Main Street Capital Corporation (MAIN) Q4 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Main Street Capital Corporation Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mark Roberson, Dennard Lascar Associates. Thank you, please go ahead.

Thank you, Brenda and good morning everyone. Thank you for joining us for Main Street Capital Corporation fourth quarter and full year 2016 earnings conference call. Joining me on the call today is Chairman and CEO, Vince Foster, President and Chief Operating Officer, Dwayne Hyzak; and Chief Financial Officer, Brent Smith. Main Street issued a press release yesterday afternoon the details the company’s fourth quarter and full year 2016 financial and operating results. This document is available on the Investor Relations section on the company’s website at mainstreetcapital.com. A replay of today’s call will be available beginning about an hour after the completion of the call and will remain available until March 30. Information on how to access the replay was included in yesterday’s news release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed from the Company’s Investor page. Please note that information reported on this call speaks only as of today February 24th, 2017 and therefore you are advised of time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today’s conference 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. Actual results may differ materially from the results expressed or implied on 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. Please refer to yesterday’s press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call including information related to portfolio companies was derived from third-party sources and is not been independently verified. And now I’ll turn the call over to Vince.

Thanks Mark and thank you all for joining us today. I will comment on the performance of our investment portfolio, discuss our risk, recent dividend announcements and conclude by commenting on our investment pipeline. Following my comments Dwayne Hyzak, our President, Brent Smith, our CFO will cover our operating performance in a more detail and comment on our fourth quarter and calendar year financial results, recent originations and exists, recent announcements, our current liquidity position and certain key portfolio statistics and our operating expense ratio, after which we will take your questions. We were pleased with our fourth quarter operating results. Our lower middle market portfolio our primary area of focus appreciated by $6.3 million on a net basis during the quarter, with 22 of our investments appreciating during the quarter and 20 depreciating. Our middle market loans appreciated by $6.9 million during the quarter on a net basis and our private loans and other assets appreciated by $2.3 million during the quarter. We finished the quarter with a net asset value per share of $22.10, a sequential increase of $0.48 over fourth quarter, excuse me third quarter. Without giving effects to our semi-annual special dividend of $0.275 paid in December our net asset value per share increased by $0.76 during the quarter. Our lower middle market companies collectively continue to exhibit very conservative leverage ratios on a relative basis which Dwayne will cover in greater detail. Earlier this week our Board declared our second quarter 2017 regular monthly dividends of $0.185 a share in each of April, May and June of 2017 maintaining our first quarter payout rate. The X-dates for these dividends are March 17, April 18, and May 17, respectively. In mid to late April, we expect to ask our board to declare our next semi-annual supplemental dividend to be paid in the second quarter of 2017 in the range of $0.25 to $0.30 a share. Primarily as a result of our realized gains in 2016, 30% of our calendar 2016 dividends are taxable as are similar to the long-term capital gains for federal income tax purposes to our individual shareholders. Please refer to our website for more specific information. As of today, we have issued $35 million of our SBA guaranteed debentures through our third SBIC license. Brent will discuss the liability side of our balance sheet in greater detail during his remarks. We have closed new lower middle market investments of over $50 million in the first quarter and as a result of these closings as of today I would characterize our lower middle market investment pipeline is about average. And we expect a strong next 90 days from a private loan origination perspective. We continue to seek to receive significant equity participation in our lower middle market investments and as of quarter end we owned an average of 36% fully diluted equity ownership and the 99% of these investments in which we currently have equity exposure. Our officer director group is continued to be regular purchasers of our shares investing over $700,000 during the fourth quarter. With that I’d like to turn the call over to Dwayne to cover our performance in more detail.

Thanks Vince and good morning, everyone. We are pleased to report another quarter and another year during which we grew both our total investment income and distributable net investment income and again generated distributable net investment income in excess of our monthly dividends. In addition as a result of our unique focus on investments in both debt and equity in the lower middle market. During 2016 we’re able to generate over $60 million of realized gains on a highly successful exits of three lower middle market portfolio companies. As we’ve previously disclosed in our press release in December we have visibility to another highly successful exit in the first quarter of 2017. We’re also pleased with our operating results represent a GAAP return on equity of 12.5% for 2016 and 16.4% on an annualized basis for the fourth quarter. We’re trying to significantly exceed the dividend yield paid to our shareholders and represent a significant value that we’re generating for our shareholders. We believe that these result illustrate the significant benefits of our unique investment strategy, which combined with our efficient operating structure continue to provide value proposition that differentiates Main Street from other yield oriented investment options and generates the premium total returns realized by our shareholders as a result of our historical growth in our dividends per share, our net asset value per share and our stock price. At each year end period, we like to take a few minutes to look back at our history and recap the benefit that our unique investment strategy and efficient operating structure have enable us to deliver to our shareholders. To drive yield for nine years ago through year end 2016 our operating performance has allowed us to grow our recurring monthly dividends per share at 68% and pay cumulative total dividends to our shareholders of almost $0.19 per share approximately 125% of our IPO price of $0.15 per share. Our shareholders have also benefited from stock price depreciation of almost $0.22 per share. On additional return were approximately 150%. These benefits for our shareholders represent an annual rate of return of approximately 20% per year during the nine year period since our IPO which we believe compares very favorably to other investment options over this time period. As we’ve discussed in prior quarters we believe the primary driver of our long-term success has been and continues to be our primary focus on the under-served lower middle market and specifically our investment strategy of investing at both debt and equity in the lower middle market and acting as a sponsor and a partner to the management teams of our lower middle market portfolio companies and not just a financing source. Without this focus on the lower middle market, it would be very difficult to produce these returns for our shareholders. Given our view of the significant value associated with our focus on the lower middle market, we are pleased that during 2016 as a great successful exits that I’ve previously mentioned, we’re still able to grow the cost basis of our lower middle market investments by approximately $75 million, and increase the number of our lower middle market portfolio companies to 73 companies. And consistent with prior quarters, the contributions from our lower middle market portfolio continued to be well diversified with 45 of our 72 lower middle market companies with equity investments having appreciation at year end and with 27 of these companies that are flow-through entities for tax purposes of approximately 60% of our total investment in these types of entities contributing to our dividend income over the last 12 months. In addition, we also have several equity investments and non-flow through entities, which had contributed to our dividend income over the last 12 months. We believe that the diversity of our lower middle market portfolio is very important when analyzing the benefits from our lower middle market strategy and we believe that this diversity provides visibility to the recurring nature of these benefits in the future. Now turning specifically to our investment portfolio at year end and our investment activity in the fourth quarter, we are pleased to report that our overall investment performance remained strong. Our investment activity in the fourth quarter included total investments in our lower middle market portfolio of approximately $59 million including investments in two new portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital resulted a net increase in our lower middle market portfolio of approximately $55 million. We had a net decrease in our middle market portfolio of approximately $13 million and a net increase in our private loan portfolio of approximately $3 million. As result at December 31, we had investments in 197 portfolio companies that are more than 50 different industries across the lower middle market, middle market and private loan components of our investment portfolio. The largest portfolio company represents approximately 4% of our total investment income for the last 12 months and less than 3% of our total portfolio fair value with a majority of our portfolio investments representing less than 1% of our income and our assets. Additional details on our investment portfolio at year end are included in the press release that we issued yesterday but I will touch on a few highlights. Our lower middle market portfolio included investments in 73 companies representing approximately $893 million of fair value, which is approximately 17% above our cost basis. At the lower middle market portfolio level the portfolio is median net senior debt to EBITDA ratio was a conservative 2.9 to 1 or 3.2 to 1 including portfolio company debt, which is junior in priority to our debt position. As a complement to our lower middle market portfolio and our middle market portfolio we had investments in 78 companies representing approximately $630 million of fair value. In our private loan portfolio, we had investments in 46 companies representing approximately $343 million in fair value. The total investment portfolio at fair value at December 31 was approximately 107% of the related cost basis and we had four investments on non-accrual status, which comprised approximately 0.6% of the total investment portfolio at fair value and 3% at cost. In summary Main Street’s investment portfolio continues to perform at a high level and continues to deliver on our long-term goals. With that I will turn the call over to Brent to cover our financial results, capital structure and liquidity position.

Thanks, Dwayne. We are pleased to report that our total investment income increased by 8% for the fourth quarter over the same period in 2015 to a total of $46.8 million, primarily driven by an increase in interest income of approximately $3.2 million. The amount of income that is either or less consistent on a recurring basis or non-recurring was approximately $0.9 million or $0.02 per share. Fourth quarter 2016 operating expenses excluding non-cash share-based compensation expense increased by $0.8 million over the fourth quarter the prior year to a total of $14.1 million, the increase was primarily related to a $0.5 million increase in compensation expense and a $0.3 million increase in interest expense. The ratio of our total operating expenses excluding interest expense as a percentage of average total assets, which we believe the key metric in evaluating our operating efficiency was 1.5% on annualized basis for the fourth quarter and continues to compare very favorably to other BDCs and other yield oriented investment options. Our increased total investment income and the continued leverage of our efficient operating structure resulted in a 9% increase in distributable net investment income for the fourth quarter of 2016 to a total of $32.8 million or $0.61 per share, which is at the top end of the preliminary range, we’ve previously provided for the fourth quarter and which exceeded our recurring monthly dividends paid for the quarter by approximately 10%. Our external investment manager’s relationship with HMS income fund benefited our net investment income by approximately $2.1 million for the fourth quarter of 2016. Through a $1.4 million reduction of our operating expenses for cost reallocated to the external investment manager for services we provided to it and $0.7 million of dividend income from the external investment manager. We recorded a net realized loss of $4 million during the fourth quarter primarily relating to net realized losses on the restructuring of two middle market investments. Partially offset by a realized gain relating to additional cash proceeds received from the exit of a lower middle market investment in a prior quarter and realized gains from the other portfolio. And as Vince discussed, we recorded net unrealized appreciation on investment portfolio of $15.5 million in the fourth quarter, primarily relating to $6.9 million of net appreciation on our middle market portfolio, $6.3 million of net appreciation on our lower middle market portfolio, $1.3 million of net appreciation on our private loan portfolio, $0.5 million of net appreciation on our other portfolio and $0.5 million of net appreciation on our external investment manager. Additional details for the change in our net unrealized appreciation can be found in our earnings release. Our operating results for the fourth quarter of 2016 resulted in a net increase to net assets of $48 million or $0.90 per share. Looking forward to the first quarter of 2017 and consistent with the information we provided on our last earnings conference call, we wanted to write an update regarding the continued market movement relating to our middle market portfolio. The overall market for middle market debt investments has continued to improve during the first quarter. Based on our static middle market portfolio as of December 31, 2016 not taking into account any new investments or sales or repayments during the first quarter and based on quoted market prices for underlying middle market debt investments our middle market portfolio has generated approximately $4.5 million to $5.5 million in net unrealized appreciation to this point in the first quarter. On the capital resources front our liquidity and overall capitalization remain strong. At the end of the fourth quarter we had $24.5 million of cash $212 million of unused capacity under our credit facility and $110 million of incremental SBIC debentures available to us under our third SBIC license. Today we have approximately $32 million of cash $251 million of unused capacity under our credit facility and $90 million of incremental SBIC debentures available to us. We all continue to be pleased with the execution of our ATM equity program. As we’ve previously discussed it provides a significant flexibility in real-time liquidity to better correlate to the timing of our investment activity and the growth of our investment portfolio. During the fourth quarter we raised approximately $48 million in net proceeds at a net price of approximately $36 per share. As we look forward to the first quarter of 2017 and taking into account the impact from two fewer days of interest income during the first quarter, when compared to the fourth quarter, which we estimate has a $0.01 or $0.02 per share impact to net invest income. We currently expect that we will generate distributable net investment income of $0.58 to $0.59 per share during the quarter. This estimate is $0.025 to $0.035 per share or 4.5% to 6% above our previously announced monthly dividends for the first quarter of $0.555 per share. With that I will now turn the call back over to the operator so we can take any questions.

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Please ask one question and one follow-up question and re-queue for additional questions. [Operator Instructions] Our first question comes from line of Bryce Rowe with Robert W. Baird. Please go ahead with your question.

Thank you. Good morning.

Good morning.

Vince and Dwayne – maybe you guys can talk about the lower middle-market portfolio and the potential for activity in 2017. Obviously, 2016 was a good year in terms of growth originations and exits. I’m just curious how you see the exits playing out into 2017 and what you’ve got budgeted on a growth origination perspective in the year. I am certainly aware that Daseke has gone through that exit process or is going through it, but beyond that, do you see other companies going through a sale or exit by process?

Yes, Bryce, I’ll take the first part around the originations. Timely question because, we just had our board meeting and we approved the budget. And we are budgeting which kind of drives compensation et cetera for the incentive compensation for the guys et cetera we’re budgeting a couple of $100 million of gross on our balance sheet, lower middle market originations. Again, we can’t budget exits. When you look at the three big exits, we had in 2016 two of the three were private equity type sponsors calling us because our companies either made a good add-on for one of their platforms or maybe in one case it was going to represent a platform. There’s just no way to forecast that. And again, we’re typically a minority owner not always and we leave it up to management if they are favorably inclined to respond to those overtures, we certainly want to go along with them and help them. But, frankly I kind of hope, we don’t have any because it just – it adds more reinvestment work on our part. But I’m sure we well. Dwayne, would you characterize any differently.

No, I think similarly what we’ve may said in last quarter, if you look at the second half of 2015 going into 2016, we were telegraphing to you guys that we have a lot of exit activity in the pipeline. I’d said that, we think particularly after Daseke hopefully closes here in the first quarter, that activity has largely abated and we’ll be more consistent with our historical expectations. But as Vince said, particularly for our higher performing companies, they’re getting calls or we’re getting calls consistently by groups that want to look at opportunities to buy them. So that current status is always subject to change just based upon how desirable third-parties signed our portfolio companies.

Got it, okay. And then wanted to kind of follow-up on a topic from last quarter. You guys discussed terming out some of the credit facility with another institutional notes offering and pricing I guess kind of moved back-up in rates after the presidential elections. I’m curious if you’re thinking about doing that again or will you possibly wait until end of this year or early next year when the $90 million of notes are callable?

Yes. So, the way we kind of look at it is – we have pricing in mind that would be attractive to us on the institutional notes front. That if we can secure that pricing, we’d be inclined to go ahead and do something versus accept what the market is prepared to give us. And the market it hasn’t been – the markets there but it’s not that great of a market in terms of pricing that some of the price discovery work that we did. Because we’ve got the SBIC debentures where we have another 115 to go, Brent something like that.

We have 90 million yesterday. That’s right.

90 million to go. And the ATM program has been working pretty well and between those two, we really don’t have to do anything this year. Certainly, we probably need to do something by this time next year with respect to that maturity coming up. But I think we’re going to continue to look at all options. But we just did not like the pricing that was out there when we looked at it a couple months ago.

Great. Thanks guys. I appreciate it.

Thanks, Bryce.

Our next question comes from the line of Robert Dodd with Raymond James. Please proceed with your question.

Hi, guys. Almost a follow-up to Bryce’s first question on originations. Obviously so, a couple hundred million growth element would be about 20% growth. Given the question marks around tax policy right now and whether capital gains taxes are going to come down or probably well, how much, when, et cetera, do you think there is a potential for a hold off on some of the pipeline or dragging out of timeframes for lower middle-market deals to get done in the prospect that if they wait till maybe 2018, maybe the capital gains taxes low. So, if you go back to 2012, there was a buildup at the end of 2012 before the capital gains taxes went up in 2013, are we’re looking at a reverse situation here?

Well. Rob, that’s an excellent question. I would have event. I was frankly surprised, we have a number closings in 2016 that we did but particularly later on in the year when the sellers are mostly individual and they could have waited to 2017 and had a shot at a lower rate. But what I think about each of the circumstances you have – generally you have a state planning a retirement situations where there is – there is simply isn’t that much flexibility on their part to wait and pick the low rate. I think frankly they found a counter party that they were comfortable with, that they were confident with close, were confident would be work well with their people. And said, I’m going to go ahead and take the burden in hand and pay the 23.8% tax rate as opposed to gambling it might be lower. So I didn’t see, I really saw none of that in 2016 now that we’re in 2017 obviously the issue is – if something happens later at 2017, is it retro to the beginning of the year, am I better off way into 2018. Maybe we’ll see some of that but in general when our sellers are ready to go, they’re ready to go and they’re surprisingly not as held then on getting the lowest potential tax rate. If it means differing a transaction and then hoping the markets, they’re hoping someone like us is still there and has capital.

I am going to add to that Robert. I think when you look at, I think Vince covered, status goes very, very well. But I do think that we have the prospect that tax changes could be a positive because people that are much less focused on a live event like Vince was talking about and just want to do some good financial planning, if rates are lowered looking at a prospect of bring like Main Street in on a minority basis through a minority recapitalization, could become much more attractive than it would otherwise be.

I agree. Almost, it’s a timing question, right? Just a second one if I can? On HMS, obviously the proposal is now to basically cancel the best interest the DOL law. Has there been any discussion of what that’s going to do, new funds et cetera, et cetera or anything like that?

Yes. What’s interesting is that the larger players in their space geared up their organizations for a 401 effective date, they made the changes and kind of ironically, they’re going to go ahead and implement those changes irrespective of whether the 401 date holds or not. Nick, would you comment on that any differently, because Nicks really are pointed on highest Nick Meserve.

Yes. I think that Vince, basically the bigger firms have kind of moved forward with it. I think there’s still some questions in the market of what the right structure is going forward and I thought the answer to your throughout 2017 and 2018. But the new structure will be there, they are still at the market at non-trade space, in raise capital abd then do it with a dividend yield.

Okay. And specifically HMS is going to, they thought about closing their offering on 401 or 331 and is now thinking about end of September, because the 401 date just approved to be kind of an – more or less not an issue.

And I think the overall market is still kind of in a similar spot to last year, I’m not sure exactly what’s going to happen with the rules. And so, really just kind of pushing off into the future to make decision on new products, what the structuring would be, and how they’re going to raise that money?

I think frankly, Robert, the recovery and pricing of the public’s is making the private BDCs giving them, extending their life expectancy, if you will, because it was looking a few quarters ago, is that we really weren’t going to see very many more of those.

All right. Fair enough. Thank you.

Our next question comes from the line of Christopher Nolan with FBR & Company. Please proceed with your question.

Hi, guys. The two middle-market restructurings, were those in energy or any detail you can provide on those?

Permian and Larchmont those were the two that were – the two restructured and yes, they’re both energy related.

Okay. And then, Brent, the DNII conversion to NII is $0.02 or $0.03 like in the past or?

It is consistent with where it’s been lately it’ll be around $0.04 difference per share.

Great. And Vince, strategically given the prospect of tax change and we don’t know the details on this, but the key points are going to be for the variables are border tax, tax rate or interest rate expense deductibility. Strategically, how are you looking at this whole thing for Main Street, how has this changed strategy, because everything is so tax driven with your investment portfolio?

Yes. I was hoping that I’d get that question. I’ve been spending a lot of time on this, I was in DC within the last couple of weeks working with SBIA, getting brainstorming with them, where our industry wants to posture itself in terms of quite issues. We want to make sure our address, et cetera and one of the more interesting points when you read what has been written out there, it is, if the entire world, Chris, is a C-Corp and depending upon your source of research, 90% of the businesses in the US are flow-throughs. And historically, if we take the interest deductibility question, historically, when the interest expense deduction has been curtailed, the statutory language used always starts out in the case of a corporation, meaning a C-Corporation. The flow-throughs really weren’t impacted and there’s a bunch of examples I can give you. So, one question is swapping interest non-deductibility for a C-Corp kind of makes sense in this kind of a wash, if you think about it. We’ve run some numbers and to pay on how much leverage you have in the cost of leverage, I would take the rate drop from 35% to 20% in exchange for a non-deductibility of interest all day long, I am going to make money. And so, I think having those two work for C-Corp makes sense. When you get into the flow-through, it gets very complicated very quickly and you really have to be careful because you’re talking about individuals 1040s and you’re not hearing the rate being dropped to 20% for 1040s, you are hearing the rate go up from 39.6% to 33%, maybe for active flow-through income, maybe 25%. So, I’ve done a bunch of work and case is an examples so we can explain to the people that are writing the legislation – the flow-throughs are different, our constituency is basically flow-throughs. Now, for us specifically, having talked about flow-throughs we hold our flow-through equity in blockers and I would love to see those rates drop in our blockers right from 35% to 20% because we’re going to get a free cash flow and an earnings pick up right off the back. Our blockers don’t really have interest expense because our debt is held up in RIC. So, for us net-net, what it really means is we’ll have more income to distribute from our blockers holding equity up to the RIC and the 30% component of our 2016 dividends that were favorably taxed, you see that 30% going up, all things being equal, because we’ll have more qualified dividends as a component of our dividends to our taxable shareholder. So, it’s a net positive to us. Again, we’re concerned about this. When we average one-third ownership in these companies we’re concerned about the other two-thirds, our managers and other individuals that are co-invested with us, and making sure we really address what happens to them, because our companies have to distribute cash to them to cover their taxes, right, contractually. We’ve may spend some time on that, but I can send you some examples that we’re using at SBIA and discuss some of the stuff with you offline, but that’s kind of how we see it.

Yes. That’s great detail. And that’d be a great topic for Investor Day later on. So, congrats, thank you.

You can count on that.

I’m sure, I could. Okay, thanks.

All right. Our next question comes from the line of Doug Mewhirter with SunTrust. Please go ahead with your questions.

Hi, good morning. Just two questions. First I think I’ve actually maybe asked this last quarter, but the market keeps going up. Your money market strategy, I know that you’ve historically used it as sort of a way station for the money that you can’t invest into lower middle-market or private market transactions. It gives you a little extra boost on the economics. But with credit spreads so tight, has that affected your willingness to put money into the middle market, assuming that there isn’t a lot of excess deal flow on the other – to your business mode?

Yes. Over the last few quarters, you’ve seen our middle market portfolio as a percentage of our total portfolio continue to be on a flat to declining trend line, and in our 2017 budget, that just got approved. That trend certainly is projected to continue. And in fact, one easily tap source of repayment for the $90 million maturity we have upcoming in 2018 it’s contracting the middle market more. It’s not immediately liquid, but it’s 30, 45 day liquid, if you want to get good pricing for your assets. So, we continue to see employing it for several reason, part of which is HMS, part of which is our I-45 joint venture, where we need to be in that market. We have some talented people there. They’re also generating a lot of private loans for us. But yes, I would just say more of the same on that. I think you said money markets rates, our middle market strategy that we’re using kind of as a treasury management tool, yes, we expect that to continue, expected it continue to be flat or decline. Absent we have a gigantic – $100 million shows up that we can’t deploy quickly, then you might see it spike up occasionally, but in general, flat to downward trend. You need to have – we have – Nick has three or four industry teams that he manages, they need to have a $100 million and $150 million portfolio spread across several names to continue to be relevant in the illiquid part of that market that we participate. And so, we’ll continue to be in it, but it continues to offer us a lot of flexibility.

Yes. Thanks for that detail. The unrelated topic, your ATM program. Could you just review again how you structure that in terms of the timing and the lead time and how quickly it expires, you have to renew it and I guess…

I’ll have our Vice President in charge our ATM will address that, Mr Smith here.

And just – what I’m getting at is how much you think you anticipate tapping that this year, and is there a risk where you would end up with getting a little ahead of yourselves on the dilution factor, if you don’t have the pipeline following through?

One way I think about it is really, really rough math, you have 50 million shares out, you earn a couple bucks this year, that’s $100 million you have to distribute out to your shareholders, if in a perfect world, if I could raise $0.5 million to a $1 million a day through the days that are ATM are open and I could in effect synthetically retain those earnings, that would be the perfect way to use that ATM, because I have a $100 million coming in, I have $100 million coming out, I could be like a normal company that retains a reason amount of their earnings in terms of mechanically.

Yes. So, mechanically we have to set up the program with a certain number of shares we can sell up to. So, the last time we got our filing, we had 2.5 million shares. That was a program size, and at the end of the year, we had around 800,000 remaining. So basically, the process is fairly simple and straightforward. Once we get close to using up the remaining shares, we will follow a new program for a certain size and it’s gone down the road. But I think to answer your question also, I mean as far as what we’ve been emphasizing, it really gives us a lot of flexibility. So, to your point, if we were in a situation where our liquidity was – we had excess liquidity that we didn’t need to increase liquidity beyond that and our pipeline was not as robust, at least not in the coming month or two, we could simply stop the ATM or slow it down or do whatever we want. We have total flexibility on whether we’re in the market or not during the quarter. So, that’s what we really aim to do is really try to line up our funding needs with the ATM and also just kind of managing our overall liquidly position.

At the end of the day, it really is an overly material when you agreed, Dwayne, in terms of dilutions, the way we’re looking at.

I think when you compare the ATM program to the old practice of doing a large follow on every six to 18 months based upon our investment activity, the ATM program, as Brent touched on, is so much more flexible that we can turn it on or off at any point in time. And really it used as just in time in relation to our portfolio growth and I don’t get the exact numbers on the top of my head, but I think Brent said somewhere $48 million or $50 million of ATM proceeds in Q4. Well, we haven’t had $55 million of lower middle-market originations in Q4. I think you’ll continue to see that direct correlation between our use of the ATM program with our originations so that there is no dilution. It’s so much more effective in the follow-ons, we can’t stress that enough.

And you are talking about issuing equity at the prevailing price at a cost of 100 basis points. It’s really amazingly efficient and effective.

Good, that’s very helpful. Thank you, and that’s all my question.

Thanks, Doug.

Okay. Thank you. And this concludes today’s question-and-answer session. I’d like to turn the floor back to Vince Foster for closing comments.

First of all I’d like to recognize Mark and congratulate him on his inaugural conference call lead. So way to go Mark. And for the rest of you, thanks for joining and we’ll see you in very early May. Thank you.

Ladies and gentlemen thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines. And have a wonderful day.