Main Street Capital Corporation (MAIN) Q1 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Main Street Capital Corporation First Quarter 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 of Dennard - Lascar Associates. Thank you, Mr. Roberson. You may begin.

Thank you, Devin, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2017 earnings conference call. Joining me on the call today are 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 that details the Company’s first quarter 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 May 12th. 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 on the Company’s homepage. Please note that information reported on this call speaks only as of today, May 5, 2017 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. Many of these forward-looking statements can be identified by the use of the 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. 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 has 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 recent dividend announcements, and conclude by commenting on our investment pipeline. Following my comments, Dwayne Hyzak, our President, and Brent Smith, our CFO will cover our operating performance in more detail and comment on our first quarter financial results, recent originations and exits, 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 generally pleased with our first quarter operating results. Our lower middle market portfolio, our primary area of focus, appreciated by $2.2 million on a net basis during the quarter with 22 of our investments appreciating during the quarter and 15 depreciating. Our middle market loans, private loans and our other assets collectively remained flat during the quarter. We finished the quarter with a net asset value per share of $22.44, a sequential increase of $0.34 over the fourth quarter. Our lower middle market companies continue collectively to exhibit very conservative leverage ratios on a relative basis, which Dwayne will cover in greater detail. Earlier this week, our Board declared our third quarter 2017 regular monthly dividends of $0.185 a share for each of July, August and September, maintaining our second quarter payout rate. The ex dates for these dividends are June 28, July 18, and August 17, respectively. Last month, our Board declared our latest semi-annual supplemental dividend to be paid in June in the amount of $0.275 a share. We have originated new lower middle market and private loan investments of roughly $145 million so far this year for our investment portfolio. We are advised [ph] for the first two quarters at this pace although our current mix is overweight private loans. As of today, I’d characterize our lower middle market investment pipeline as about average to above average. We continue to seek and receive significant equity participation in our lower middle market investments and as of quarter end, we owned an average of 37% fully diluted equity ownership position in the 99% of these investments in which we currently have equity exposure. We are pleased to report that I-45 joint venture with Capital Southwest has switched from ramping to optimizing. The joint venture now has over $200 million in total assets. And based on its current equity capital, it’s close to its long-term asset level. In addition, HMS recently closed its senior loan fund with ORIX with initial equity and leverage commitments of $50 million and a $100 million respectively, contemplating an initial size of $150 million. Unlikely the I-45 joint venture, we have not committed any capital to the HMS or its joint venture. Our officer director group has continued to be regular purchasers of our shares, investing approximately $700,000 during the first quarter. With that, I would like to turn the call over to Dwayne and cover our performance in more detail.

Thanks, Vince. Good morning, everyone. We are pleased to report another quarter 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 the first quarter, we were also able to generate over $27 million of additional net realized gains from our investment portfolio, primarily from the highly successful exit of our lower middle market investments in Daseke. We’re also pleased that our most recent results represent a GAAP return on equity of 13.4% for the trailing 12-month period and 10.1% on an annualized basis for the first quarter. Returns that significantly exceed the dividend yield paid to our shareholders and represent a significant value that we are generating for our shareholders in excess of our dividends paid. We believe that these results illustrate the significant benefits of our unique investment strategy, which combine with our efficient operating structure continue to provide a value proposition that differentiates Main Street from other yield-oriented investment options and generates a premium total returns realized by our shareholders as a result of the historical growth in our dividends per share, our net asset value per share and our stock price. As we’ve discussed in prior quarters, we believe that the primary driver of our long-term success has been and continues to be our focus on the underserved lower middle market and specifically our investment strategy of investing in 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 the financing source. Without this primary focus on the lower middle market, it will be very difficult to produce these returns for our shareholders. Each quarter, we try to highlight key aspects of our differentiated investment strategy. This quarter, we’d like to revisit several reasons why we believe that our structure as a publicly traded BBC with the significant benefits of permanent capital is a perfect match with our focus on investing debt and equity in the lower middle market. First, we believe that our permanent capital structure, allows us to be an ideal partner for owners of privately held businesses that are seeking a liquidity event as we can represent a permanent substitute partner for retiring business partner or family member, eliminating the concerns typically associated with the limited holding periods required by traditional private equity fund structures. This flexibility allows us to compete for transactions based upon beneficial structure considerations as opposed to solely on price, generating what we believe are highly attractive investment opportunities. Second, our desired long-term holding period, as generated a diversified portfolio of mature companies with reasonable leverage providing these companies the ability to work through negative economic cycles and take advantage of opportunities as they arise. Our long-term holding period also provides for less frequent portfolio turnover, resulting in improved portfolio diversity in each quarter and providing opportunities for increased dividend income as the portfolio companies continue to mature. Our long-term approach is best demonstrated by the fact that we currently have eight companies that have been on our portfolio for greater than a decade and an additional 10 companies for greater than eight years. Consistent with prior quarters, the contributions from our lower middle market portfolio continue to be well-diversified with 45 of our 73 lower middle market companies with equity investments having a appreciation at quarter end and with 28 of these companies that are flow-through entities for tax purposes or approximately 60% of our investments in these types of entities, contributing to our dividend income over the last 12 months. In addition, we also have several equity investments in non-flow-through entities which have 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 quarter-end and our investment activity in the first quarter, we are pleased to report that our overall investment performance remains strong. Our investment activity in the first quarter included total investments on our lower middle market portfolio of approximately $58 million including investments in two new portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital, primarily from the exit of our investments in Daseke resulted in a net increase in our lower middle market portfolio of approximately $10 million. We had a net decrease in our middle market portfolio of approximately $60 million and a net increase in our private loan portfolio of approximately $46 million. As result, at March 31st, we had investments in 191 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 less than 4% of our total investment income for the last 12 months and approximately 3% of our total portfolio fair value with the majority of our portfolio investments representing less than 1% of our income and our assets. Additional details on our investment portfolio at quarter-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 $887 million of fair value, which is approximately 15% above our cost basis. At the lower middle market portfolio level, the portfolio’s median net senior debt to EBITDA ratio was a conservative 2.8 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 69 companies, representing approximately $569 million of fair value. And in our private loan portfolio, we had investments in 49 companies representing approximately $384 million in fair value. The total investment portfolio at fair value at March 31st was approximately 105% of the related cost basis and we had five investments on non-accrual status, which comprised approximately 0.2% of the total investment portfolio at fair value and 2.7% 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 14% for the first quarter over the same period in 2016 to a total of $47.9 million, primarily driven by an increase in interest income of approximately $6.3 million. We estimate that the amount of income that is either less consistent on a recurring basis or non-recurring, was approximately $1.9 million or $0.03 per share. First quarter 2017 operating expenses excluding non-cash share-based compensation expense increased by $1.2 million over the first quarter of the prior year to a total of $14.5 million, the increase was primarily related to a $0.6 million increase in compensation expense and $0.5 million increase in general and administrative costs, which was primarily due to non-recurring professional fees and other expenses related to certain potential new portfolio investment opportunities which were terminated during the due-diligence processes, and a $0.4 million increase in interest expense. These increases were partially offset by an increase of $0.4 million and cost reallocated to the external investment manager for services provided to it. The ratio of our total operating expenses excluding interest expense as a percentage of average total assets, which we believe is the key metric in evaluating our operating efficiency was 1.6% on annualized basis for the first quarter and 1.5% on a trailing-12 month basis. It continues to compare very favorably to other BDCs and other yield-oriented investment options. Excluding the non-recurring professional fees and other expenses previously mentioned, our operating expense ratio for the first quarter was unchanged from the fourth quarter at 1.5%. Our increased total investment income and the continued leverage of our efficient operating structure resulted in a 16% increase in distributable and net investment income for the first quarter of 2017 to a total of $33.4 million or $0.61 per share, 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 $2.2 million in the first quarter of 2017 through a $1.5 million reduction of our operating expenses for cost we allocated 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 gain of $22.3 million during the first quarter, primarily relating to a net realized gain on the exit of a lower middle market investment, a net realized gain related to the exit of private loan equity investment and realized gains from the other portfolio, partially offset by a $5.2 million realized loss related to the prepayment of $25.2 million of existing SBIC debentures. We opportunistically prepay these older debentures that are schedule to mature over the next year to manage the maturity dates of these debentures and due to their higher interest rates return in excess of 6%. As a result of this prepayment, Main Street recognized a realized loss, which is effectively the reversal of the previously recognized borrowing and purchase gain which resulted from electing to account for the debentures at fair value on the date of the acquisition of the SBIC entity MSC II in 2010. The effect of the realized loss during the first quarter is offset by the accounting reversal or previously recognized unrealized appreciation due to fair value adjustment since the date of the acquisition with the net impact resulting in an increase to NAV of approximately $0.7 million during the quarter as the fair value of the debentures was above par prior to the repayment. And as Vince discussed, we recorded net unrealized appreciation on the investment portfolio of $2.2 million in the first quarter, primarily relating to $2.2 million of net appreciation on our lower middle market portfolio, $2.4 million of net appreciation on our other portfolio, and $2.9 million of appreciation on our external investment manager. This net unrealized appreciation was partially offset by $2 million of net unrealized depreciation on our lower middle market portfolio and $3.3 million of net unrealized depreciation on our private loan portfolio. Additional details for the change in our net unrealized appreciation can be found in our earnings release. Our operating results for the first quarter of 2017 resulted in a net increase in net assets of $31.5 million or $0.57 per share. On the capital resources front, our liquidity and overall capitalization remain strong. At the end of the first quarter, we had $33.6 million of cash, $267 million of unused capacity under our credit facility and $109.8 million of incremental SBIC debentures available to us. Today, we have approximately $24 million of cash, $298 million of unused capacity on our credit facility and $109.8 million of incremental SBIC debentures available. We also continue to be pleased with the execution of our ATM equity program. During the first quarter, we raised nearly $38 million in net proceeds with an average share price of $36.86 per share. As we look forward to the second quarter of 2017, we currently expect that we would generate distributable net investment income of $0.57 to $0.59 per share during the quarter. This estimate is $0.015 to $0.035 per share or 3% to 6% of our previously announced monthly dividends for the second quarter of $0.555 per share. In addition, we want provide guidance on the expected per share difference between our distributable net investment income and net investment income due to our non-cash restricted stock expense. We currently expect the difference to be approximately $0.05 per share for the second quarter with the difference returning to approximately $0.04 per share for the third and fourth quarters. With that, I'll now turn the call back over to the operator so we can take any questions.

[Operator Instructions] Our first question comes from the line of Bryce Rowe with Robert W. Baird. Please proceed with your question.

Good morning. Then first is to ask about the comment you made about the private loan portfolio, being an overweight position. But, I guess the Company is still being on budget in terms of production, originations for the year. So I am just curious if you expect that overweight position to continue and maybe discuss the benefits of private loan over middle market right now and how you see those. And then, I have a follow-up after that.

Sure. Nick Meserve is with us, so he will cover the second part of that question, since he runs both those for us. With respect to the first, we don’t -- we have an annual budget. And so, when I look at the first two quarters, it’s simply half the annual budget and we budget in buckets for middle market, private loan and lower middle market. And when I said I thought we’d be on page but the time we get to the end of the second quarter, I think we would back in balance in terms of that budget. So, there is really -- all that really happened is we ended up having some lower middle market deals push into later on the first half of the year and some middle market -- some private loan opportunities arise and ended up a little bit on balance there. But, I expect to be back in balance as we progress through year. And we have the ability to control that to a degree because we can dial back the private loan exposure to make room for lower middle market opportunities et cetera. Nick, I'll let you speak to that second part of the question.

The main difference between middle market and private loans is really just the size and then the number of participants to the deal. In private loans, there are going to be just ourselves or two or three people more. The middle market’s going to be more of a smaller getting room. And the press release you have seen in the overall markets, especially in the broader syndicated market, has been much [indiscernible]. If you see that middle market side, that’s why we [indiscernible]. You can see a little bit a longer tail there. [Indiscernible] versus the same market.

Got it. That’s helpful. Thanks Nick. And then I wanted to also I guess to ask about a situation that came up last night, obviously the folks at Hercules have decided they want to try to externalize versus internalize. And there was a question on their call last night about the having an external manager within an internal manager and quote unquote the SEC not 100% necessarily being behind such initiatives that were referenced at Main Street. I just wanted to make sure or have some clarity around that the SEC hasn’t made any commentary to that effect.

Okay. Thanks. Thanks for the question Bryce here. We were shocked when we started getting calls about that last night and Dwayne has our official response; he will be more moderate than I would be.

Bryce, what I would say as Vince has mentioned, since they had that call yesterday, we had several people either called or emailed us to ask about it and not having listened to their conference call, we didn’t really have any idea what they’re talking about. So, went and pulled the transcript after it was available this morning to find it out. And I’d say, frankly we’re still really not sure that we understand what he was saying. So, we can’t really directly address it, but what we can tell you is that when you look at our structure at Main Street, it's not a new structure; it's been a place for a long-time. It goes back to December 2013 when we got the required relief from the SEC that allowed us to have the registered investment advisor within the internal managed structure, the portfolio company at Main Street. Since that time, we’ve been consistent issuers of equity, had our shelf registration statement up and it’s obviously been reviewed many times by the SEC. And we’re not aware of any issues that have come up throughout that dialogue with the SEC as we continue to do our public filings and maintain our shelf registration statement. And the last thing that I would add is that, we just recently, during the last couple of weeks had shelf registration statement -- effective again. So, again, we’re not aware of any issues. We don’t really -- we don’t really know what he’s referring to. But everything that we do, as you heard us talk about in the past, is really focused on making sure that we’re doing everything we can to generate value and beneficial to shareholder and then from a management team standpoint trying to do everything we can do to maintain alignment of interest between our management team and the shareholders. And we think that having an external manager inside of Main Street's portfolio is just another great way to deliver that value to the shareholders.

And listen Bryce, I guess the transcript made a reference that the structure was unique; that’s not the case. We understand that at least two other internally managed BDCs have the same structure and received the same preapproval. So, I think it's pretty standard. If you want to do this, our understanding is you -- either through exemptive relief or no action letter, you can secure it pretty easily and there is no issues at all.

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

Hi, guys. Two, I guess, one as well follow-up to Bryce’s question on that. First one is the obvious one. Do you have intent to externalize?

Yeah. If I went to the Board and expressed an intent to externalize, I would -- I think I would become externalized, I expect to be terminated. And if the Board let me, I would hope that the shareholders would terminate them.

Fair enough. Thank you. Onto the MAIN plan, the tax issues this year, so the tax policy being up and in air a little bit and such a core piece of your business on the lower middle market side being essentially, for lack of a better term, state and tax planning for the small companies you work with. Is that adding any complexity on certainty to how that pipeline is developing in this year?

No, I don’t think so. We haven’t seen it yet because what -- the House blueprint still has some ambiguities in it and then the Trump one measure [ph] is intelligible really in terms of what that really means. But I think anything that happen in general will be positive to the small business community. And I can see a business owner as we get towards the end of the year that business owner is looking to transact and sell his or her company. And it looks like tax reform might go effective at the beginning of 2018 rather in late 2017. I can see them wanting to defer the sale to be able to benefit from whatever favorable provisions are in there for them in that. Actually in other words, have capital gains or tax at a lower et cetera. I could see that. We saw that in 2012, we saw a huge acceleration when rates went the other way; when capital gain rates went from 15% to 20% on 1/1/2013, our backlogs quite in December of 2012. And we had more than we could -- we almost went out of money. You could see the opposite happening here and so you could see these are very savvy and they want to maximize the after tax proceeds that they get from selling their businesses. So, we haven’t seen it yet; there is just too much uncertainty. But I would fully expect to see some postponement from 2017 to 2018 or acceleration from 2018 into 2017 depending upon the various provisions that impact the date. But we haven’t seen it yet, but we are monitoring it closely.

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

Hey, Vince, if corporate taxes do go on to 15%, particularly for pass through [ph] vehicles, given your high equity position and so many of these lower middle market companies, technically wouldn’t that lead to an upward valuation of these names?

Absolutely, that would be a great outcome because we hold most -- most of our equity, as Dwayne said consists of flow-throughs. So, we’re forced to hold those investments in one or more C corp blockers. [Ph] We have a tax provision on the appreciation on those investments that is booked at 35% or a little higher depending on state. And that would come down to 15% plus little higher for the states. And any ongoing appreciation will be subject to less than half of tax provision, that would be extremely favorable for us. In the event we have a blocker within NOL, the opposite is true because the NOL is worth less. But on balance, we would be hugely benefited. I think the BDC community would have to -- at 15% tax rate, we think depending how tax reform comes up, we think the ripple action would be better off the C corps paying 15% tax and then converting our dividends to qualify dividends to our shareholders, because there could be net-net savings there, so it’s a lot of exciting possibilities there.

That’s good stuff. Obviously you have a slide or three on this for the investor conference?

Look, I'm working on it furiously...

Okay. And then, Brent, the guidance that you had in the $0.05 adjustment to EPS, I mean, if I'm looking it correctly, the second quarter EPS is not likely to cover the dividend. Is that the right way to look at?

On second quarter, it’s a -- that’s certainly possible, yes. If you take -- it probably would not, if you look at the high end of our range, high end of our range was $0.59 the NII, so we take off the $0.05%, it’s $0.54. So that is correct for the second quarter. Now, obviously, if we see the range, then there is a possibility for that. For that one quarter, that’s correct based on the guidance we gave.

Okay.

Chris, we don’t expect, looking on an annual basis, we don’t expect our NII to be less than our regular dividends. You could have an occasional penny or two during the year. We switched our restricted stock amortization awards from four to three years. And so that’s why you're having some interesting movement in geography as those periods burn off and we fully convert to three-year amortization.

Thank you. Our next question comes from the line of Doug Mewhirter with SunTrust. Please proceed with your question.

Good morning. This [indiscernible] on for Doug. Thank you for taking my questions. As you mentioned, you issued some equity and had some portfolio [ph] exit this quarter but you may do other quite a bit. So, are you seeing attractive investment opportunities down the line or are you more comfortable at level [ph] at this point of time or is there still to come?

I think Vince covered it in some of his comments. I think we’re happy with where the backlog sits. It’s not low, it’s not really high, but it's average to slightly above average. So, we’re pleased with where we sit from a backlog standpoint. I’d say, it's more of a timing issue. When we look at our capital, one of the things that we’ve always talked about is maintaining a very conservative capital position, so that we’re always in a position where we can be aggressive or be attentive when opportunities exist, so you continue to see us do that. But, outside of that continued conservative posture, this is more just -- more of a where we’re at in the cycle is as it related to exiting back in the first quarter and a little bit of a delay in the lower middle market as we look into the second quarter.

Got it. Thank you. And then, we’ve been hearing quite a bit about competitive conditions in the middle market. Do you think does that create more exit opportunities similar to Daseke for you?

Yes. I think when you look at it, I’d say for the last -- I may not have the exact comment, right, the last 15 months, 18 months, we’ve had elevated exit activities in the lower middle market at valuations that we found very attractive and you can see the significant realized gains and we generated off those exits over that time period. So, I do think that there has been some benefit from that broader middle market activity, but we don’t really have anything today that is a near-term significant exit to the magnitude of what we’ve seen over the last 12 months to 18 months.

Our next question is a follow-up question from Bryce Rowe with Robert W. Baird. Please proceed with your question.

I wanted to ask about the comments you made on the I-45 joint venture and then the new HMS, potential HMS opportunity. So, I-45 sounds like it’s optimized based on what Vince said. I was curious if you could quantify any impact to the income statement this past quarter from that joint venture.

Yes, sure. The dividend income, obviously the income we derive from the joint venture is recorded as dividend income for us. And the dividend income this last quarter was approximately $650,000 and that will vary a little bit quarter-to-quarter obviously depending on their ex activity; they have accelerated gains and things of that nature. But it's been running in that 550 to 650 range now per quarter.

And then, Vince, on the HMS, the new funds there, you said you haven’t committed any capital to it yet. Are you still considering that? And if so, what could that look like to MAIN shareholders, if you opted in?

I'll let Nick chime in on this too. But my understanding is that HMS and ORIX are comfortable with the initial -- with funding the initial $50 million equity commitment that aligns up with their $100 million credit facility. So, there really isn’t any need for our equity right now, would overequitiz the structure. Nick, you are on the HMS part, what conversations, if anything happened about, once they get ramped to 150, if we come in or not, or are we even allowed to?

We’re allowed to; generically that structure has really made great amounts. [Ph] It's kind of their joint venture versus ours with I-45. We could add if we wanted to, but I think we probably more likely [indiscernible] versus joint venture. [Indiscernible] from a structural perspective but I’d be surprised if we [multiple speakers].

Yes, that’s right. You end up with -- you are not having three way unanimous requirement to buy a new asset et cetera. And so, it gets a little funky. And I think that joint venture is going to have a higher quality, lower yielding assets which fits HMS and ORIX better than it is our strategy. That wants to be very involved in as a sub advisor. Also be very involved in as a sub advisor.

When we do launch HMS 2.0, wherever that is, it can become a new investor [ph] in our structure as well. [Indiscernible] $50 million of equity here has the ability to grow that with future [indiscernible].

The good news is that like we touched on earlier, being entirely managed by -- again that experience is just another way that we build our skill set, not that those structures are overly complicated or complex but just give us the ability to see if can operate, management and then have that skill set and that knowledge base internally at Main Street.

For the right asset opportunity, now we can come in and represent $75 million tranche potentially between our balance sheet; I-45 potentially Capital Southwest at its parent, HMS and other those joint venture funds. So, it just gives us the ability to punch about our weight class which is nice.

Thank you. Our next question is another follow-up question from the line of Christopher Nolan with FBR. Please proceed with your question.

Hi, guys. It wasn’t clear to me, was the unrealized depreciation expense relate to just say NAV drove for Daseke. It wasn’t clear to me from the press release.

Yes, I’d say there is a number of things that are included in there. Daseke actually, the realized gain that we had in Q1 which has been pretty consistent for us historically, the realized gain was larger than the unrealized appreciation we had prior to the current quarter by a couple of million dollars. So, it was actually -- it represented an additional appreciation in the quarter as opposed to depreciation. I would say that the depreciation was in number of different names across the portfolio.

Yeah. We’ve got remark all these assets generally based on TTME, EBITDA movements and stuff like that and you’ve got -- you have 22 up and 15 down, you got 37 components of it. And nothing really stands out.

And just to clarify, if you look at our press release, the Daseke unrealized is obviously going to show up in the accounting reversal line, because as Dwayne said, it was an exit and our realized gain was larger than the unrealized appreciation we have taken through the exit, so it was a net benefit to the NAV this quarter. But if you look at the total appreciation, obviously it includes the accounting reversal, which is obviously most of that is Daseke.

Got you. My follow-up is assuming that 15% corporate tax, that’s coming with more like the reality, strategically, how do you guys start positioning yourself? Because it looks like you're going to have a lot more deal opportunities out there. And do you raise capital, start hiring more people, getting ready for this thing or what are your thoughts there?

Yes. I mean, I’d say that’s pretty interesting. I really don’t think that we would change the culture of our organization by bringing in super experienced outside people; that’s a possibility. There is a couple of our executives that find that possibility compelling, but I think on balance we like our organic growth, hiring fairly inexperience people or all the way down in inexperience -- branded undergrads off campus. And I think we’re just going to play with the band that we have. And hopefully, if there is a supply demand imbalance created, be able to generate better deals rather than more deals.

Thank you. Mr. Foster, there are no further questions at this time. I’d like to turn the floor back to over to you for closing comments.

Great. Again, thank you all for joining. And we'll see some of you in June at Analyst Day. Otherwise, we’ll talk to you again in August.