Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Main Street First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Friday, May 4, 2012. I would now like to turn the conference over to Ben Burnham of DRG&L. Please go ahead, sir.

Thank you, Alicia, and good morning, everyone. Thanks for joining us for the Main Street Capital Corporation First 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. The document is available on the Investor Relations section of the company's website at www.mainstreetcapital.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 May 11. 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 system that can be accessed on the company's web page. Please note that information reported on this call speaks only as of today, May 4, 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 out of the way, I'd like to turn the call over to Vince.

Thanks, Ben, and thank you, all, for joining us today. I will comment on the performance of our investment portfolio, discuss our recent dividend increase and portfolio company exit announcements and conclude by commenting on the current investing environment. Following my comments, Todd will cover our first quarter portfolio activity in more detail and our current liquidity position, then Dwayne will comment on our first quarter financial results, after which we will take your questions. Our investment portfolio continued to deliver strong performance during the first quarter. Our lower middle market investments appreciated during the quarter by $7.9 million on a net basis, with 19 of our investments appreciating during the quarter and 5 depreciating. And our middle market investments appreciated by $3.7 million during the quarter. We finished the quarter with a net asset value per share of $15.72, a sequential increase of $0.53 over the last quarter. Our lower middle market portfolio companies ended the quarter with $56 million in cash on the balance sheets and averaged a very conservative net debt-to-EBITDA ratio of 2.0:1 through our debt position and 2.4:1 including all debt. Earlier this week, we announced that our board declared an increase in our monthly dividend payout to $0.145 a share beginning with the July dividend. This brings our quarterly dividend payout rate to $0.435 a share, an 11.5% increase over the third quarter of 2011's payout rate. This was also our second dividend increase so far in 2012. We've increased our quarterly dividend payout nearly 32% from 33% -- $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 demonstrating our commitment to sustainability and growth in our dividends. We currently expect to ask our board to declare an…

Okay, great. Thanks, Vince, and good morning, everyone. We are pleased to report a good start to calendar year 2012 in terms of our operational and financial results. Our first quarter 2012 investment activity reflected total gross investments of approximately $80 million, including one new lower middle market investment and 13 new middle market investments. As previously announced, Main Street exited several debt and equity investments during the first quarter of 2012, which collectively generated total net realized gains of just over $8 million for the quarter. During the first quarter, we received just over $85 million of total cash repayments from full exits, partial exits or debt refinancing within the portfolio. We expect the increase in credit availability in 2012, combined with improving credit statistics within our portfolio, will lead to increased levels of refinancing for our portfolio debt investments. In addition to the exits and debt repayments realized year-to-date, we're aware of several additional portfolio companies that are exploring refinancing of our debt positions with cheaper alternatives. While generating realized gains on exits and being repaid on debt investments are very healthy events for the portfolio, it creates the near-term need to reinvest those proceeds into qualified new investments. This is simply part of the normal cycle within our investment strategy and one we have been through and successfully managed many times before. Our current investment pipeline for new investment opportunities is robust, and we currently have 4 executed term sheets for new lower middle market investments and several additional middle market investments actively in progress. At March 31, we have also closed one new $5 million lower middle market investment and $24 million in net middle market debt investments. Based on the $0.08 per share of nonrecurring income generated during the first quarter of 2012, as discussed…

Thanks, Todd. As Vince and Todd previously mentioned, we are happy to report significant increases in both total investment income and net investment income and significant realized gains for the first quarter ended March 31, 2012. Total investment income for the first quarter increased by 54% over the same period in 2011 to a total of $20.6 million for the quarter. This increase was primarily driven by increased amounts of interest income associated with higher average levels of portfolio debt investments and interest-bearing marketable securities investments. The increase in investment income in the first quarter also included approximately $1.8 million of nonrecurring investment income associated with repayment and financing activities associated with 2 lower middle market portfolio investments and an increase of approximately $300,000 in investment income associated with higher levels of accelerated prepayment activity with certain middle market debt investments and marketable securities investments. First quarter 2012 operating expenses, excluding noncash share-based compensation expense, increased by $1.6 million over the first quarter of 2011 to a total of $7.1 million. The operating expense increase was primarily due to higher interest expense as a result of the issuance of $40 million of SBIC debentures after the beginning of the first quarter of 2011 and increased borrowing activity under our credit facility. The increase also included higher accrued compensation and other operating expenses related to the increase in investment income and portfolio investment activity compared to the first quarter of prior year. The ratio of total operating expenses, excluding interest expense, as a percentage of average total assets, which we believe is a key metric in evaluating our operating efficiency, was 2% on an annualized basis for the first quarter of 2012 compared to 2.5% on an annualized basis for the first quarter of 2011 and 2.2% for the full year…

[Operator Instructions] The first question is from the line of Robert Dodd with Raymond James.

Just first on the credit side. Obviously, credit is very robust, it seems to be, in the portfolio right now, with nonaccruals very low. But can you give us any detail on the couple of assets that are on your nonaccrual right now, what's the status and have there been any changes? What are you working through at the moment?

With the way we publish our results, Robert, we had nothing on nonaccrual because we base it upon the fair value of the company. So the only thing that we have that would fit the category you're talking about are 2 investments that we have fully impaired, and they continue to be 2 investments that we've previously talked about in prior quarters. So it would be Hayden, which is a [indiscernible] company in Arizona, and Schneider Sales Management, which is a consulting company in Denver, Colorado.

Got it. And then just on the market environment right now, I mean, we've heard some comment where Q1 was a little weak in activity in the lower middle market. Obviously, your middle market accepted it quite well. Have you seen any increase in activity recently there? And what are the terms, like, right now in terms of, obviously, deployment yields, pricing. Has anything changed in there? And in contrast to that, between what you see in the opportunities there in the lower middle market right now versus the middle market, which a little bit more liquid but a little bit more competitive in terms of pricing as well.

Robert, we always have a fair amount of activity in the lower middle market. What causes volatility in our originations is simply our due diligence process. We really can't predict how many transactions we have under LOI that close or have executed term sheet on the close with any degree of accuracy because we do full-blown several hundred man-hour diligence exercises, and we might have 5 in a row closed and then go 0 for 5. I do think the teams in the first quarter were somewhat distracted working on the exit transactions, exit activities that we had. It was real unusual to have 3 exits in 1 quarter, particularly when 2 of them were some of our larger investments, more meaningful investments. That's just kind of a coincidence, how it happened. I do think, though, as our portfolio companies grow organically and as we are closing larger transactions, the regular-way private equity universe is becoming much more interested in talking to us about our companies as potential add-ons or platforms for their strategy as evidenced by the 2 large exits we had in the last quarter. So again, I don't think we characterize the lower middle market's activity as being materially different than it has been. The transactions are larger. The terms aren't really changing. As you go up the chain in terms of size, your opportunity for equity participation decreases on kind of by definition, but the yields really don't.

Okay, got it. And just one more, if I may. You mentioned some of your portfolio companies are looking to refinance at lower cost. I mean, what's your appetite -- obviously, the risk profile, the difference and things like that. But you are clearly, on the middle market side, willing to do some lower-yield things. And what's your appetite for refinancing your loan portfolio companies at lower yield? If they're a good asset that you understand the credit risk, now do you have an appetite to do that yourselves without being taken out by somebody else?

Todd has a couple that he works very closely with that he's in the process of evaluating that right now.

What I would say is absolutely, we've done that before, where we got -- let's say you got a company to deleverage down to 1x debt-to-EBITDA or below, you know the management team, we're an incumbent -- we're in an incumbent position. We like that position. So absolutely. The problem is, Robert, we're willing to do that maybe to 9%, from 12% or 13% coupons to 9% or 8%, but we're not willing to do that to 3%. And so with the bank options that a lot of these companies have at those levels, particularly in today's market, you let them refinance at 3% and you let the debt go. The good news is we have equity in most all these companies, and the equity is -- the day they do 3% debt to 12% debt, the equities naturally work a lot more as well, and there's more free cash flow to deleverage, pay dividends or grow.

[Operator Instructions] Our next question is from the line of Vernon Plack with BB&T Capital Markets.

I was curious, you may have talked about this, and I missed it. But just in terms of a strategy, an active portfolio management strategy as it relates to the middle market portfolio, in particular, I noticed that the weighted average effective yield on the portfolio quarter-over-quarter declined from, I think, 10.6 down to, I think, 9.2. And what's the thought there? Once you get to a certain point, some of the markets have been strong. That rotation within the portfolio, so just what do you think in there?

Well, the middle market portfolio yields are kind of a function of 2 things. One thing is the credit spreads that change day to day that are available, and there's not too much you can do about that. And the credit spreads this quarter have come down. The good news is that that gives rise to appreciation of what you own because the floating rate and the prices get bid up. But probably the more meaningful thing that we evaluate, Vernon, is as you go down the food chain in the middle market and you start investing in facility sizes that are less than $200 million, then you see a premium, a liquidity premium or lack of liquidity premium of maybe 50 to 100 basis points. And so when the markets improve and companies refinance and flex down their pricing, et cetera, or pay you off or do IPOs, you might have a disproportionate amount of higher-yielding credits that refinance you out versus lower-yielding credits. So we don't really see a trend there. We continue to be attracted to the smaller side of the middle market, where we pick up some additional yield because we don't really value the liquidity like the overall market does because we don't really trade the loans. And after that, there's just not too much you can really do about refinancing. So I don't think there's any -- there's no particular strategic thrust that would result in a lower yield. It's really just kind of responding to the market, what gets repaid and how you redeploy.

This is Todd. One other thing on the stats you were pulling is that we did change our terminology, as I mentioned and Dwayne talked about in a little more detail. I mentioned that some of what you're looking at now in the middle market portfolio encompasses what we had traditionally called marketable securities. And so I think the former stats were the middle -- the marketable securities were earning around 8% on average, and the private placement portfolio, which is the old vernacular, was earning around 10.6% or 11%. And so if you blend some of these assets together into this pool, that gets you to the 9%.

And you'll see in our 10-Q, Vernon, the detail for that, and that comparable number at 12/31 was 9.5%.

The next question is from the line of Mickey Schleien with Ladenburg Thalmann & Co.

Vince, I wanted to get a sense from you of the activity in the middle market portfolio, which was the bulk of the activity in the quarter. Was any of that with the private equity sponsors, and are you moving more toward that channel as opposed to historically doing your own deals?

I don't think we deliberately target private equity sponsors, and we evaluate our new loan opportunity. One of the things we look at is whether it's sponsored or whether or not it's just kind of independent. Some of the companies were actually very small publicly-traded entities, those equities traded on one of the major exchanges. I would say that probably, the bulk of the issuers are sponsored, but we don't take a lot of incremental comfort if a company is sponsored versus not sponsored. The sponsorship, almost by definition, is transitory. So these are limited fund or limited life funds. And frequently, the takeout is an IPO. So no, we're not deliberately targeting sponsors. If you're in the lower end of the middle market loan area, you are going to -- certainly, you're going to encounter a lot of sponsors, so it's probably over half. I don't know if we have that stat, Dwayne. We can probably give it to you. We can get it to you. We don't have it with us here, but we can get it.

But just to make sure I understand, it sounds like a majority of the deal flow that's closed in the first quarter did have sponsors. Is that what you're saying?

On the middle market side, probably.

[Operator Instructions] The next question is from the line of J.T. Rogers with Janney Capital Markets.

I have a question for you on equity multiples in the lower middle market. I think you mentioned that sponsors are increasingly looking for add-ons. How is that affecting both your new deals and potential exits?

Well, I guess we don't -- in the lower middle market, where we are the sponsor, we're not really -- we're really targeting negotiated transactions, really not participating, at least intentionally, in options or wide options. And so I would say that we're not really impacted by the multiples that are being paid for the larger companies by the larger sponsors. On the other hand, what we are seeing is that when a sponsor group is interested in one of our companies, generally, we're able to target valuations at higher multiples than we're carrying now. And what we will do from a mark-to-market standpoint is as those negotiations become more definitive, we will slowly bring up our multiple to those approaching those that we believe we're going to transact at. Dwayne was working on both the large exits we had in Q1. Do you want to elaborate on that, Dwayne?

Yes, I think one of the things that we've talked about historically is when you look at the EBITDA multiples in the lower middle market, we think there's 2 thresholds that you cross that results in significant increases in EBITDA multiples. And the first one is the $5 million of EBITDA, and the second is a $10 million. And in both of the cases, for the 2 exits we had in the first quarter, they were companies that had performed extremely well, had grown their EBITDA and, as a result of their growth, started getting a lot of attention from private equity sponsors. And as you cross that $5 million, and then in the case of Drilling Info, the $10 million of EBITDA threshold, that asset became much more attractive to larger private equity sponsors, and they're just willing to pay a much higher multiple from an EBITDA standpoint than what we typically transact at in the lower middle market, which is why both of those exits were attractive opportunities for us.

Okay, great. Just if I can just drill down on what you said maybe. You're not seeing tremendous amount of competition, or at least the deals that you focus on the lower middle market don't have a lot of competitions or equity multiples are staying relatively attractive. But on your exits, these are generally companies that have matured and grown EBITDA and are now sort of moving into that more traditional middle market and are seeing better valuations because of competition from private equity sponsors.

Yes, we've historically seen and expect to continue to see multiple expansion as the companies grow into the high single digits of EBITDA or higher. Certainly, low double digits, you see even more dramatic multiple expansion. But when you're down in the mid- to low single digits of EBITDA, where we will evaluate companies there frequently, kind of a 5x EBITDA is not an unusual valuation for us to be transacting at, and it's been that way for 15 years.

Okay, great. And then I'm sorry if you have touched on this before. I got on the call late. What's your outlook towards the back half of the year? Some other BDCs have been talking about the potential for tax law changes to drive owners to sell their businesses. Are you seeing any of that?

Well, I certainly think that has to be motivating some of the individually-owned companies. But we've kind of been expecting that for the last few years, and it hasn't really shown up. Maybe it'll show up this year as we get more visibility in what the tax law changes are. But I think that as the economy improves and these companies are performing better, I think the owners are thinking this is probably as good a time to exit as any, given the uncertainty on whether or not there's going to be a new administration, the same administration, what the tax laws are. So yes, I think it's reasonable to assume it's going to get more active as the year goes on. Our outlook was simply -- our operating outlook was simply that -- we took the dividend to $0.435 for Q3, and the outlook was that we expected to continue to earn or outearn that in Q3 or Q4. And based upon the amount of spillover we have, the gains we have and the fact that we have to pay it out for tax purposes, we expect to take -- to ask the board to take the dividend up by a similar amount in Q4. It's kind of the outlook we provided.

Thank you. There are no further questions at this time. I will turn the conference back over to management for any closing remarks.

Right. Well, again, thank you all for joining us, and we look forward to talking to you again next quarter. Bye.

Ladies and gentlemen, this concludes the Main Street First Quarter Earnings Conference Call. If you'd like to listen to a replay of today's conference, please dial (303) 590-3030 and enter in the access code of 4532846. Thank you for your participation. You may all disconnect.