MAIN STREET ANNOUNCES 2023 FOURTH QUARTER AND ANNUAL RESULTS
- Strong net investment income of $90.1 million in Q4 2023, equating to $1.07 per share.
- Distributable net investment income of $94.8 million in Q4 2023, or $1.12 per share.
- Total investment income of $129.3 million in Q4 2023.
- Return on equity of 22.9% on an annualized basis for Q4 2023.
- Net asset value per share increased to $29.20 at the end of 2023, up by 3.1% from the previous quarter.
- Declared regular monthly dividends totaling $0.72 per share for Q1 2024, a 6.7% increase from Q1 2023.
- Paid a supplemental dividend of $0.275 per share in Q4 2023, representing a 28.9% increase from Q4 2022.
- Completed significant lower middle market and private loan portfolio investments in Q4 2023.
- Expanded total commitments under the SPV Facility to $430.0 million in Q4 2023.
- None.
Insights
The reported net investment income of $90.1 million, or $1.07 per share, alongside the distributable net investment income of $94.8 million, or $1.12 per share, for Main Street Capital Corporation in the fourth quarter of 2023 signifies a robust financial performance. The company's ability to exceed its dividend payments with distributable net investment income is a positive indicator of its financial health. The net asset value (NAV) per share increase to $29.20, up from $28.33 the previous quarter, reflects a strong balance sheet and asset appreciation.
From an investment standpoint, the increase in dividends, both regular and supplemental, indicates Main Street's confidence in its operational stability and earnings outlook. The 25% increase in total dividends paid in 2023, coupled with a return on equity of 22.9% for the fourth quarter, suggests that the company is efficiently utilizing shareholders' equity to generate profits. However, investors should be mindful of the sustainability of such high dividend payouts in the long term, particularly in volatile market conditions.
Main Street's strategic expansion of its lower middle market (LMM) and private loan investment portfolios and the diversification of its capital structure, are key strategic moves. The LMM investments indicate a targeted approach towards growth sectors, which could yield higher returns. However, the net decrease in the cost basis of the private loan investment portfolio and middle market investment portfolio due to realized losses requires attention to understand the risks involved in these investment categories.
The company's industry-leading cost efficiency, with an Operating Expenses to Assets Ratio of 1.3%, suggests operational effectiveness. This ratio is a critical measure as it shows how well the company controls its expenses in relation to its assets. Main Street's ability to maintain such a low ratio could be a competitive advantage, potentially attracting investors looking for companies with prudent expense management.
The expansion of credit facilities and the issuance of investment-grade debt, as mentioned, are indicative of Main Street's proactive management of its liquidity and leverage profile. The addition of new lender relationships and increased commitments under the SPV Facility demonstrate the company's ability to access capital and its standing in the credit market. It is important for stakeholders to consider the terms of such debt and the implications it could have on Main Street's financial flexibility, particularly in the face of economic downturns or rising interest rates.
Moreover, the regulatory environment surrounding investment companies, such as Main Street, can have significant implications on their operations and financial reporting. Continuous compliance with SEC regulations and adherence to fair valuation methods for assessing NAV are essential for maintaining investor confidence and avoiding legal pitfalls.
Fourth Quarter 2023 Net Investment Income of
Fourth Quarter 2023 Distributable Net Investment Income(1) of
Net Asset Value of
Fourth Quarter 2023 Highlights
- Net investment income of
$90.1 million $1.07 - Distributable net investment income(1) of
$94.8 million $1.12 - Total investment income of
$129.3 million - An industry leading position in cost efficiency, with a ratio of total non-interest operating expenses as a percentage of quarterly average total assets ("Operating Expenses to Assets Ratio") of
1.3% on an annualized basis - Net increase in net assets resulting from operations of
$139.1 million $1.65 - Return on equity(2) of
22.9% on an annualized basis - Net asset value of
$29.20 $0.87 3.1% , compared to$28.33 - Declared regular monthly dividends totaling
$0.72 $0.24 6.7% increase from the regular monthly dividends paid in the first quarter of 2023 and a2.1% increase from the regular monthly dividends paid in the fourth quarter of 2023 - Declared and paid a supplemental dividend of
$0.27 5$0.98 28.9% increase from the total dividends paid in the fourth quarter of 2022 and a1.6% increase from the total dividends paid in the third quarter of 2023 - Completed
$92.3 million $68.3 million $65.7 million - Completed
$160.4 million $112.5 million - Net decrease of
$50.3 million - Expanded the total commitments under the SPV Facility (as defined in the Liquidity and Capital Resources section below) from
$255.0 million $430.0 million
Full Year 2023 Highlights
- Net investment income of
$339.0 million $4.14 - Distributable net investment income(1) of
$356.8 million $4.36 - Total investment income of
$500.4 million - An industry leading position in cost efficiency, with an Operating Expenses to Assets Ratio of
1.3% - Net increase in net assets resulting from operations of
$428.4 million $5.23 - Return on equity(2) of
18.8% - Net asset value of
$29.20 $2.34 8.7% , compared to$26.86 - Paid regular monthly dividends totaling
$2.74 55.8% increase from prior year - Paid supplemental dividends totaling
$0.95 171.4% increase from 2022, resulting in total dividends paid in 2023 of$3.69 525.5% increase from prior year and a new record for total dividends paid in a year - Completed
$301.3 million $196.5 million $61.4 million - Completed
$506.8 million $46.6 million - Net decrease of
$112.8 million - Further diversified Main Street's capital structure and enhanced liquidity by (i) expanding the total commitments under the Corporate Facility (as defined in the Liquidity and Capital Resources section below) from
$920.0 million $995.0 million $255.0 million $430.0 million $50.0 million
In commenting on the Company's operating results for the fourth quarter and full year 2023, Dwayne L. Hyzak, Main Street's Chief Executive Officer, stated, "We are extremely pleased with our performance in the fourth quarter, which closed another record year for Main Street across several key financial metrics. Our fourth quarter performance resulted in a new quarterly record for net investment income per share, distributable net investment income per share equal to our existing quarterly record that was set earlier this year, a new record for net asset value per share for the sixth consecutive quarter and a return on equity of approximately
Mr. Hyzak continued, "The continued positive momentum across our platform in 2023 allowed us to deliver significantly increased value to our shareholders, with a
Fourth Quarter 2023 Operating Results
The following table provides a summary of our operating results for the fourth quarter of 2023:
Three Months Ended December 31, | |||||||
2023 | 2022 | Change ($) | Change (%) | ||||
Interest income | $ 100,690 | $ 86,297 | $ 14,393 | 17 % | |||
Dividend income | 23,782 | 22,416 | 1,366 | 6 % | |||
Fee income | 4,837 | 5,163 | (326) | (6) % | |||
Total investment income | $ 129,309 | $ 113,876 | $ 15,433 | 14 % | |||
Net investment income | $ 90,144 | $ 75,940 | $ 14,204 | 19 % | |||
Net investment income per share | $ 1.07 | $ 0.98 | $ 0.09 | 9 % | |||
Distributable net investment income(1) | $ 94,846 | $ 80,004 | $ 14,842 | 19 % | |||
Distributable net investment income per share(1) | $ 1.12 | $ 1.03 | $ 0.09 | 9 % | |||
Net increase in net assets resulting from operations | $ 139,078 | $ 106,315 | $ 32,763 | 31 % | |||
Net increase in net assets resulting from operations per share | $ 1.65 | $ 1.37 | $ 0.28 | 20 % | |||
The
Total cash expenses(3) increased
Non-cash compensation expenses(3) increased
Our Operating Expenses to Assets Ratio (which includes non-cash compensation expenses(3)) was
The
The
The following table provides a summary of the total net unrealized appreciation of
Three Months Ended December 31, 2023 | |||||||||
LMM | Private | Middle | Other | Total | |||||
(dollars in millions) | |||||||||
Accounting reversals of net unrealized (appreciation) | $ 2.1 | $ 12.9 | $ — | $ (0.4) | $ 14.6 | ||||
Net unrealized appreciation (depreciation) relating to | 14.5 | 4.1 | 2.0 | 30.3 | (b) | $ 50.9 | |||
Total net unrealized appreciation (depreciation) relating | $ 16.6 | $ 17.0 | $ 2.0 | $ 29.9 | $ 65.5 | ||||
(a) | LMM includes unrealized appreciation on 24 LMM portfolio investments and unrealized depreciation on 25 LMM portfolio investments. |
(b) | Other includes (i) |
Liquidity and Capital Resources
As of December 31, 2023, we had aggregate liquidity of
Several details regarding our capital structure as of December 31, 2023 are as follows:
- Our Corporate Facility included
$995.0 million $1.4 billion $200.0 million 7.3% based on SOFR effective for the contractual reset date of January 1, 2024.- Our SPV Facility included
$430.0 million $450.0 million $160.0 million 7.9% based on SOFR effective for the contractual reset date of January 1, 2024.$500.0 million 3.00% per year (the "July 2026 Notes"). The July 2026 Notes mature on July 14, 2026 and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions.$450.0 million 5.20% per year (the "May 2024 Notes"). The May 2024 Notes mature on May 1, 2024 and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions.$350.0 million U.S. Small Business Administration, had a weighted-average annual fixed interest rate of3.00% and mature ten years from original issuance. The first maturity related to our existing SBIC debentures occurs in the first quarter of 2024, and the weighted-average remaining duration was 4.6 years.$150.0 million 7.74% per year (the "December 2025 Notes"). The December 2025 Notes mature on December 23, 2025 and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions.- We maintain investment grade debt ratings from each of Fitch Ratings and S&P Global Ratings, both of which have assigned us investment grade corporate and credit ratings of BBB- with a stable outlook.
- Our net asset value totaled
$2.5 billion $29.20
In January 2024, we issued
Investment Portfolio Information as of December 31, 2023(4)
The following table provides a summary of the investments in our LMM portfolio, private loan portfolio and middle market portfolio as of December 31, 2023:
As of December 31, 2023 | ||||||
LMM (a) | Private Loan | Middle Market | ||||
(dollars in millions) | ||||||
Number of portfolio companies | 80 | 87 | 23 | |||
Fair value | $ 2,273.0 | $ 1,453.5 | $ 243.7 | |||
Cost | $ 1,782.9 | $ 1,470.1 | $ 294.4 | |||
Debt investments as a % of portfolio (at cost) | 72.0 % | 94.7 % | 91.4 % | |||
Equity investments as a % of portfolio (at cost) | 28.0 % | 5.3 % | 8.6 % | |||
% of debt investments at cost secured by first priority lien | 99.2 % | 100.0 % | 99.1 % | |||
Weighted-average annual effective yield (b) | 13.0 % | 12.9 % | 12.5 % | |||
Average EBITDA (c) | $ 8.2 | $ 27.2 | $ 64.2 | |||
(a) | We had equity ownership in all of our LMM portfolio companies, and our average fully diluted equity ownership in those portfolio companies was |
(b) | The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. |
(c) | The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the private loan and middle market portfolios. These calculations exclude certain portfolio companies, including two LMM portfolio companies and two private loan portfolio companies, as EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate. |
The fair value of our LMM portfolio company equity investments was
As of December 31, 2023, our investment portfolio also included:
- Other portfolio investments in 15 entities, collectively totaling
$142.0 million $149.1 million 3.3% and4.0% of our investment portfolio at fair value and cost, respectively; and - Our investment in the External Investment Manager, with a fair value of
$174.1 million $29.5 million 4.1% and0.8% of our investment portfolio at fair value and cost, respectively.
As of December 31, 2023, non-accrual investments comprised
External Investment Manager
MSC Adviser I, LLC is our wholly owned portfolio company and registered investment adviser that provides investment management services to external parties (the "External Investment Manager"). We share employees with the External Investment Manager and allocate costs related to such shared employees and other operating expenses to the External Investment Manager. The total contribution of the External Investment Manager to our net investment income consists of the combination of the expenses we allocate to the External Investment Manager and the dividend income we earn from the External Investment Manager. During the fourth quarter of 2023, the External Investment Manager earned
Fourth Quarter and Full Year 2023 Financial Results Conference Call / Webcast
Main Street has scheduled a conference call for Friday, February 23, 2024 at 10:00 a.m. Eastern Time to discuss the fourth quarter and full year 2023 financial results.
You may access the conference call by dialing 412-902-0030 at least 10 minutes prior to the start time. The conference call can also be accessed via a simultaneous webcast by logging into the investor relations section of the Main Street web site at https://www.mainstcapital.com.
A telephonic replay of the conference call will be available through Friday, March 1, 2024 and may be accessed by dialing 201-612-7415 and using the passcode 13743850#. An audio archive of the conference call will also be available on the investor relations section of the company's website at https://www.mainstcapital.com shortly after the call and will be accessible until the date of Main Street's earnings release for the next quarter.
For a more detailed discussion of the financial and other information included in this press release, please refer to the Main Street Annual Report on Form 10-K for the year ended December 31, 2023 to be filed with the Securities and Exchange Commission (www.sec.gov) and Main Street's Fourth Quarter 2023 Investor Presentation to be posted on the investor relations section of the Main Street website at https://www.mainstcapital.com.
ABOUT MAIN STREET CAPITAL CORPORATION
Main Street (www.mainstcapital.com) is a principal investment firm that primarily provides long-term debt and equity capital to lower middle market companies and debt capital to middle market companies. Main Street's portfolio investments are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in diverse industry sectors. Main Street seeks to partner with entrepreneurs, business owners and management teams and generally provides "one-stop" financing alternatives within its lower middle market investment strategy. Main Street's lower middle market companies generally have annual revenues between
Main Street, through its wholly-owned portfolio company MSC Adviser I, LLC ("MSC Adviser"), also maintains an asset management business through which it manages investments for external parties. MSC Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended.
FORWARD-LOOKING STATEMENTS
Main Street cautions that statements in this press release which are forward–looking and provide other than historical information, including but not limited to Main Street's ability to successfully source and execute on new portfolio investments and deliver future financial performance and results, are based on current conditions and information available to Main Street as of the date hereof and include statements regarding Main Street's goals, beliefs, strategies and future operating results and cash flows. Although its management believes that the expectations reflected in those forward–looking statements are reasonable, Main Street can give no assurance that those expectations will prove to be correct. Those forward-looking statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation: Main Street's continued effectiveness in raising, investing and managing capital; adverse changes in the economy generally or in the industries in which Main Street's portfolio companies operate; the impacts of macroeconomic factors on Main Street and its portfolio companies' business and operations, liquidity and access to capital, and on the
MAIN STREET CAPITAL CORPORATION | |||||||
Consolidated Statements of Operations | |||||||
(in thousands, except shares and per share amounts) | |||||||
Three Months Ended | Year Ended | ||||||
2023 | 2022 | 2023 | 2022 | ||||
INVESTMENT INCOME: | |||||||
Interest, fee and dividend income: | |||||||
Control investments | $ 51,664 | $ 45,215 | $ 197,150 | $ 155,967 | |||
Affiliate investments | 16,106 | 16,662 | 69,829 | 54,963 | |||
Non–Control/Non–Affiliate investments | 61,539 | 51,999 | 233,406 | 165,930 | |||
Total investment income | 129,309 | 113,876 | 500,385 | 376,860 | |||
EXPENSES: | |||||||
Interest | (24,410) | (23,060) | (102,575) | (78,276) | |||
Compensation | (11,419) | (10,063) | (46,279) | (36,543) | |||
General and administrative | (5,128) | (4,567) | (18,042) | (16,050) | |||
Share–based compensation | (4,169) | (3,598) | (16,520) | (13,629) | |||
Expenses allocated to the External Investment Manager | 5,961 | 3,352 | 22,050 | 12,965 | |||
Total expenses | (39,165) | (37,936) | (161,366) | (131,533) | |||
NET INVESTMENT INCOME | 90,144 | 75,940 | 339,019 | 245,327 | |||
NET REALIZED GAIN (LOSS): | |||||||
Control investments | — | — | (50,532) | (5,822) | |||
Affiliate investments | (2,234) | (4,659) | (18,729) | (3,319) | |||
Non–Control/Non–Affiliate investments | (15,050) | (3,856) | (51,246) | 3,929 | |||
Total net realized loss | (17,284) | (8,515) | (120,507) | (5,212) | |||
NET UNREALIZED APPRECIATION (DEPRECIATION): | |||||||
Control investments | 39,014 | 36,064 | 161,793 | 56,682 | |||
Affiliate investments | 6,830 | 6,611 | 33,689 | 10,314 | |||
Non–Control/Non–Affiliate investments | 19,663 | 2,063 | 37,095 | (42,180) | |||
Total net unrealized appreciation | 65,507 | 44,738 | 232,577 | 24,816 | |||
INCOME TAXES: | |||||||
Federal and state income, excise and other taxes | (1,970) | (1,541) | (6,633) | (5,199) | |||
Deferred taxes | 2,681 | (4,307) | (16,009) | (18,126) | |||
Income tax benefit (provision) | 711 | (5,848) | (22,642) | (23,325) | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ 139,078 | $ 106,315 | $ 428,447 | $ 241,606 | |||
NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED | $ 1.07 | $ 0.98 | $ 4.14 | $ 3.29 | |||
NET INCREASE IN NET ASSETS RESULTING FROM | $ 1.65 | $ 1.37 | $ 5.23 | $ 3.24 | |||
WEIGHTED-AVERAGE SHARES | 84,443,301 | 77,802,377 | 81,916,663 | 74,482,176 | |||
MAIN STREET CAPITAL CORPORATION | ||||
Consolidated Balance Sheets | ||||
(in thousands, except per share amounts) | ||||
December 31, | December 31, | |||
2023 | 2022 | |||
ASSETS | ||||
Investments at fair value: | ||||
Control investments | $ 2,006,698 | $ 1,703,172 | ||
Affiliate investments | 615,002 | 618,359 | ||
Non–Control/Non–Affiliate investments | 1,664,571 | 1,780,646 | ||
Total investments | 4,286,271 | 4,102,177 | ||
Cash and cash equivalents | 60,083 | 49,121 | ||
Interest and dividend receivable and other assets | 89,337 | 82,731 | ||
Receivable for securities sold | — | 381 | ||
Deferred financing costs, net | 7,879 | 7,475 | ||
Total assets | $ 4,443,570 | $ 4,241,885 | ||
LIABILITIES | ||||
Credit Facilities | $ 360,000 | $ 607,000 | ||
July 2026 Notes (par: | 498,662 | 498,136 | ||
May 2024 Notes (par: | 450,182 | 450,727 | ||
SBIC debentures (par: | 344,535 | 343,914 | ||
December 2025 Notes (par: | 148,965 | 99,325 | ||
Accounts payable and other liabilities | 62,576 | 52,092 | ||
Interest payable | 17,025 | 16,580 | ||
Dividend payable | 20,368 | 17,676 | ||
Deferred tax liability, net | 63,858 | 47,849 | ||
Total liabilities | 1,966,171 | 2,133,299 | ||
NET ASSETS | ||||
Common stock | 848 | 784 | ||
Additional paid–in capital | 2,270,549 | 2,030,531 | ||
Total undistributed earnings | 206,002 | 77,271 | ||
Total net assets | 2,477,399 | 2,108,586 | ||
Total liabilities and net assets | $ 4,443,570 | $ 4,241,885 | ||
NET ASSET VALUE PER SHARE | $ 29.20 | $ 26.86 | ||
MAIN STREET CAPITAL CORPORATION | |||||||
Reconciliation of Distributable Net Investment Income, | |||||||
Total Cash Expenses, Non-Cash Compensation Expenses | |||||||
and Cash Compensation Expenses | |||||||
(in thousands, except per share amounts) | |||||||
Three Months Ended | Year Ended | ||||||
December 31, | December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net investment income | $ 90,144 | $ 75,940 | $ 339,019 | $ 245,327 | |||
Non-cash compensation expenses(3) | 4,702 | 4,064 | 17,769 | 12,195 | |||
Distributable net investment income(1) | $ 94,846 | $ 80,004 | $ 356,788 | $ 257,522 | |||
Per share amounts: | |||||||
Net investment income per share - | |||||||
Basic and diluted | $ 1.07 | $ 0.98 | $ 4.14 | $ 3.29 | |||
Distributable net investment income per share - | |||||||
Basic and diluted(1) | $ 1.12 | $ 1.03 | $ 4.36 | $ 3.46 | |||
Three Months Ended | Year Ended | ||||||
December 31, | December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Share–based compensation | $ (4,169) | $ (3,598) | $ (16,520) | $ (13,629) | |||
Deferred compensation (expense) benefit | (533) | (466) | (1,249) | 1,434 | |||
Total non-cash compensation expenses(3) | (4,702) | (4,064) | (17,769) | (12,195) | |||
Total expenses | (39,165) | (37,936) | (161,366) | (131,533) | |||
Less non-cash compensation expenses(3) | 4,702 | 4,064 | 17,769 | 12,195 | |||
Total cash expenses(3) | $ (34,463) | $ (33,872) | $ (143,597) | $ (119,338) | |||
Compensation | $ (11,419) | $ (10,063) | $ (46,279) | $ (36,543) | |||
Share-based compensation | (4,169) | (3,598) | (16,520) | (13,629) | |||
Total compensation expenses | (15,588) | (13,661) | (62,799) | (50,172) | |||
Non-cash compensation expenses(3) | 4,702 | 4,064 | 17,769 | 12,195 | |||
Total cash compensation expenses(3) | $ (10,886) | $ (9,597) | $ (45,030) | $ (37,977) | |||
MAIN STREET CAPITAL CORPORATION
Endnotes
(1) Distributable net investment income is net investment income as determined in accordance with
(2) Return on equity equals the net increase in net assets resulting from operations divided by the average quarterly total net assets for the three-month and trailing twelve-month periods ended December 31, 2023.
(3) Non-cash compensation expenses consist of (i) share-based compensation and (ii) deferred compensation expense or benefit, both of which are non-cash in nature. Share-based compensation does not require settlement in cash. Deferred compensation expense or benefit does not result in a net cash impact to Main Street upon settlement. The appreciation (depreciation) in the fair value of deferred compensation plan assets is reflected in Main Street's Consolidated Statements of Operations as unrealized appreciation (depreciation) and an increase (decrease) in compensation expenses, respectively. Cash compensation expenses are total compensation expenses as determined in accordance with
(4) Portfolio company financial information has not been independently verified by Main Street.
(5) These credit statistics exclude portfolio companies on non-accrual or for which EBITDA is not a meaningful metric.
Contacts:
Main Street Capital Corporation
Dwayne L. Hyzak, CEO, dhyzak@mainstcapital.com
Jesse E. Morris, CFO and COO, jmorris@mainstcapital.com
713-350-6000
Dennard Lascar Investor Relations
Ken Dennard / ken@dennardlascar.com
Zach Vaughan / zvaughan@dennardlascar.com
713-529-6600
View original content:https://www.prnewswire.com/news-releases/main-street-announces-2023-fourth-quarter-and-annual-results-302069208.html
SOURCE Main Street Capital Corporation
FAQ
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