter, which resulted in an annualized return on equity of 16, 5%.

Speaker Change: The NII per share they continue to exceed the dividends paid to our shareholders and a new record for NAV per share for the 11th consecutive quarter.

Speaker Change: We believe that these continued strong results demonstrate the sustainable strength of our overall platform.

Speaker Change: The benefits of our differentiated and diversified investment strategies. The unique contributions of our asset management business and they continued underlying overall strength and quality of our portfolio companies.

Dwayne Hyzak: Additionally, we appreciate the continued support we received from our long-term lender relationships, as evidenced by the recent amendments and extensions of both our corporate facility and our SPV credit facility, which Ryan will discuss in more detail. As a result, we continue to maintain very strong liquidity and a conservative leverage profile, providing us significant flexibility in the current uncertain market. We continue to be encouraged by the favorable overall performance of the companies in our diversified lower middle market and private loan investment portfolios and remain confident that these strategies, together with the benefits of our asset management business, our significant available liquidity, and our cost-efficient operating structure, will allow us to deliver superior results to our shareholders.

Speaker Change: Additionally, we appreciate the continued support we receive from our long term lender relationships as evidenced by the recent amendments and extensions of both our corporate facility and our SPV credit facility, which Ryan will discuss in more detail.

Speaker Change: As a result, we continue to maintain very strong liquidity and a conservative leverage profile, providing us significant flexibility in the current uncertain market.

We continue to be encouraged by the favorable overall performance of the companies in our diversified lower middle market and private loan investment portfolios and remain confident that these strategies together with the benefits of our asset management business are significant available liquidity and our cost efficient operating structure will allow us to do liver superior results to our shareholders.

Dwayne Hyzak: And despite the significant current market uncertainty associated with tariffs and geopolitical events, we continue to be confident in the ability of our portfolio companies to successfully navigate the current environment, which David will discuss in more detail. Our favorable results in the first quarter, combined with our positive 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. Our NAV per share increased in the quarter, primarily due to the impact of net fair value increases in our investment portfolio and the accretive impact of our equity issuances, which Ryan will discuss in more detail.

Speaker Change: And despite the significant current market uncertainty associated with tariffs and geopolitical events, we continue to be confident in the ability of our portfolio companies to successfully navigate the current environment, which David will discuss in more detail.

Speaker Change: Yeah.

Speaker Change: Our favorable results in the first quarter combined with a positive outlook for the second quarter resulted in a recommendation 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 increased in the quarter, primarily due to the impact of net fair value increases in our investment portfolio and the accretive impact of our equity issuances, which Ryan will discuss in more detail.

Dwayne Hyzak: The continued favorable performance of the majority of our lower-middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower-middle market equity investments. Over the last few quarters, we have commented about the increased interest we've been receiving from potential buyers in certain lower-middle market portfolio companies. We are pleased to announce that yesterday we closed the exit of our investments in one of our portfolio companies, Heritage Vet Partners, at a realized gain of over $55 million and a meaningful premium to our March 31st fair value. Similar to the significant realized gain we recognized in the fourth quarter of 2024 on the exit of our equity investment in Pearlmire, we believe our investment in HeritageVet Partners is another great example of the highly unique benefits of our lower middle market investment strategy, which resulted in significant benefits for both Main Street and our HeritageVet Management Team partners.

Speaker Change: The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments.

Speaker Change: Over the last few quarters. We've commented about the increased interest we had been receiving from potential buyers in certain lower middle market portfolio companies.

Speaker Change: We're pleased to announce that yesterday, we closed the exit of our investments in one of our portfolio companies heritage about partners at a realized gain of over $55 million at a meaningful premium to our March 31st fair value.

Speaker Change: Similar to the significant realized gain we recognized in the fourth quarter of 2024 on the exit of our equity investment in Pearl Meyer, We believe our investment in heritage about partners is another Great example of how a unique benefits of our lower middle market investment strategy, which resulted in significant benefits for both main street and our heritage management team partners.

Dwayne Hyzak: The benefits for Main Street included significant dividend income, fair value appreciation, and the realized gain, resulting in best-in-class returns on our equity investment, in addition to the opportunity to back this best-in-class management team by funding all of their growth initiatives with follow-on Main Street debt investments, which provided us highly attractive interest income.

Speaker Change: The benefits from main street included significant dividend income fair value appreciation and the realized gain resulting in best in class returns on our equity investment. In addition to the opportunity to back this best in class management team by funding all of their growth initiatives with follow on main street debt investments, which provided us highly attractive interest income.

Dwayne Hyzak: We look forward to sharing additional details on this realization in the near future. Now turning back to the first quarter, our rural middle market investment activity resulted in a net increase in our rural middle market investments of $57 million, and our private loan investment activity resulted in a net increase in our private loan investments of $26 million, which David will discuss in greater detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the future growth of our investment portfolio, and we are excited about the current opportunities we are seeing in our lower middle market investment strategy.

Speaker Change: We look forward to sharing additional details on this realization in the near future.

Speaker Change: Now turning back to the first quarter.

Speaker Change: We're a middle market investment activity resulted in a net increase in our lower middle market investments at $57 million and our private loan investment activity resulted in a net increase in our private loan investments of $26 million, which David will discuss in greater detail.

Speaker Change: Given our conservative capital structure and strong liquidity position.

Speaker Change: We remain very well positioned to continue the future growth of our investment portfolio.

Speaker Change: We are excited about the current opportunities, we're seeing in our lower middle market investment strategy.

Dwayne Hyzak: We've also continued to produce positive results in our asset management business. The funds we advised through our external investment manager continue to experience favorable performance in the first quarter, resulting in significant incentive fee income for our asset management business for the 10th consecutive quarter, and together with our recurring base management fees, a significant contribution to our net investment investment. We remain excited about our plans for the external funds that we manage as we execute our investment strategies and explore 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, and about our strategy for growing our asset management business within our internally managed structure.

We've also continued to produce positive results of 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 10th consecutive quarter and together with our recurring base management fees, a significant contribution to our net investment income.

Speaker Change: We remain excited about our plans for the external funds that we manage as we execute our investment strategies and explore 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 and about our strategy for growing our asset management business within our internally managed structure.

Dwayne Hyzak: As part of our efforts to grow our asset management business, we are very pleased that MSC Income Fund, a BDC advised by our external investment manager and our largest asset management business client, has been successful in growing its investment portfolio with a portion of the liquidity obtained through its listing on the New York Stock Exchange and its public equity offering in January. We are also pleased with the fund's favorable performance in the first quarter, and we remain excited about the opportunity for significant future benefits to both the fund's shareholders and our asset management business from the listing and equity office.

Speaker Change: As part of our efforts to grow our asset management business. We're very pleased that MSC income fund a BDC advised by our external investment manager and our largest asset management business client has been successful in growing its investment portfolio with a portion of the liquidity obtained through its listing on the New York stock exchange and its public equity offer.

Speaker Change: In January we.

Speaker Change: We're also pleased with the funds favorable performance in the first quarter, but we remain excited about the opportunity for significant future benefits to both the fund shareholders and our asset management business from the listing and equity offering.

Dwayne Hyzak: Based upon our results for the first quarter, combined with our 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 in June, representing our 15th consecutive quarterly supplemental dividend. and an increase in our regular monthly dividends for the fourth quarter of 2025 to 25.5 cents per share. The third quarter regular monthly dividends are payable in each of July, August, and September, and represent a 4% increase from the regular monthly dividends paid in the third quarter of 2024.

Speaker Change: Based upon our results for the first quarter combined with our favorable outlook in each of our primary investment strategies and for our asset management business.

Speaker Change: This week, our board declared a supplemental dividend of <unk> 30 per share payable in June representing our 15th consecutive quarterly supplemental dividend.

Speaker Change: And an increase in our regular monthly dividends for the fourth quarter of 2025 to 25 and a half cents per share.

Speaker Change: The third quarter regular monthly dividends are payable in each of July August and September and represent a 4% increase from the regular monthly dividends paid in the third quarter of 2024.

Dwayne Hyzak: 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 trailing 12-month period of $1.20 per share, representing an additional 40 percent paid to our shareholders in excess of our regular monthly dividends and a current total yield we are providing to our shareholders of approximately 8 percent. 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.

Speaker Change: The supplemental dividend for June as a result of our strong performance in the first quarter and will result in total supplemental dividends paid during the trailing 12 month period of $1 20 per share representing an additional 40% paid to our shareholders in excess of our regular monthly dividends and a current.

Speaker Change: Total yield we are providing to our shareholders of approximately 8%.

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 and a V.

Dwayne Hyzak: Based upon our expectations for continued favorable performance in the second quarter, we currently anticipate proposing an additional supplemental dividend payable in September. Now turning to our current investment pipeline, as of today, I would characterize our lower middle market investment pipeline as average, with several new investments targeted to close before quarter end. We believe that the unique and flexible financing solutions that we can provide to lower middle market companies and their owners and management teams, and our differentiated long-term to permanent holding periods, represent an attractive solution to the needs of many lower middle market companies. And despite the current broad economic uncertainty, we are confident in our expectations for favorable lower-minimum market investment activity over the next few months.

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.

Speaker Change: Now turning to our current investment pipeline.

Speaker Change: As of today, I would characterize our lower middle market investment pipeline as average with several new investments targeted to close before quarter end.

Speaker Change: We believe that the unique and flexible financing solutions that we can provide to lower middle market companies and their owners and management teams and our differentiated long term to permanent holding periods represented an attractive solution to the needs of many lower middle market companies and despite the current broad economic uncertainty we are confident in our expectations for favorable lower minimum.

Speaker Change: Market investment activity over the next few months.

Dwayne Hyzak: We also continue to be 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. And as of today, I would characterize our private loan investment pipeline as average.

Speaker Change: We also continue to be pleased with the performance of our private credit team and our significant growth. They are provided for our private loan portfolio and our asset management business and as of today I'd characterize our private loan investment pipeline as average.

David Magdol: With that, I will turn the call over to David. 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. Due to the heightened level of concern and uncertainty in the market regarding the potential negative impacts from tariffs, and consistent with our practices in other times of heightened market uncertainty, we have been and remain in regular contact with our lower middle market portfolio companies to support them and discuss the proactive actions they are taking to address the current implications and potential challenges in the current market.

David MacDonald: With that I will turn the call over to David.

Thanks, Dwayne and good morning, everyone.

Speaker Change: 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 MacDonald: 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 MacDonald: Due to the heightened level of concern and uncertainty in the market regarding the potential negative impacts from tariffs and consistent with our practices in other times of heightened market uncertainty, we have been and remain in regular contact with our lower middle market portfolio companies to support them and discuss the proactive actions. They are taking to address the current <unk>.

David MacDonald: <unk> and potential challenges in the current market.

David Magdol: To date, we've seen limited negative impact on the overall portfolio, and we believe that our relationships with best-in-class managers and partners at the lower-middle market portfolio companies, along with our intentionally highly diversified investment strategy and portfolio, will continue to serve us well, as it has over the past two decades during times of market disruption. Each quarter, we try to highlight key different aspects of our investment strategy and differentiated approach that allow us to consistently produce best-in-class results.

David MacDonald: To date, we've seen limited negative impact on the overall portfolio and we believe that our relationships with best in class managers and partners at the lower middle market portfolio companies, along with our intentionally highly diversified investment strategy and portfolio will continue to serve us well as it has over the past two decades.

David MacDonald: Jade during times of market disruption.

David MacDonald: Each quarter, we try to highlight key different aspects of our investment strategy and differentiated approach that allow us to consistently produce best in class results.

David Magdol: For today's call, I'm going to spend some time discussing our private loan investment strategy, which is the second largest part of our investment portfolio and is the primary driver for asset management. We believe this is a particularly timely topic given the recent public listing of MSC Income Fund, which focuses all of its new investment activities on investments in our private loan investment strategy. Over the last several years, we have grown the size and capabilities of our private loan investment team significantly. This has resulted in significant growth of our private loan investments, both on Main Street's balance sheet and to the third-party advisory clients that we manage through the external manager.

David MacDonald: For today's call I'm going to spend some time discussing our private loan investment strategy, which is the second largest part of our investment portfolio and is the primary driver of our asset management business.

David MacDonald: We believe this is particularly timely topic given the recent public listing of MSC income fund, which focuses all of its new investment activities on investments in our private loan investment strategy.

David MacDonald: Yeah.

David MacDonald: Over the last several years, we have grown the size and capabilities of our private loan investment teams significantly. This has resulted in significant growth of our private loan investments both on main street's balance sheet and to the third party advisory clients that we manage through the external manager.

David Magdol: As a reminder, our private loan strategy targets investments in the senior secured debt of private equity-sponsored businesses. These investments are primarily originated by our internal investment professionals through strategic relationships they cultivate and maintain with a select group of private equity firms and their capital markets intermediaries. Our private loan investments are typically first lien debt investments with attractive yield profiles and favorable terms. As of quarter end, 99.9% of our private loan secured debt investments were first lien loans and 97% bore interest at floating interest rates, which had an attractive weighted average yield of 11.4%. Most of our private credit peers focus on the larger upper middle market part of the leveraged loan market.

David MacDonald: As a reminder, our private loan strategy targets investments in the senior secured debt of private equity sponsored businesses.

David MacDonald: These investments are primarily originated by our internal investment professionals through strategic relationships, they cultivate and maintain with a select group of private equity firms and their capital markets intermediaries.

David MacDonald: Our private loan investments are typically first lien debt investments with attractive yield profiles and favorable terms.

David MacDonald: As of quarter end 99, 9% of our private loan secured debt investments were first lien loans and 97% bore interest at floating interest rates, which had an attractive weighted average yield of 11, 4%.

David MacDonald: Most of our private credit peers focus on the larger upper middle market part of the leveraged loan market. We intensely focused on the smaller end of the market, where we believe the opportunity exists for us to lead or co lead the vast majority of our private loan investment and where our pilot whereby we are able to directly manage the due diligence process.

David Magdol: We intentionally focus on the smaller end of the market, where we believe the opportunity exists for us to lead or co-lead the vast majority of our private loan investment, whereby we are able to directly manage the due diligence process, loan documentation, and post-investment lender interactions with the borrower. We believe our niche focus on the smaller end of the market is less competitive and allows us to earn more attractive risk-adjusted returns for Main Street's investors and for the investors in the funds we manage. Main Street has also benefited from our ability to utilize our private loan investment strategy to grow our asset management business.

David MacDonald: Loan documentation and post investment lender interactions with the borrower.

David MacDonald: We believe our niche focus on the smaller end of the market is less competitive and allows us to earn more attractive risk adjusted returns for main streets investors and for the investors in the funds we manage.

David MacDonald: Main Street is also benefited from our ability to utilize in our private loan investment strategy to grow our asset management business.

David Magdol: Through our external investment manager, our private loan strategy effectively allows Main Street to leverage our investment professionals' time and our platform to benefit from the attractive and highly recurring fee-based income that we receive from third-party clients while at the same time providing highly attractive investment opportunities and returns for those clients.

David MacDonald: Through our external investment manager a private loan strategy effectively allows main street to leverage our investment professionals time, and our platform to benefit from the attractive and highly recurring fee based income that we receive from third party clients. While at the same time, providing highly attractive investment opportunities and returns for those clients.

David Magdol: Now turning to the overall composition and results from our investment portfolio as of March 31st, we continue to maintain a highly diversified portfolio with investments in 189 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 3.2% of our total investment income for the trailing 12-month period and 3.7% 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 $86 million, including investments of $62 million in two new lower-middle market portfolio companies, which after aggregate repayments on debt investments result in a net increase in our lower-middle market portfolio of $57 million.

David MacDonald: Now turning to the overall composition of results from our investment portfolio as of March 31, we continue to maintain a highly diversified portfolio with investments in 189 companies spanning across numerous industries and end markets.

David MacDonald: Our largest portfolio of companies excluding the external investment manager represented only three 2% of our total investment income for the trailing 12 month period, and three 7% of our total investment portfolio fair value at quarter end.

David MacDonald: The majority of our portfolio investments represented less than 1% of our income and our assets.

David MacDonald: Our investment activity in the first quarter included total investments in our lower middle market portfolio of approximately $86 million, including investments of $62 million in two new lower middle market portfolio companies, which after aggregate repayments on debt investments results in net increase in our lower middle market portfolio.

David MacDonald: A $57 million.

David Magdol: Driven by the capabilities and relationships of our private credit team, we also made $138 million in total private loan investments, which after debt repayments and other investment activity resulted in a net increase in our private loan portfolio of $26 million. At the end of the first quarter, our lower middle market portfolio included investments in 86 companies, representing $2.6 billion of fair value, which was 31 percent above our related costs. We had investments in 90 companies in our private loan portfolio, representing $1.9 billion of fair value. The total investment portfolio at fair value at quarter end was 18% above our related costs.

David MacDonald: Driven by the capabilities and relationships of our private credit team. We also made a $138 million in total private loan investments, which after debt repayments and other investment activity resulted in a net increase in our private loan portfolio of $26 million.

David MacDonald: At the end of the first quarter, our lower middle market portfolio included investments in 86 companies, representing $2 $6 billion of fair value, which was 31% above our related cost basis.

David MacDonald: We had investments in 90 companies in our private loan portfolio, representing $1 $9 billion of fair value. The total investment portfolio at fair value at quarter end was 18% above our related cost basis.

David Magdol: In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term goals.

David MacDonald: 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 with that I'll turn the call over to Ryan to cover our financial results capital structure and liquidity position.

David Magdol: Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday.

Ryan Nelson: With that, I'll turn the call over to Ryan to cover our financial results, capital structure, and liquidity position. Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the first quarter, which included a new record for NAV per share for the 11th consecutive quarter and favorable levels of NII per share and DNII per share. Our total investment income for the first quarter was $137 million, increasing by $5.4 million, or 4.1 percent, over the first quarter of 2024, and decreasing by $3.4 million, or 2.4 percent, from the fourth quarter of 2024.

Ryan Nelson: Thank you David to Echo Duane and David's comments, we are pleased with our operating results for the first quarter, which included a new record for NAV per share for the 11th consecutive quarter and favorable levels of NII per share an D NII per share.

Ryan Nelson: Our total investment income for the first quarter was one was $137 million, increasing by $5 $4 million or four 1% over the first quarter of 2024, and decreasing by $3 $4 million or two 4% from the fourth quarter of 2024.

Ryan Nelson: Interest income decreased by $2.1 million from a year ago and decreased by $11.9 million from the fourth quarter of 2024. The decrease from the prior year was driven primarily by the impact of an increase in investments on nonaccrual status and a decrease in interest rates on our floating rate debt investments, primarily resulting from decreases in benchmark index rates. partially offset by the impact of increased net investment activity over last year. The decrease from the fourth quarter was primarily driven by the impact of an increase in investments on nonaccrual status, a decrease in net investment activity, and a decrease in interest rates on our floating rate debt investments, primarily resulting from decreases in benchmark index rates.

Ryan Nelson: Interest income decreased by $2 $1 million from a year ago and decreased by $11.9 million from the fourth quarter of 2024 the.

Ryan Nelson: The decrease from the prior year was driven primarily by the impact of an increase in investments on nonaccrual status and a decrease in interest rates on our floating rate debt investments, primarily resulting from decreases in benchmark index rates parse.

Ryan Nelson: Partially offset by the impact of increased net investment activity over last year.

Ryan Nelson: The decrease from the fourth quarter was primarily driven by the impact of an increase in investments on nonaccrual status a decrease in net investment activity and a decrease in interest rates on our floating rate debt investments, primarily resulting from decreases in benchmark index rates.

Ryan Nelson: Dividend income increased by $13.2 million when compared to a year ago, with this increase after a $1.2 million decrease in unusual or non-recurring dividends. and increased by $11.5 million from the fourth quarter, including a $300,000 increase in unusual or non-recurring dividends. The increases in dividend income are a result of the continued underlying strength of our lower middle market portfolio. fee income decreased by $5.7 million from a year ago and by $3 million from the fourth quarter. The decrease in fee income from the prior year in the fourth quarter was primarily driven by a decrease from exit, prepayment, and amendment fees from investment activity and lower closing fees on new and follow-on investment.

Ryan Nelson: Dividend income increased by $13 $2 million when compared to a year ago with this with this increase after a $1.2 million decrease in unusual or nonrecurring dividends.

Ryan Nelson: <unk> increased by $11 $5 million from the fourth quarter, including a.

Ryan Nelson: $300000 increase in unusual or nonrecurring dividends the increases in dividend income a result of the continued underlying strength of our lower middle market portfolio companies.

Ryan Nelson: Yeah.

Ryan Nelson: The income decreased by $5 $7 million from a year ago and by $3 million from the fourth quarter.

Ryan Nelson: The decrease in fee income from the prior year and the fourth quarter was primarily driven by a decrease from exit prepayment and amendment fees from investment activity and lower closing fees and all new and follow on investments.

Ryan Nelson: Repayment and other fee income considered non-recurring decreased by $3.5 million from a year ago and by $1.2 million from the fourth quarter of 2024. The first quarter included reduced levels of income, considered less consistent or non-recurring in nature in comparison to both the first quarter of 2024 and the fourth quarter of 2024, including dividends from our equity investments, and accelerated prepayment, repricing and other activity related to our debt investments. In the aggregate, these items totaled $2.4 million and were $2.2 million or $0.03 per share lower compared to the average of the prior four quarters. $5.2 million or $0.06 per share lower than the first quarter of 2024.

Ryan Nelson: Prepayment and other fee income consider nonrecurring decreased by $3 $5 million from a year ago and by $1 $2 million from the fourth quarter of 2024.

Ryan Nelson: The first quarter included reduced levels of income considered less consistent or nonrecurring in nature in comparison to both the fourth the first quarter of 2024 in the fourth quarter of 2024, including dividends from our equity investments and accelerated prepayment repricing and other activity related to our debt investments in the <unk>.

Ryan Nelson: Aggregate these items totaled $2 $4 million and we're at $2 $2 million or <unk> <unk> per share lower compared to the average of the prior four quarters.

Ryan Nelson: $5 $2 million or <unk> per share lower than the first quarter of 'twenty 'twenty four.

Ryan Nelson: and $1.3 million or one cent per share lower than the fourth quarter of 2024. Our operating expenses increased by $5.4 million over the first quarter of 2024 and decreased by $2.9 million from the fourth quarter. The increase in operating expenses from the prior year was largely driven by increases in interest expense, general and administrative expense, and share-based compensation expense, partially offset by a decrease in cash compensation-related expenses. The decrease in operating expenses from the fourth quarter of 2024 was largely driven by decreases in interest expense and compensation-related expenses, partially offset by a decrease in expenses allocated to the external investment manager.

And $1.3 million or one cent per share lower than the fourth quarter of 2024.

Ryan Nelson: Our operating expenses increased by $5 $4 million over the first quarter of 'twenty 'twenty, four and decreased by $2 $9 million from the fourth quarter.

Ryan Nelson: The increase in operating expenses from the prior year was largely driven by increases in interest expense general and administrative expense and share based compensation expense, partially offset by a decrease decrease in cash and compensation related expenses.

Ryan Nelson: The decrease in operating expenses from the fourth quarter of 2024 was largely driven by decreases in interest expense and compensation related expenses, partially offset by a decrease in expenses allocated to the external investment manager.

Ryan Nelson: Yeah.

Ryan Nelson: The increase in interest expense from a year ago was primarily driven by an increase in the weighted average rate on our unsecured debt obligations and an increase in average borrowings to fund a portion of the growth of our investment portfolio, partially offset by a decreased weighted average interest rate on our credit facilities, resulting from decreases in the benchmark index interest rate. The decrease in interest expense from the fourth quarter of 2024 was primarily driven by a decrease in our average outstanding borrowings and a decrease in the weighted average rate on our credit facilities resulting from decreases in the benchmark index interest.

Ryan Nelson: The increase in interest expense from a year ago was primarily driven by an increase in the weighted average rate on our unsecured debt obligations and an increase in average borrowings to fund a portion of the growth of our investment portfolio.

We offset by decreased weighted average interest rate on our credit facilities, resulting from decreases in the benchmark index interest rates.

Ryan Nelson: The decrease in interest expense from the fourth quarter of 2024 was primarily driven by a decrease in our average outstanding borrowings and a decrease in the weighted average rate on our credit facilities, resulting from decreases in the benchmark index interest rates.

Ryan Nelson: The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets was 1.2% for the quarter on an annualized basis and 1.3% for the trailing 12-month period, and continues to be among the lowest in our industry. Our external investment manager contributed $7.8 million to our net investment income during the first quarter, a decrease of $800,000 from the same quarter a year ago and $900,000 from the fourth quarter of 2024. The manager ended the quarter with total assets under management of $1.6 billion. During the quarter, we recorded net fair value appreciation, including net realized losses and net unrealized depreciation, on the investment portfolio of $33.6 million.

Ryan Nelson: The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets was one 2% for the quarter on an annualized basis and one 3% for the trailing 12 month period and continues to be to be among the lowest in our industry.

Ryan Nelson: Our external investment manager contributed $7 $8 million to our net investment income during the first quarter a decrease of $800000 from the same quarter, a year ago and $900000 from the fourth quarter of 2024.

Ryan Nelson: The manager ended up ended the quarter with total assets under management of $1 $6 billion.

Ryan Nelson: During the quarter, we recorded net fair value appreciation, including net realized losses, and net unrealized depreciation on the investment portfolio of $33 $6 million.

Ryan Nelson: This increase was driven by net fair value appreciation in our lower middle market investment portfolio, partially offset by net fair value depreciation in our external investment manager, our private loan investment portfolio, and middle market investment portfolio. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance of certain of our portfolio companies. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes. The net fair value depreciation in our private loan portfolio was driven by increases in market spreads partially offset by the impact of specific portfolio company performance.

Ryan Nelson: This increase was driven by net fair value appreciation in our lower middle market investment portfolio, partially offset by net fair value depreciation in our external investment manager a private loan investment portfolio in middle market investment portfolio.

Ryan Nelson: Net fair value appreciation in our lower middle market portfolio was largely largely driven by the continued positive performance of certain of our portfolio companies.

Ryan Nelson: The net fair value depreciation of our external investment manager was primarily driven by decreases in evaluation multiples of.

Ryan Nelson: Publicly traded peers, which we use as one of the benchmarks for valuation purposes.

Ryan Nelson: The net fair value depreciation in our private loan portfolio was driven by increases in market and market spreads partially offset by the impact of specific portfolio company performance.

Ryan Nelson: The net fair value depreciation in our middle market portfolio was driven by the impact of specific portfolio company performance. We recognize net realized losses of $29.5 million in the quarter. The realized losses recognized were primarily the result of the exit or restructure of several longstanding underperforming investments partially offset by a realized gain on the exit of a private loan equity investor. We ended the fourth quarter with investments on non-accrual status comprising 1.7% of the total investment portfolio at fair value and approximately 4.5% at cost. Net asset value, or NAV, increased by $0.38 per share over the fourth quarter and by $2.49.

Ryan Nelson: The net fair value depreciation on our middle market portfolio was driven by the impact of specific portfolio company performance.

Ryan Nelson: We recognized net realized losses of $29 $5 million in the quarter.

Ryan Nelson: The realized losses recognized were primarily the result of the exit or restructure of several long standing underperforming investments, partially offset by a realized gain on the exit of a private loan equity investment.

Ryan Nelson: We ended the fourth quarter with investments on nonaccrual status, comprising one 7% of the total investment portfolio at fair value and approximately 4.45% at cost.

Ryan Nelson: Net asset value or NAV increased by 38 per share over the fourth quarter and by $2.49.

Ryan Nelson: or 8.4% when compared to a year ago, to a record NAV per share of $32.03 at quarter end. Our regulatory debt-to-equity leverage, calculated as total debt excluding our SBIC debentures, divided by net asset value. was 0.67 times, and our regulatory asset coverage was 2.48 times, and these ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9 times and 2.1 to 2.25 times, respectively. Given our liquidity position, we were less active during the first quarter in our at-the-market, or ATM, program, raising net proceeds of $5.1 million from equity issuance. In April, we amended our corporate credit facility, decreasing the interest rate by 10 basis points prior to satisfying certain conditions, or 22.5 basis points after satisfying certain conditions, increasing our total commitments $35 million and extending the maturity to April 2030.

Ryan Nelson: Oh, or eight 4% when compared to a year ago to a record NAV per share of $32 three at quarter end.

Ryan Nelson: Our regulatory debt to equity leverage calculated as total debt, excluding our <unk> debentures divided by net asset value.

Ryan Nelson: It was six seven times and our regulatory asset coverage was 248 times and these ratios continue to be more conservative than our long term target ranges of eight to nine times in 2.1 to 2.25 times respectively.

Ryan Nelson: Given our liquidity position, we were less active during the first quarter and our at the market or ATM program, raising net proceeds of $5 $1 million from equity issuances.

Ryan Nelson: In April we amended our corporate credit facility decreasing the interest rate by 10 basis points prior to satisfying certain conditions for 'twenty, two and a half basis points after satisfying certain conditions.

Ryan Nelson: Increasing our total commitments $35 million and extending the maturity to April 2030.

Ryan Nelson: Additionally, we also amended our SPV credit facility by decreasing the interest rate by 40 basis points and extending the maturity to September 2030. After giving effect to the capital activities in the first quarter of 2025 and recent credit facility amendments in April 2025, we enter the second quarter with strong liquidity, including cash and availability under our credit facilities in excess of $1.3 billion, with only one near-term debt maturity of $150 million in December 2025. 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 well positioned for the future, allowing us to continue to execute our attractive investment strategy.

Ryan Nelson: Additionally, we also amended our SPV credit facility by decreasing the interest rate by 40 basis points and extending the maturity to September 2030.

Ryan Nelson: Yeah.

Ryan Nelson: After giving effect to the capital activities in the first quarter of 2025, and our recent credit facility Amendment in April 2025, we entered the second quarter with strong liquidity, including cash and availability under our credit facilities in excess of $1 $3 billion with only one near term debt maturity of $150 million in December 2025.

Ryan Nelson: We continue to believe that our conservative leverage strong liquidity and continued access to capital our significant strengths that have proven to benefit us historically and have us well positioned for the future, allowing us to continue to execute our attractive investment strategies.

Ryan Nelson: As discussed last quarter, with this current level of liquidity, we currently expect to fund our new net investment activity in 2025 through a greater portion of debt financing, and as such, we would expect leverage to continue to increase during the course of the year. However, we expect to continue to operate throughout the year at leverage levels more conservative than our long-term target. Coming back to our operating results, DNII per share for the quarter of $1.07 decreased from DNII per share for the first quarter. last year by $0.04 and decreased from the DNII per share for the fourth quarter by $0.01.

Ryan Nelson: As discussed last quarter with this current level of liquidity. We currently expect to fund our new net investment activity in 2025 through a greater portion of debt financing and as such we would expect leverage to continue to increase during the course of the year. However, we expect to continue to operate throughout the year at leverage levels more conservative than our long.

Ryan Nelson: <unk> targets.

Ryan Nelson: Coming back to our operating results D NII per share for the quarter of a dollar a 7% decrease from DNI a D NII per share for the first quarter.

Ryan Nelson: Last year by <unk> and decreased from the D NII per share for the fourth quarter by one set.

Ryan Nelson: Looking forward, we expect headwinds on top-line earnings related to the potential decrease in floating market rates and potential tariff impacts. But given the strength of our underlying portfolio, we expect favorable earnings in the second quarter of 2025 with expected D&II of at least $1.03 per share, with the potential for upside driven by portfolio investment activities during the quarter and a favorable outcome to the current market uncertainty.

Ryan Nelson: Looking forward, we expect headwinds on top line earnings related to the potential decrease in floating market rates and potential tariff impact, but given the strength of our underlying portfolio. We expect favorable earnings in the second quarter of 2025 with expected D. NII of at least a $1 <unk> per share with the potential for ups.

Ryan Nelson: Side driven by <unk>.

Ryan Nelson: Portfolio investment activities during the quarter and a favorable outcome to the current market uncertainty with that I will now turn the call back over to the operator, so we can take any questions.

Operator: With that, I will now turn the call back over to the operators so we can take any questions. Thank you.

Operator: We will now be conducting a question and answer session. If you would 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 would like to remove your question from the queue.

Ryan Nelson: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

Operator: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: And for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Robert Dodd: Our first question is from Robert Dodd with Raymond James. Please proceed. Hi guys.

Speaker Change: Our first question is from Robert Dodd with Raymond James. Please proceed.

Robert Dodd: Hi, guys.

Robert Dodd: I appreciate the commentary on, you know, the strength of the portfolio companies, but can you be any more explicit maybe on like what tariff exposure you have in the portfolio? I mean obviously you don't have like, you know, international businesses in there, but you know, is there, you know, offshore manufacturing of some parts or anybody who's particularly exposed to, you know, imported raw materials or anything like that. Any color you can give us on that front on what the overall kind of feel for the exposure is there.

Speaker Change: I appreciate the.

Speaker Change: The commentary on.

Speaker Change: The strength of the portfolio companies, but can you be any any more.

Speaker Change: It may be all like what parents exposure you have in the portfolio I mean, obviously it doesn't have the international businesses.

Speaker Change: Is there offshore manufacturing of some pool, so anybody who is particularly exposed to.

Speaker Change: Uh huh.

Speaker Change: Raw materials or anything like that any color you can give us on on that front.

Speaker Change: Punk field the exposure is there.

Dwayne Hyzak: Sure, Robert.

Robert Dodd: Sure Robert Good morning, and thanks, Thanks for the question.

Dwayne Hyzak: Good morning, and thanks for the question. We've talked about this before in the past, but if we look at our portfolio, and I'll split the comments between lower-middle market and private loan because we just have more visibility into the lower-middle market portfolio companies, given our... position is a significant equity owner there. But most of our companies, particularly in the lower middle market, they are U.S. businesses. Their manufacturing is in the U.S., they're selling to U.S. customers, they're buying or purchasing from U.S. vendors. So we look at the lower middle market portfolio as a whole and think that we've got some limited exposure there.

Robert Dodd: We've talked about this before in the past, but if we if we look at our portfolio I'll split the comments between lower middle market and private loan because we just have more visibility into the lower middle market portfolio companies given our.

Robert Dodd: Positioned as a significant equity owner, there, but most of our companies, particularly in the lower middle market. They are U S businesses. Their manufacturing is in the U S. They're selling to U S customers, they're buying our purchasing from U S. Vendors. So we look at below the lower middle market portfolio as a whole.

Robert Dodd: We've got some limited exposure there as you would expect us to be doing and as David I think commented in his script, we have been and continue to talk frequently with the management teams of our lower middle market portfolio companies to understand their risks and help.

Dwayne Hyzak: As you would expect us to be doing, and as David, I think, commented in his script, we have been and continue to talk frequently with the management teams of our lower middle market portfolio companies to understand their risk and then help. them collectively with us, figure out ways to mitigate that risk. And as we went through that process, our view is that in the lower middle market, you know, somewhere close to a high single-digit percentage, and I give you that number as a percentage based upon, you know, looking at the portfolio a couple of different ways, looking at it by, you know, actual portfolio count, look at it on both a cost or fair value basis.

Robert Dodd: And then collectively with us figure out ways to mitigate that risk and as we went through that process and our view is that in the lower middle market somewhere close to a high single digit percentage and I give you that number.

Robert Dodd: As a percentage based upon looking at the portfolio a couple of different ways to look at it by your actual portfolio count look at it on a boat or cost or fair value basis on each of those.

Dwayne Hyzak: So on each of those different metrics, you know, it'd be a high single-digit percentage that we think has meaningful exposure to tariffs. And as you said, we think that the most significant exposure impacts would be from those companies that are directly importing finished goods. So the good news on that side is we have some exposure there, but it is fairly limited. and we think it's very manageable.

Robert Dodd: Metrics seem to be a high single digit percentage that we think has meaningful exposure to tariffs and as you said, we think that the most significant exposure impacts would be from those companies that are directly importing finished goods. So the good news on that side as we have some exposure there, but it is fairly limited and.

Robert Dodd: And we think it's very manageable and when we look at the portfolio more broadly we would say that theres, probably another 10% to 20%.

Dwayne Hyzak: When we look at the portfolio more broadly, we would say that there's probably another 10 to 20 percent that has some level of exposure, and that's not specific to Main Street. We just think that's the result of the global nature of the economy and business today. If you're in industrial businesses, manufacturing, services related to industrial businesses, you're going to have some exposure. So we look at that and say that those companies have some level of direct or indirect exposure to tariffs. But one of the things that we always look at is that just having exposure to tariffs on its own does not necessarily mean that there's going to be a negative result or impact.

Robert Dodd: Has some level level of exposure and that's not specific to mainstream we just think that's the result of the global nature of the economy and business today, if you're if you're in industrial businesses manufacturing services related to industrial businesses Youre going to have some exposure should we you know we look at that and say that those companies you'll have some level of direct or indirect.

Robert Dodd: Exposure to tariffs, but one of the things that we always look at is that just having exposure to tariffs on its own does not necessarily mean that there's going to be a negative results or impact. It just means that those companies that have that exposure you have to be taking steps to mitigate it and that's why we take comfort in the fact that.

Dwayne Hyzak: It just means that those companies that have that exposure, you have to be taking steps to mitigate it, and that's where we take comfort in the fact that our management teams of our portfolio companies have been through this type of a scenario before. If you look back at the COVID-19 pandemic time period and the resulting supply chain issues and inflation that came out of it, they've been through that. So we have the view that our management teams have dealt with this type of a scenario before, and we're confident that they're going to do a good job in mitigating the risk, whether that means pushing through price increases or finding alternative sourcing.

Robert Dodd: Our management teams of our portfolio companies have been through this type of a scenario before if you look back at the COVID-19, pandemic time period, and the resulting supply chain issues and inflation that came out of it because they've been through that so are we had the view that our management teams you have dealt with this type of a scenario before and we're confident that they're going to do a good job and mitigate.

Robert Dodd: The risk whether that means you know pushing through price increases or you'll finding alternative sourcing. So we feel pretty good about where we sit but we do acknowledge that we have some level of exposure. There when you look across the portfolio on the private loan and middle market side related.

Dwayne Hyzak: So we feel pretty good about where we sit, but we do acknowledge that we have some level of exposure there when you look across the portfolio.

Dwayne Hyzak: On the private loan and middle market side, really the... Private loan side, because that's where the remainder of our portfolio really sets outside of the lower middle market. I'd say it's similar. Most of these companies are also predominantly U.S. companies, so we think that the risk is a little bit similar to what we have on the lower middle market side. We do take comfort in the fact that we are largely first lien senior secured lenders, so you've got a lot of cushion in the capital structure. beneath our position to help us mitigate our risk there, and we're actively working with the portfolio companies and the private equity sponsors, similar to the lower-middle market, to understand what that risk is.

Robert Dodd: Private loan side, because that's where the remainder of our portfolio really sets outside of lower middle market I would say, it's similar you know most of these companies are also predominantly U S. Companies. So we think that the risk is a little bit.

Robert Dodd: It's similar to what we have on the alumina market side, we do take comfort in the fact that we are largely first lien senior secured lenders. So you've got a lot of cushion in the capital structure.

Robert Dodd: Beneath our position to help us mitigate our risk there and we're actively working with the portfolio of companies in the private equity sponsors similar to lower middle market to understand what that risk is so when we look at the companies on that side of our portfolio that have meaningful direct exposure the way, we would quantify it as it's a handful of companies.

Dwayne Hyzak: So when we look at the companies on that side of our portfolio that have meaningful direct exposure, the way we would quantify it is it's a handful of companies. We'll also note that a couple of those companies are already on nonaccrual and or they've had significant fair value depreciation. So when we look at our results from an income standpoint or from a NAV or fair value standpoint, we think the fact that we've already got those on nonaccrual and some fair value depreciation further mitigates the risk to some extent. So similar to the lower-middle market, just because they have the exposure doesn't mean that they're going to have significant negative impact.

Robert Dodd: I'll also note that a couple of those companies are already on non accrual and where they've had significant fair value depreciation. So when we look at our results from an income standpoint or from a N a V or a fair value standpoint.

Robert Dodd: We think the fact that we've already got.

Robert Dodd: It was on non accrual and some fair value depreciation you further mitigates the risk to some extent so similar to the lower middle market just because they have the exposure doesn't mean that they're going to have significant negative impacts so.

Dwayne Hyzak: So we look at trying to understand what those companies are doing to mitigate the risk, again, either through pushing through price increases or looking for alternative sourcing or other activities to mitigate it. But while we do have some risk there, we think it is still limited, and we feel good about the manner in which our management teams and portfolio companies should be able to mitigate that risk. Obviously, if the situation becomes more significant or more Negative than it is today, or if the time period gets drawn out, obviously that risk could change in the future.

We look at trying to understand what those companies are doing to mitigate the risk again, either through pushing through price increases are looking for alternative sourcing or other activities to mitigate it but while we do have some risk. There. We think it is still limited and we feel good about that.

Robert Dodd: <unk>.

Robert Dodd: Manner in which our management teams and portfolio companies, you should be able to mitigate that risk obviously, if the situation becomes.

Robert Dodd: More significant or more.

Robert Dodd: Negative than it is today or if that time period gets drawn out.

Robert Dodd: Do you see that risk to change in the future, but as we sit here today I think we feel pretty good about our risk and the steps that our portfolio companies are taken to mitigate it.

Dwayne Hyzak: But as we sit here today, I think we feel pretty good about our risk and the steps that our portfolio companies are taking to mitigate it.

Robert Dodd: Very helpful, thank you for that.

Robert Dodd: Uh huh.

Speaker Change: All right helpful. Thank you for that one.

Robert Dodd: On the private loan, the pipeline, I mean you characterize it as average, I mean it does seem like, you know, that's dealing with slightly larger, more sponsor-backed companies. I mean, obviously we've heard a lot about, you know, M&A is muted, etc., and maybe getting more so at the moment. So, you know, what's...

Robert Dodd: On the <unk>, that's the type of loan.

Speaker Change: The pipeline I mean, you characterized it as average.

Robert Dodd: I mean, it does seem like you know that that's dealing with slightly larger pumps back companies. I mean, obviously, we've heard a lot about you know M&A is muted et cetera, and may be getting more so at the moment.

Robert Dodd: So you know what.

Robert Dodd: Why is it still average? Like average seems good in this environment. So can you use any kind of like why your pipeline there is still kind of average-ish given the amount of volatility and what seems to be a pretty muted M&A market right now?

Robert Dodd: Why is it still asthma.

Robert Dodd: Yeah.

Robert Dodd: Seems good in this environment. So can you give us any color on like what why are your pipeline that is still kind of hunt.

Robert Dodd: Average given the amount of volatility and what seems to be pretty muted M&A market right now.

Robert Dodd: Sure, Robert.

Dwayne Hyzak: I'll give a few comments and I'll let Nick, who as you know, leads our private business, I'll let him add on. But I'd say the reason we view it as average today is we've got a large portfolio there and we're seeing a number of those companies that despite the uncertain environment, their businesses are doing well and they're having opportunities to grow, whether that's acquisition or organic, and they're coming to us and they're looking for additional add-on loans or debt investments from us to help them facilitate that growth. So I think that's part of the reason we have it at average.

Robert Dodd: Sure Robert I'll give you a few comments and I'll, let Nick who as you know leads are private.

Robert Dodd: I'll, let him add on but I'd say that the reason we view it as average today is we've got a large portfolio of there and we're seeing a number of those companies that despite the uncertain environment their businesses are doing well and there you know they are having opportunities to grow whether that's acquisition organic and they're coming to us and theyre looking for additional add on.

Robert Dodd: Loans or debt investments from us to help them facilitate that growth. So I think that's part of the reason we have it at average we're also continuing to see a number of new kind of new investment opportunities that we think despite the current uncertain environment, we think they're underwritten correctly to price correctly, and all things being equal if the transaction closes.

Nicholas Meserve: We're also continuing to see a number of new investment opportunities that we think, despite the current uncertain environment, we think they're underwritten correctly, they're priced correctly, and all things being equal, if the transaction closes, we'll continue to find those opportunities attractive from a new portfolio standpoint.

Nick Missouri: We will continue to find those opportunities attractive from a new portfolio standpoint, but I'll, let Nick add any additional color. He wants to add to that Robert I mean, I think you are right. It is a muted M&A environment.

Nicholas Meserve: But I'll let Nick add any additional color he wants to add to that. Yeah, Robert, I think you are right. It is a muted M&A environment, but with that is also less repayments. But I think from the pipeline perspective, it is average. I think we're seeing both new deals and add-ons. The add-ons in the portfolio has increased over the last two to three years as the number in the portfolio has increased. But I think what's TBD still is going to be, and some of the uncertainty is, do some of these transactions close or not? I think we'll know more in the next three or six months of where does the tariff noise go?

Nick Missouri: But with that is also less repayments.

Nick Missouri: I think from the pipeline perspective. It is average I think we're seeing both new deals and you add ons and yet on the add ons in the portfolio's increase or last two to three years is that the number in the portfolio has increased.

Nick Missouri: But I think whats TBD still is going to be some of the uncertainty as do some of these transactions close or not I think we'll know more in the next three or six months of.

Nick Missouri: Whereas the tariff noise go do we actually close and finish those transactions or they get pushed out a little bit.

Nicholas Meserve: Do we actually close and finish those transactions, or do they get pushed out a little bit?

Robert Dodd: Thank you.

Nick Missouri: Thank you.

Mark Hughes: Excellent.

Mark Hughes: Thank you, Robert.

Speaker Change: Excellent. Thank.

Nick Missouri: Thank you Robert.

Mark Hughes: Our next question is from Mark Hughes with Sherwood Securities. Please proceed. Yeah, thank you. In thinking about your kind of non-recurring income items, the dividends from investments, I think you've got some variability there. Is there any concern that those might slow down? Are the portfolio companies perhaps going to be a little more conservative with their balance sheets, or is that not so much of an issue?

Speaker Change: Our next question is from Mark Hughes maturing Securities. Please proceed.

Mark Hughes: Yes, Thank you and thinking about your kind of nonrecurring income items.

Mark Hughes: The dividend through investments I think you've got some variability there is there any concern that those might slow down or the portfolio of companies, perhaps going to be a little more conservative with their balance sheets or is that not so much of an issue.

Mark Hughes: Yeah, Mark, good morning. And thanks for the question. I'd say that, you know, we do always have that concern, you know, the dividend income component of our income streams is always going to be the most variable or most discretionary. But I'd say as we sit here today, and as you've heard us say in the past, you know, we have a number of our low market companies that are, you know, not just doing well, they're doing really well. And they've been doing well for a long time. And as a result, their capital structure is such that it's very, you know, kind of very conservative, you know, limited amounts of leverage.

Mark Hughes: Yes, Mark good morning, and thanks for the question I would say that we do always have that concern the dividend income component of our income streams is always going to be the most variable or most discretionary but I'd say as we sit here today and as you've heard us say in the past we have a number of our lower middle market companies that are not.

Mark Hughes: And that is doing well they are doing really well and they've been doing well for a long time and as a result their capital structure is such that it's very.

Mark Hughes: Kind of very conservative limited amounts of leverage so as they continue to produce significant cash flow that cash flow has to go somewhere and it's increasingly coming out of those companies to us and the other equity owners of those businesses through dividend income. So I think it is something we watch it is something that if the economy was to take a.

Dwayne Hyzak: So as they continue to produce significant cash flow, that cash flow has to go somewhere. And it's increasingly coming out of those companies, you know, to us and the other equity owners of those businesses, through dividend income. So I think we, you know, it is something we watch, it is something that if the economy was to take a big step back, particularly if that, you know, that step back was for an extended period of time, that dividend income would be at more risk. But as we look at the current portfolio, the current results we're seeing from the companies, and more importantly, the dialogue we're hearing, while there clearly is a lot of uncertainty out there, the companies are still doing well, and we expect at least for the second quarter to continue to see good amounts of dividend income coming out of those companies.

Mark Hughes: A big step back, particularly if that that step backwards for an extended period of time.

Mark Hughes: That dividend income would be a more risk, but as we look at the current portfolio of the current results, we're seeing from the companies and more importantly, the dialogue. We're hearing while there clearly is a lot of uncertainty out there. The companies are still doing well and we expect at least for the for the second quarter to continue to see good amounts of.

Mark Hughes: Dividend income coming out of those companies.

Mark Hughes: Yeah.

Mark Hughes: And then you obviously described a nice, attractive, what, $55 million gain here in the second quarter. And I think in earlier calls, you had alluded to the fact that there were some potential realizations in the pipeline. Is there more to come, anything you've got visibility for, or is it just kind of business per usual? Yeah, Mark, I would say it's probably more in line with business as usual. There's always going to be some level of activity in the lower-middle market portfolio where you've got 80-plus companies. There's always going to be some level of activity ongoing.

Mark Hughes: Yeah.

Mark Hughes: And then.

Mark Hughes: You, obviously described good nice attractive what $55 million gain.

Mark Hughes: In the second quarter.

Mark Hughes: And I think in earlier calls you had alluded to the fact that there are some potential realizations in the pipeline.

Speaker Change: Is there more to come or anything you've got visibility for or is it just kind of a business per usual.

Speaker Change: Yes, Mark I always say, there's probably more more in line with business as usual, there's always going to be some level of activity in the lower middle market portfolio, where you've got 80, plus companies theres always going be some level of activity ongoing but after that they're very very attractive realized gain that we had in late December with Pearl Meyer and now the.

Dwayne Hyzak: But after the very, very attractive realized gain that we had in late December with Perlmire and now the gain here in the second quarter, those were really the two large exit activities that we've been talking about. Obviously, both of those are great companies, so we're a little torn on seeing them leave the portfolio, but at the same time, the realized gains and the returns from an equity investment standpoint, we consider them to be best in class. So when you have that opportunity, it also makes sense if our partners in the businesses, the management teams of those companies want to pursue that transaction, we're going to help them pursue it to the best outcome possible.

Speaker Change: The gain here in the second quarter those were related to large exit activities that we've been talking about obviously both of those are great companies. So we're a little torn on seeing him lead the portfolio, but at the same time, the realized gains and the returns from an equity investment standpoint, we consider them to be best in class. So when you have that opportunity.

Speaker Change: Also makes sense, if our partners and the businesses you know the management teams of those companies want to pursue that transaction, we're going to help them pursuant to the best outcome possible. So.

Dwayne Hyzak: So those are two of the primary transactions that we've been talking about for the last few quarters.

Speaker Change: Those are two of the the primary transactions that we've been talking about for the last.

Dwayne Hyzak: I would say that things are more back to kind of ordinary course from an exit activity expectation standpoint.

Speaker Change: Last few quarters. So I would say that things are more back to the kind of ordinary course from a from an exit activity expectation standpoint.

Dwayne Hyzak: And one other question. You've got a long holding period, obviously, with your equity investments. When you get to a period like this in the economy, does that create opportunity for you that you can look at something that perhaps is maybe a little more exposed or experiencing a little more volatility because you've got a longer horizon? Or alternatively, you tighten things up and certainly you want to stay as disciplined as you have been historically. But does this create opportunity where others don't step in, but you have the potential to do so? Yeah, Mark, absolutely. I'd say that our view has always been, you know, not just here recently, but for the last two decades, that we want to make sure that we maintain a very conservative capital structure, and more importantly, a very significant amount of liquidity so that we can always be active in the marketplace.

Speaker Change: And one other question.

Speaker Change: You've got a long holding period obviously.

Speaker Change: With your equity investments.

Speaker Change: When you get to a period like this in the economy.

Speaker Change: Does that create opportunity for you that you can look at something that perhaps.

Speaker Change: Maybe a little more exposed are experiencing a little more volatility because.

You've got a longer horizon or alternatively.

Speaker Change: You are you've tightened things up and in.

Susan: Susan do you want to say thank.

Speaker Change: Disciplined as you have been historically, but.

Speaker Change: Create opportunity, where others don't step in but you have the potential to do so.

Speaker Change: Yeah, absolutely I would say that our our view has always been not just here recently, but for the last two decades that we wanted to make sure that we maintain a very conservative capital structure and more importantly, a very significant amount of liquidity. So that we can always be active in the marketplace that includes time periods, where the economy is humming and things are going really really well.

Dwayne Hyzak: That includes, you know, time periods where the economy is humming and things are going really, really well. But it also includes time periods where there's significant uncertainty. And just to give you a point of reference that you may recall, but just for your benefit, if you look at both Perlmire and Heritage Vet or NVS, Vet Partners or Services, both of those transactions were executed during COVID. Pearlmire was, from memory, was May of 2020. Heritage Vet Partners was December of 2020. Most firms, from our perspective, were not active during those time periods. They weren't traveling, they weren't going to see people in person.

Speaker Change: But it also includes time periods, where there is significant uncertainty and just to give you at a point of reference that you may recall, but just for your benefit if you look at both Pearl Meyer.

Speaker Change: And our heritage better our NDS.

Speaker Change: Partners our services both of those transactions were executed during Covid Pearl Meyer was from memory was may of 2020.

Speaker Change: <unk> partners was December of 2020, most firms from our perspective, we're not active during those time periods. They weren't traveling they weren't going to see people in person we work to the extent we could.

Dwayne Hyzak: We were to the extent we could. And those activities led us to two transactions that were just fantastic opportunities. They fit us really, really well in terms of us being a partner with the individual owner-operators, the management teams of those businesses. They were also fantastic businesses, and our ability and desire to continue to be active in all time periods led us to two transactions that obviously were really, really good transactions for us, and not just for us, but they were really good transactions for those management teams. So you should expect us, just like we have been in the past, Great Recession, COVID-19 pandemic, etc., you should expect us to seek to be active.

Speaker Change: Those activities.

Speaker Change: As to two transactions that were just fantastic opportunities they fit us really really well in terms of us being a partner with the individual owner operators the management teams of those businesses.

Speaker Change: They were also fantastic businesses, and our ability and desire to continue to be active in all time periods led us to into two transactions that obviously, we are really really good transactions for us and and not just for us, but they were really good transactions for those for those management teams. So you should expect US just like we have been in the past great recession.

Speaker Change: <unk> 19, pandemic et cetera, you should expect us to to seek.

Dwayne Hyzak: Obviously, the counterparty has to want to transact as well, but we feel good about our expectations to be active, even if there continues to be significant uncertainty in the marketplace. The goal for us is to always first and foremost on the lower middle market strategy, just to find best-in-class individuals, management teams that have been in their business for a long time, where we have opportunities to become their partner. So we've always found that super attractive, and we'll always find that super attractive in the future.

To be active obviously, the counterparty has to want to transact as well, but we feel good about Rx based expectations to be active even if there continues to be significant uncertainty in the marketplace. The Gulf for US is to always first and foremost on the lower middle market strategy, just define best in class individuals manner.

Speaker Change: <unk> teams that had been in their business for a long time.

Speaker Change: Where we have opportunities to become their partner. So we've always found that super attractive and realize you'll find that super attractive in the future and I'll, let David add on if he has any additional color or commentary there.

David Magdol: And I'll let David add on if he has any additional color or commentary there. I think Dwayne covered most, but the last thing I'd add is that with the seasoned nature of our portfolio, those companies naturally have less leverage than the rest of the portfolio, and those managers are waiting for opportunities and times. They're tracking acquisition targets over extended periods of time, having been in the industry to be their partners for a very long period of time. So we do see more activity in those portfolio companies on doing strategic acquisitions and we're putting growth capital into the companies when the opportunity is right.

Speaker Change: Dwayne covered most of it the last thing I'd add is that with the seasoned nature of our portfolio. Those companies are naturally have less leverage than the rest of the portfolio and those managers are waiting for opportunities in times Theyre tracking acquisition targets over extended periods of time, having been in the industry and our partners for a very long period of time.

Speaker Change: So we do see more activity in those portfolio companies I'm doing strategic acquisitions, and we're putting growth capital into the company when the opportunities right.

Mark Hughes: Appreciate that. Thank you.

Speaker Change: I.

Speaker Change: Thank you.

Mark Hughes: Thank you, Mark.

Speaker Change: Thank you Mark.

Speaker Change: Yeah.

Corey Johnson: Our next question is from Douglas Harder with UBS. Please proceed.

Speaker Change: Alright. Our next question is from Douglas Harter with UBS. Please proceed.

Corey Johnson: Hi, this is actually Corey Johnson on for Doug. So you mentioned wanting to bring leverage up, but perhaps not to your target range. Could you just talk maybe a little bit about the pace of how you expect it to maybe trend throughout this year and what might be around the high mark are you looking to get maybe towards about around the low end of your target range? Sure, Corey. Thanks for joining us and thanks for the question. I'd say that it's hard to really give a time period or even an amount of leverage we'll get to at the end of the year.

Speaker Change: Hi, This is actually Cory Johnson on for Doug. So you mentioned wanting to bring leverage up but perhaps.

Speaker Change: Perhaps not to ignore your target range could you just talk maybe a little bit about the pace of.

Speaker Change: How do you expect it to maybe trend throughout this year and like what what might be around like the high marketing looking to get maybe towards about around the low end of your target range.

Speaker Change: Sure Corey and thanks for joining us and thanks for the question I would say that.

Speaker Change: It's hard to really give a time period or even an amount.

Speaker Change: Leverage will get you at the end of the year, its obviously going to be highly.

Dwayne Hyzak: It's obviously going to be highly dependent upon the investment activity, which, as we just talked about, could be more uncertain or more muted, both on the lower middle market side and the private loan side, just given what's going on in the economy. But I'd say the guidance we are giving is that as we execute growth of the portfolio, both lower middle market and private loan, our plan is to utilize more of our debt capacity as opposed to additional equity issuances over time to increase that leverage ratio so that it moves more in line with our range and continue to be conservative, but moving in the direction of increasing leverage to be closer to the target range.

Speaker Change: Really dependent upon the investment activity, which as we just talked about could be more uncertain or more muted both on the lower middle market side and the private loan side, just given what's going on in the in the economy.

But I'd say the guidance, we're giving is that.

Speaker Change: As we execute growth of the portfolio, both lower middle market and private loan.

Speaker Change: Our plan is to utilize more of our debt capacity as opposed to additional equity issuances over time to increase that leverage ratio. So that it moves more in line with our.

Speaker Change: Our range and continuing to be conservative, but moving in the direction of increasing leverage to be closer to the target range, but again, the timing and the ability to do that is primarily going to be dependent upon the pace of new investment activity.

Dwayne Hyzak: But again, the timing and the ability to do that is primarily going to be dependent upon the pace of new investment activity.

Corey Johnson: Alright, thank you.

Speaker Change: Alright, Thank you and then.

Ryan Nelson: And then additionally, so you had, you know, you've had your operational expense ratio come down this quarter. Do you see, like, any, is there any additional capacity that you think, you know, to be able to bring down your ratio as you continue to scale up? Sure, Corey, I think we always view there being an opportunity to continue to become more efficient. It's one of the biggest benefits of our structure as an internally managed BDC, but I would say that when you look at where we are today, realistically, there's not a ton of room there. The variability, quarter to quarter, year to year, as we sit here today, is going to be more focused on the incentive portion of our compensation and how are we performing from an operating performance standpoint, both the income statement, ROE, performance, as well as new investment activity.

Speaker Change: Additionally, I'm so you had.

Speaker Change: You had your operational expense ratio.

Speaker Change: Come down this quarter do you see like any is there any additional capacity or do you think you know to be able to bring down.

Speaker Change: Your your ratio as you continue to scale up.

Speaker Change: Sure I think we we always view there being an opportunity to continue to become more efficient. It's one of the biggest benefits of our structure as an internally managed BDC, but I would say that when you look at where we are today.

Speaker Change: Realistically there is not a ton of room, there the variability quarter to quarter year to year as we sit here today is going to be more focused on the incentive portion of our compensation and how are we performing.

Speaker Change: From a from an operating performance standpoint, you know both the income statement Roe.

Speaker Change: Our performance as well as new investment activity you know those are going to be the biggest drivers just like they have been in the past that drive our incentive comp and if we're doing really really well there'll be no more incentive comp if we're not doing as well there'll be less and the variability in our incentive comp that will be the biggest factor that drives that expense ratio.

Ryan Nelson: Those are going to be the biggest drivers, just like they have been in the past, that drive our incentive comp, and if we're doing really, really well, there will be more incentive comp. If we're not doing as well, there will be less, and the variability in our incentive comp will be the biggest factor that drives that expense ratio. Again, we think that's one of the biggest strengths. If we outperform, our team is going to have some additional comp. If we head into a tough environment, there will be less incentive comp that, again, directly aligns with the performance and the benefits we're providing to our shareholders.

Speaker Change: Again, we think that's one of the biggest strengths.

If we outperform our team is going to have some additional comp if we head into a tough environment.

Speaker Change: Less incentive comp that again directly aligns with the performance and the benefits, we're providing to our shareholders again one of the we think it's one of the biggest benefits of our structure and one of the things that has served us so well for 20 years.

Ryan Nelson: Again, we think it's one of the biggest benefits of our structure and one of the things that has served us so well for 20 years.

Corey Johnson: Great, thank you.

Speaker Change: Great. Thank you.

Operator: Thank you.

Speaker Change: Thank you.

Sean Paul Adams: Our next question is from Sean Paul Adams with B Riley Securities. Hey, guys. Good morning.

Speaker Change: Our next question is from Sean Paul Adams with B Riley Securities. Please proceed.

Speaker Change: Hey, guys good morning.

Sean Paul Adams: I died a little bit in late, so apologies if this already got answered, but can you talk about your current expectations for, you know, the scale growth and run rate for earnings from the MSC advisor going forward? Sure. Thanks for joining and thanks for the question. On our contributions from MSCA, I would say as we sit here today, the biggest catalyst or biggest event was the transaction that happened in January of this year where we were successful in completing a listing and an equity offering for MSC Income Fund. Now that that activity is behind us and we look forward, the future growth on the base side is really going to be focused on deployment of at MSC Income Fund.

Speaker Change: Down a little bit in late so apologies. If this has already got answered but can you talk about your current expectations for you know the scale growth and run rate for.

Speaker Change: Earnings from the M. S C advisor going forward.

Speaker Change: Sure. Thanks for joining us and thanks for the question on on our contribution from from FCA, Yes, I would say as we sit here today.

Speaker Change: The biggest catalyst your biggest event what was the transaction that happened in January of this year, where we were successful in completing a listing and an equity offering for MSC income fund.

Speaker Change: Now that that activity is behind us and we look forward to future growth on the base side is really going to be focused on deployment of capital at MSC income funds. So as you see us have more activity, you'll see the base management fee come up but yeah.

Dwayne Hyzak: So as you see us have more activity, you'll see the base management fee come up, but that number will be directly correlated with the investment activity. The incentive fee is by far the biggest variable, which again, you know, varies with our performance, you know, not just at MSC Income Fund, but also at the, you know, the private loan funds we have. But I think we feel pretty good about, you know, where we are with the performance of those vehicles and would expect to continue to see incentive fee income going forward. But as you look out maybe one quarter forward, I think something in line with where we were, you know, in the first quarter would be a good number to expect for the second quarter.

Speaker Change: That number.

Speaker Change: It will be directly correlated with the investment activity.

Speaker Change: Incentive fee is by far the biggest variable, which again you know varies with our performance not just at MCC income fund, but also at the private loan funds, we have but I think we feel pretty good about where we are with the performance of those vehicles and would expect to continue to see incentive fee income going forward, but as you look out maybe one quarter forward I think something.

Speaker Change: In line with where we were in the first quarter would be it would be a good number to you to expect for the second quarter. As you look out further than that it's all going to be dependent upon our pace of investment activity and then just the overall economic performance and what that means for the performance of our portfolio companies and our net investment income.

Dwayne Hyzak: As you look out further than that, it's all going to be dependent upon our pace of investment activity and then just the overall economic performance and what that means for the performance of our portfolio companies and our net investment income, you know, at those asset management business clients. Thank you.

Speaker Change: Those asset management business clients.

Dwayne Hyzak: And just a quick follow-up, if I can. Could you just walk us through, you know, some of the implied exit multiples embedded in the LM equity portfolio versus where you see the market transacting today? Yeah, if I understand your question, I, you know, one is there's, you know, there's details in our 10-Q that'll give you those numbers. I'd say that there's, you know, there's not a lot of variability or movement. quarter-to-quarter, so our goal with our quarterly valuation process is that you're getting to a valuation multiple for each of the companies that is what that transaction you should close at in a marketed process.

Speaker Change: Thank you and just a quick follow up if I can could you just walk us through some of the implied exit multiples embedded in the album and equity portfolio versus where you see the market transacting today.

Speaker Change: Yes, but if I understand your question.

Speaker Change: One is there is there is detailed in our 10-Q that I'll give you those numbers I would say that there is there's not a lot of variability our movement.

Speaker Change: Quarter to quarter. So our our goal with them are you know kind of quarterly valuation processes that youre getting to a valuation multiple for each of the companies that is what that transaction you should close that in a in a marketed process. Obviously you have transactions like heritage that partners are important myer, whereas you're interim.

Dwayne Hyzak: Obviously, you have transactions like Heritage, VetPartners, and Pourmire, whereas you enter into a process, if that process goes well, you'll see significant value expansion primarily not on EBITDA, but primarily on the multiple, and if you look back at the history on both Pourmire and Heritage, VetPartners, you'll see there was significant fair value appreciation as we went to market, went through an auction or sale process, and got to a good outcome, but in general, the fair value process we have is the goal of that is to provide a valuation that you think it would transact at in the open marketplace.

Speaker Change: The process if that process goes well youll see significant.

Speaker Change: Value expansion, primarily not on EBITDA, but primarily on the on the multiple and if you look back at the history on both poor Omar and heritage Vet partners, you'll see there was significant fair value appreciation as we went to market.

Speaker Change: Went through.

Speaker Change: An auction or sale process and got to a good outcome, but in general.

Speaker Change: The fair value process. We have is the goal of that is to is to provide a valuation that you think it would transact at in the open marketplace.

Sean Paul Adams: Got it. Thank you for the color. I appreciate it. Thank you.

Speaker Change: Got it. Thank you for the color I appreciate it thank you.

Operator: As a reminder, this star one on your telephone keypad, if you would like to ask a question, we will pause for one brief moment to see if there's any final questions.

Speaker Change: As a reminder, this star one on your telephone keypad. If you would like to ask a question, we'll pause for one brief moment to see if there's any final questions.

Dwayne Hyzak: With no further questions, I would like to turn the conference back over to management for closing remarks. And we just want to say thank you again, everyone, for joining us this morning. We appreciate the continued support of our shareholders. And we look forward to having everyone join us again for our next call in August after the release of our results for the second quarter. Thank you.

Speaker Change: With no further questions I would like to turn the conference back over to management for closing remarks.

Speaker Change: I just want to say thank you again, everyone for joining us. This morning. We appreciate the continued support of our shareholders and we look forward to having everyone join US again for our next call in August after the release of our results for the second quarter.

Operator: This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Speaker Change: Yeah.

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