Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q2 2019 Earnings Presentation
22 slides from Capital Southwest's earnings presentation, Nov 6, 2018
Slide 1: Capital Southwest Corporation Q2 2019 Earnings Presentation
Capital Southwest Corporation Q2 2019 Earnings Presentation November 7, 2018 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com
Slide 2: Important Notices
Important Notices • These materials and any presentation of which they form a part are neither an offer to sell, nor a solicitation of an offer to purchase, any securities of Capital Southwest. • These materials and the presentations of which they are a part, and the summaries contained herein, do n
Slide 3: Forward-Looking Statements
Forward-Looking Statements • This presentation contains forward-looking statements relating to, among other things, the business, market conditions, financial condition and results of operations of Capital Southwest, the anticipated investment strategies and investments of Capital Southwest, and fut
Slide 4: Conference Call Participants
Conference Call Participants Bowen S. Diehl President and Chief Executive Officer Michael S. Sarner Chief Financial Officer Chris Rehberger VP Finance / Treasurer Page 4
Slide 5: CSWC Company Overview
CSWC Company Overview CSWC is a middle-market lending firm focused on supporting the acquisition and growth of middle-market companies across the capital structure • CSWC was formed in 1961, and elected to be regulated as a BDC in 1988 • Publicly-traded on Nasdaq: Common Stock (“CSWC”) and December
Slide 6: Q2 2019 Highlights
Q2 2019 Highlights Financial Highlights • Q2 2019 Pre-Tax Net Investment Income (“NII”) of $5.8MM or $0.36 per share • Paid $0.44 per share in Total Dividends, comprised of $0.34 per share Regular Dividend and $0.10 per share Supplemental Dividend • Investment Portfolio at Fair Value increased 20% t
Slide 7: Track Record of Dividend and NAV Growth Continues
Track Record of Dividend and NAV Growth Continues • In the last twelve months ending 9/30/18, CSWC generated $1.22 per share in Pre-Tax NII and paid out $1.17 per share in regular dividends ◦ Eleven consecutive quarters of regular dividend per share growth • Cumulative Regular Dividend Coverage of 1
Slide 8: Two Pronged Investment Strategy
Two Pronged Investment Strategy CORE: Lower Middle Market (“LMM”): CSWC led or Club Deals • Companies with EBITDA between $3 MM and $15 MM • Typical leverage of 2.0x – 4.0x Debt to EBITDA through CSWC debt position • Commitment size up to $25 MM with hold sizes generally $10 MM to $20 MM • Both Spon
Slide 9: Strong Quarter of CSWC Originations
Strong Quarter of CSWC Originations $96.7MM in new committed investments during the quarter ($89.9MM funded at close) at a weighted average debt YTM of 11.9% Portfolio Origination Q2 2019 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield to Name I
Slide 10: CSWC Portfolio Asset Mix by Market
CSWC Portfolio Asset Mix by Market Maintaining appropriate portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q2 2019 Lower Middle Upper Middle (1) (In Thousands) Market Market Number of Portfolio Companies 24 11 Total Cost $293,306 $87,013 Total Fa
Slide 11: Strong Track Record and Growing First Lien Credit Portfolio
Strong Track Record and Growing First Lien Credit Portfolio CSWC Credit Portfolio continues to migrate to First Lien and LMM Investments • First Lien and LMM Investments have increased to 85% and 74% of the credit portfolio, respectively, as of 9/30/18 • Since launch of credit strategy in January 20
Slide 12: CSWC Portfolio Mix as of 9/30/18 at Fair Value
CSWC Portfolio Mix as of 9/30/18 at Fair Value Current Investment Portfolio of $492MM continues to be granular and diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Paper & Forest Products: 1% Software & IT Services: 1% Telecommunications: 2%
Slide 13: Interest Rate Sensitivity
Interest Rate Sensitivity Debt Portfolio Exposure at 9/30/18 Well-Positioned for Rising Interest Rate Environment Fixed vs. Floating Portfolio Exposure (1) 4% 96% Fixed Floating Change in Base Interest Illustrative Illustrative NII Rates NII Change ($'s) Change (Per Share) (50bps) $(1,240,291) $(0.0
Slide 14: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $230MM is 94% first lien with average hold size of 2.2% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) 1% 6% 2% Telecommunications 2% 15% Telecommunications 5% 5% Healthcare & Pharmaceuticals 5% 12% 5% Retail
Slide 15: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/2017 3/31/2018 6/30/2018 9/30/18 Investment Income Interest Income $5,566 $6,575 $7,643 $9,232 Dividend Income $3,149 $3,069 $3,075 $3,158 Fees and Other Income $304 $230 $389 $205
Slide 16: Operating Leverage Continues to Improve
Operating Leverage Continues to Improve Continue to realize operating efficiencies of internally-managed structure with a target operating leverage of sub-2.5% $1,000 6% s t e s $800 s 5% A g v A ) 4.9% f M o M $600 % $ ( $517 s s a t e 4.2% $451 4% s s e s $417 s A n l e a $400 p t 3.7% $326 x o E
Slide 17: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/2017 3/31/2018 6/30/2018 9/30/18 Assets Portfolio Investments $367,120 $393,095 $411,330 $491,601 Cash & Cash Equivalents $20,527 $7,907 $12,532 $10,193 Deferred Tax Asset $2,080 $2,0
Slide 18: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio with no non- accruals Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/2017 3/31/2018 6/30/2018 9/30/18 Portfolio Statistics Fair Value of Debt Investments $226,441 $239,122 $272,133 $336,717 Aver
Slide 19: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration Earliest Debt Maturity occurs in November 2021 Facility Total Commitments Interest Rate Maturity Principal Drawn Credit Facility(1) $210.0 MM L + 3.00% with Step-Down November 2021 $127.0MM December 2022 Notes $75.7MM 5.95% December 2022 $75.7
Slide 20: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/2017 3/31/2018 6/30/2018 9/30/18 In
Slide 21: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Regular Dividend growth as Investment Portfolio continues to perform Quarter Ended Quarter Ended Quarter Ended Quarter Ended 12/31/2017 3/31/2018 6/30/2018 9/30/18 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted S
Slide 22: Corporate Information
Corporate Information Board of Directors Senior Management Fiscal Year End Inside Directors Bowen S. Diehl March 31 Bowen S. Diehl President & Chief Executive Officer Independent Directors Independent Auditor David R. Brooks Michael S. Sarner RSM US Christine S. Battist Chief Financial Officer, Secr