Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q1 2020 Earnings Presentation
23 slides from Capital Southwest's earnings presentation, Aug 6, 2019
Slide 1: Q1 2020 Earnings Presentation
Capital Southwest Corporation Q1 2020 Earnings Presentation August 6, 2019 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: Q1 2020 Highlights
Q1 2020 Highlights Financial Highlights • Q1 2020 Pre-Tax Net Investment Income (“NII”) of $7.7MM or $0.44 per share • Paid $0.39 per share in Regular Dividends, plus $0.10 per share Supplemental Dividend ◦ Total Dividends for the quarter of $0.49 per share • Investment Portfolio at Fair Value incre
Slide 7: Track Record of Increasing Dividends Continues
Track Record of Increasing Dividends Continues • In the last twelve months ending 6/30/19, CSWC generated $1.62 per share in Pre-Tax NII and paid out $1.47 per share in regular dividends ◦ Fifteen consecutive quarters of regular dividend per share growth • Cumulative Regular Dividend Coverage of 105
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 Track Record and Growing First Lien Credit Portfolio
Strong Track Record and Growing First Lien Credit Portfolio CSWC Credit Portfolio heavily weighted towards First Lien and LMM Investments • First Lien and LMM Investments have increased to 87% and 76% of the credit portfolio, respectively, as of 6/30/19 Credit Portfolio Heavily Weighted to First Lie
Slide 10: CSWC Originations - Q1 2020
CSWC Originations - Q1 2020 $34.7MM in new committed investments during the quarter (all funded at close) at a weighted average debt YTM of 11.1% Portfolio Origination Q1 2020 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield to Name Industry Type
Slide 11: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $20.0MM in proceeds from one exit during the quarter • Exited Prism Spectrum Holdings generating a realized gain of $0.2MM and IRR of 10.9% • Cumulative IRR of 15.7% on 26 portfolio exits generating $181.9MM in proceeds since launch of credit strategy in January
Slide 12: CSWC Portfolio Asset Mix by Market
CSWC Portfolio Asset Mix by Market Maintaining conservative portfolio leverage while receiving attractive risk adjusted returns Investment Portfolio - Statistics Q1 2020 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 26 11 Total Cost $324,025 $96,849 Total F
Slide 13: CSWC Portfolio Mix as of 6/30/19 at Fair Value
CSWC Portfolio Mix as of 6/30/19 at Fair Value Current Investment Portfolio of $533MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Telecommunications: 1% Software & IT Services: 1% Restaurants: 1% Financial Services: 2% E
Slide 14: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $235MM is 95% first lien with average hold size of 2.0% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) 2% Telecommunications 5% Telecommunications 2% 2% 17% 3% 4% 7% 13% Retail 5% 4% Retail 95% 2% 11% 7% Heal
Slide 15: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/18 12/31/18 3/31/19 6/30/19 Investment Income Interest Income $9,232 $10,070 $10,320 $11,346 Dividend Income 3,158 3,352 3,342 4,019 Fees and Other Income 205 449 646 434 Total Inve
Slide 16: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally-managed structure migrating to a target operating leverage of sub-2.5% $1,000 6% Operating Expenses as % of Avg Assets $800 5% 4.9% Total Assets ($MM) $600 $552 $564 4.2% 4% $417 $400 $326 3.7% $284 3% 3.1% $200 3.0% $
Slide 17: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/18 12/31/18 3/31/19 6/30/19 Assets Portfolio Investments $491,601 $496,740 $524,071 $533,491 Cash & Cash Equivalents 10,193 10,774 9,924 11,969 Deferred Tax Asset 2,060 2,294 1,807 1,6
Slide 18: Significant Unused Debt Capacity with Long-Term Duration
Significant Unused Debt Capacity with Long-Term Duration Earliest Debt Maturity occurs in July 2022 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment Credit Facility(1) $295.0 MM L + 2.50% subject to December 2023 $151.0 MM $140.6 MM(3) certain conditions December
Slide 19: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/18 12/31/18 3/31/19 6/30/19 Portfolio Statistics Fair Value of Debt Investments $336,717 $350,685 $367,727 $381,704 Average Debt Investment Hold Siz
Slide 20: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/18 12/31/18 3/31/19 6/30/19 Investme
Slide 21: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Regular Dividend growth driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 9/30/18 12/31/18 3/31/19 6/30/19 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Di
Slide 22: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 3% 97% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (100 bps) $(2,310,579) $(0.13) (75 bps) (1,787,054) (0.10) (50 bps) (1,263,529) (0.07) (25 bps) (692
Slide 23: 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