Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2024 Earnings Presentation
26 slides from Capital Southwest's earnings presentation, May 15, 2024
Slide 1: Q4 2024 Earnings Presentation
Capital Southwest Corporation Q4 2024 Earnings Presentation May 15, 2024 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 Josh S. Weinstein Senior Managing Director and Chief Investment Officer Chris Rehberger Executive Vice President and 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 7.75% Not
Slide 6: Fiscal Year 2024 Highlights
Fiscal Year 2024 Highlights Financial Highlights • Investments at Fair Value of $1.5 B compared to $1.2 B in prior year, an increase of 22% • Pre-Tax Net Investment Income increased to $2.72 per share from $2.30 per share in prior year, an increase of 18% • Paid Regular Dividends of $2.24 compared t
Slide 7: Q4 2024 Highlights
Q4 2024 Highlights Financial Highlights • Q4 2024 Pre-Tax Net Investment Income (“NII”) of $29.8 MM or $0.68 per share • Declared Regular Dividend of $0.57 per share for the quarter ending June 30, 2024 ◦ Declared Supplemental Dividend of $0.06 per share for the quarter ending June 30, 2024 • Invest
Slide 8: Dividend Per Share
Track Record of Consistent Dividends Continues • In the last twelve months ended 3/31/2024, CSWC generated $2.72 per share in Pre-Tax NII and paid out $2.24 per share in Regular Dividends ◦ LTM Pre-Tax NII Regular Dividend Coverage of 121% • Cumulative Pre-Tax NII Regular Dividend Coverage of 111% s
Slide 9: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase from Credit Strategy of $15.25 per share through 3/31/2024 $35.00 $32.93 $30.06 $30.00 $28.27 $24.90 $12.27 $25.00 $10.03 $22.71 $8.00 $21.97 $20.90 $6.18 $2.93 $20.00 $18.63 $1.56 $4.53 $17.68 $17.38 $1.16
Slide 10: Lower Middle Market Credit Strategy
Lower Middle Market Credit Strategy CSWC leads financing transactions, primarily backing private equity firms that generally fit the following parameters • Flexible financing solutions to fund growth, changes of control, or other corporate events • Investments are diverse among industries, geographi
Slide 11: Granular Credit Portfolio Heavily Weighted Towards First Lien Investments
Granular Credit Portfolio Heavily Weighted Towards First Lien Investments 97% of credit portfolio in first lien senior secured loans with an average investment hold size of 0.9% as of 3/31/24 Credit Portfolio Heavily Weighted to First Lien $1,345 7.0% $1,250 6.0% 5.6% $1,038 $1,000 5.0% Average Hold
Slide 12: Q4 2024 Originations
Q4 2024 Originations $157.5 MM in total new committed investments to six new portfolio companies and five existing portfolio companies • $130.6 MM funded at close Portfolio Originations Q4 2024 Total Debt Total Equity Unfunded Debt Yield to Name Industry Type Funded at Close Funded at Close Commitme
Slide 13: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $13.7 MM in total proceeds from two debt prepayments • During the quarter, CSWC exited two debt investments generating proceeds of $13.7 MM and a weighted average IRR of 16.5% • Cumulative weighted average IRR of 14.0% on 74 portfolio company exits, generating $9
Slide 14: CSWC Investment Portfolio Composition
CSWC Investment Portfolio Composition Maintaining appropriate portfolio leverage while receiving attractive risk- adjusted returns Investment Portfolio - Statistics (in $000's) 12/31/2023 3/31/2024 Total CSWC Total CSWC Portfolio Portfolio Number of Portfolio Companies (1) 95 116 Total Cost $1,289,1
Slide 15: CSWC Portfolio Mix as of March 31, 2024 at Fair Value
CSWC Portfolio Mix as of March 31, 2024 at Fair Value Current Investment Portfolio of $1.5 B continues to be heavily weighted towards first lien investments and diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Senior Subordinated Debt 0.1% E
Slide 16: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration Approximately 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 12/31/2023 3/31/2024 Upgrades Downgrades Fair % of Fair %
Slide 17: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/23 9/30/23 12/31/23 3/31/24 Investment Income Interest Income $34,819 $37,955 $37,841 $39,923 PIK Interest Income 1,656 1,526 4,073 2,953 Dividend Income 2,703 2,484 4,672 1,887 Fee
Slide 18: Operating Leverage Trend
Operating Leverage Trend Continuing to improve Operating Leverage through benefits of internally- managed structure $1,556 $1,500 6% $1,258 Operating Expenses as % of Avg Assets $1,250 5% Total Assets ($MM) 4.9% $974 $1,000 4.2% 4% $736 $750 3.7% $585 $552 3% $500 $417 3.0% 2.8% $326 $284 2.4% 2.2%
Slide 19: NAV per Share Bridge for Quarter Ended 3/31/24
NAV per Share Bridge for Quarter Ended 3/31/24 $18 $0.68 $17.5 $17 $16.77 $0.31 $16.77 $(0.57) $(0.06) $(0.01) $16.5 $(0.33) $(0.02) $16 $15.5 Investment Portfolio $15 Earnings / Dividends Valuation Change Other Corporate $0.05 per Share $(0.35) per Share $0.30 per Share $14.5 $14 re e en d d io io
Slide 20: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration Raised SPV Credit Facility with $150 MM in initial commitments during the quarter 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 October 20
Slide 21: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/23 9/30/23 12/31/23 3/31/24 Assets Portfolio Investments $1,285,318 $1,353,566 $1,365,037 $1,476,561 Cash & Cash Equivalents 21,278 23,020 23,605 32,273 Other Assets 30,407 40,327 40,8
Slide 22: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/23 9/30/23 12/31/23 3/31/24 Portfolio Statistics Fair Value of Debt Investments $1,110,915 $1,179,074 $1,181,737 $1,344,559 Average Debt Investment
Slide 23: 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) 6/30/23 9/30/23 12/31/23 3/31/24 Investment Income Breakdown Cash Interest $33,703 $36,588 $36,743 $38,881 Cash Dividends 2,703 2,484 4,67
Slide 24: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 6/30/23 9/30/23 12/31/23 3/31/24 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 25: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure 2.6% 97.4% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change ($ Per Share) (200 bps) (21,181,416) (0.47) (150 bps) (15,886,062) (0.35) (100 bps) (10,590,708) (0.24) (
Slide 26: Corporate Information
Corporate Information Board of Directors Senior Management Fiscal Year End Inside Director Bowen S. Diehl March 31 Bowen S. Diehl President & Chief Executive Officer Independent Directors Independent Auditor David R. Brooks Michael S. Sarner Christine S. Battist Chief Financial Officer, Secretary &