Main Street Capital Corporation Q3 FY2025 earnings call

• Strong third quarter results with annualized ROE of 17%, favorable DNII per share, and new NAV per share record for 13th consecutive quarter.
• Strengthened capital structure, strong liquidity, and well-positioned for investment portfolio growth.
• Hosted ninth Main Street President's Meeting for lower middle market portfolio company leaders, covering topics like AI, acquisitions, etc.
• Lower middle market investment activity: $106 million invested in Q3, net increase of $61 million, with additional investments since quarter end.
• Private loan investments: $113 million total invested in Q3, resulting in net decrease of $69 million; lower middle market portfolio fair value over 28% above cost basis.
• Asset management business: Funds advised had favorable performance, generating incentive fee income for 12th consecutive quarter; MSC Income Fund benefits from increased regulatory debt capacity in Jan 2026.

The lower middle market portfolio at fair value at quarter end was $2.8 billion, which is over 28% above cost basis, with investments in 88 companies. The private loan portfolio had fair value of $1.9 billion, with a net decrease of $69 million in the third quarter due to a combination of lower originations and higher repayments. Total investment income for the third quarter was $139.8 million, operating expenses increased by $1.1 million from the prior year but decreased by $300,000 from the second quarter, and net asset value per share increased by $0.48 from the second quarter and by $2.21 from the prior year.

• Expect Q4 2025 DNII before taxes of at least $1.05 per share with upside potential from portfolio activity.
• Board declared a supplemental dividend of $0.30 per share payable in December and increased regular monthly dividends for Q1 2026 to $0.26 per share.
• Anticipate proposing an additional significant supplemental dividend payable in March 2026.
• Lower middle market investment pipeline is above average, confident in strong Q4 investment activity.

• Market uncertainty and economic factors could impact portfolio company performance.
• Regulatory changes may affect debt capacity and investment activities.
• Noncash compensation expenses and market spread fluctuations can impact financial results.

Q: In your prepared remarks, you indicated that the pipeline for investment activity is actually above average for both and that's a notable change for the private loan portfolio. Maybe just talk a little bit about the sustainability of that and what necessarily kind of changed in the private loan part of the focus of the middle market?

A: Dwayne Hyzak said it's been driven by more market activity, with Nick Meserve adding the pipeline has been picking up for some time and expects to continue into 2026 in volume and deal sizes.

Q: Going back to the private loan portfolio. Can you talk a little bit more about what was driving the $69 million net decrease? Was it primarily driven by elevated repayments, the slowing deal flow or just less attractive opportunities in the current market environment?

A: Dwayne Hyzak said it was a combination of lower originations, higher repayments, and some deals being pushed into later quarters; Nick Meserve added some deals expected to close late in the quarter were pushed into Q4.

Q: The compensation expense was a little bit higher this quarter. And in the press release part of what you attributed to that was an increase in headcount to support the portfolio and asset management activities. Can you talk a little bit about what type of roles those are? And I guess what -- should we expect the headcount to continue to grow into this year and the end of this year and also into next?

A: Dwayne Hyzak said headcount growth is in investment professionals for lower middle market (people intensive) and private loan, with MSC Income Fund's leverage capacity increase and MS Private Loan Fund II ramping up in 2026 as catalysts but no specific AUM guidance.

Q: You spoke about how your LMM companies are sort of talking about AI and sort of how to integrate that. Have you seen, I guess, in those conversations, have companies been mentioning that AI is making significant efficiency gains? And are they showing up at all in like the valuations that perhaps that you might be able to realize either now? Or do you expect that to possibly make a difference in upcoming quarters, something soon?

A: Dwayne Hyzak said AI benefits are more forward-looking, not seen significantly in historical valuations or current results but excited about future opportunities from AI implementation