Greetings, and welcome to the Main Street Capital Corporation First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan with Dennard Lascar Investor Relations. Thank you. Mr. Vaughan, you may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2019 earnings conference call. Joining me on the call today are CEO Dwayne Hyzak; President and Chief Investment Officer, David Magdol; and Chief Financial Officer, Brent Smith. Main Street issued a press release yesterday afternoon that detailed the Company's first quarter financial and operating results. This document is available on the Investor Relations section of the Company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 17. Information on how to access the replay was included in yesterday's 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 10, 2019 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 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 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 will turn the call over to Dwayne.

Thanks, Zach, and thank you all for joining us today. Joining me for our call today with prepared comments are David Magdol, our President and Chief Investment Officer; and Brent Smith, our CFO. Also joining us for the Q&A portion of our call are Vince Foster, our Executive Chairman; and Nick Meserve, our Managing Director and Head of our Middle Market Investment Group. On today's call, I will start by providing a recap of our overall performance in the first quarter, commenting on the performance of our investment portfolio, discussing our recent dividend announcement and a few other recent developments, and I will conclude by commenting on our investment pipeline. Following my comments, David and Brent will provide additional comments on our financial results, recent originations and exits, our current liquidity position and certain key portfolio statistics. After which, we'll be happy to take your questions. We're pleased with our operating results for the first quarter, a quarter during which we increased our total investment income and our distributable net investment income or DNII per share over the same period in the prior year, with our DNII exceeding our regular monthly dividends by approximately 16%. In addition, we also generated a meaningful increase in our net asset value per share during the quarter. After the quarter-end, we completed our third investment grade debt offering, which provided a significant enhancement to our capital structure. We believe that these positive results continue to highlight the advantages of our differentiated investment strategy and operating structure, which together with the benefits of our recent debt capital markets activity have us very well positioned for continued success. Looking specifically at the performance of our investment portfolio for the first quarter, our lower middle market portfolio appreciated by approximately $7 million on a net basis during…

Thanks, Dwayne, and good morning, everyone. We're pleased to report another quarter during which we grew our total investment income and distributable net investment income. We continue to generate distributable net investment income in excess of our monthly dividends and we produced a meaningful increase in our net asset value per share. We believe that our results illustrate the significant benefits of our unique investment strategy in the lower middle market. This strategy when combined with our efficient operating structure are complementary first lien debt investment strategies and our asset management activities, provide a value proposition that positively differentiates Main Street among our BDC peers. This has been demonstrated through our consistent ability to generate premium total returns for our shareholders through the growth in our dividends per share, our increased net asset value per share and our stock price appreciation. Primary driver of our long-term success continues to be our focus on the underserved lower middle market. We see significant benefits from investing in both the debt and the equity securities in this segment of our business. Our equity investments closely align our interest with our portfolio company management teams and allow us to share in the public -- in the equity upside as our companies perform, while our first lien debt investments provide an attractive yield profile and significant downside protection. By size and scope, our lower middle market investments are the primary driver behind both our NAV growth and significant pre-tax net unrealized appreciation, contributing approximately $208 million or $3.33 per share. These equity investments also support growth in our total dividends paid to our shareholders through the dividend income we receive and the periodic realized gains upon the exit of these equity investments. In addition, the unrealized appreciation and realized gains from these equity investments provides…

Thanks, David. We are pleased to report that our total investment income increased by 10% for the first quarter over the same period in 2018 to a total of $61.4 million, primarily driven by an increase in interest income of $7.7 million, partially offset by a decrease in dividend income of $1.3 million and a decrease in fee income of $1 million. The change in total investment income includes a decrease of $1.3 million related to lower levels of accelerated income for certain debt investments and a decrease of $4.5 million in elevated dividend income that is considered to be less consistent on a recurring basis or non-recurring. The first quarter 2019 operating expenses, excluding non-cash share based compensation expense, increased by $2.9 million over the first quarter of the prior year to a total of $19.5 million. The increase was primarily related to a $1.7 million increase in interest expense and an increase in compensation expense of $0.6 million, primarily relating to the increase in fair value of our deferred compensation plan assets. The ratio of our total operating expenses, excluding interest expense as a percentage of our average total assets, was 1.5% for the first quarter on annualized basis and 1.4% for the trailing 12 months. The combination of our unique investment strategy and leverage of our efficient operating structure resulted in a 6% increase in distributable net investment income for the first quarter of 2019 to a total of $41.8 million or $0.68 per share, which exceeded our recurring monthly dividends paid for the quarter by approximately 16%. The activities of our External Investment Manager benefited our net investment income by approximately $2.7 million through the allocation of $1.6 million of operating expenses for services we provided to it and $1 million of dividend income. We recorded…

Thank you. [Operator Instructions] Our first question comes from the line of Leslie Vandegrift with Raymond James. Please proceed with your question.

Hi. Good morning.

Good morning.

My question is -- I noticed in the press release, when you look at the lower middle market and middle market and private loan portfolios, each one of those had a slight incremental decrease in the average EBITDA portfolio companies in each. So is that due to a mix in each of those portfolios or is that changing from fourth quarter, or is that due to a bit of a contraction in EBITDA there?

Yes. I would say that it's -- we have to look at it in a little bit detail -- a little more detail to give you a real precise answer. But I'd say it's more of a mix as you look at your movement in the portfolio as opposed to anything we're seeing that would be a a downward trend or decline in EBITDA in the underlying portfolio companies.

Okay. Thank you. And then, on the dividend income decrease this quarter, was that -- again, was that due to a mix issue there of the equity of some of the repayments, or were some of the portfolio companies just simply paying a lower yield this quarter?

I think if you look at our comments from last year's quarter and we kind of do this each quarter, we try to identify the parts of the income including dividend income that could be higher than we expect to be recurring or maybe some unusual activity. And if you look back at last year's comments, you would have seen that we had some elevated given an activity that we were trying to communicate may not be recurring in nature. So I think it's more just a comp or a comparison to last year's fourth quarter having some dividend income that was less recurring in nature that caused that decline on a year-over-year basis.

Okay. Thank you. That's my question.

Thank you.

[Operator Instructions] Our next question comes from the line of Tim Hayes from B. Riley FBR. Please proceed with your question.

Hi, good morning guys. Thanks for taking my questions. My first one, you still have six investments on non-accrual, flat quarter over quarter. Is one of those still the MH Corbin investment that was placed on non-accrual last quarter or was that replaced with another one? I know that you had mentioned the expected resolution in the first half of the year. So just wondering if we can get an update there, if that indeed has not been replaced?

Sure. Yes, MH Corbin actually came off of on non-accrual by the end of the quarter and it was replaced by one of our middle market investments SiTV. And so, that's why the numbers flat, but SiTV did replace them each quarter.

Okay. Got it. And then, could you maybe just expand a little bit on why or what's going on with SiTV and what your outlook is that -- for that investment?

SiTV's entered the bankruptcy, expecting a restructuring this quarter. It should be fairly quick and we'd expect that to exit before the end of 6/30. We like the investment long-term, but it needed a cash structure restructuring there, (inaudible) too much debt. So we expect that to be a result in the next two to three months.

Got it. Okay. And then, I understand you may be limited in what you can say, but can you just expand on your comment around potential upcoming exits in the coming quarters? What's driving these events, and if you have maybe a rough estimate of the gains that these events could drive?

Yes, so, as you have expected, we're going to be fairly limited in what we can say. But I think what we're trying to communicate there is that given the robust nature of the overall markets from an M&A standpoint, we have seen more inbound interest from third parties and that inbound interest has been a valuation levels or structures that are pretty favorable compared to our fair value marks. So we have engaged in discussions. Those discussions in each situation would be in different stages of the process, but we do expect that some of those activities would lead to exits over the next two quarters. So we would expect those exits as I tried to communicate in my comments to be favorable. So what that means for us is that they would be favorable in comparison to or historical fair value marks for those specific companies or those specific investments.

Okay. Just to be clear though, did the current March, as of March 31st, they don't on these targeted companies you're talking about, they don't reflect any potential M&A in those valuations currently?

I would say that they would each reflect the potential for M&A at different levels based upon where they are in the process. So some would be -- you would reflect fair values that are closer to what we expect the exit valuation to be. Others, if they're earlier in the process, will probably have a bigger delta between the fair value at 3/31 and what we would hope to realize from an exit standpoint.

Okay, understood. That's helpful. Appreciate that. And then, I know you mentioned that the bulk of the unrealized appreciation was due to the reversal of 4Q market volatility, but would you be able to maybe size that for us?

What I would say is that, that breakdown of that split between marketing credit is never perfect. So that's why we hesitate to give numbers that are real precise, but the way that we would categorize it is, if you looked at the private loan segment of the market, there would be a significant portion of that portfolio that the appreciation would reflect a reversal of the negative market impact from Q4. And I think if you look at the middle market, you continue to see some specific credit issues that have resulted in the depreciation in Q1. And we've seen the market recovery and fair values in the middle market portfolio to be slower to return in comparison to the private loan market or private loan portfolio.

Okay. Thanks for that. And then, I'll just sneak in one more here. How would you describe the health of your borrowers today between the economy, rising input costs, potential trade wars, interest rates, shortage of labor or anything else, what do you think the biggest problem or problems they face today are?

I would say overall, we would -- we have a positive view on the credit quality and the performance of the portfolio companies. Obviously, you look at our non-accruals and some of the comments that Nick gave, we do have certain companies that have very specific credit issues that they experience from time to time. But overall, the quality of the portfolio from our view -- our perspective continues to be very strong. If you were to look at some of the biggest issues that we likely hear on a consistent basis primarily from our lower middle market portfolio company managers, it would be the accessibility of quality labor at reasonable expense. I think we've mentioned that before over the last couple of quarters and I would say that across the portfolio, that's the thing that we would point as the most consistent concern or issue that our lower middle market portfolio company managers face.

Got it. That helpful. I appreciate the comments, and thanks for taking my questions this morning.

Thank you.

There are no further questions in the queue. I'd like to hand the call back to management for closing comments.

Thank you all for joining us again this morning. We appreciate the questions and we'll look forward to talking to everyone again in a few months.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.