Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q1 2022 Earnings Presentation
26 slides from Capital Southwest's earnings presentation, Aug 3, 2021
Slide 1: Capital Southwest Corporation Q1 2022 Earnings Presentation
Capital Southwest Corporation Q1 2022 Earnings Presentation August 3, 2021 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”) • Internally
Slide 6: Q1 2022 Highlights
Q1 2022 Highlights Financial Highlights • Q1 2022 Pre-Tax Net Investment Income (“NII”) of $9.4 MM or $0.45 per share • Paid $0.43 per share Regular Dividend and $0.10 per share Supplemental Dividend for the quarter ended June 30, 2021 ◦ Increased Regular Dividend to $0.44 per share and declared $0.
Slide 7: Dividend Per Share
Track Record of Consistent Dividends Continues • In the last twelve months ended 6/30/2021, CSWC generated $1.84 per share in Pre-Tax NII and paid out $1.67 per share in regular dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 spin-off • Announced Supplemental Divi
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $8.32 per share at 6/30/2021 from 9/30/2015 Spin-off of CSWI $27.00 $26.00 $24.90 $24.11 $23.38$23.07 $23.22 $24.00 $22.71$23.16 $21.58$21.99 $21.99$22.04 $22.04 $21.97$22.30 $20.90 $21.00 $9.42 $19.54$19
Slide 9: 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 $30 MM with hold sizes generally $10 MM to $25 MM ◦ Both Spon
Slide 10: Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments
Credit Portfolio Heavily Weighted Towards LMM and First Lien Investments LMM and First Lien Investments are 87% and 90% of the credit portfolio, respectively, as of 6/30/2021 Robust LMM Credit Portfolio Growth Credit Portfolio Heavily Weighted to First Lien 800.0 $800.0 $671 $671 $573 13% $573 600.0
Slide 11: Q1 2022 Originations
Q1 2022 Originations $138.9 MM in total new committed investments to eight new portfolio companies • $102.6 MM funded at close Portfolio Originations Q1 2022 Total Debt Total Equity Unfunded Debt Yield to Name Industry Type Market Funded at Close Funded at Close Commitments at Debt Spread Maturity (
Slide 12: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $1.6 MM in total proceeds from one portfolio company exit • During the quarter, CSWC exited one equity investment, generating total proceeds of $1.6 MM and an IRR of 34.0% • Cumulative IRR of 15.2% on 39 portfolio company exits generating $385.1 MM in proceeds si
Slide 13: 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 2022 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 49 12 Total Cost $635,315 $94,971 Total F
Slide 14: Credit Portfolio Investment Rating Migration
Credit Portfolio Investment Rating Migration Four Loans Upgraded and No Loans Downgraded During the Quarter Investment Rating Investment Rating Investment Rating 3/31/2021 6/30/2021 Upgrades Downgrades Fair % of Fair % of Fair % of Fair % of # of # of # of # of Value Portfolio Value Portfolio Value
Slide 15: CSWC Portfolio Mix as of 6/30/2021 at Fair Value
CSWC Portfolio Mix as of 6/30/2021 at Fair Value Current Investment Portfolio of $798.6 MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Subordinated Debt 1% Second Lien 7% Equity 8% Healthcare Services 11% I-45 SLF LLC 8%
Slide 16: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $169.6 MM is 96% first lien with average hold size of 2.6% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Consumer Products and Retail Telecommunications 14% 4% 13% High Tech Industries 13% 96% Healthcare Ser
Slide 17: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/20 12/31/20 3/31/21 6/30/21 Investment Income Interest Income $13,882 $14,687 $15,078 $15,601 Dividend Income 1,860 2,916 1,661 2,657 Fees and Other Income 943 1,437 434 321 Total I
Slide 18: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure 6% $836 $800 $736 Operating Expenses as % of Avg Assets 5% 4.9% $585 $600 $552 Total Assets ($MM) 4.2% 4% $417 $400 $326 3.7% $284 3% $200 3.0% 2.8% 2.4% 2.3% $0 2% FY 16 FY 17 FY 18 FY 19 FY 20 FY 21
Slide 19: NAV per Share Bridge from Quarter Ended 3/31/2021
NAV per Share Bridge from Quarter Ended 3/31/2021 $17 $0.47 $16.58 $0.45 $16.5 $(0.10) $0.23 $16.01 $0.03 $0.02 $16 $(0.43) $(0.10) $15.5 $15 $14.5 Earnings / Dividends Investment Portfolio Corporate $(0.08) per Share $0.28 per Share $0.37 per Share $14 ar e e en d en d 5) bt lio ce (1 ) re h om d d
Slide 20: Principal Payments
Significant Unused Debt Capacity with Long-Term Duration Earliest debt maturity occurs in December 2023 Facility Total Commitments Interest Rate Maturity Principal Drawn Undrawn Commitment L + 2.50% subject to certain Credit Facility (1) $340.0 MM December 2023 $190.0 MM $146.7 MM (2) conditions Oct
Slide 21: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/20 12/31/20 3/31/21 6/30/21 Assets Portfolio Investments $631,197 $648,773 $688,432 $798,647 Cash & Cash Equivalents 16,011 43,724 31,613 16,543 Other Assets 17,057 16,337 15,539 20,85
Slide 22: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/20 12/31/20 3/31/21 6/30/21 Portfolio Statistics Fair Value of Debt Investments $520,651 $531,103 $572,614 $671,257 Average Debt Investment Hold Siz
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) 9/30/20 12/31/20 3/31/21 6/30/21 Investment Income Breakdown Cash Interest $11,581 $12,413 $11,668 $13,939 Cash Dividends 1,860 2,916 1,66
Slide 24: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 9/30/20 12/31/20 3/31/21 6/30/21 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 25: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 4% 96% Fixed Floating Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (25 bps) 365,685 0.02 25 bps (627,248) (0.03) 50 bps (1,254,496) (0.06) 75 bps (1,833,026) (0.08) 10
Slide 26: 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