Main Street Capital Corporation 2026 Q2 Earnings Call

Good morning, everyone. Thank you for joining us for Main Street Capital Corporation's second quarter 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 second quarter financial and operating results. This document is available on the investor relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until August 14th. 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. Please note that information reported on this call speaks only as of today, August 7th, 2026, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Any of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions. These statements are based on management's estimates, assumptions, and projections as of the date of this call, and there are no guarantees of future performance.

Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. 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 U.S. 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.

Management believes that presenting DNII and DNII before taxes and the related per share amounts is a 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. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis.

Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly 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. I'll turn the call over to Main Street CEO, Dwayne Hyzak.

Thanks, Zach. Good morning, everyone, 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 provide our key quarterly updates. After which, we'll be happy to take your questions. We are very pleased with our performance in the second quarter, which resulted in strong quarterly operating results, highlighted by an annualized return on equity of 18.9%, favorable levels of DNII per share, a significant increase in NAV per share. We believe that these results continue to demonstrate the sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the continued strength and quality of our portfolio companies. We are also pleased that we further strengthened our capital structure in the second quarter, which Ryan will discuss in more detail.

Given our strong liquidity position and conservative leverage profile, we are very well-positioned to continue the growth of our investment portfolio for the foreseeable future, 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. Our favorable results for the second quarter, combined with our continued positive outlook for the future, 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 impact of significant net fair value appreciation in both our lower middle market and private loan investment portfolios, including the benefits of another material net realized gain in our lower middle market investment portfolio.

Ryan Nelson will discuss our NAV per share increase in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of meaningful dividend income contributions and net fair value appreciation in our lower middle market equity investments. Consistent with my comments on our last call, we continue to see increased variability between our over-performing and under-performing portfolio companies, and the impact of that variability is reflected in our results. Overall, based upon our current views of the investment portfolio and the feedback from our portfolio company management teams, we continue to maintain a positive view regarding the expected future contributions from our lower middle market portfolio companies.

Consistent with our guidance over the last few quarters, as David Magdol will discuss in more detail, we are pleased to have supported our portfolio company management team partners in another highly successful exit of our investments in a high-performing lower middle market portfolio company, Centre Technologies, in the second quarter at a realized gain of over $46 million and a meaningful premium to our March 31st fair value. Our investment in Centre serves as yet another great example of the benefits of our highly unique lower middle market investment strategy, which delivered significant benefits for both Main Street and our management team partners at Centre, including significant dividend income, fair value appreciation, and realized gains, resulting in best-in-class returns on our equity investment. In addition to the opportunity to back Centre's management team by funding their growth initiatives primarily with follow-on Main Street debt investments.

We continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to additional favorable realizations over the next few quarters, which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. Now turning to our investment activity, we are excited about the new and follow-on investments we made in our lower middle market strategy during the quarter. These investments were offset by elevated repayment activity, driven in part by the Centre exit, resulting in a net decrease in our lower middle market investments of $31 million. Our private loan investment activity improved significantly in the second quarter, but we also experienced increased levels of repayments, resulting in a net increase in private loan investments of $60 million. David Magdol will discuss our investment activity in more detail.

We also continue to produce favorable results in our asset management business. The funds we advise through our external investment manager continue to experience favorable performance in the second quarter, resulting in meaningful incentive fee income for our asset management business, 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 are optimistic about the future performance of the funds and the expected returns for the investors of each fund. We also continue to be excited 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 our private loan investment strategy with respect to new portfolio company investments. The fund continues to maintain the capacity for significant future growth. MSC Income's second quarter 2026 financial results conference call will be held later this morning for those who would like additional details. Based upon our results for the second quarter and our favorable outlook for the future, earlier this week, our board declared a supplemental dividend of $0.30 per share payable in September, representing our 20th consecutive quarterly supplemental dividends and regular monthly dividends for the fourth quarter of 2026 of $0.265 per share, representing a 3.9% increase from the regular monthly dividends paid in the fourth quarter of 2025.

The supplemental dividend for September is a result of our strong performance in the second quarter and our net realized gains over the last few quarters and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 38% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our board 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 per share in future quarters. Based upon our expectations for continued favorable performance in the third quarter, we currently anticipate proposing an additional significant supplemental dividend payable in December 2026. Turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as average.