Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2022 Earnings Presentation
27 slides from Capital Southwest's earnings presentation, May 24, 2022
Slide 1: Capital Southwest Corporation Q4 2022 Earnings Presentation
Capital Southwest Corporation Q4 2022 Earnings Presentation May 23, 2022 8333 Douglas Avenue, Suite 1100 | Dallas, Texas 75225 | 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”) • Internally
Slide 6: Fiscal Year 2022 Highlights
Fiscal Year 2022 Highlights Financial Highlights • 18% FY 2022 Total Return to Shareholders ◦ $2.52 in total dividends per share paid during the year • NAV per share increased to $16.86 from $16.01 in prior year, an increase of 5% • Investments at Fair Value of $937 MM compared to $688 MM in prior y
Slide 7: Q4 2022 Highlights
Q4 2022 Highlights Financial Highlights • Q4 2022 Pre-Tax Net Investment Income (“NII”) of $12.0 MM or $0.50 Per Share • Paid $0.48 per share Regular Dividend for the quarter ended March 31, 2022 ◦ Announced Regular Dividend of $0.48 per share and declared $0.15 per share Special Dividend for the qu
Slide 8: Dividend Per Share
Track Record of Consistent Dividends Continues • In the Last Twelve Months Ending 3/31/22, CSWC generated $1.90 per share in Pre-Tax NII and paid out $1.82 per share in Regular Dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 Spin-Off • Total Special and Supplement
Slide 9: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $10.59 at 3/31/22 from 9/30/15 Spin-off of CSWI $30 $28.27 $24.90 $25 $22.71 $8.00 $21.97 $20.90 $6.18 $2.93 $20 $18.63 $1.56 $4.53 $17.68 $17.38 $0.26 $1.16 $3.41 $0.57 $0.04 $0.26 $2.71 $2.31 $15 $10 $1
Slide 10: 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 $20 MM ◦ Typical leverage of 2.0x – 4.0x Debt to EBITDA through CSWC debt position ◦ Commitment size up to $35 MM with hold sizes generally $5 MM to $35 MM ◦ Both Spons
Slide 11: Credit Portfolio Heavily Weighted Towards First Lien Investments
Credit Portfolio Heavily Weighted Towards First Lien Investments 93% of Credit Portfolio as of 3/31/22 in first lien senior secured loans Credit Portfolio Heavily Weighted to First Lien $1,000.0 $794 $800.0 $745 $689 $671 $600.0 $573 $ (Millions) $521 $531 $487 $474 $456 $387 93% $400.0 $368 $382 91
Slide 12: Q4 2022 Originations
Q4 2022 Originations $102.8 MM in total new committed investments to three new portfolio companies and ten existing portfolio companies • $70.0 MM funded at close Portfolio Originations Q4 2022 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Yield to Name Industr
Slide 13: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $49.2 MM in total proceeds from four debt prepayments • During the quarter, CSWC received four debt prepayments generating total proceeds of $49.2 MM and weighted average IRR of 12.9% • Cumulative IRR of 14.4% on 60 portfolio company exits generating $694.4 MM in
Slide 14: 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 Q4 2022 (in $000's) 12/31/2021 3/31/2022 Total CSWC Total CSWC Portfolio Portfolio Number of Portfolio Companies 70 72 Total Cost $810,800
Slide 15: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration Over 95% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate strong performance Investment Rating Investment Rating Investment Rating 12/31/2021 3/31/2022 Upgrades Downgrades Fair % of Fair % of Fair %
Slide 16: CSWC Portfolio Mix as of March 31, 2022 at Fair Value
CSWC Portfolio Mix as of March 31, 2022 at Fair Value Current investment portfolio of $936.6 MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Equity (b) 9% Business Services 13% Second Lien 6% I-45 SLF (a) 6% Transportatio
Slide 17: I-45 SLF Portfolio Overview
I-45 SLF Portfolio Overview I-45 SLF loan portfolio of $176.7 MM is 97% first lien with average hold size of 2.4% of the I-45 portfolio Current I-45 SLF Portfolio (By Type) Current I-45 SLF Portfolio (By Industry) Business Services 3% 15% Telecommunications 10% Healthcare Products 10% 97% Telecommun
Slide 18: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/21 9/30/21 12/31/21 3/31/22 Investment Income Interest Income $14,626 $16,100 $16,921 $17,611 PIK Interest Income 975 879 814 543 Dividend Income 2,657 2,070 1,714 1,961 Fees and Ot
Slide 19: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure $1,000 $974 4.9% 5% Operating Expenses as % of Avg Assets $800 $736 4.2% Total Assets ($MM) $600 $585 4% 3.7% $552 $417 $400 $326 3.0% $284 2.8% 3% $200 2.4% 2.2% $0 2% FY 16 FY 17 FY 18 FY19 FY20 FY2
Slide 20: NAV per Share Bridge for Quarter Ended 3/31/22
NAV per Share Bridge for Quarter Ended 3/31/22 $17 $0.32 $0.02 $16.86 $0.50 $0.25 $0.06 $16.19 $(0.48) $16 Earnings / Dividends Investment Portfolio Corporate $0.02 per Share $0.31 per Share $0.34 per Share $15 are com e den d fol io fol io anc e rat e are /Sh vi rt ort ssu rpo /Sh A V n t In Di Po
Slide 21: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration Earliest debt maturity occurs in January 2026 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment January 2026 Notes (1) $140.0 MM 4.50% January 2026 $140.0 MM N/A I-45 Credit Facility (2) $150.0 MM L + 2.15% M
Slide 22: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/21 9/30/21 12/31/21 3/31/22 Assets Portfolio Investments $798,647 $818,218 $876,765 $936,614 Cash & Cash Equivalents 16,543 26,840 18,668 11,431 Other Assets 20,858 21,764 17,122 25,91
Slide 23: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/21 9/30/21 12/31/21 3/31/22 Portfolio Statistics Fair Value of Debt Investments $671,257 $689,421 $744,681 $793,834 Average Debt Investment Hold Siz
Slide 24: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/21 9/30/21 12/31/21 3/31/22 Investment Income Breakdown Cash Interest $13,939 $15,370 $16,164 $16,785 Cash Dividends 2,657 2,069 1,71
Slide 25: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Return on Equity driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 6/30/21 9/30/21 12/31/21 3/31/22 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted S
Slide 26: CSWC Portfolio Well Positioned for Rising Interest Rate Environment
CSWC Portfolio Well Positioned for Rising Interest Rate Environment Fixed vs. Floating Portfolio Exposure (1) 2% 98% Fixed Floating Change in Base Interest Illustrative Annual Illustrative Annual NII Rates NII Change ($'s) Change (Per Share) (25 bps) $561,919 $0.02 25 bps $1,055,146 $0.04 50 bps $2,
Slide 27: Corporate Information
Corporate Information Board of Directors Senior Management Fiscal Year End Interested 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 LLP Christine S. Battist Chief Financial Offic