Main Street Capital Management Discusses Q2 2012 Results - Earnings Call Transcript

Main Street Capital (MAIN)

Q2 2012 Earnings Call

August 03, 2012 10:00 am ET

Executives

Ben Burnham

Vincent D. Foster - Chairman, Chief Executive Officer and Member of Investment Committee

Todd A. Reppert - President, Director, Member of Investment Committee and Member of Credit Committee

Dwayne Louis Hyzak - Chief Financial Officer, Senior Managing Director and Treasurer

Analysts

Vernon C. Plack - BB&T Capital Markets, Research Division

Robert J. Dodd - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Main Street Capital Second Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded, August 3, 2012. I would now like to turn the conference over to Ben Burnham of DRG&L. Please go ahead.

Ben Burnham

Thank you, Alicia, and good morning, everyone. Thanks for joining us for the Main Street Capital Corporation's Second Quarter 2012 Earnings Conference Call. Joining me today on the call are Chairman and CEO Vince Foster; President Todd Reppert; and Chief Financial Officer Dwayne Hyzak.

Main Street issued a press release yesterday afternoon that details the company's quarterly financial and operating results. This document is available on the Investor Relations section of the company's website at www.mainstcapital.com; it's main S-T capital.com. If you would like to be added to the company's e-mail list to receive press releases, please call (713) 529-6600.

A replay of today's call will be available beginning about an hour after the completion of the call and will remain available until August 10. Information on how to access the replay is included in yesterday's press release. We also advise you that this conference call is being broadcast live through an Internet webcast that can be accessed on the company's web page.

Please note that information reported on this call speaks only as of today, August 3, 2012, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening. Our conference call today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's estimates, assumptions and projections as of the date of this call, and they are not 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.

During today's call, management will discuss non-GAAP financial measures. Please refer to yesterday's press release, which can be found on the company's website, for a reconciliation to the most directly comparable GAAP financial measures.

And now with that, I'd like to turn the call over to Vince.

Vincent D. Foster

Thanks, Ben, and thank you, all, for joining us today. I will comment on the performance of our investment portfolio, discuss our recently announced dividend increase and our dividend outlook, highlight our origination activity and conclude by commenting on the current investing environment. Following my comments, Todd will cover our second quarter portfolio activity in more detail and our current liquidity position, and Dwayne will comment on our second quarter financial results, after which we will take your questions.

Our investment portfolio continues to deliver strong performance during the second quarter. Our lower middle market investments appreciated during the quarter by $13.5 million on a net basis, with 21 of our investments appreciating during the quarter and 5 depreciated. And our middle market investments appreciated by $1.1 million during the quarter.

We finished the quarter with a net asset value per share of $16.89, a sequential increase of $1.17 a share over the last quarter. Our lower middle market portfolio companies ended the quarter with $80 million in cash on their balance sheets and averaged a very conservative net-debt-to-EBITDA ratio of 1.9:1 through our debt position and 2.2:1 including all debt.

Earlier this week, we announced that our Board declared an increase in our monthly dividend payout to $0.15 a share beginning with the October dividend. This brings our quarterly dividend payout rate to $0.45 a share, an 11.1 increase over the fourth quarter of 2011 payout rate. This was also our third dividend increase so far in 2012. We have increased our quarterly dividend payout by over 36%, from $0.33 per quarter at the time of our 2007 IPO, and have never decreased our dividend payout or made a return of capital distribution, thus continuing our commitment to sustainability and growth in our dividends.

Our spillover taxable income is estimated to be $27 million at June 30, 2012, or $0.87 a share. We further estimate that this amount will grow to roughly $30 million by year end. There's a limitation under the Internal Revenue Code rules for regulated investment companies under which we have elected to operate to avoid corporate level income taxes as to how much spillover income we can accumulated.

The limitation is a percentage of our dividends in the period following the spillover. At the projected $30 million level, we are approaching that limit. As a result, we expect to ask our Board to improve a special dividend that would be paid at year end to materially reduce the spillover balance. We estimate that this would equate to a per share amount of at least $0.25. If our current operating performance continues, we would likely ask our Board to approve similar future special dividends as well.

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