Greetings, and welcome to the Main Street Capital Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's Third Quarter 2025 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's third quarter financial and operating results. This document is available on the Investor Relations section of the company's website. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 14. 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, November 7, 2025, 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 or DNII. DNII is net investment income or NII, as determined in accordance with U.S. generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses. Management believes that presenting DNII and the related per share amount are useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since noncash compensation expenses do not result in a net cash impact to Main Street upon settlement. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value or NAV and return on equity or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by average quarterly NAV. Please note that 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.

Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call, and we hope that everyone is doing well. On today's call, David, Ryan and I will provide you with our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the third quarter, which resulted in another quarter of strong operating results, highlighted by an annualized return on equity of 17%, favorable levels of DNII per share, and a new record for NAV per share for the 13th consecutive quarter. We believe that these continued strong results demonstrate the sustained strength of our overall platform, the benefits of our differentiated and diversified investment strategies, and the unique contributions of our asset management business, along with the depth and quality of our portfolio companies, particularly our existing lower middle market portfolio companies. We are also pleased that we further strengthened our capital structure during the quarter, which Ryan will discuss in more detail. We continue to maintain a very strong liquidity position and conservative leverage profile, and we are well positioned for the continued growth of our investment portfolio. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure, will allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the third quarter, combined with our positive outlook for the fourth quarter, resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the impact of net fair value increases in both our lower middle market and private loan investment portfolios, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments and feedback from our portfolio company management teams, we expect these contributions to continue to be strong for the next few quarters. We also continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We're also excited about the new and follow-on investments we made in our lower middle market portfolio companies during the quarter, which resulted in the addition of 3 new portfolio companies and a net increase in lower middle market investments of $61 million. Consistent with our guidance last quarter, our private loan investment activity in the quarter continued to be slower than our expected normal quarterly activity, resulting in a net decrease in private loan investments of $69 million. In addition to the potential for favorable investment realizations in our lower middle market portfolio, we also recently exited one of our private loan portfolio company equity investments and have a second exit in process, subject to customary closing conditions and regulatory approvals with these activities representing total realized gains of at least $35 million, both at meaningful premiums to our quarter end fair values. David will discuss our investment activity in more detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing. We also continue to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the third quarter, resulting in significant incentive fee income for our asset management business for the 12th consecutive quarter and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage as we execute our investment strategies, and we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund. We also remain excited about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager and our largest asset management business client, which maintains meaningful current liquidity and will benefit from a significant increase to its regulatory debt capacity at the end of January 2026. In addition to deploying the fund's current liquidity into new private loan investments, we also continue to focus on maximizing the benefits of the fund's legacy lower middle market investment portfolio and are excited about the near-term expectations for additional realized value creation over the next few quarters. Based on our results for the third quarter, combined with our favorable outlook in each of our primary investment strategies and for our asset management business, earlier this week, our Board declared a supplemental dividend of $0.30 per share payable in December, representing our 17th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the first quarter of 2026 to $0.26 per share. These first quarter regular monthly dividends represent a 4% increase from the regular monthly dividends paid in the first quarter of 2025. The supplemental dividend for December is a result of our strong performance in the third quarter and our near-term expectations for additional net realized gains and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 40% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the fourth quarter, we currently anticipate proposing an additional significant supplemental dividend payable in March 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as above average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide unique and flexible financing solutions to lower middle market companies and their owners and management teams and our differentiated long-term to permanent holding periods represent an even more attractive solution to the needs of many lower middle market companies given the current economic environment, and we are confident in our expectations for strong lower middle market investment activity in the fourth quarter. In addition, we continue to have an increased number of existing portfolio companies that are actively executing acquisition growth strategies that we anticipate will provide attractive follow-on investment opportunities for us in the near term and significant value creation opportunities for these portfolio companies in the longer term, consistent with the successes we've demonstrated and experienced with other portfolio companies. We also continue to be pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business over the last few years. Our investment pipeline has increased significantly since our last conference call. And as of today, I'll characterize our private loan investment pipeline as above average.

Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe our strong third quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach, and our unique operating model. We are very pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive third quarter financial results. Despite the continued heightened level of concern and uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current climate. Each quarter, we try to highlight a key aspect of our investment strategy and differentiated approach. For today's call, we thought it would be useful to spend some time discussing the support we provide to our lower middle market portfolio companies. In addition to our ongoing investment management activities and the managerial assistance we offer our lower middle market portfolio companies, we are also happy to host an annual event for the leaders of our lower middle market portfolio companies called the Main Street President's Meeting, which we recently hosted for the ninth time. For those of you who are not familiar, our President's Meeting is an annual event that we host for our lower middle market portfolio company leaders to network, build relationships, share best practices, learn from each other and from third-party speakers and benefit from being a part of Main Street's family of portfolio companies. Based on post-event feedback from our lower middle market portfolio company executives, the event is highly valued by the participants and the event improves each year as we refine our agenda based on the feedback we receive. Topics covered at our most recent event included artificial intelligence, use cases and best practices, disaster recovery planning and enterprise risk management, adding value through executing add-on acquisitions, linking incentive compensation to performance, and succession planning. As a result of this annual event, our portfolio companies have increasingly worked together, referred business to each other, utilized each other's operational resources, and formed long-term relationships that we believe are invaluable. As an example, one valuable topic we covered this year was best practices for utilizing artificial intelligence in lower middle market businesses. Based on our surveying as part of the event, the vast majority of our portfolio companies are engaged in utilizing AI and are actively seeking additional ways to use AI tools in their businesses. This topic was enhanced by breakout sessions led by several of our portfolio company CEOs who shared specific examples of AI tools they use and the benefits they are achieving from utilizing AI in their businesses. Q&A from the audience was robust, and we are highly encouraged about the benefits that our lower middle market portfolio companies can achieve in the future from their continued adoption of AI. Another panel we received very positive feedback on this year was focused on executing proprietary strategic add-on acquisitions. The panel was comprised of another peer group of our portfolio company CEOs with extensive experience in this area, who led a discussion on the benefits of pursuing add-on acquisitions, developing and executing a successful acquisition plan, strategies for creating shareholder value through these transactions and lessons learned while sourcing and executing an acquisition growth strategy. We are highly confident that the lessons learned shared by the panelists will be very helpful for other portfolio company executives to consider as they execute their own acquisition strategies in the future. The engagement from the audience during both sessions was robust and led to several post-event discussions, including the sharing of key third-party resources and best practices that we believe will ultimately improve the future financial results and operating performance for our portfolio companies. Given our primary focus on our lower middle market investment strategy and the unique benefits it can provide both to us and our management team partners at our portfolio companies, we are excited to bring together the key leadership from our lower middle market portfolio companies at our Annual Presidents' Day. We always leave this event very excited about the quality of the individuals leading our lower middle market portfolio companies and the future value creation that we expect they and their teams can generate for a mutual benefit in the future. We left this year's event more excited than ever. Now turning to the overall composition of results from our investment portfolio as of September 30, we continue to maintain a highly diversified portfolio with investments in 185 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 4.8% of our total investment income for the trailing 12-month period and 3.6% of our total investment portfolio fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our investment activity in the third quarter included total investments in our lower middle market portfolio of $106 million, including total investments of $69 million in 3 new lower middle market portfolio companies, which after aggregate repayments, return of invested equity capital, and a decrease in cost basis due to realized losses resulted in a net increase in our lower middle market portfolio of $61 million. Since quarter end, we have closed an additional lower middle market platform investment, representing an additional $81 million of invested capital, and we have several other expected near-term investments. Driven by the capabilities and relationships of our private credit team, we also completed $113 million in total private loan investments during the third quarter, which after aggregate repayments and a decrease in cost basis due to realized losses resulted in a net decrease in our private loan portfolio of $69 million. At the end of the third quarter, our lower middle market portfolio included investments in 88 companies representing $2.8 billion of fair value, which is over 28% above our cost basis. We had 86 companies in our private loan portfolio, representing $1.9 billion of fair value. The total investment portfolio at fair value at quarter end was 18% above the related cost basis. In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term results and goals. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday.

Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the third quarter, which included favorable levels of NII per share and DNII per share and another increase in NAV per share. Our total investment income for the third quarter was $139.8 million, increasing by $3 million or 2.2% over the third quarter of 2024 and decreasing by $4.1 million or 2.9% from the second quarter of 2025. Interest income decreased by $7.3 million from a year ago and increased by $2.4 million from the second quarter of 2025. The decrease from prior year was principally attributable to a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and decreases in interest rate spreads on existing debt investments and an increase in investments on nonaccrual status, partially offset by the impact of increased net investment activity. The increase from prior quarter was driven primarily by the impact of increased net investment activity and a decrease in investments on nonaccrual status. Dividend income increased by $8 million when compared to a year ago, including a $600,000 increase in unusual or nonrecurring dividends and decreased by $6.6 million from the second quarter including a $4.2 million decrease in unusual or nonrecurring dividends. The increase in dividend income from prior year is primarily a result of the continued underlying positive performance of our lower middle market portfolio companies. The decrease in dividend income from the second quarter is primarily due to nonrecurring dividends received from one of our lower middle market portfolio companies in the second quarter. Fee income increased by $2.2 million from a year ago and was consistent with fee income from the second quarter. The increase from prior year was primarily due to higher closing fees on new and follow-on investments and an increase in exit and prepayment fees from investment activity. Fee income considered nonrecurring increased by $900,000 from a year ago and by $500,000 from the second quarter of 2025. The third quarter included higher levels of income considered less consistent or nonrecurring in nature in comparison to the prior year, including interest income from accelerated prepayment repricing and other activity, accelerated fee income, and dividends from our equity investments. In the aggregate, these items totaled $4.3 million and were $2.1 million or $0.02 per share higher than the third quarter of 2024. Income considered less consistent or nonrecurring in nature decreased from the second quarter by $3.8 million or $0.04 per share, primarily due to a decrease in dividends from one of our lower middle market portfolio companies. The current quarter's less consistent or nonrecurring income was in line with the prior 4-year average. Our operating expenses increased by $1.1 million over the third quarter of 2024 and decreased by $300,000 from the second quarter. The increase in operating expenses from the prior year was largely driven by increases in cash compensation-related expenses and share-based compensation expenses, partially offset by a decrease in interest expense. The decrease in interest expense from a year ago was primarily driven by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in the benchmark index interest rates and a decrease in the applicable margin rates resulting from the amendments of our credit facilities in April 2025, partially offset by an increase in average borrowings to fund the growth of our investment portfolio. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets, was 1.4% for the quarter on an annualized basis and 1.3% for the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.8 million to our net investment income during the third quarter, representing an increase of $900,000 from the same quarter a year ago and was consistent with the contribution to our net investment income in the second quarter. Our investment manager ended the quarter with total assets under management of $1.6 billion. During the quarter, we recorded net fair value appreciation, including net realized losses and net unrealized depreciation on the investment portfolio of $43.9 million. This increase was primarily driven by net fair value appreciation in our lower middle market and private loan investment portfolios, partially offset by net fair value depreciation in our external investment manager. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance of certain of our portfolio companies. The net fair value appreciation in our private loan portfolio was primarily driven by several specific portfolio companies and decreases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes, partially offset by increased incentive fee income. We recognized net losses of $19.1 million in the quarter. The realized losses recognized were primarily the result of the restructures of 2 private loan investments and the full exits of 2 lower middle market investments, which were partially offset by a realized gain on the full exit of a lower middle market investment and the partial exit of another portfolio investment. We ended the third quarter with investments on nonaccrual status comprising approximately 1.2% of the total investment portfolio at fair value and approximately 3.6% at cost. Net asset value, or NAV, increased by $0.48 per share over the second quarter and by $2.21 per share or 7.2% when compared to a year ago, to a record NAV per share of $32.78 at quarter end. Our regulatory debt-to-equity leverage calculated as total debt, excluding SBIC debentures divided by NAV was 0.62x and our regulatory asset coverage ratio was 2.61x, and these ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9x and 2.25 to 2.1x, respectively. We continue to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity and efficiency. In August 2025, we issued $350 million of unsecured investment-grade notes maturing in August 2028 with an interest rate of 5.4%. In September 2025, we repaid the $150 million due on our December 2025 notes prior to their maturity and without any fees or penalties. Given our current liquidity position and recent investment activity, we continue to be less active during the third quarter in our ATM program, raising net proceeds of $6.7 million from equity issuances. After giving effect to the capital activities in the third quarter of 2025, we entered the fourth quarter of 2025 with strong liquidity, including cash and unused capacity under our credit facilities totaling over $1.5 billion with a near-term debt maturity of $500 million in July 2026. We continue to believe that our conservative leverage, strong liquidity, and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future, allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Because of the market uncertainty, we expect to continue to operate over the next few quarters at leverage levels more conservative than our long-term targets. Coming back to our operating results, DNII before taxes per share for the quarter of $1.07 was $0.01 higher than DNII before taxes per share for the third quarter of last year and $0.04 lower than DNII before taxes per share for the second quarter. Looking forward, we expect fourth quarter of 2025 DNII before taxes of at least $1.05 per share with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions.

Our first question comes from Arren Cyganovich with Truist Securities.

In your prepared remarks, you indicated that the pipeline for investment activity is actually above average for both and that's a notable change for the private loan portfolio. Pipeline from last quarter. Maybe just talk a little bit about the sustainability of that and what necessarily kind of changed in the private loan part of the focus of the middle market?

Sure, Arren, I'll give a few comments, and I'll let Nick add on if he has anything he wants to add. But I'd say this quarter, we've just seen the pipeline grow significantly. I think overall, from a market standpoint, from our perspective, you've seen an increase in overall activity, and we've seen that come in both at the front end of the funnel and in transactions that we're working on that we expect to close either in the fourth quarter or the first quarter. So overall, I think it's been driven by more market activity. I think the quality of the transactions, consistency of the transactions with what we've done historically continues to be the same. So I think it's really driven more by market activity. But I'll let Nick add on any additional color.

Yes. I believe it started the week after the last earnings call, so it's been ongoing for a significant period now, and we expect it to persist into 2026. This trend is reflected in both the volume of deals and the overall deal sizes. Each transaction feels more tangible and is likely to close compared to last year when many deals seemed stagnant, and we were merely going back and forth on letters of intent without reaching closed transactions.

Got it. You an improvement in credit quality in the quarter, at least from a statistical standpoint, maybe you could talk a little bit to give us a little bit more color about what was driving that?

Yes, Arren, I wouldn't say there's anything specific. I think overall, in both the lower middle market and private loan portfolios, the companies are doing well. There's always some outliers, both in terms of companies doing exceptionally well and some underperforming when you've got a large diversified portfolio like we have. But I wouldn't say there's anything specific quarter-over-quarter that changed. It's just overall the portfolio continues to perform at a high level.

Our next question comes from a representative at Raymond James.

Going back to the private loan portfolio. Can you talk a little bit more about what was driving the $69 million net decrease? Was it primarily driven by elevated repayments, the slowing deal flow or just less attractive opportunities in the current market environment? Any like additional color you can provide there?

Sure. I'd say it was a combination probably of all 3. I think in general, as we had communicated on the last call, for the third quarter, our investment activity was a little bit below our expectations. We also had more than expected or more than normal repayment or prepayment activity. So I'd say it was a combination of those 2 factors that drove the decrease. I think as Nick said, we feel good about the pipeline today in addition to the new origination activity being higher from an expectation standpoint. I think some of the prepayment activity is a little bit lighter. So I think it's just kind of a point in time in the third quarter; you had both the lower originations and higher repayments that both occurred in the same quarter.

The only thing I'd add out there is there's probably a handful of deals that we expected to close late in the quarter that really got pushed into the fourth quarter, and they're still going to close. It just got pushed into this quarter versus the third quarter. Overall, there was a lighter origination, but some of it is just timing.

Okay. And do you see any of these trends shifting going into 4Q? Or is it more of the same?

I think overall, as Nick said, I think we feel good about the new investment expectations for Q4. I think we also feel pretty good about expectations for Q1 just given the strength of the pipeline, both in the early stages and in the more developed stages. Looking out longer than that, it really is going to come down to how active the private equity industry as a whole is. But I think for the near term, I think we feel pretty good about it.

Our next question comes from Doug Harter with UBS.

This is Cory Johnson for Doug. The compensation expense was slightly higher this quarter. In the press release, you mentioned that this was due to an increase in headcount to support portfolio and asset management activities. Can you elaborate on what kinds of roles these are? Should we expect headcount to continue to grow throughout this year and into next year?

Thank you for the question and for joining us this morning. Across our platform in terms of investment, particularly in the lower middle market and private loans, we are actively seeking ways to expand our teams and investment professionals. We find both market opportunities to be very appealing. The lower middle market requires more manpower due to the nature of its activities, resembling a private equity investment strategy. Therefore, we are constantly looking to add resources in that area, and we maintain that stance today. Consequently, some of the headcount and compensation increase will be focused there. Additionally, our private loan team has seen significant growth, not only for Main Street’s portfolio and balance sheet but also through our asset management business, which we expect to continue expanding. This growth will primarily focus on the private loan and private credit sectors. Nick and his team are also working on expanding our presence in that area. Overall, we are looking to grow on both fronts.

All right. And then I guess do you happen to have any targets for your RIA in terms of like AUM for 2026 that you could possibly share? Is there a range or anything at all that you're looking to hit?

We haven't provided any specific guidance, but we aim to grow assets under management. We expect to achieve this in two ways. First, our largest asset management business client, MSC Income Fund, a publicly traded BDC, may see a substantial increase in its regulatory leverage capacity at the end of January 2026. We anticipate expanding that leverage capacity, and the resulting capital will be invested in the private loan and private credit sector, which we believe will be a significant catalyst as we move into 2026. Additionally, our second private fund, MS Private Loan Fund II, is still in the early stages of investment deployment but is expected to ramp up substantially in 2026 as well. However, we haven't provided specific guidance on how much we anticipate AUM will grow in 2026.

And if I could just ask one more. You spoke about how your LMM companies are sort of talking about AI and sort of how to integrate that. Have you seen, I guess, in those conversations, have companies been mentioning that AI is making significant efficiency gains? And are they showing up at all in like the valuations that perhaps that you might be able to realize either now? Or do you expect that to possibly make a difference in upcoming quarters, something soon?

Sure, Cory. I'd say it's more forward-looking. I don't think we've seen significant benefit from AI from a historical standpoint or any of the valuations that we have today. I do think we're excited, as our portfolio companies and their management teams are, that there's a lot of opportunities through the implementation of AI. So I think we're excited about that, but it would be more forward-looking as opposed to historical.

This now concludes our question-and-answer session. And I would now like to turn the floor back over to management for closing comments.

I just want to say thank you again to everyone for joining us this morning. I think it will be a few months before we talk to you again. So hopefully, everyone has a happy holidays, and we look forward to talking to you again with our next update call in February after the results for the fourth quarter and the year-end for Main Street. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.