Main Street Capital Q2 2025 Earnings Report

Main Street Capital EPS Results

• Actual EPS: $0.99
• Consensus EPS: $0.99
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Main Street Capital Revenue Results

• Actual Revenue: $143.97 million
• Expected Revenue: $137.23 million
• Beat/Miss: Beat by +$6.75 million
• YoY Revenue Growth: N/A

Main Street Capital Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Friday, August 8, 2025
• Conference Call Time: 10:00AM ET

Main Street Capital (NYSE:MAIN) is a business development company specializes in equity capital to lower middle market companies. The firm specializing in recapitalizations, management buyouts, refinancing, family estate planning, management buyouts, refinancing, industry consolidation, mature, later stage emerging growth. The firm also provides debt capital to middle market companies for acquisitions, management buyouts, growth financings, recapitalizations, and refinancing. The firm seeks to partner with entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its lower middle market portfolio. It prefers to invest in air freight and logistics, auto components, building products, chemicals, commercial services, computers, construction and engineering, consumer finance, consumer services, electronic equipment, energy equipment and services, financial services, health care equipment, health care providers, hotels, restaurants, and leisure, internet software and services, IT Services, machinery, oil, gas and consumable fuels, paper and forest products, professional and industrial services, road and rail, software, specialty retail, telecommunication, consumer discretionary, energy, materials, technology, and transportation. The firm typically invests in lower middle market companies generally with annual revenues between $10 million and $150 million. It prefers to invest in ranging between $5 million and $100 million in equity investment and enterprise value in ranging between $3 million and $20 million. The firm typically prefers to invest in the range of $5 million and $150 million per transaction in debt investment value and in the range of $3 million and $75 million in annual EBITDA in between $3 million and $25 million in lower middle market $5 million and $75 million in credit solution. The firm's middle market debt investments are made in businesses that are generally larger in size than its lower middle market portfolio companies. It takes 5 percent minority and up to 50 percent majority equity investments. Main Street Capital Corporation was founded in 2007 and is based in Houston, Texas with an additional office in Chojnów, Poland.

Main Street Capital Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Main Street delivered 17.1% annualized ROE, DNII per share above its dividend payout, a record NAV per share for the 12th quarter, and its largest realized gain ever in Q2.
• Positive Sentiment: Lower middle market equity exits yielded a $53.7 M gain on Pearl Meyer (69% IRR, 7.7× MOIC) and a $55.5 M gain on Heritage Vet Partners (72% IRR, 10× MOIC).
• Negative Sentiment: Private loan portfolio faced underperformance in consumer‐exposed credits, leading to net fair value depreciation and nonaccruals at 2.1% of fair value.
• Negative Sentiment: New private loan originations slowed, with a $35 M net decrease due to subdued private equity deal flow and pricing challenges.
• Positive Sentiment: The company maintains a conservative capital structure (0.65× debt/equity, 2.53× asset coverage) and over $1.3 B in liquidity, positioning it well to fund upcoming maturities.

Presentation

[Operator]

Greetings. Welcome to Main Street Capital's Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

[Operator]

It is now my pleasure to introduce your host, Zach Vaughan. Please, Mr. Vaughan, proceed.

[Zach Vaughan, Vice President at Dennard Lascar Investor Relations]

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's second quarter twenty twenty five earnings conference call. Joining me today with prepared comments are Duane Hejiak, Chief Executive Officer David Magdal, President and Chief Investment Officer and Ryan Nelson, Chief Financial Officer. Also participating in the Q and A portion of the call is Nick Mazur, 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 second quarter financial and operating results.

[Zach Vaughan, Vice President at Dennard Lascar Investor Relations]

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 August 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 homepage. Please note that information reported on this call speaks only as of today, 08/08/2025, and therefore, you are advised that any time sensitive information may no longer be accurate at the time of any replay listening or transcript reading.

[Zach Vaughan, Vice President at Dennard Lascar Investor Relations]

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.

[Zach Vaughan, Vice President at Dennard Lascar Investor Relations]

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 non cash 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 non cash compensation expenses do not result in a net cash impact to Main Street upon settlement.

[Zach Vaughan, Vice President at Dennard Lascar Investor Relations]

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. The industry defines ROE as the net increase in net assets resulting from operations divided by average quarterly NAV. Please note that information discussed on this call, including information related to portfolio companies, was derived from third party sources and has not been independently verified.

[Zach Vaughan, Vice President at Dennard Lascar Investor Relations]

And now I'll turn the call over to Main Street's CEO, Duane Eshott.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone's doing well. On today's call, David, Ryan, and I will provide you with our key quarterly updates, after which we will be happy to take your questions.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

We are pleased with our performance in the second quarter, which resulted in another quarter of strong operating results, highlighted by an annualized return on equity of 17.1%, DNII per share that continued to exceed the dividends paid to our shareholders, a new record for NAV per share for the twelfth consecutive quarter, and our largest realized gain in Main Street's history. We believe these continued strong results demonstrate the sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business, and the continued underlying strength and quality of our portfolio companies, particularly those in our highly unique lower middle market investment strategy. We remain confident that our unique investment income and value creation drivers, together with our cost efficient operations and conservative capital structure, allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the second quarter, combined with our current expectations for the third quarter, resulted in our recommendations to our Board of Directors for 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 our asset management business and our lower middle market investment portfolio and the accretive impact of our equity issuances in the quarter, which Ryan will discuss in more detail. The majority of our lower middle market portfolio companies continued their favorable performance, resulting in another quarter of strong dividend income contributions and continued net fair value appreciation in our lower middle market equity investments.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

As discussed on our call last quarter, and as David will discuss in more detail, we are pleased to have closed the partial exit of our investments in Heritage Vet Partners in the second quarter among the company's majority recapitalization with a new financial sponsor, resulting in the largest realized gain in Main Street's history and at a meaningful premium to our March 31 fair value. As noted in prior quarters, we have experienced underperformance in certain of our private loan portfolio companies, particularly those with direct consumer discretionary spending exposure, and this is having a negative impact on the contributions from our private loan portfolio. We continue to actively monitor these investments and are working with the portfolio companies to achieve the best possible outcome for each investment. Now turning to our investment activity. We are excited about the new and follow on investments we made in our lower middle market portfolio companies during the quarter, which resulted in a net increase in lower middle market investments of $108,000,000 Our private loan investment activity in the quarter was slower than our expected normal quarterly activity, primarily due to lower overall levels of private equity industry investment activity, resulting in a net decrease in private loan investments of $35,000,000 David will discuss our investment activity for the quarter in more detail.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the future growth of our investment portfolio, and we are excited about the current opportunities we are seeing, particularly those in our lower middle market investment strategy. We have also continued 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 second quarter, resulting in significant incentive fee income for our asset management business for the eleventh 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, and 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 the intimacy Income Fund, a publicly traded BDC advised by our external investment manager, and our largest asset management business client.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Through the increased current liquidity and path to additional debt capacity obtained through the Fund's successful listing on the New York Stock Exchange and the related equity offering in January. 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. We remain excited about the opportunity for significant future benefits to both the Fund's shareholders and our asset management business as the Fund executes its growth plans. Based upon our results for the second quarter, combined with our current 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 September, representing our sixteenth consecutive quarterly supplemental dividend, and regular monthly dividends for the 2025 of $0.02 $55 per share. The fourth quarter regular monthly dividends are payable in each of October, November and December, and represent a 4% increase from the regular monthly dividends paid in the 2024.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

The supplemental dividend for September is a result of our strong performance in the second quarter, and will result in total supplemental dividends paid during the trailing twelve month period of $1.2 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 significantly exceeds our regular monthly dividends paid in future quarters, and we maintain a stable to positive NAV. Based upon our expectations for continued favorable performance in the third quarter, we currently anticipate proposing an additional significant supplemental dividend payable in December 2025. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as above average.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Consistent with our experience in prior periods of broad economic uncertainty, we believe that the unique and flexible financing solutions that we can provide 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 in the current economic environment. And we are confident in our expectations for strong lower middle market investment activity over the remainder of 2025. In addition, we have an increased number of existing portfolio companies that are actively executing on acquisition growth strategies that we hope will provide attractive follow on investment opportunities for us in the near term future and significant value creation opportunities for these portfolio companies in the longer term future, consistent with the successes we've 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. As of today, given the continued slower overall private equity industry investment activities, I would characterize our private loan investment pipeline as slightly below average.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

With that, I will turn the call over to David.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

Thanks, Duane, and good morning, everyone. As Duane highlighted in his remarks, we believe that our strong second quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach and our unique operating model. We are pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive second 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 in the current climate. As we have previously discussed, we believe that one of the primary drivers of our long term success has been and will continue to be our focus on investing in both debt and equity investments in the underserved lower middle market.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

Most notably and uniquely, our lower middle market strategy provides attractive leverage points and yields on our first lien debt investments while also creating a true partnership with the management teams of our portfolio companies through our flexible equity ownership positions. In short, we believe that this approach provides significant downside protection through our first lien debt investments while still providing the benefits of alignment and significant upside potential with our equity investments. Each quarter, we try to highlight different key aspects of our investment strategy and differentiated approach that allow us to consistently produce best in class results. For today's call, I am going to spend some time discussing we received from the equity investments in our lower middle market strategy. As a result of our lower middle market equity investments, in the 2024 and the 2025, we were able to generate approximately $109,000,000 of realized gains from the exits of our equity investments in two lower middle market portfolio companies.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

These two realizations included a $53,700,000 realized gain on Pearl Meyer, which represented an annualized internal rate of return of 69% and a 7.7 times money invested on our equity investment and a $55,500,000 realized gain in Heritage Vet Partners, which represented an annualized internal rate of return of 72% and a 10 times money invested in our equity investment. Realized gains like these provide an offset against the inevitable credit losses that will be experienced when investing primarily in non investment grade debt, consistent with the debt investments executed by other BDCs and private credit funds. Based upon our historical experience and current portfolio, our expectation is that our future net realized gains on lower middle market equity investments will exceed the expected credit losses which may result from our current investment strategies. Another advantage of having equity ownership positions in our lower middle market portfolio companies is our ability to provide additional growth capital to our companies as they find opportunities to expand both organically and through acquisitions. Both Pearl Meyer and Heritage Vet Partners executed multiple value creating acquisitions almost exclusively with additional debt capital that we provided.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

Similar to our experiences with Pearl Meyer and Heritage Vet Partners, a meaningful portion of our lower middle market portfolio companies also provide us the opportunity to invest additional capital in our highest performing, proven portfolio companies as they work to grow through acquisitions or other growth strategies. As a result of these follow on investments, both we and our portfolio company management team partners are able to benefit from the significant value creation achieved by these acquisitions. We have multiple examples in which we have greatly increased our initial investment sizes in our highest performing lower middle market portfolio companies. We look forward to continuing to execute this as part of our strategy in the future. In addition to the benefits received from net realized gains and net unrealized appreciation, we also benefit from dividends received from our lower middle market equity investments.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

As we have stated in the past, as our lower middle market portfolio companies perform over time, they naturally deleverage with free cash flow generated from operations, which provides the opportunity for those companies to pay dividends to their equity owners. Additionally, our stated long term to permanent holding period for many of our lower middle market portfolio companies enhances our ability to benefit from the long term free cash flow generation and resulting dividends received from these companies. We are pleased to report that in the second quarter we continued to receive the benefit of significant dividends from our lower middle market equity investments. While our dividend income can be lumpy on a quarter to quarter basis given changes in our portfolio companies' cash flow and capital allocation decisions, given the strength and quality of our existing lower middle market investment portfolio, we expect dividend income to continue to be a significant contributor to our results in the future. Now turning to the overall composition and results of our investment portfolio as of June 30, we continue to maintain a highly diversified portfolio with investments in 187 companies spanning across numerous industries and end markets.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

Our largest portfolio companies, excluding the external investment manager, represented only 3.9% of our total investment income for the trailing twelve month period and 3.7% 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 second quarter included total investments in our lower middle market portfolio of approximately $2.00 $9,000,000 including total investments of $110,000,000 in three new lower middle market portfolio companies, which after aggregate repayments on debt investments and return of invested equity capital resulted in a net increase in our lower middle market portfolio of $108,000,000 Driven by the capabilities and relationships of our private credit team, we also made $189,000,000 in total private loan investments, which after aggregate repayments and other private loan investment activities resulted in a net decrease in our private loan portfolio of $35,000,000 At the end of the second quarter, our lower middle market portfolio included investments in 88 companies representing $2,700,000,000 of fair value, which was 27% above our related cost basis. We had investments in 87 companies in our private loan portfolio representing $1,900,000,000 at fair value. The total investment portfolio at fair value at quarter end was 17%, above our related cost basis.

[David Magdol, President & Chief Investment Officer at Main Street Capital]

In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long term goals. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I will turn the call over to Ryan to cover our financial results, capital structure and liquidity position.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

Thank you, David. To echo Duane's and David's comments, we are pleased with our operating results for the second 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 second quarter was $144,000,000 increasing by $11,800,000 or 8.9% over the 2024 and by $6,900,000 or 5.1% from the 2025. Interest income increased by $800,000 from a year ago and by $2,800,000 from the 2025.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

The increase from prior year and prior quarter were both driven primarily by the impact of increased net investment activity, partially offset by an increase in investments on nonaccrual status, with the increase from prior year also partially offset by a decrease in interest rates on our floating rate debt investments, primarily resulting from decreases in benchmark index rates. Dividend income increased by $11,200,000 when compared to a year ago, including a $3,000,000 increase in unusual or non recurring dividends and increased by $1,800,000 from the first quarter, including a $4,200,000 increase in unusual or non recurring dividends. The increases in dividend income are primarily the result of the continued underlying positive performance of our lower middle market portfolio companies. Fee income decreased by $200,000 from a year ago and by $2,300,000 from the first quarter. The increase from the first quarter was primarily due to higher closing fees on new and follow on investments and an increase from exit prepayment and amendment fees from investment activity.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

Fee income considered non recurring decreased by $700,000 from a year ago and increased by $200,000 from the 2025. Second quarter included elevated levels of income considered less consistent or non recurring in nature in comparison to the comparable periods, including dividends from our equity investments and accelerated prepayment, repricing and other activity related to our debt investments. In the aggregate, these items totaled $8,100,000 and were $4,800,000 or $05 per share higher compared to the average of the prior four quarters, dollars 3,000,000 or $03 higher than the 2024 and $5,700,000 or $06 higher than the 2025. Our operating expenses increased by $5,800,000 over the 2024 and increased by $3,400,000 from the first quarter. The increases in operating expense from the prior year and from the 2025 were largely driven by increases in interest expense, cash compensated related expenses, general and administrative expenses, and share based compensation expense.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

The increase in interest expense from a year ago was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio and an increase in the weighted average rate on our unsecured debt obligations, partially offset by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in the benchmark index rates and a decrease in the applicable margin rates related to the amendments of our credit facilities in April 2025. Increase in interest expense from the first quarter was primarily driven 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 twelve month period, and continues to be among the lowest in our industry. Our external investment manager contributed $8,700,000 to our net investment income during the first quarter, a decrease of $500,000 from the same quarter a year ago and an increase of $900,000 from the 2025. Our investment manager ended the quarter with total assets under management of $1,600,000,000 During the quarter, we recorded net fair value appreciation, including net realized gains and net unrealized depreciation, on the investment portfolio of $33,500,000 This increase was primarily driven by net fair value appreciation in our external investment manager and our lower middle market investment portfolio, partially offset by net fair value depreciation in our private loan investment portfolio.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

The net fair value appreciation of our external investment manager was primarily driven by increases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes, and by increased fee income. 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. Net fair value depreciation in our private loan portfolio was driven by specific portfolio company performance, partially offset by decreases in market spreads. We recognized net realized gains of $52,400,000 in the quarter. The realized gains recognized were primarily a result of a full exit of a lower middle market investment, as discussed by Duane and David.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

Partial exits of other two portfolio investments and the exit of one private loan investment, partially offset by realized losses on the full exit of a private loan investment and the restructure of a private loan investment. We ended the second quarter with investments on nonaccrual status comprising approximately 2.1% of the total investment portfolio at fair value and approximately 5% at cost. NAV increased by $0.27 per share over the first quarter and by $2.5 per share, or 8.4% when compared to a year ago, to a record NAV per share of $32.3 at quarter end. Our regulatory debt to equity leverage calculated as total debt excluding our SBIC debentures divided by net asset value was point six five times, and our regulatory asset coverage ratio was 2.53 times, and these ratios continue to be more conservative than our long term target ranges of 0.8 to 0.9 times and 2.25 to 2.1 times, respectively. Given our current liquidity position and recent investment activity, we were less active during the second quarter in our ATM program raising net proceeds of $10,700,000 from equity issuances.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

After giving effect to the capital activities in the 2025, we entered the 2025 with strong liquidity, including cash and availability under our credit facilities totaling over $1,300,000,000 with two near term debt maturities of $150,000,000 and 500,000,000 in December 2025 and July 2026 respectively. 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. We expect to continue to operate throughout the year at leverage levels more conservative than our long term targets. Coming back to our operating results, DNII per share for the quarter of $1.06 exceeded DNII per share for the second quarter of last year by $03 and exceeded the DNII per share for the first quarter by $04 Looking forward, we expect 2025 DNII per share of at least $1 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.

[Operator]

Thank star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset Our first question is from Robert Dodd with Raymond James. Please proceed.

[Robert Dodd, Director - Finance at Raymond James Financial]

Hi, guys. Good morning. Congrats on the quarter and the performance in the lower middle market portfolio, but I want to focus on the private loan. So I mean, it shrank this quarter. Can you give us an account?

[Robert Dodd, Director - Finance at Raymond James Financial]

I mean, was that was that a a reduction in deal flow, or was it kind of an increase in in reject I mean, obviously, you originated a lot, but had a lot of repayments. Right? So I mean, is this you know so it is are the trends like, you know, deal flow slowing or or you're seeing less attractive opportunities and that's the driver but behind it shrinking a little bit? I mean, any any color you can give me there?

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Sure, Robert. Good morning, and thanks for comments I'll give a couple of comments. I'll let Nick, who, as you know, leads our private credit team, let him add on. But I'd say it was a combination of both. The investment activity, which we think is largely attributable just to the overall private equity industry still being slow given the uncertainty in the economy, the new investment or origination activity and follow ons were on a combined basis lower than what we would want them to be.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

And I think I said in my comments, we're still viewing the pipeline as slightly below average. We haven't seen that change significantly, but you also had in the quarter higher than expected repayments. It's a combination of the two. In terms of quality, think we still view the quality of the investments as being very, very attractive. Terms, conditions, leverage, the type of companies, I think we're positive across the board, but there's just less of it out there in the marketplace.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

But I'll let Nick add on or give additional color.

[Nick Meserve, MD - Private Credit Investment Team at Main Street Capital]

Yeah, I'd agree with Duane. The only thing I would add is we probably missed on pricing a little bit in the second quarter. And so pricing has probably come in, you call it, 25 to 50 basis points in in '25, and we were probably a little bit wide on a few deals that we would like to have won and held our pricing and and those deals went away from us. If we lowered them down, you call it 25 to 50 basis points, you might have won those deals, and and the net origination would have been much higher for for two q.

[Robert Dodd, Director - Finance at Raymond James Financial]

Okay. Got it. Appreciate that color. On then on the the the the comments of where where you've you've you have seen some underperformance on in within the portfolio. And I think, basically, it boils down to, like, consumer businesses seeming seeming to to to to struggle a little bit more than others, which which makes a lot of sense.

[Robert Dodd, Director - Finance at Raymond James Financial]

But, I mean, is there any, you know, any theme within that? Like, you know, is it particular types of consumer business? Obviously, I can look through the portfolio later. But, also, like, is that making you more inclined to to maybe, avoid some consumer businesses for additional deployments? How are you thinking about that?

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Yeah, Robert, I would say that we've been expecting or sensing some weakness really probably for the last two years. I'd to think back to how long we've been making that commentary. So I'd say on the new investment side, we have been risk off on companies that have direct significant consumer exposure. So I think we've been doing that. I think we just have some longer term legacy investments that had more consumer exposure that have continued to struggle.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

I would say that in the current quarter, when you look at the non accrual movement, it was not just consumer. We also had another company that's outside of the consumer space that had some underperformance that resulted in that company being put on non accrual status. But I still think when you look at the non accruals as a whole, there still is more of a concentration in the consumer side. And I think if we were to pick where the consumer is feeling more pain, it's the lower end of the consumer. I think we've been saying that for a while.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

That continues to be the case today. Overall, I think there's parts of the consumer segment that continue to hold up pretty well in the upper end, but you're definitely, from our perspective at least, seeing continued pain at the lower end and you see that in our companies. The other comment I would provide is, when you look at the portfolio as a whole, I do think in the current environment, you're probably seeing more separation between the companies that are performing really, really well, versus the companies that are performing below expectations. And I think that's a trend we've seen for the last couple of quarters. And I think we continue to see it in the current quarter.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

So I just think you're seeing more bifurcation across the portfolio. Some of that is just attributable to the quality of the strength of the management teams and their operations. Some of it also is just kind of how impacted are those companies by some of the uncertainty in the marketplace.

[Robert Dodd, Director - Finance at Raymond James Financial]

Got it. Got it. I appreciate that. And if I can have one more and kind of flipping to lower middle market. Mean, you've now, to your point, I think you've set two records in the last roughly nine months, I think, for for exit gains with Perma and and Heritage.

[Robert Dodd, Director - Finance at Raymond James Financial]

I mean, would would you say, you know, that the the the gain opportunity is is is cycle near term? Right? You know, are we are we in an elevated period where you could maybe expect more gains? I mean, not identifying individual assets, obviously. Or do you think that's gonna be moderated for a little bit before some of your younger assets age into the point where the gains are potentially there? Any thoughts on it?

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Sure, Robert. I'll give a couple of comments. One is we think we have a very mature portfolio. We think one of our biggest benefits, as you've heard us say repeatedly, our as a public company having permanent capital, we can and will be a long term to permanent investor. So we have a very mature portfolio when you look at the existing lower middle market assets.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Clearly, both Pearl Meyer and Heritage Vet were fantastic companies, fantastic management teams and between us and our partners at the management team level, we had great transaction outcomes there. Despite that, I think as we sit here today, I think we still have a number of companies that are having some inbound interest and having discussions about potential exits that could lead to additional realizations over the next three to nine months. You never know exactly what's going to happen. But I do think you could see some additional realized gain, exit activities in the near term. And I would say what we're seeing in the marketplace is when you take a very high quality company like Pearl Meyer and Heritage Vet Partners to market, because there is a lack of overall deal flow, those premium assets get premium pricing.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

So I think we've seen that in the marketplace with these two recent transactions. And I think if we're successful with any of the potential realization activities, that we're having discussions on with the lower middle market portfolio companies, I think you would see a premium outcome. But obviously, lot of things have to happen to get there, but we continue to see some kind of elevated or more than normal activity on the exit or realization side.

[Robert Dodd, Director - Finance at Raymond James Financial]

Got it. Thank you.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Thank you.

[Operator]

Our next question is from Aaron Cyganovich with Truist Securities. Please proceed.

[Arren Cyganovich, Senior Analyst - Specialty Finance at Truist]

Thanks, good morning. Congratulations on those realizations. The commentary about private loan pipe being below average, I guess mixed with the 20 to 50 basis points of spread tightening that came in, are those areas that are somewhat interrelated? I would think that if the spread tightening was happening then you'd probably see more deal activity. Maybe just talk a little bit about that.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Yeah, I'll let Nick kind of add on to his comments from earlier.

[Nick Meserve, MD - Private Credit Investment Team at Main Street Capital]

Yeah, I think the deal activity being a little softer is really just M and A being down on on the private equity side. You know, we've we've seen that for the past, you know, probably two or three years. I think every every quarter, every year, we expect that to pick back up again as, you know, private equity is natural deal makers and they wanna, spend their new funds and it just hasn't come to fruition yet. We still expect that in the next six, twelve months but so far this year we've not seen it. Spreads coming in, I think it's somewhat related to slightly less deal flow pushing a little more competition for everyone to find paper to spend on new deals.

[Arren Cyganovich, Senior Analyst - Specialty Finance at Truist]

Got it. Okay. That makes sense. And then Ryan, you had mentioned there's a couple of debt maturities coming up over in the next year. Maybe you could talk a little bit about what your funding options are for this.

[Ryan Nelson, CFO & Treasurer at Main Street Capital]

Sure. As we mentioned in the prepared remarks, we do have ample liquidity as we look to the back half of the year. Outside of that, we also will be looking at the market and what pricing is in the debt market over the back half of the year. I think we have the benefit of not having to execute if pricing isn't favorable given where we are from a liquidity perspective. But also, we'll also be thinking about our $500,000,000 maturity next July in ways to kind of derisk that with capital market activities through the end of the year.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

I think just adding on to that, I think you've always heard us say this, but we view our capital structure and liquidity position to be two of our significant strengths. One, we should be able to have 100% control over that side of what we execute. So to Ryan's point, think if the market is available, we're going to continue to look at it and be opportunistic when we can, and really focus on maintaining just what we think is a very, very attractive, very conservative capital structure and significant liquidity. So that continues to be a key focus for us on our capital structure side.

[Arren Cyganovich, Senior Analyst - Specialty Finance at Truist]

Got it. Okay. Thank you.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

Thank you.

[Operator]

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing remarks.

[Dwayne Hyzak, Member of the Board & CEO at Main Street Capital]

We just want to say thank you again to everyone for joining us this morning. We appreciate the continued support of our shareholders, and we'll look forward to talking again after our earnings release for the third quarter. Thank you.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Participants

Executives

• Dwayne Hyzak, Member of the Board & CEO
• David Magdol, President & Chief Investment Officer
• Ryan Nelson, CFO & Treasurer
• Nick Meserve, MD - Private Credit Investment Team

Analysts

• Zach Vaughan, Vice President at Dennard Lascar Investor Relations
• Robert Dodd, Director - Finance at Raymond James Financial
• Arren Cyganovich, Senior Analyst - Specialty Finance at Truist