Q1 2026 Main Street Capital Corp Earnings Call

May 8, 2026

Operator: Greetings, welcome to the Main Street Capital Q 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 requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Zach Vaughan. You may begin.

Speaker #2: presentation. If anyone requires operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded.

Speaker #2: I would now like to turn the conference over to your host, Zach Vaughan. You may begin. Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's First Quarter 2026 Earnings Conference Call.

Zach Vaughan: Thank you, operator. Good morning, everyone. Thank you for joining us for Main Street Capital Corporation's Q1 2026 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer, David Magdol, President and Chief Investment Officer, and Ryan Nelson, Chief Financial Officer. 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. Main Street issued a press release yesterday afternoon that details the company's Q1 financial and operating results. This document is available on the investor relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until 15 May. Information on how to access the replay was included in yesterday's release.

Speaker #2: Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer.

Speaker #2: Also participating in the Q&A portion of the call is Nick Mazurb, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results.

Speaker #2: This document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 15th.

Speaker #2: 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.

Zach Vaughan: We also advise you that this conference call is being broadcast live through the internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, 8 May 2026, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions. 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.

Speaker #2: Please note that information reported on this call speaks only as of today, May 8th, 2026, and therefore you are advised that any time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading.

Speaker #2: 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.

Speaker #2: These statements are based on management's estimates, assumptions, and projections as of the date of this call, and they are no guarantees of future performance.

Speaker #2: 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: Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income, or DNII, and DNII before taxes. DNII is net investment income, or NII, as determined in accordance with US generally accepted accounting principles, or GAAP, excluding the impact of non-cash compensation expenses. DNII before taxes is NII as determined in accordance with GAAP, excluding the impact of non-cash compensation expenses and any tax expenses included in NII.

Speaker #2: Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income, or DNII, and DNII before taxes.

Speaker #2: DNII is net investment income, or NII, as determined in accordance with US Generally Accepted Accounting Principles, or GAAP, excluding the impact of non-cash compensation expenses.

Speaker #2: DNII before taxes is NII, as determined in accordance with GAAP, excluding the impact of non-cash compensation expenses, and any tax expenses included in NII.

Speaker #2: Management believes that presenting DNII and DNII before taxes and the related per-share amounts is useful and appropriate supplemental disclosure for analyzing Main Street Capital Corporation's financial performance since non-cash compensation expenses do not result in a net cash impact to Main Street upon settlement, and tax expenses included in NII may include excise tax expense which is not solely attributable to NII and deferred taxes which are not payable in the current period.

Zach Vaughan: Management believes that presenting DNII before taxes, and the related per share amounts is useful and appropriate supplemental disclosure for analyzing Main Street Capital Corporation's financial performance since non-cash compensation expenses do not result in a net cash impact to Main Street upon settlement. Tax expenses included in NII may include excise tax expense, which is not solely attributable to NII, and deferred taxes, which are not payable in the current period. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. 2 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.

Speaker #2: Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE.

Speaker #2: 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.

Zach Vaughan: Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly NAV. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. Now I'll turn the call over to Main Street CEO, Dwayne Hyzak.

Speaker #2: 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.

Speaker #2: And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak.

Speaker #3: 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.

Dwayne Hyzak: 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. On today's call, we will provide our key quarterly updates. After which, we'll be happy to take your questions. We are pleased with our performance in Q1, particularly given the backdrop of significant economic and geopolitical uncertainties, which resulted in DNII before taxes per share in line with our expectations and prior guidance and strong investment activity in our lower middle market investment strategy following our very strong investment activity in Q4 2025, resulting in significant growth of our lower middle market investment portfolio over the last 2 quarters.

Speaker #3: On today's call, we will provide our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the first quarter.

Speaker #3: Particularly given the backdrop of significant economic and geopolitical uncertainties, which resulted in DNII before taxes per share in line with our expectations and prior guidance, and strong investment activity in our lower middle market investment strategy, following our very strong investment activity in the fourth quarter of 2025, resulting in significant growth of our lower middle market investment portfolio, over the last two quarters.

Speaker #3: We believe that these results continue to demonstrate the sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, and the continued strength and quality of our portfolio companies, particularly our lower middle market portfolio companies.

Dwayne Hyzak: We believe that these results continue to demonstrate the sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, and the continued strength and quality of our portfolio companies, particularly our lower middle market portfolio companies. We're also pleased that we further strengthened our capital structure since the beginning of the year, despite the challenging environment, which Ryan will discuss in more detail. Given our strong liquidity position and conservative leverage profile, we're very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, will allow us to continue to deliver superior results for our shareholders in the future.

Speaker #3: We're also pleased that we further strengthened our capital structure since the beginning of the year, despite the challenging environment, which Ryan will discuss in more detail.

Speaker #3: Given our strong liquidity position and conservative leverage profile, we're very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing.

Speaker #3: We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, will allow us to continue to deliver superior results for our shareholders in the future.

Speaker #3: Our favorable DNII before taxes for the first quarter and net realized gains over the last two quarters combined with our outlook for the second quarter resulted in our most recent dividend announcements which I will discuss in more detail later.

Dwayne Hyzak: Our favorable DNII before taxes for Q1 and net realized gains over the last two quarters, combined with our outlook for Q2, resulted in 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 accretive impact of our equity issuances and the impact of a net fair value increase in our lower middle market investment portfolio. Partially offset by net fair value decreases in our private loan investment portfolio and our asset management business, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of favorable dividend income contributions and net fair value appreciation in our lower middle market equity investments.

Speaker #3: Our NAV per share increased in the quarter, primarily due to the accretive impact of our equity issuances and the impact of a net fair value increase in our lower middle market investment portfolio.

Speaker #3: Partially offset by net fair value decreases in our private loan investment portfolio, and our asset management business, which Ryan will discuss in more detail.

Speaker #3: The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of favorable dividend income contributions and net fair value appreciation in our lower middle market equity investments.

Speaker #3: Based upon our current views of these investments, and feedback from our portfolio company management teams, we expect these favorable contributions to continue. We're also pleased to have exited our investments in a high-performing lower middle market portfolio company, KBK Industries, in the first quarter, resulting in a material realized gain in addition to the significant dividends received over the life We continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters, and which we believe further highlights the strength and quality of our portfolio companies, and their exceptional leadership teams.

Dwayne Hyzak: Based upon our current views of these investments and feedback from our portfolio company management teams, we expect these favorable contributions to continue. We're also pleased to have exited our investments in a high-performing lower middle market portfolio company, KBK Industries, in Q1, resulting in a material realized gain in addition to the significant dividends received over the life of our equity investment. We continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters, and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams.

Speaker #3: We're also excited about the new and follow-on investments we made in our lower middle market strategy during the quarter. Which included investments in three new portfolio companies, and follow-on investments in five high-performing portfolio companies to support strategic acquisitions.

Dwayne Hyzak: We're also excited about the new and follow-on investments we made in our lower middle market strategy during the quarter, which included investments in three new portfolio companies and follow-on investments in five high-performing portfolio companies to support strategic acquisitions, resulting in a net increase in lower middle market investments of $157 million. Our private loan investment activity in the quarter was slower than our expected normal quarterly activity, primarily due to lower overall levels of private equity industry investment activity, resulting in a net increase in private loan investments of $37 million. David will discuss our investment activity in more detail. We also continue to produce positive results in our asset management business.

Speaker #3: Resulting in a net increase in lower middle market investments of $157 million. Our private loan investment activity in the quarter was slower than our expected normal quarterly activity, primarily due to lower overall levels of private equity industry investment activity, resulting in a net increase in private loan investments of $37 million.

Speaker #3: David will discuss our investment activity in more detail. We also continue to produce positive results in our asset management business. The funds we advise through our external investment manager continue to experience favorable performance in the first quarter, resulting in a meaningful incentive fee income for asset management business, and together with our recurring base management fees, a significant contribution to our net investment income.

Dwayne Hyzak: The funds we advise through our external investment manager continue to experience favorable performance in Q1, resulting in a meaningful incentive fee income for our asset management business, and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage, and we're 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. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager, which is solely focused on the private loan investment strategy with respect to new portfolio company investments.

Speaker #3: We remain excited about our plans for the external funds that we manage, and we are optimistic about the future performance of the funds, and the attractive returns we are providing to the investors of each fund.

Speaker #3: And about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager, which is solely focused on the private loan investment strategy with respect to new portfolio company investments.

Speaker #3: As a result of the increase to its regulatory debt capacity, which became effective at the end of January 2026, the fund maintains significant capacity to add additional debt to fund future growth of its investment portfolio.

Dwayne Hyzak: As a result of the increase to its regulatory debt capacity, which became effective at the end of January 2026, the fund maintains significant capacity to add additional debt to fund future growth of its investment portfolio. MSC Income Fund's Q1 2006 financial results conference call will be held later this morning for those who would like additional details. Based upon our results for the Q1, combined with our favorable outlook for the Q2, earlier this week, our board declared a supplemental dividend of $0.30 per share payable in June, representing our 19th consecutive quarterly supplemental dividend, and an increase to our regular monthly dividends for the Q3 2026 to $0.265 per share.

Speaker #3: MSC Income Fund's first quarter 2006 financial results conference call will be held later this morning for those who would like additional details. Based upon our results for the first quarter, combined with our favorable outlook for the second quarter, earlier this week our board declared a supplemental dividend of $0.30 per share payable in June, representing our 19th consecutive quarterly supplemental dividend, and an increase to our regular monthly dividends for the third quarter of 2026 to $26.50 per share.

Speaker #3: These third quarter regular monthly dividends represent a 3.9% increase from the regular monthly dividends paid in the third quarter of 2025. The supplemental dividend for June is a result of our favorable level of DNII before taxes in the first quarter, and our net realized gains over the last two quarters.

Dwayne Hyzak: These Q3 regular monthly dividends represent a 3.9% increase from the regular monthly dividends paid in Q3 2025. The supplemental dividend for June is a result of our favorable level of DNII before taxes in Q1, and our net realized gains over the last two quarters, and will result in total supplemental dividends paid during the trailing twelve-month period of $1.20 per share, representing an additional 39% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceed our regular monthly dividends paid, or we generate net realized gains, and we maintain a stable to positive NAV in future quarters.

Speaker #3: And will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share representing an additional 39% paid to our shareholders in excess of our regular monthly dividends.

Speaker #3: We currently expect to recommend that our board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid, or we generate net realized gains and we maintain a stable to positive NAV in future quarters.

Speaker #3: Based upon our expectations for continued favorable performance in the second quarter, we currently anticipate proposing an additional significant supplemental dividend payable in September 2026.

Dwayne Hyzak: Based upon our expectations for continued favorable performance in the Q2, we currently anticipate proposing an additional significant supplemental dividend payable in September 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide highly flexible and customized financing solutions to lower middle market companies and their owners and management teams, together with our differentiated long-term to permanent holding periods, represents an even more attractive solution to the needs of many lower middle market companies. We're excited about our expectations for continued growth of our lower middle market investment portfolio.

Speaker #3: Now turning to our current investment pipeline, as of today I would characterize our lower middle market investment pipeline as average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide highly flexible and customized financing solutions to lower middle market companies and their owners and management teams together with our differentiated long-term to permanent holding periods represents an even more attractive solution to the needs of many lower middle market companies and we are excited about our expectations for continued growth of our lower middle market investment portfolio.

Speaker #3: Similarly, in our private loan investment strategy, we are seeing an improved lending environment and significant opportunities which we believe position us well to capitalize on new private loan investment opportunities and to generate growth for our private loan investment portfolio and our asset management business.

Dwayne Hyzak: Similarly, in our private loan investment strategy, we are seeing an improved lending environment and significant opportunities, which we believe position us well to capitalize on new private loan investment opportunities and to generate growth for our private loan investment portfolio and our asset management business. As of today, I'd characterize our private loan investment pipeline as average. With that, I will turn the call over to David.

Speaker #3: And as of today, I would characterize our private loan investment pipeline as average. With that, I will turn the call over to David.

Speaker #2: Thanks, Dwayne, and good morning everyone. As Dwayne highlighted in his remarks, we believe that our first quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach, and our unique operating model.

David Magdol: Thanks, Dwayne. Good morning, everyone. As Dwayne highlighted in his remarks, we believe that our Q1 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 our portfolio companies continues to be positive, which contributed to our favorable Q1 financial results. Despite the continued heightened level of uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current environment. Each quarter, we try to highlight a key aspect of our differentiated investment strategy. This quarter, we'd like to revisit reasons why we believe that our structure as a publicly traded company with the significant benefits of permanent capital is a great match within our lower middle market strategy.

Speaker #2: We are pleased to report that the overall operating performance for our portfolio companies continues to be positive which contributed to our favorable first quarter financial results.

Speaker #2: Despite the continued heightened level of uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current environment.

Speaker #2: Each quarter we try to highlight a key aspect of our differentiated investment strategy. This quarter we'd like to revisit reasons why we believe that our structure as a publicly traded company with a significant benefits of permanent capital is a great match with our low within our lower middle market strategy.

Speaker #2: First, we believe that our permanent capital structure allows us to be the ideal long-term to permanent partner for the owner-operators and management teams of privately held businesses.

David Magdol: First, we believe that our permanent capital structure allows us to be the ideal long-term to permanent partner for the owner-operators and management teams of privately held businesses. One of the challenges for a typical institutional investor in private equity is that they cannot provide a long-term partnership solution for business owners or their management teams due to the finite life of their investment funds. Our permanent capital structure and long-term to permanent lower middle market investment strategy provides us with the flexibility to provide significantly more beneficial long-term structural considerations, as opposed to relying solely on price as the competitive advantage. As a result, we believe our flexibility results in highly attractive customized investment structures that other investors simply cannot provide.

Speaker #2: One of the challenges for a typical institutional investor in private equity is that they cannot provide a long-term partnership solution for business owners or their management teams due to the finite life of their investment funds.

Speaker #2: Our permanent capital structure and long-term to permanent lower middle market investment strategy provide us with the flexibility to offer significantly more beneficial long-term structural considerations, as opposed to relying solely on price as the competitive advantage.

Speaker #2: As a result, we believe our flexibility results in highly attractive customized investment structures that other investors simply cannot provide. In addition, our ability to be a long-term to permanent partner in the companies we invest in allows the owners of these businesses and their management teams the ability to maintain the identity and independence of their companies while also pursuing the best long-term strategy to achieve attractive outcomes for all of their companies' stakeholders.

David Magdol: In addition, our ability to be a long-term to permanent partner in the companies we invest in allows the owners of these businesses and their management teams the ability to maintain the identity and independence of their companies while also pursuing the best long-term strategy to achieve attractive outcomes for all of their company stakeholders. Second, our long-term holding periods also result in a diversified portfolio of investments in more mature companies that typically have lower relative leverage profiles since they use free cash flow from operations to deleverage over time. As our companies deleverage, we work proactively with our portfolio company executives and individual equity owners to decide how they can continue to generate the best returns for the equity owners of these businesses. This tends to create three attractive opportunities through which our high-performing lower middle market portfolio companies can create value.

Speaker #2: Second, our long-term holding periods also result in a diversified portfolio of investments in more mature companies that typically have lower relative leverage profiles since they use free cash flow from operations to de-leverage over time.

Speaker #2: As our companies de-leverage, we work proactively with our portfolio company executives and individual equity owners to decide how they can continue to generate the best returns for the equity owners of these businesses.

Speaker #2: This tends to create three attractive opportunities through which our high-performing lower middle market portfolio companies can create value. The opportunity thoughtfully execute on internal and external growth initiatives to achieve long-term equity capital appreciation, continue de-leveraging from internally generated cash flow to achieve equity appreciation, and the opportunity to pay significant dividends to shareholders of the business.

David Magdol: The opportunity to thoughtfully execute on internal and external growth initiatives to achieve long-term equity capital appreciation, continue deleveraging from internally generated cash flow to achieve equity appreciation, and the opportunity to pay significant dividends to shareholders of the business. We often see our portfolio companies take advantage of several of these value-creating opportunities. Given our unique strategy, we are well-aligned with our portfolio company operating partners to evaluate and pursue the best alternatives to create shareholder value since we share the benefits of equity ownership with them. Alternatively, should one of our portfolio companies face difficult industry headwinds or economic conditions or other challenges, since they have lower relative leverage profiles and the benefits of a long-term institutional partner, they tend to be well-positioned to either work through any negative economic cycles as they arise and pursue acquisitions when valuations are most attractive.

Speaker #2: We often see our portfolio companies take advantage of several of these value-creating opportunities. Given our unique strategy, we are well aligned with our portfolio accompanying operating partners to evaluate and pursue the best alternatives to create shareholder value since we share the benefits of equity ownership with them.

Speaker #2: Alternatively, should one of our portfolio companies face difficult industry headwinds or economic conditions or other challenges since they have lower relative leverage profiles and the benefits of a long-term institutional partner they tend to be well positioned to either work through any negative economic cycles as they arise and pursue acquisitions when valuations are most attractive.

Speaker #2: Either way, our lower middle market portfolio companies have the added benefit of a highly aligned partner in Main Street to help them work through potentially challenging times.

David Magdol: Either way, our lower middle market portfolio companies have the added benefit of a highly aligned partner in Main Street to help them work through potentially challenging times. Our lower middle market portfolio currently includes 48 companies that have been in our portfolio for greater than 5 years, including 21 that have been in our portfolio for more than a decade. We are excited about our partnerships with these lower middle market companies and the future opportunities they represent. The Q1 2026 represented another attractive period for add-on investments for our lower middle market companies, whereby we supported 5 of our portfolio companies with additional capital for growth initiatives.

Speaker #2: Our lower middle market portfolio currently includes 48 companies that have been in our portfolio for greater than five years including 21 that have been in our portfolio for more than a decade.

Speaker #2: We are excited about our partnerships with these lower middle market companies and the future opportunities they've represent. The first quarter of 2026 represented another attractive period for add-on investments for our lower middle market companies whereby we supported five of our portfolio companies with additional capital for growth initiatives.

Speaker #2: Because of Main Street's strong capital availability, long-term investment horizon, and ability to provide both debt and equity capital to our portfolio companies, we are well situated to move quickly to support our portfolio companies not only on the initial transaction but also when they identify growth initiatives.

David Magdol: Because of Main Street's strong capital availability, long-term investment horizon, and ability to provide both debt and equity capital to our portfolio companies, we are well-situated to move quickly to support our portfolio companies, not only on the initial transaction, but also when they identify growth initiatives. Today, the environment for add-on acquisitions by our portfolio companies remains strong, and we welcome the opportunity to make incremental investments in our high-performing lower middle market portfolio companies. Most of these situations, Main Street is pleased to provide most, if not all, of the cash needs for our portfolio companies to complete their highly strategic acquisitions. These acquisitions provide our portfolio companies, their owner-operators, and their management teams the opportunities to benefit from the significant equity value creation opportunities produced through combined economies of scale, cross-selling opportunities, and other synergies that are expected to result from add-on acquisitions.

Speaker #2: Today, the environment for add-on acquisitions by our portfolio companies remains strong, and we welcome the opportunity to make incremental investments in our high-performing, lower middle market portfolio companies.

Speaker #2: Most of these situations Main Street is pleased to provide most, if not all, of the cash needs for our portfolio companies to complete their highly strategic acquisitions.

Speaker #2: These acquisitions provide our portfolio companies, their owner-operators, and their management teams the opportunities to benefit from the significant equity value creation opportunities produced through combined economies of scale, cross-selling opportunities, and other synergies that are expected to result from add-on acquisitions.

Speaker #2: We welcome the opportunity to support our lower middle market portfolio companies as they seek to invest incremental capital in support of both internal and external growth initiatives and we believe our seasoned lower middle market portfolio will continue to provide attractive follow-on investments investment opportunities in the future.

David Magdol: We welcome the opportunity to support our lower middle market portfolio companies as they seek to invest incremental capital in support of both internal and external growth initiatives. We believe our seasoned lower middle market portfolio will continue to provide attractive follow-on investments, investment opportunities in the future. Now turning to the composition of our investment portfolio. As of 31 March, 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 4.5 of our total investment income for the trailing 12-month period and 3.4% of our total investment portfolio at fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets.

Speaker #2: Now, turning to the composition of 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.

Speaker #2: Our largest portfolio companies, excluding the external investment manager, represented only 4.5% of our total investment income for the trailing 12-month period and 3.4% of our total investment portfolio fair value at quarter end.

Speaker #2: The majority of our portfolio investments represented less than 1% of our income and our assets. Our lower middle market investment activity in the first quarter included total investments of approximately $206 million including total investments of $105 million in three new lower middle market portfolio companies, which after aggregate investment activity resulted in a net increase in our lower middle market portfolio of $157 million.

David Magdol: Our lower middle market investment activity in Q1 included total investments of approximately $206 million, including total investments of $105 million in three new lower middle market portfolio companies, which after aggregate investment activity, result in a net increase in our lower middle market portfolio of $157 million. In our private loan strategy, we completed $149 million in total private loan investments, which after aggregate investment activity, resulted in net increase in our private loan portfolio of $37 million. At the end of Q1, our lower middle market portfolio included investments in 93 companies, representing $3.2 billion of fair value, which was 25% above our related cost basis. Our private loan portfolio included investments in 85 companies representing $2 billion of fair value.

Speaker #2: In our private loan strategy, we completed 149 million in total private loan investments, which after aggregate investment activity resulted in a net increase in our private loan portfolio of $37 million.

Speaker #2: At the end of the first quarter, our lower middle market portfolio included investments in 93 companies representing 3.2 billion dollars of fair value, which was 25% above our related cost basis and our private loan portfolio included investments in 85 companies representing $2 billion of fair value.

Speaker #2: The total investment portfolio at fair value a quarter end was $115% of the related cost basis. Additional details in our investment portfolio at quarter end are included in the press release that we issued yesterday.

David Magdol: The total investment portfolio at fair value at quarter end was 115% of the related cost basis. Additional details in our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I will turn the call over to Ryan to cover our financial results, capital structure, and liquidity position.

Speaker #2: With that, I will turn the call over to Ryan to cover our financial results, capital structure, and liquidity position.

Speaker #1: Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the first quarter given the current environment. Our total investment income for the first quarter was $140.1 million increasing by 3.1 million dollars or 2.2% over the first quarter of 2025 and decreasing by 5.4 million dollars or 3.7% from the fourth quarter of 2025.

Ryan Nelson: Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for Q1 given the current environment. Our total investment income for Q1 was $140.1 million, increasing by $3.1 million or 2.2% over Q1 of 2025, and decreasing by $5.4 million or 3.7% from Q4 of 2025. Interest income increased by $7.3 million from a year ago and by $2.5 million from Q4 of 2025.

Speaker #1: Interest income increased by 7.3 million dollars from a year ago and by 2.5 million dollars from the fourth quarter of 2025. The increases from prior year and fourth quarter were principally attributable to the impact of higher levels of income-producing debt investments partially offset by decrease in interest rates primarily resulting from decreases in benchmark index rates on our floating rate debt investments and the negative impact from investments on non-accrual status.

Ryan Nelson: The increases from prior year and Q4 were principally attributable to the impact of higher levels of income producing debt investments, partially offset by a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and a negative impact from investments on non-accrual status. Dividend income decreased by $7.8 million when compared to a year ago after a $700,000 increase in unusual or non-recurring dividends, and decreased by $7.7 million from Q4, including a $3.5 million decrease in unusual or non-recurring dividends. The decreases in dividend income for both comparable periods are primarily a result of the performance of our lower middle market companies and their capital allocation decisions relative to prior periods and the decrease in non-recurring dividends.

Speaker #1: Dividend income decreased by 7.8 million dollars when compared to a year ago after a $700,000 increase in unusual or non-recurring dividends. And decreased by 7.7 million dollars from the fourth quarter including a 3.5 million dollar decrease in unusual or non-recurring dividends.

Speaker #1: The decreases in dividend income for both comparable periods are primarily a result of the performance of our lower middle market companies and their capital allocation decisions relative to prior periods and the decrease in non-recurring dividends.

Speaker #1: Fee income increased by $3.6 million from a year ago and decreased by $300,000 from the fourth quarter. The increase in fee income from the prior year is primarily due to higher closing fees on new and follow-on investments, and an increase in fee income from the refinancing and prepayment of debt investments and other investment activity.

Ryan Nelson: Fee income increased by $3.6 million from a year ago and decreased by $300,000 from Q4. The increase in fee income from prior year is primarily due to higher closing fees on new and follow-on investments and an increase in fee income from the refinancing and prepayment of debt investments and other investment activity. Fee income considered non-recurring increased by $1 million from a year ago and by $500,000 from Q4 2025. Q1 included income considered less consistent or non-recurring in nature, primarily related to accelerated fee income and dividends from our equity investments, which totaled $4.1 million.

Speaker #1: Fee income considered non-recurring increased by $1 million from a year ago and by $500,000 from the fourth quarter of 2025. The first quarter included income considered less consistent or non-recurring in nature primarily related to accelerated fee income and dividends from our equity investments, which totaled $4.1 million.

Speaker #1: These income items were 1.7 million dollars or 2 cents per share higher than the first quarter of 2025, 3.5 million dollars or 4 cents per share lower than the fourth quarter, and 1.5 million dollars or 2 cents per share lower than the prior four-quarter average.

Ryan Nelson: These income items were $1.7 million, or $0.02 per share higher than Q1 2025, $3.5 million or $0.04 per share lower than Q4, and $1.5 million or $0.02 per share lower than the prior four-quarter average. These decreases were primarily due to lower non-recurring dividends from our lower middle market portfolio companies. Our operating expenses increased by $5 million over Q1 2025 and by $800,000 from Q4. The increase in operating expenses from the prior year was largely driven by increases in interest expense, cash compensation related expenses, and deferred compensation expense.

Speaker #1: These decreases were primarily due to lower non-recurring dividends from our lower middle market portfolio companies. Our operating expenses increased by $5 million over the first quarter of 2025 and by $800,000 from the fourth quarter.

Speaker #1: The increase in operating expenses from the prior year was largely driven by increases in interest expense cash compensation cash compensation-related expenses and deferred compensation expense.

Speaker #1: The increase in interest expense from a year ago was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio partially offset by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in benchmark index interest rates and decreases in the applicable margin rates resulting from the amendments of the of our credit facilities in April 2025 and a decrease in the weighted average interest rate on our unsecured debt obligations resulting from early repayment of the 2025 notes and the issuance of the August 2028 notes.

Ryan Nelson: The increase in interest expense from a year ago was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio, partially offset by a decrease in the weighted average interest rate on our credit facilities, resulting from decreases in benchmark index interest rates and decreases in the applicable margin rates resulting from the amendments of our credit facilities in April 2025, and a decrease in the weighted average interest rate on our unsecured debt obligations resulting from early repayment of the 2025 notes and the issuance of the August 2028 notes.

Speaker #1: The ratio of our total operating expenses excluding interest expense as a percentage of our of our average total assets was 1.3% for the quarter on an annualized basis and the trailing and the trailing 12-month period and continues to be among the lowest in our industry.

Ryan Nelson: The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets, was 1.3% for the quarter on an annualized basis in the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.3 million to our net investment income during Q1, representing an increase of $500,000 from the same quarter a year ago and a decrease of $900,000 from Q4. Our external investment manager earned gross incentive fees of $4 million during Q1 and waived $1 million in incentive fees from MSC Income Fund, resulting in net incentive fees of $3 million.

Speaker #1: Our external investment manager contributed 8.3 million dollars to our net investment income during the first quarter representing an increase of $500,000 from the same quarter a year ago and a decrease of $900,000 from the fourth quarter.

Speaker #1: Our external investment manager earned gross incentive fees of $4 million during the first quarter and waived $1 million in incentive fees from MSC income fund resulting in net incentive fees of $3 million.

Speaker #1: This net result represents an increase of $300,000 in net incentive fees from prior year and a decrease of 1.2 million dollars compared to the fourth quarter of 2025.

Ryan Nelson: This net result represents an increase of $300,000 in net incentive fees from prior year and a decrease of $1.2 million compared to Q4 2025. Our external investment manager ended the quarter with total assets under management of $1.8 billion. During the quarter, we recorded net fair value depreciation, including net unrealized depreciation and net realized gains on the investment portfolio of $32.6 million. This decrease was primarily driven by net fair value depreciation in our private loan investment portfolio, our external investment manager, and our middle market investment portfolio, partially offset by net fair value appreciation in our lower middle market investment portfolio. The net fair value depreciation in our private loan portfolio was primarily driven by depreciation on a specific portfolio company and increases in market spreads.

Speaker #1: Our external investment manager ended the quarter with total assets under management of 1.8 billion dollars. During the quarter, we recorded net fair value depreciation including net unrealized depreciation and net realized gains on the investment portfolio of 32.6 million dollars.

Speaker #1: This decrease was primarily driven by net fair value depreciation in our private loan investment portfolio our external investment manager and our middle market investment portfolio partially offset by net fair value appreciation in our lower middle market investment portfolio.

Speaker #1: The net fair value depreciation in our private loan portfolio was primarily driven by depreciation on a specific portfolio company and increases in market spreads.

Speaker #1: The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers partially offset by an increase in valuation multiples for private transaction both of which we use as benchmarks for valuation purposes and increased fee income.

Ryan Nelson: The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, partially offset by an increase in valuation multiples for private transactions, both of which we use as benchmarks for valuation purposes, and increased fee income. 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. We recognized net realized gains of $18 million in the quarter. Additional details on our net realized fair value activity are included in the press release that we issued yesterday. We ended Q1 with investments on non-accrual status, comprising approximately 1.2% of the total investment portfolio at fair value and approximately 4% at cost.

Speaker #1: 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.

Speaker #1: We recognize net realized gains of $18 million in the quarter additional details on our net realized fair value activity are included in the press release that we issued yesterday.

Speaker #1: We ended the first quarter with investments on non-accrual status comprising approximately 1.2 percent of the total investment portfolio at fair value and approximately 4 percent at cost.

Speaker #1: Net asset value or NAV increased by 13 cents per share over the fourth quarter and by $1.43 per share or 4.5 percent when compared to a year ago to a record NAV per share of $33.46 at quarter end.

Ryan Nelson: Net asset value or NAV increased by $0.13 per share over Q4 and by $1.43 per share or 4.5% when compared to a year ago to our record NAV per share of $33.46 at quarter end. Our regulatory debt-to-equity leverage, calculated as total debt excluding our SBIC debentures divided by NAV, was 0.71 times. Our regulatory asset coverage ratio was 2.41 times. These ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9 times and 2.25 to 2.1 times, respectively. We continued to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity.

Speaker #1: Our regulatory debt-to-equity leverage calculated as total debt excluding our SBIC debentures divided by NAV was 0.71 times and our regulatory asset coverage ratio was 2.41 times and these ratios continue to be more conservative than our long-term long-term target ranges of 0.8 to 0.9 times and 2.25 to 2.1 times respectively.

Speaker #1: We continue to be active this quarter on capital activities aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity.

Speaker #1: These activities included an expansion of the total commitments under our corporate facility by $30 million to $1.175 billion in February, the issuance of an additional $200 million of our unsecured investment-grade notes maturing in March 2029, resulting in an effective yield of 6.2 percent on such issuance, and the issuance in April of $150 million of private placement unsecured notes maturing in April 2031 with an interest rate of 6.93 percent.

Ryan Nelson: These activities included an expansion of the total commitments under our corporate facility by $30 million to $1.175 billion in February, the issuance of an additional $200 million of our unsecured investment-grade notes maturing in March 2029, resulting in an effective yield of 6.2% on such issuance, and the issuance in April of $150 million of private placement unsecured notes maturing in April 2031 with an interest rate of 6.93%. We were also active in our at-the-market or ATM program, raising net proceeds of $134.1 million from equity issuances, given the significant increase in our net lower middle market investment activity over the last several quarters.

Speaker #1: We were also active in our at-the-market or ATM program raising net proceeds of $134.1 million from equity issuances given the significant increase in our net lower middle market investment activity over the last several quarters.

Speaker #1: After giving effect to the capital activities in the first quarter of 2026 and a recent issuance of private placement unsecured notes we entered the second quarter with strong liquidity including cash and unused capacity under our credit credit facilities totaling approximately 1.4 billion dollars with a near-term debt maturity of $500 million in July 2026.

Ryan Nelson: After giving effect to the capital activities in the Q1 of 2026 and a recent issuance of private placement unsecured notes, we enter the Q2 with strong liquidity, including cash and unused capacity under our credit facilities totaling approximately $1.4 billion, with a near-term debt maturity of $500 million in July 2026. 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 strategies despite the current market uncertainty.

Speaker #1: 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.

Speaker #1: Allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Coming back to our operating results DNII before taxes per share for the quarter of $1.04 was 3 cents per share lower than the first quarter of last year and 7 cents per share lower than the fourth quarter.

Ryan Nelson: Coming back to our operating results, DNII before taxes per share for the quarter of $1.04 was $0.03 per share lower than Q1 last year and $0.07 per share lower than Q4. Looking forward, we expect Q2 2026 DNII before taxes of at least $1.00 per share, with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions.

Speaker #1: Looking forward we expect second quarter of 2026 DNII before taxes of at least $1 per share with the potential for upside driven by portfolio investment activities during the quarter.

Speaker #1: With that I will now turn the call over to the operator so we can take any questions.

Speaker #2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad.

Operator: Thank you. We will now be conducting a question and answer session. If you 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 you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Your first question comes to the line of Robert Dodd with Raymond James. Please go ahead.

Speaker #2: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions.

Speaker #2: Your first question comes from the line of Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Morning, guys. On the dividend income from the there was a bit of decline in, relatively bit, decline in non-recurring dividends, which obviously they're non-recurring. Is there anything thematic behind that? I mean, obviously, there's a lot of volatility and uncertainty out in the economy, et cetera. We've seen in some instances in the past when that picks up, your portfolio companies retain a bit more cash. I mean, is that kind of a driver and you expect that kind of extra dividend income to be moderate in the near term, or was there just a, like, a one-off thing in the quarter?

Speaker #3: morning guys. on on the the, the dividend income from the, the the there was a bit of decline in relatively big. Decline in non-recurring dividends which obviously they're non-recurring.

Speaker #3: But is there anything thematic behind that? I mean obviously there's a lot of volatility and uncertainty out in the economy etc. and we've seen in some instances in the past when that picks up your portfolio companies retain a bit more cash.

Speaker #3: So I mean is is that kind of a a drive when you expect that kind of extra dividend income to to to be moderate in in the near term or was there just a like a a one-off thing in the quarter?

Speaker #4: Again Robert I would say on the the non-recurring side those would be items that are either tied to an exit of an investment. Obviously if we if we sell a business in a historically had dividend income and there's dividend income in the quarter that we exit you know that that's going to be called out as non-recurring.

Ryan Nelson: Yeah. Robert, I would say on the non-recurring side, those would be items that are either tied to an exit of an investment. Obviously, if we sell a business and it historically had dividend income and there's dividend income in the quarter that we exit, you know, that's going to be called out as non-recurring. The other would be if there was some transaction, some type of a large distribution that happened in one quarter and that company had not historically paid dividends, we would call that out as well. I'd say the activity between Q4 and Q1 was more related to exits.

Speaker #4: The other would be if there was some transaction some type of a a large distribution that happened in one quarter and that company had not historically paid dividends we would call that out as well.

Speaker #4: I'd say the the activity between Q4 and Q1 was more related to to exits. I think we've talked about the fact we've had a couple of really attractive exits where those exits had been companies that had been in the portfolio for a long time had you know delivered were paying significant dividends or distributions and those dividends or distributions you know obviously go away with that exit.

Ryan Nelson: I think we've talked about the fact we've had a couple of really attractive exits, where those exits have been companies that have been in the portfolio for a long time, had, you know, delevered, were paying significant dividends or distributions. Those dividends or distributions, you know, obviously go away with that exit. We like the exit because it is attractive from a value standpoint. We think it proves out the long-term value of our lower middle market strategy. But it does come with the negative, you know, kind of consequence of losing the dividend income off those companies that they had paid historically. More broadly, I do think to your point, you know, there is and has been more uncertainty in the market broadly.

Speaker #4: So, we like the exit because it is attractive from a value standpoint. We think it proves out the long-term value of our lower middle market strategy, but it does come with the negative, you know, kind of consequence of losing the dividend income off those companies that they had paid historically.

Speaker #4: More broadly I I do think to your point you know there there is is and has been more uncertainty in the market broadly. So I think you know our our companies in times like this they do tend you know to become more conservative from a capital allocation standpoint.

Ryan Nelson: I think, you know, our companies, in times like this, they do tend, you know, to become more conservative from a capital allocation standpoint. I think if you look at the total dividend in-income number, both Q1 versus Q4 and then Q1 versus prior year Q1, you know, there would be some impact from those capital allocation decisions as well, would be a combination of both of those.

Speaker #4: So I think if you look at the total dividend income number both Q1 versus Q4 and then Q1 versus prior year Q1 you know there there would be some impact from those capital allocation decisions as well.

Speaker #4: Would be a combination of both of those.

Speaker #3: Got it, got it. Thank you. And then, you did also—there was a comment, I think—there was a few waivers of the incentive fees from MCIF. Obviously, from the MCIF perspective, there's a different call for that.

Robert Dodd: Got it. Thank you. You, you did also, there was a comment, there was a fee waiver of the incentive fees from MSF, obviously from the MSF perspective, there's a different call for that. I mean, well, right, should we expect that to continue in the near term in terms of Main being extra supportive of the performance of MSF in terms of fee waivers?

Speaker #3: But is that I mean should right should we expect that to continue in the near term in terms of our main being extra supportive of of the performance of of MCIF in terms of fee waivers?

Speaker #4: Sure Robert. I'd say on the the fee waiver for the incentive fee I think it's going to be based upon what happens in that quarter.

Dwayne Hyzak: Sure, Robert. I'd say on the fee waiver for the incentive fee, I think it's going to be based upon what happens in that quarter. There's no, you know, pre-agreed upon, you know, expectation or agreement there. We're going to look at, you know, what happens in each quarter and then make a decision on whether or not, you know, we think it makes sense to provide that fee waiver. Obviously, in Q1, we provided that, and to your point, it was about $1 million of a fee waiver that came through to the benefit of MSC Income Fund and obviously to the detriment of the asset management business on the Main Street side.

Speaker #4: So there's there's no you know pre-agreed upon you know expectation or agreement there. We're going to look at you know what happens in each quarter and then make a decision on whether or not you know we think it makes sense to provide that fee waiver.

Speaker #4: Obviously in the in the first quarter we provided that and to your point it was about a million dollars of of a fee waiver that that came through to the benefit of MSC Income Fund.

Speaker #4: And obviously to the to the detriment of the asset management business on the Main Street side.

Speaker #3: Got it. Got it. Thank you. And then just more more more generally obviously I mean I think the the the private loan you you characterize as average it had been slower in terms of activity through much of last year because you thought to a degree that the pricing was unreasonably low.

Robert Dodd: Got it. Got it. Thank you. Just more generally, obviously, I mean, I think the, the private loan, you characterized as average. It had been slower in terms of activity through much of last year because you thought to a degree that the pricing was unreasonably low. The indications we're hearing in the market are that pricing maybe is moving higher. Is there a prospect where the private loan activity could ramp up, you know, the average for Q2, but is there a prospect it could ramp up more if M&A picks up and the pricing may be turning more attractive?

Speaker #3: Or the indications we're hearing in the market that pricing may be maybe is is moving higher. So is there a prospect where the private loan activity could ramp up you know the average for for Q2 but is there a prospect it could ramp up more if if M&A picks up and the pricing may be turning more attractive?

Speaker #4: Sure Robert. I'll I'll give a couple of comments and I'll let Nick you know add on or or clarify. What I would say is is that could happen but it all comes down to you know the overall private equity industry's activities.

Dwayne Hyzak: Sure, Robert. I'll give a couple of comments, and I'll let Nick, you know, add on or clarify. What I would say is that could happen, it all comes down to, you know, the overall private equity industry's activities. I'd say in the current period where there is, you know, some uncertainty, you know, the big question mark is what does private equity do? How aggressive will they be from a deployment of capital standpoint? If they are active, if they are aggressive, I do think the current environment from a pricing and just general structure terms and conditions, you know, is favorable. I think we've talked about our pricing range broadly being in the 5 to 600 range from a spread standpoint. I'd say we probably think it's still in that range.

Speaker #4: And I'd say in the current period where there is you know some uncertainty you know the big question mark is what what does private equity do?

Speaker #4: How aggressive will they be from a deployment of capital standpoint? But if they are active if they are aggressive I do think the current environment from a pricing and just general structure terms and conditions you know is is favorable.

Speaker #4: I think we've talked about our pricing range broadly being in the five to six hundred range from a spread standpoint. I'd say we we probably think it's still in that range.

Speaker #4: Within that range you know we had probably trended to the bottom end of that range over the last year. So that may have improved a little bit but I think it it remains to be seen you know how much activity there is over the next you know kind of one or two or three quarters.

Dwayne Hyzak: Within that range, you know, we had probably trended to the bottom end of that range over the last year. That may have improved a little bit, but I think it remains to be seen, you know, how much activity there is over the next, you know, kind of one or two or three quarters and then, you know, what that does to pricing. Nick, feel free to add on there.

Speaker #4: And then you know what that does to pricing. But Nick feel free to add on there.

Speaker #5: I think Dwayne nailed it. I think the one thing I would add would I'd say over the last twelve months we probably lost a few or more deals on just on straight pricing where we went lower than we were comfortable with.

Nick Meserve: I think Dwayne nailed it. I think the one thing I would add, I'd say over the last 12 months, we probably lost a few or more deals on just on straight pricing, where we went lower than we were comfortable with. I think that dynamic hopefully has changed in the current period, and hopefully sticks with us for the rest of the year.

Speaker #5: And I think that that dynamic, hopefully, has changed in the current period—and hopefully sticks with us the rest of the year.

Speaker #3: Got it. Thank you.

Robert Dodd: Got it. Thank you.

Speaker #4: Thank you Robert.

Dwayne Hyzak: Thank you, Robert.

Speaker #6: Your next question comes from the line of Brian McKenna from Citizens. Please go ahead.

Operator: Your next question comes from the line of Brian McKenna from Citizens. Please go ahead.

Speaker #7: Great. Thanks. Good morning everyone. So just to quick question on the unrealized markdowns in the quarter. It seems like the the majority of that was from marking your asset manager or giving the decline in valuations for the public alts.

Brian McKenna: Great. Thanks. Good morning, everyone. Just a quick question on the unrealized markdowns in the quarter. It seems like the majority of that was from marking your asset manager, given the decline in valuations for the public calls. You know, was there anything else meaningful within that just in terms of the other drivers? If you're, you know, it might be tough to answer this, if you were to mark-to-market the portfolio and these assets to reflect some of the quarter to date recovery, how much of the Q1 markdowns would be reversed?

Speaker #7: But you know was there anything else meaningful within that just in some in terms of the other drivers? And then if you're you know it might be tough to to to answer this but if you were to mark to market the portfolio and these assets to reflect some of the quarter to date recovery how much of the first quarter markdowns would be reversed?

Speaker #4: Sure Brian. Good morning and thanks for the thanks for the questions. I would say a a couple of things. From a fair value standpoint I'd say it was a mixed bag this quarter.

Dwayne Hyzak: Sure, Brian. Good morning, and thanks for the questions. I would say a couple of things. From a fair value standpoint, I'd say it was a mixed bag this quarter. The lower middle market continued to have, you know, significant appreciation. You know, you probably saw that in the earnings release, but it'll also be more detailed in the 10-Q. We had just under $30 million of appreciation in the quarter. On the flip side of that, you hit on the asset management business. It was a fairly significant amount of depreciation, and that was, you know, purely based upon the peer valuations we use as part of the valuation inputs for that, you know, for that valuation process.

Speaker #4: The lower middle market continued to have you know significant appreciation. You know you you you probably saw that in the in the earnings release but it'll it'll also be more detailed in the in the 10-Q.

Speaker #4: But we had just under $30 million of appreciation in the quarter. On the flip side of that, you hit on the asset management business.

Speaker #4: It was a fairly significant amount of depreciation and that was you know purely based upon the the peer valuations we use as part of the valuation inputs for that you know for that valuation process.

Speaker #4: And then you also had private loan was down by a significant amount about you know thirty-six million dollars of depreciation. And I would say that was a mix of of one specific name that had significant depreciation and then kind of a mixed bag across the rest of the portfolio you know both kind of underlying performance and just you know movement in the in the marketplace from a from a spread standpoint.

Dwayne Hyzak: You also had private loan was down by a significant amount, about $36 million of depreciation. That was a mix of one specific name that had significant depreciation and then kind of a mixed bag across the rest of the portfolio, both kind of underlying performance and just movement in the marketplace from a spread standpoint.

Speaker #7: Okay. That's helpful. Thanks Dwayne. And then to kind of kind of going back to capital and liquidity I mean you you've raised a decent amount of capital year to date and I think that's a great example of of just the underlying strength of the balance sheet the business and and really your access to both the debt and and equity capital markets in all environments.

Brian McKenna: Okay, that's helpful. Thanks, Dwayne. Going back to capital and liquidity. I mean, you've raised a decent amount of capital year to date. I think that's a great example of just the underlying strength of the balance sheet, the business and really your access to both the debt and equity capital markets in all environments. You raised a few hundred million dollars of new debt capital. You also raised some equity capital through the ATM. You know, I heard the commentary on the pipelines today is average, but it seems like you're in a pretty strong position to lean in from a deployment perspective. How should we think about the pace of originations and really net portfolio growth over the next few quarters?

Speaker #7: So you raised a few hundred million dollars of new debt capital you also raised some equity capital through the ATM. And you know I heard the the commentary on the pipelines today as as average but it seems like you're you're in a pretty strong position to lean in from a deployment perspective but how should we think about the pace of originations and really net portfolio growth over the next few quarters?

Speaker #4: Sure Brian. So to your your comments there we we had been very active on the lower middle market side both Q4 and Q1. I think we're still seeing good opportunities and we expect to continue to see good opportunities as we move forward particularly given you know the the current state of the economy.

Dwayne Hyzak: Sure, Brian. To your comments there, we had been very active on the lower middle market side, both Q4 and Q1. I think we're still seeing good opportunities, and we expect to continue to see good opportunities as we move forward, particularly given, you know, the current state of the economy. We think our lower middle market strategy and offerings are always very attractive. We think they should become even more attractive in this type of environment, and that's what we've seen over the last 20 years. We would expect that to be the case. When you look at our capital activities related to lower middle market, I think you've heard us say this in the past, but when we're issuing equity, it is really tied to us growing our lower middle market portfolio.

Speaker #4: We think our lower middle market strategy and offerings are always very attractive. We think they should become even more attractive in this type of a environment and that's what we've seen over the last twenty years.

Speaker #4: So we would expect that to be the case when you look at our capital activities related to lower middle market. I think you've heard us say this in the past, but when we're issuing equity, it is really tied to us growing our lower middle market portfolio.

Speaker #4: So we've grown the portfolio significantly in Q4 and Q1. So we were, you know, playing catch up a little bit on the equity issuance to support that lower middle market growth.

Dwayne Hyzak: We've grown the portfolio significantly in Q4 and Q1. We were, you know, playing catch up a little bit on the equity issuance to support that lower middle market growth. On the debt capital side, I would say our activities were more in anticipation of the July maturity we have. We've got a $500 million maturity in July. We were building, you know, liquidity and capital structure flexibility to make sure that we can not only address that maturity, but also have significant dry powder to continue to grow because we do think, as you heard us say in our comments and as I said earlier, we do expect to have good opportunities on the lower middle market side.

Speaker #4: On the on the debt capital side I would say our activities were more in in in anticipation of the July maturity we have. So we've got a a five hundred million dollar maturity in July.

Speaker #4: So we were building you know liquidity and capital structure flexibility to make sure that we can not only address that maturity but also have significant dry powder to continue to grow because we do think as you heard us say in our comments and as I said earlier we do expect to have good opportunities on the lower middle market side.

Speaker #4: And as we sit here today, we expect to have good opportunities on the private credit side, but that'll largely be dictated by, you know, the overall marketplace.

Dwayne Hyzak: As we sit here today, we expect to have good opportunities on the private credit side, but that'll largely be dictated by the, you know, the overall marketplace. We do expect to have good opportunities, and we're, you know, trying to make sure we're positioned from a capital standpoint to, you know, to act on that.

Speaker #4: But we do expect to have good opportunities and we're you know trying to make sure we're positioned from a capital standpoint to you know to act on that.

Speaker #7: Okay. Got it. And then one more, if I may. When you look across your portfolio, what percent of your lower middle market investments will directly or indirectly benefit from everything going on in and around AI and digital infrastructure?

Brian McKenna: Okay, got it. Then one more, if I may. When you look across your portfolio, you know, what percent of your lower middle market investments will directly or indirectly benefit from everything going on in and around AI and digital infrastructure? I ask that because it does feel like the old economy is coming back in a big way here, and I suspect many of the businesses you're invested in are set to benefit pretty meaningfully from all this. I'm just trying to gauge how big of an impact we could see from all this over the next several years and what that ultimately means for shareholder value creation.

Speaker #7: And I ask that because it does feel like the old economy is coming back in a big way here and I suspect many of the businesses you're invested in are are set to benefit pretty meaningfully from all this.

Speaker #7: So I'm just trying to gauge how big of an impact we could see from all this over the next several years. And and what that ultimately means for shareholder value creation.

Speaker #4: Sure, Brian. I think, to your point, if you look at our, you know, lower middle market portfolio, and I'd say also our private credit portfolio, we're value, you know, based investors.

Dwayne Hyzak: Sure, Brian. I think to your point, if you look at our, you know, lower middle market portfolio, and I'd say also our private credit portfolio, we're value, you know, based investors. We're old economy-based investors. We do have some, you know, limited, you know, technology software, but it's admittedly a small part of our portfolio. Most of our businesses are pretty, you know, kind of basic, you know, kind of traditional, you know, industries and companies. When we look at AI, I would say all of our companies are looking at it. It's something that we emphasize as part of our president's meeting each year. We did it, you know, in our most recent meeting back in October, we'll continue to emphasize it, you know, going forward in that, you know, that venue.

Speaker #4: We're old economy-based investors. We do have some, you know, limited, you know, technology software, but it's admittedly a small part of our portfolio.

Speaker #4: So most of our businesses are pretty, you know, kind of basic, you know, kind of traditional, you know, industries and companies. So when we look at AI, I would say all of our companies are looking at it.

Speaker #4: It's something that we emphasize as part of our president's meeting each year. We did it you know in our our most recent meeting back in October.

Speaker #4: And we'll continue to emphasize it you know going forward. And that that you know that venue but also you know as our portfolio management teams our our portfolio you know managers on our side are speaking with portfolio companies on a ongoing basis whether it's in board meetings or just other periodic you know catch ups.

Dwayne Hyzak: Also, you know, as our portfolio management teams, our portfolio, you know, managers on our side are speaking with portfolio companies on a ongoing basis, whether it's in board meetings or just other periodic, you know, catch-ups. You know, AI and what they're doing there is a, you know, consistent topic of conversation. That being said, I think we don't expect it to be a huge game changer. We think it will be, you know, beneficial, but I think it remains to be seen, you know, how beneficial it'll be long term. Happy to let David add on any additional comments he has.

Speaker #4: You know, AI and what they're doing there is a, you know, consistent topic of conversation. That being said, I think we don't expect it to be a huge game changer.

Speaker #4: We think it will be you know beneficial but I think it remains to be seen you know how beneficial it'll be long term. Happy let David add on any any additional comments he has.

Speaker #8: I I think Dwayne covered it. But the only thing I'd add is that we do have some companies that are you know kind of more infrastructure oriented on what would be you know building infrastructure related to AI.

David Magdol: I think Dwayne covered it. The only thing I'd add is that we do have some companies that are, you know, kind of more, infrastructure-oriented on what would be, you know, building infrastructure related to AI that should benefit as well. We'll see some benefit across the portfolio that we think, you know, is incremental, we'll continue to appreciate over time.

Speaker #8: That should benefit as well. So we'll see some benefit across the portfolio that we think you know is incremental will will continue to appreciate over time.

Speaker #7: All right. That's helpful. I'll leave it there.

Brian McKenna: All right, that's helpful. I'll leave it there.

Speaker #4: Thank you Brian.

Dwayne Hyzak: Thank you, Brian.

Speaker #1: Your next question comes from the line of Aaron Saigonovich with Truist Securities. Please go ahead.

Operator: Your next question comes from the line of Arren Cyganovich with Truist Securities. Please go ahead.

Speaker #9: Thank you. Good morning. I I'd like to talk a little bit about credit quality. We've seen across the BDCs that we cover a bit kind of weakening I'd say over the past couple of quarters.

Arren Cyganovich: Thank you. Good morning. I'd like to talk a little bit about credit quality. We've seen across the BDCs that we cover a bit, kind of a weakening, I'd say, over the past couple of quarters. What are you seeing from your portfolio companies? You know, are there any, you know, particular vintages of originations that might be underperforming?

Speaker #9: What are you seeing from your portfolio companies and you know are there any you know particular vintages of originations that might be underperforming?

Speaker #4: Sure Aaron. Thanks for the question. I'd I'd say when we've seen weakness I would say it's been more you know specific company weakness as opposed to anything that's more you know broad across the you know the portfolio or the economy.

Dwayne Hyzak: Sure, Arren. Thanks for the question. I'd say when we've seen weakness, I would say it's been more, you know, specific company weakness, as opposed to anything that's more, you know, broad across the, you know, the portfolio or the economy. The one thing that I might, you know, add, which is something we may have said in prior quarters, and we, you know, we've seen it continue to evolve in the more recent, you know, periods is, you are seeing more bifurcation between the companies that are doing, you know, really well versus companies that are, you know, not doing as well. I think we've continued to see that bifurcation. You know, despite some of the uncertainty in the economy, there are certain companies that are just absolutely, you know, crushing it.

Speaker #4: The one thing that I might you know add which is something we we may have said in prior quarters and we you know we've we've seen it continue to evolve in the the more recent you know periods is you are seeing more bifurcation between the companies that are doing you know really well versus companies that are you know not doing as well.

Speaker #4: I think we've continued to see that bifurcation. So you know despite some of the uncertainty in the in the economy there are certain companies that are just absolutely you know crushing it.

Dwayne Hyzak: You know, you're seeing more of that. You're also seeing, you know, on the flip side, if something is underperforming, you're probably seeing more pressure on that underperformance. Those would be the comments I would make. David or Nick, if you guys have something else to add, feel free to add on.

Speaker #4: You know so you're you're seeing more of that. But you're also seeing you know on the flip side if something is underperforming you're probably seeing more pressure on that underperformance.

Speaker #4: Those would be the the comments I would make. But David or Nick if you guys have something else to add feel free to add on.

Speaker #8: To just specific to your comment on the vintages on the lower middle market side our partners that we're transacting with are transacting for personal reasons that exist in all sorts of periods of time whether it's prolific or more challenging economic environments.

David Magdol: Just specific to your comment on the vintages. On the lower middle market side, our partners that we're transacting with are transacting for personal reasons that exist in all sorts of periods of time, whether it's prolific or more challenging economic environments. They're looking at succession planning or what have you. We don't really, you know, see a major impact relative to vintage in that, in that side of our portfolio, which is obviously the majority of our business.

Speaker #8: They're looking at succession planning or what have you. So we don't really you know see a major impact relative to vintage in that in that side of our portfolio which is obviously the majority of our business.

Speaker #4: On the private credit side the only thing I would add would be you know deals that were done in '21, '22 with in a lower rate environment you know they survived the higher rates.

Nick Meserve: On the private credit side, the only thing I would add would be, you know, deals that were done in 2021, 2022 in a lower rate environment, you know, they survived the higher rates. You are starting to see if they are struggling, the longer term of those higher rates and the siphoning off of cash flows more to interest versus CapEx is harming those businesses. I think we're seeing that kind of build up over time, you know, the past 2, 3 years of higher interest rates.

Speaker #4: But you are starting to see if they are struggling the longer term are those higher rates and the and the the siphoning off of cash flow is more to interest versus CapEx.

Speaker #4: It's harming those businesses. And I think we're seeing that kind of build up over time—you know, the past two or three years of higher interest rates.

Speaker #9: That's helpful. Thank you.

Arren Cyganovich: That's helpful. Thank you.

Speaker #4: Thank you.

Dwayne Hyzak: Thank you.

Speaker #1: Your next question comes from the line of Sean Paul Adams with B. Riley Securities. Please go ahead.

Operator: Your next question comes from the line of Sean-Paul Adams with B. Riley Securities. Please go ahead.

Speaker #10: Hey guys, good morning. You’ve had a long track record of NAV appreciation from those realized gains on those equity exits. What’s your gauge on the tempo of upcoming equity exits, given just the general frothiness in the market?

Sean-Paul Adams: Hey, guys. Good morning. You've had a long track record of NAV appreciation from those realized gains on those equity exits. What's your gauge on kind of the tempo of, you know, upcoming equity exits, given just the general frothiness in the market?

Speaker #4: Sure, Sean—Sean Paul, thanks for the, you know, question and thanks for joining us this morning. You know, we—we, with a large portfolio today, we've got, I think it's ninety-three, you know, portfolio companies.

Dwayne Hyzak: Sure, Sean-Paul, thanks for the, you know, question. Thanks for joining us this morning. You know, we, with a large portfolio, today we've got, I think it's 93, you know, portfolio companies, a significant portion of which have been in our portfolio for a long period of time and have performed. I would say those companies consistently, you know, would get interest from, you know, from third parties. A lot of it, you know, kind of unsolicited inbound interest that, you know, either sparks a transaction through that process or at least sparks, you know, our management team partners and our, equity partners in those businesses to consider an exit. We have been and continue to have a number of our companies that are, you know, in different stages of looking at an exit.

Speaker #4: A a significant portion of which have been in our portfolio for a long period of time and have performed. I would say those companies consistently you know would get interest from you know from third parties.

Speaker #4: A lot of it you know kind of unsolicited inbound interest that you know either sparks a a transaction through that process or at least sparks you know our our management team partners and our equity partners in those businesses to consider an exit.

Speaker #4: So we we have been and continue to have a number of our companies that are you know in different stages of of looking at an exit.

Speaker #4: And we think that over the balance of the next couple of quarters, you know, we should see one or more, you know, exits.

Dwayne Hyzak: We think that over the balance of the next couple of quarters, you know, we should see one or more, you know, exits. When those exits happen, you know, we think that they tend to be good outcomes, you know, both for us and for our management team, you know, partners, the other equity owners and management team members of those companies. I'd say nothing's changed today. We haven't seen anything that has been elevated, but we also continue to see some activities across the portfolio that we think will lead to good outcomes if there is an exit. David, if you want to add anything, feel free to add on there.

Speaker #4: And when those exits happen you know we we think that they tend to be a good outcomes you know both for us and for our management team you know partners the other equity owners and management team members of those companies.

Speaker #4: So I'd say nothing's changed today. We haven't seen anything that has been elevated. But we also continue to see some activities across the portfolio that we think will lead to good outcomes if there is an exit. But David, if you want to add anything, feel free to add on there.

Speaker #8: I've got nothing to add.

David Magdol: Nothing to add.

Speaker #10: I appreciate the comment. Thank you.

Sean-Paul Adams: I appreciate the color. Thank you.

Speaker #4: Thank you.

Dwayne Hyzak: Thank you.

Speaker #1: Your last question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Operator: Your last question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Speaker #11: Hey, good morning. Thanks for taking my question. Just one on leverage. Just want to get a latest updated view on where you think leverage could trend.

Kenneth Lee: Hey, good morning, and thanks for taking my question. Just one on leverage. Just want to get a latest updated view on where you think leverage could trend. I think previously you said you could take a little bit more of a conservative view. Just given the pipeline that you're seeing as well as the macro backdrop, just wanted to get your latest views there. Thanks.

Speaker #11: I I think previously you said you could take a little bit more of a conservative view but just given the the pipeline that you're seeing as well as the macro backdrop just wanted to get a your latest views there.

Speaker #11: Thanks.

Speaker #4: Yeah. Thanks for the question. Ken and just just to just to remind you the you know our our our leverage target from a regulatory basis is point eight to point nine times.

Ryan Nelson: Yeah. Thanks for the question, Ken. Just to remind you know, our leverage target from a regulatory basis is 0.8 to 0.9 times. Currently, as we sit today, we're at 0.71 times, which is consistent with where we were at the end of the quarter. You know, you could see us move closer to our target range depending on where we are or where we end up from a net origination standpoint. You know, as we've messaged in the past, we're comfortable being kind of at the conservative end of that target range.

Speaker #4: Currently as we sit today we're we're at point seven one times which is which is consistent with where we were at the end of the quarter.

Speaker #4: You know, you could see us move closer to our target range depending on where we are or where we end up from a net origination standpoint.

Speaker #4: But you know as we've messaged in the past we're we're comfortable being kind of at the conservative end of that target range.

Speaker #11: Thank you. One thing I would add—I think you've heard us say this in the past, but just to make sure it's kind of on top of people's minds.

Dwayne Hyzak: Ken, one thing I would add, I think you've heard us say this in the past, but just to make sure it's kind of on top of people's minds. I think we, you know, value capital flexibility and liquidity more than pushing up leverage and trying to eke out some economic returns through that process. I know that not everybody, you know, has that view, but that's always been a view that has served us well over the last 20 years, and we would expect to continue to, you know, maintain that. That's the only other thing I would add.

Speaker #11: I think we you know we value capital flexibility and liquidity more than pushing up leverage and trying to eke out some economic returns through that process.

Speaker #11: I know that not everybody you know has that view, but that's always been a view that has served us well over the last twenty years, and we would expect to continue to, you know, maintain that.

Speaker #11: So that's that's the only other thing I would would add.

Speaker #9: Great. Very helpful there. Thanks again.

Kenneth Lee: Great. Very helpful there. Thanks again.

Speaker #4: Thanks Ken.

Dwayne Hyzak: Thanks, Ken.

Speaker #11: Thank you.

Ryan Nelson: Thank you.

Speaker #4: I think, as the operator said, that was our last, you know, question of the day. So we greatly appreciate everybody for joining us this morning, and we'll look forward to catching up again in August after our second quarter earnings release.

Dwayne Hyzak: I think as the operator said, that was our last, you know, question of the day. We greatly appreciate everybody for joining us this morning, and we'll look forward to catching up again in August after our Q2 earnings release. Thank you.

Speaker #4: Thank you.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, have a wonderful day.