Greetings and welcome to the Main Street Capital Corporation First Quarter Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Zach Vaughan with Dennard Lascar Investor Relations. Thank you, 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. Main Street issued a press release yesterday afternoon that details the company's fourth 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 15. 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 home page. Please note that information reported on this call speaks only as of today, May 08, 2020, 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 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 Main Street's CEO, Dwayne Hyzak. Dwayne?

Thanks, Zach. Good morning, everyone 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. Given the significant and unprecedented impacts to our society and economy over the last few months, the content for today's call will be a little different than our historical calls as we provide some details regarding the impact to date of COVID-19 on our business and the businesses of our portfolio companies and our collective responses. For today's call I'll start off with initial comments regarding the impact of COVID-19. I'll then comment on our overall performance and results in the first quarter, our dividend announcements and future plans, our investment activities and current investment pipeline and our investment portfolio before I conclude with comments regarding recent share purchases by our senior management team and Board of Directors. Following my comments, David and Brent will provide additional comments on our investment strategy and additional details on our investment portfolio and financial results after which we'll be happy to take your questions. We want to start by saying that all of us at Main Street hope that you and your loved ones are safe and healthy. We recognize that the last few months have been a very challenging time for everyone and that the near-term future continues to include significant uncertainty. We send our thought and best wishes to those individuals that have been most negatively impacted by the COVID-19 pandemic and our most sincere gratitude to those individuals who have sacrificed and risked their…

Thanks Duane and good morning, everyone. As Dwayne highlighted in his remarks, this is a challenging quarter for Main Street as we enter portfolio company partners prepared for and respond to the sudden and unexpected negative impact created by COVID19. Despite this negative impact, our intentional and purposeful diversified investment strategy has served us well during this time. It has been the cornerstone of our philosophy over our nearly 13 years as a public company and the benefit of our permanent capital structure. We believe our diversification by issuer industry and market vintage and geography provides our shareholders attractive structural benefits. Some of these benefits come from our ability to be a long term to permanent capital provider as evident by the fact that 22 of our lower middle market companies have been in our portfolio for longer than eight years including 12 relationships lasting longer than a decade. Our long-term holding period results in a very conservative capitalization for the vast majority of our lower middle market companies and we benefit from strong relationships with the management teams of our portfolio of companies were oftentimes we are minority equity investors. As of March 31 our investment portfolio had investments in 193 portfolio companies spanning across more than 40 industries. Our largest portfolio company represented approximately 3% of our total investment portfolio fair value at quarter end and 4.4% of our total investment income for the last 12 months. Most notably the majority of our portfolio investments represented less than 1% of our asset and our income. Main Street's overall conservative capitalization allowed us to focus on our portfolio company needs instead of having specifically turned our attention to our own capital structure during this time of market dislocation. Since early March, we've been working very closely with our lower…

Thanks David. Our total investment income in the first quarter decreased over the same period in 2019 to a total of $56.2 million primarily driven by a decrease in dividend income and interest income as both areas were negatively impacted by COVID19. The change in total investment income is after an increase of $2.4 million related to higher levels of accelerated income for certain debt investments when compared to the first quarter of last year. Our operating expenses excluding non-cash share-based compensation expense decreased by $2.8 million over the same period the prior year to a total of $16.8 million, primarily related to a decrease in cash incentive compensation levels and a decrease of deferred compensation expense due to the decline in fair value of our deferred compensation plan assets. The ratio of our total operating expenses excluding interest expense as a percentage of average total assets was 1.1% for the first quarter on an annualized basis. This low cost percentage highlights our unique internally managed structure and alignment with our stakeholders. Our ability to leverage our efficient operating structure during this challenging environment offset a significant portion of the decline in investment income and resulted in distributable net investment income of $39.4 million or $0.61 per share. The activities of our external investment manager benefited our net investment income by approximately $2.3 million through the allocation of $1.6 million of operating expenses for services we provided to it and $0.7 million of dividend income. We recorded a net realized loss of $22.4 million during the first quarter, primarily relating to realized losses from the exit of a lower middle market investment and the partial exit of two other lower middle market investments. We recorded net annualized depreciation on investment portfolio of $211.6 million, primarily resulting from the impact of…

[Operator instructions] Our first question is from Matt Tjaden with Raymond James.

First question I guess kind of been broad strokes were there any industries in the quarter or post quarter end that were more hit by COVID and the pandemic affects then was expected beyond kind of the usual suspects like leisure, retail or restaurants and so forth?

I would say that no huge surprises outside of the industries that you referenced that you would expect there would have been significantly impacted. I would say that if you look for outliers, it would be more geographic where you had stronger shelter in place or stay-at-home mandates that require companies to shut down either totally or to a greater extent. So I that would've been the outlier. Outside of that lower I would say it would be the industry that you expect it to be impacted.

What about in terms of can you give any scale as to whether or not there were any amendment relief requested in the quarter or post quarter end and whether or not that has accelerated through the first month of the quarter?

I would say there has been some activity there and I would say most of the activity has been around deferrals on a temporary basis for either interest or some type of principle repayment. I would say our approach which is consistent with what I think you would have always been is fair to request there. We're looking for the company and its equity investors to do something in tandem with this or as part of that request they've got to do something whether that cost cutting internally at the company if they're owners of the business and also management or to the private equity group in our private loan or middle market portfolio is making some other confession to go along with that request.

My apologies. Last question just briefly on the LMM portfolio, could you give any scale as to whether or not companies have been applying for the Paycheck Protection Program and if so, how many have applied and kind of what the receivable rate has been on such, thank you?

So I would rather say on this, the PPP loan program, yes, I think given our primary focus on the lower middle market and the profiles of these companies which you would be a profile given the size and scale of the companies both from an EBITDA and revenue standpoint and from an employee standpoint safe to assume that a significant number of our companies would be eligible for the PPP loan program. I would also say, I would also remind people that we are typically the minority equity investor in most of our lower middle market companies and in these situations it's not another institutional investor, another private equity group that’s the majority owner. It's typically going to be individuals and most commonly the individuals that are on the management team. So for these companies when you look at their application for the PPP loans, ultimately it's not solely our decision on whether they decide to access the loans and I would also say that in these companies cases, clearly they've been impacted by COVID-19 and I think in situations where the companies have been more significantly impacted, these PPP loans are a very positive source of liquidity to help those companies through the issues associated with the pandemic. The other thing that I think we point out is that PPP loans are just part of the stimulus opportunities that are out there and I would say that the vast majority of our companies are not just in the lower middle market but also in the private loan and middle market portfolios, we believe that they should be and we believe that they are actively evaluating all these programs including some of the programs under the payroll tax areas we can either use the credits or look for deferrals. There is also a number of state and local opportunities that our companies are exploring and then you also have a reinstatement of the tax net operating loss carry back that can provide significant benefits to our company. So we expect they are acting on all these opportunities and when we can, we're helping them evaluate the opportunities.

[Operator instructions] Our next question is from Kenneth Lee with RBC Capital Markets.

Just one on the valuation process, presumably most of the net unrealized losses in the quarter were driven by widening credit spreads, but just wondering if you could just frame out for us how much of any of the idiosyncratic COVID19 related adjustments were factored into the valuation, thank you?

I would say as part of our valuation process, we definitely would have been looking at the impacts of COVID across the portfolio both in the lower middle market and our private loan middle market portfolios and I think that as you would probably expect, the impact of COVID-19 was very significant and that's reflected in the markets that we have in our earnings release and our 10-Q you will be able to see the detailed portfolio. I think the impact of credit spreads was most impactful on the middle market and private loan portfolios and specifically in the private loan portfolio, we think there's a significant portion that unrealized appreciation that as spreads recover and we've already seen some recovery here in the first part of the second quarter, we should see some of that depreciation come back to us in terms of flipping back into unrealized appreciation.

And then one follow-up if I may, just given the uncertainty, the economic uncertainty wondering if you could just give us any kind of thought on potential trends for dividend income that you could be receiving from your LMM portfolio within the near-term, thanks.

I would say it's probably not surprise to anybody given the impacts of COVID-19 all companies including the companies in our lower middle market portfolio have taken a very hard look at liquidity and they're making sure that they've got a capital structure and liquidity position that is conservative enough to withstand or work through the challenges associated with COVID-19. So when you look at our lower middle market companies and I think if you look at our first quarter results, you would have seen that impact coming through in the dividend income that we received from our portfolio of companies and I think we expect that you'll continue to see that for the second and third quarters and the long-term results will be really dictated by how long this COVID-19 pandemic lasts and how long lot of these shelter in place and stay-at-home mandates last.

Our next question is from Michael Ramirez with SunTrust.

I apologize if I missed this or it was discussed earlier, just curious how much of your interest income collected during the quarter was classified as PIK and how does that compare to last quarter?

I think interest was around 2% this quarter and it increased by about not quite a percent during the quarter as we agreed to work with some of our companies to let them switch to PIK for certain period of time as we work through this pandemic.

So that I believe last quarter is about 2% so relatively flat I believe I guess.

Yeah, I think it around -- it was like 1.8% believe last quarter. I believe it might be close to 2.5% this quarter. So it wasn't an huge jump overall percent.

Follow-up if I may, so it's quite understandable that you're not going to provide your usual guidance, but thanks for the color regarding around the dividend, interest income and fees, just curious maybe more of a high level with the uncertainty of portfolio of future prospects and ability to pay interest income and dividend and fees you could collect on your origination, what are your thoughts about sort of temporarily possibly moving toward a variable dividend policy?

Mike, I think if you look at our actions over the last month or so, we've taken steps to not recommend our board that we continue to pay the semiannual supplemental and I think with that action and our current position across the portfolio and our your current spillover income position, I think at least for the next couple of quarters we feel really good about our ability to maintain a stable monthly dividend. That's our plan and our intent. I think again if the COVID-19 pandemic issues last longer, we'll obviously have to re-evaluate that over the next couple of quarters, but I think given everything that we're looking at today across all factors we feel pretty good about that monthly dividend and that's what we're trying to communicate in our previous comments.

Okay. That's helpful and I think that's all for me. Thanks guys.

Thank you. This concludes the question-and-answer session. I will turn the floor back to management for closing remarks.

We thank everyone for joining us again for our conference call. We look forward to talking again in few months here and we hope everyone remains as safe and healthy as possible. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines and have a great day.