Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q2 2024 Earnings Presentation
25 slides from Capital Southwest's earnings presentation, Oct 31, 2023
Slide 1: Capital Southwest Corporation Q2 2024 Earnings Presentation
Capital Southwest Corporation Q2 2024 Earnings Presentation October 31, 2023 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”) and 7.75% Not
Slide 6: Q2 2024 Highlights
Q2 2024 Highlights Financial Highlights • Q2 2024 Pre-Tax Net Investment Income (“NII”) of $26.4 MM or $0.67 per share • Increased Regular Dividend to $0.57 per share for the quarter ending December 31, 2023, an increase of 1.8% compared to the $0.56 per share Regular Dividend paid for the quarter e
Slide 7: Dividend Per Share
Track Record of Consistent Dividends Continues • In the last twelve months ended 9/30/2023, CSWC generated $2.59 per share in Pre-Tax NII and paid out $2.15 per share in Regular Dividends ◦ LTM Pre-Tax NII Regular Dividend Coverage of 120% • Cumulative Pre-Tax NII Regular Dividend Coverage of 109% s
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase from Credit Strategy of $13.68 per share through 9/30/2023 $35.00 $31.36 $30.06 $30.66 $30.00 $28.27 $24.90 $11.13 $25.00 $10.03 $10.57 $22.71 $8.00 $21.97 $20.90 $6.18 $2.93 $20.00 $18.63 $1.56 $4.53 $17.68
Slide 9: Credit Investment Strategy
Credit 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 $50 MM with hold sizes generally $5 MM to $35 MM ◦ Both sponsored
Slide 10: 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 1.1% as of 9/30/23 Credit Portfolio Heavily Weighted to First Lien 7.0% $1,250 $1,179 6.0% $1,111 5.6% $1,038 $1,000 5.0% Avera
Slide 11: Q2 2024 Originations
Q2 2024 Originations $110.0 MM in total new committed investments to five new portfolio companies and six existing portfolio companies • $96.5 MM funded at close Portfolio Originations Q2 2024 Total Equity Unfunded Total Debt Funded Debt Yield to Name Industry Type Funded at Close Commitments at at
Slide 12: CSWC Investment Portfolio Composition
CSWC Investment Portfolio Composition Maintaining appropriate portfolio leverage while receiving attractive risk-adjusted returns Investment Portfolio - Statistics (in $000's) 6/30/2023 9/30/2023 Total CSWC Total CSWC Portfolio Portfolio Number of Portfolio Companies 89 94 Total Cost $1,206,225 $1,2
Slide 13: CSWC Portfolio Mix as of September 30, 2023 at Fair Value
CSWC Portfolio Mix as of September 30, 2023 at Fair Value Current Investment Portfolio of $1.4 B continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Equity 8.9% Second Lien 2.7% Healthcare Services 13% I-45 SLF 4.0% Environmenta
Slide 14: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration Approximately 97% 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 6/30/2023 9/30/2023 Upgrades Downgrades Fair % of Fair % o
Slide 15: I-45 Senior Loan Fund Portfolio Overview
I-45 Senior Loan Fund Portfolio Overview I-45 SLF loan portfolio of $132 MM is 95% first lien senior secured debt Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Business Services Telecommunications 5% 17% Healthcare & Pharmaceuticals 16% 95% 9% 13% 10% Telecommunications High
Slide 16: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/22 3/31/23 6/30/23 9/30/23 Investment Income Interest Income $27,639 $31,622 $34,819 $37,955 PIK Interest Income 1,501 1,870 1,656 1,526 Dividend Income 2,382 2,207 2,703 2,484 Fee
Slide 17: Operating Leverage Trend
Operating Leverage Trend Continuing to improve Operating Leverage through benefits of internally- managed structure $1,500 $1,417 $1,337 $1,258 6% $1,250 Operating Expenses as % of Avg Assets 5% $974 Total Assets ($MM) $1,000 4.9% 4.2% $736 4% $750 3.7% $585 $552 3% $500 $417 3.0% $326 2.8% $284 2.4
Slide 18: NAV per Share Bridge for Quarter Ended 9/30/2023
NAV per Share Bridge for Quarter Ended 9/30/2023 $17.5 $0.67 $17 $0.11 $0.02 $16.46 $16.5 $16.38 $(0.56) $(0.06) $(0.03) $(0.07) $16 $15.5 $15 Earnings / Dividends Investment Portfolio Other Corporate $0.05 per Share Valuation Change $0.13 per Share $14.5 $(0.10) per Share $14 re e en d d io io nc e
Slide 19: 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) $100.0 MM Term SOFR +
Slide 20: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/22 3/31/23 6/30/23 9/30/23 Assets Portfolio Investments $1,150,046 $1,206,388 $1,285,318 $1,353,566 Cash & Cash Equivalents 21,686 21,585 21,278 23,020 Other Assets 30,425 29,711 30,4
Slide 21: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/22 3/31/23 6/30/23 9/30/23 Portfolio Statistics Fair Value of Debt Investments $990,298 $1,037,595 $1,110,915 $1,179,074 Average Debt Investment Ho
Slide 22: 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) 12/31/22 3/31/23 6/30/23 9/30/23 Investment Income Breakdown Cash Interest $26,619 $30,712 $33,703 $36,588 Cash Dividends 2,382 2,208 2,70
Slide 23: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 12/31/22 3/31/23 6/30/23 9/30/23 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 24: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure (1) 3% 97% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change ($ Per Share) (200 bps) (19,110,036) (0.48) (150 bps) (14,332,527) (0.36) (100 bps) (9,555,018) (0.24) (5
Slide 25: 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 RSM US LLP Christine S. Battist Chief Financial Officer, S