Main Street Capital Corporation (MAIN) Earnings

Management highlights

- Overall Quarterly Performance • Delivered strong second quarter 2026 results, with an annualized return on equity of 18.9%, favorable distributable net investment income (DNII) per share, and a significant increase in net asset value (NAV) per share. • Strengthened the capital structure during the quarter, ending with a conservative leverage profile and strong liquidity position, leaving the firm well positioned for future portfolio growth. • Recorded $65 million in net fair value appreciation of the investment portfolio, driven by gains in lower middle market and private loan segments, with $33 million in net realized gains primarily from the Center Technologies exit. • Total investment income for the quarter was $149.6 million, up 3.9% year-over-year and 6.8% sequentially from the first quarter of 2026. - Investment Strategy Highlights • The lower middle market combined debt and equity strategy provides downside protection via first lien debt, plus upside potential and aligned interests through equity positions. • Over the fourth quarter of 2025 and first half of 2026, lower middle market equity exits generated ~$88 million in realized gains across three companies, with annualized IRRs ranging from 33% to 127% and between 9x and 63x money on invested capital. • Net realized gains from equity investments are expected to exceed all future credit losses from non-investment grade debt activity, consistent with historical experience. • Equity positions allow the firm to provide follow-on growth capital to high-performing portfolio companies for organic expansion and acquisitions, creating additional value for both Main Street and its portfolio partners. - Capital and Dividend Updates • Issued $150 million in 6.93% private placement unsecured notes maturing April 2031, and expanded the corporate credit facility by $65 million to $1.24 billion, extending its maturity to June 2031. • Ended the quarter with $1.2 billion in total liquidity (cash plus unused credit capacity), with the next term debt maturity of $400 million not due until June 2027. • The board declared a 30 cent per share supplemental dividend (the 20th consecutive quarterly supplemental dividend) payable September 2026, and a 3.9% increase in regular monthly dividends for the fourth quarter of 2026 to 26.5 cents per share. • Total trailing 12-month supplemental dividends reached $1.20 per share, equal to an additional 38% payout above regular monthly dividends. Management expects to propose another significant supplemental dividend payable December 2026.

Guidance

- Management expects third quarter 2026 DNII before taxes to be at least 97 cents per share. This outlook accounts for an expected meaningful decline in non-recurring income from the second quarter 2026 level and increased capital costs after refinancing the July 2026 notes, with potential upside from portfolio investment activity during the quarter. - The lower middle market and private loan investment pipelines are both characterized as average as of the call date. Management expects new investment and follow-on investment activity in the third and fourth quarters of 2026 to be consistent with historical levels. - Supplemental dividends will continue to be declared when DNII before taxes significantly exceeds regular monthly dividends, the firm generates net realized gains, and NAV per share remains stable to positive. Net realized gains have become an increasing part of the supplemental dividend calculus due to large cumulative gains over the past 18 months. - The firm plans to launch its third private asset management fund sometime between late 2026 and early 2027, with the goal of raising a larger fund than its prior two funds.

Segment performance

As of June 30, 2026, Main Street Capital holds a total investment portfolio with a fair value of $5.3 billion, 116% of its total cost basis. 1. Lower Middle Market: Fair value of $3.2 billion, which is 26% above its cost basis, with investments in 94 companies. Total investments in the quarter reached $100 million, resulting in a net decrease of $31 million after exit and repayment activity. This segment contributed significant dividend income, net fair value appreciation, and material net realized gains, including a $46 million realized gain from the exit of Center Technologies. 2. Private Loan: Fair value of $2.1 billion, with investments in 86 companies. Total investments in the quarter reached $239 million, resulting in a net increase of $60 million after repayments. The segment saw net fair value appreciation driven by specific equity gains and decreased market spreads. 3. Asset Management: Total assets under management for the external investment manager reached $1.8 billion at quarter end. The segment contributed $8.7 million to net investment income in the second quarter, consistent with the prior year period and up $400,000 from the first quarter of 2026. Net incentive fees were $3 million in the quarter, and the segment delivered meaningful incentive fee income on top of recurring base management fees.

Risks & headwinds

- Broad macroeconomic uncertainty increases the performance variability between overperforming and underperforming portfolio companies, with struggling companies facing greater challenges than in typical periods. - Underperformance of portfolio companies is primarily idiosyncratic, but continued economic uncertainty can lead some portfolio companies to prioritize capital for growth or build conservative cash buffers, reducing near-term dividend payments to Main Street. - Investing in non-investment grade private credit inherently produces inevitable credit losses, though management expects net equity gains will more than offset these losses over time. - Market rate changes can impact interest income on floating rate debt investments and net interest margins, and rising rates may lead to spread tightening on new private loan originations.

Analyst Q&A

• Q: Asked about common themes among underperforming portfolio companies after management noted increased performance variability between over- and underperformers. /

  A: Management stated underperformance is primarily idiosyncratic, not tied to a specific industry or broad structural trend. While broader economic uncertainty creates general pressure, there is no consistent pattern that would change future deal sourcing strategy. Management added the overall distribution of performance across the portfolio remains similar to historical norms, but top overperformers outperform by larger margins and bottom underperformers struggle more than in typical periods. The firm’s longstanding strategy is to support high-performing management teams and cut losses on severely underperforming companies to limit downside, which has not changed.

• Q: Asked for an update on new growth initiatives for the asset management business beyond MSC Income Fund. /

  A: Management confirmed the only new active initiative is hiring a dedicated fundraising lead to launch the firm’s third private credit fund. No other new growth plans are in process, and management aims to launch the fund in the next few months, targeting a larger size than the firm’s first two funds.

• Q: Asked about the timeline and fee structure for the new third private fund fundraising. /

  A: Management expects the full fundraising cycle to take 18 to 24 months after launch, with a slower start to secure initial investors that picks up steam mid-cycle. Management fees are only earned on deployed capital, not total commitments, so meaningful fee contributions from the new fund are not expected until 12 to 24 months after launch begins.

• Q: Asked about the supplemental dividend framework and any recent changes to the policy. /

  A: Management confirmed the framework remains largely consistent with prior guidance: supplemental dividends are funded first by excess DNII before taxes relative to regular monthly dividends. Cumulative net realized gains of ~$130 million over the past 18 months have increasingly become part of the calculus, to manage spillover income and return capital to shareholders while maintaining a stable to positive NAV per share.