Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q2 2025 Earnings Presentation
25 slides from Capital Southwest's earnings presentation, Oct 28, 2024
Slide 1: Q2 2025 Earnings Presentation
Q2 2025 Earnings Presentation 8333 Douglas Avenue, Suite 1100 | Dallas, Texas 75225 | 214.238.5700 | capitalsouthwest.com October 29, 2024 Capital Southwest Corporation
Slide 2: Important Notices
Page 2 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 herei
Slide 3: Forward-looking statements
Page 3 • 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 future market demand. A
Slide 4: Conference Call Participants
Page 4 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 Conference Call Participants
Slide 5: CSWC Company Overview
Page 5 • 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% Notes due 2028 ("CSWCZ") • Internally Managed BDC with RIC tax treatment for U.S. federal income tax purposes • 32 employees based in Dallas, Texas • Total Bala
Slide 6: Q2 2025 Highlights
Page 6 • Q2 2025 Pre-Tax Net Investment Income (“NII”) of $30.0 MM or $0.64 per share • Declared Regular Dividend of $0.58 per share for the quarter ending December 31, 2024 ◦ In addition, declared Supplemental Dividend of $0.05 per share for the quarter ending December 31, 2024 • Investment Portfol
Slide 7: Track Record of Consistent Dividends Continues
Page 7 • In the last twelve months ended 9/30/2024, CSWC generated $2.73 per share in Pre-Tax NII and paid out $2.29 per share in Regular Dividends ◦ LTM Pre-Tax NII Regular Dividend Coverage of 119% • Cumulative Pre-Tax NII Regular Dividend Coverage of 111% since launch of credit strategy in 2015 •
Slide 8: History of Value Creation
Page 8 History of Value Creation $17.68 $17.38 $18.63 $20.90 $22.71 $21.97 $24.90 $28.27 $30.06 $32.93 $33.39 $34.02 $17.68 $17.34 $17.80 $19.08 $18.62 $15.13 $16.01 $16.86 $16.37 $16.77 $16.60 $16.59 $0.26 $0.26 $1.16 $2.31 $2.71 $3.41 $3.66 $3.89 $3.95 $4.01 $0.04 $0.57 $1.56 $2.93 $4.53 $6.18 $8.
Slide 9: Lower Middle Market Credit Strategy
Page 9 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, geographic regions, and end markets •
Slide 10: Granular Credit Portfolio Heavily Weighted Towards First Lien Investments
Page 10 Granular Credit Portfolio Heavily Weighted Towards First Lien Investments 98% of credit portfolio in first lien senior secured loans with an average investment hold size of 1.0% as of 9/30/2024 Credit Portfolio Heavily Weighted to First Lien $ (M illi on s) Average H old S ize % $93 $167 $23
Slide 11: Q2 2025 Originations
Page 11 $89.8 MM in total new committed investments to four new portfolio companies and eleven existing portfolio companies Q2 2025 Originations Portfolio Originations Q2 2025 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($0
Slide 12: Portfolio Exits Q2 2025
Page 12 Portfolio Exits Q2 2025 Name Industry Type Total Proceeds ($000s) Realized Gain / (Loss) ($000s) IRR Acceleration, LLC Media & Marketing First Lien $26,544 $387 16.1% South Coast Terminals, LLC Chemicals First Lien $14,413 $168 11.3% Retail Services WIS Corporation Data Processing & Outsourc
Slide 13: CSWC Investment Portfolio Composition
Page 13 CSWC Investment Portfolio Composition (1) At September 30, 2024 and June 30, 2024, we had equity ownership in approximately 61% and 59%, respectively, of our investments (2) The weighted-average annual effective yields were computed using the effective interest rates during the quarter for a
Slide 14: Debt Investment Ratings and Migration
Page 14 Approximately 94% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate solid performance Investment Rating 6/30/2024 Investment Rating Upgrades Investment Rating Downgrades 9/30/2024 # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans F
Slide 15: CSWC Portfolio Mix as of September 30, 2024
Page 15 CSWC Portfolio Mix as of September 30, 2024 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of approximately $1.5 B continues to be heavily weighted towards first lien investments and diverse across industries First
Slide 16: Income Statement
Page 16 Income Statement (In Thousands, except per share amounts) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Investment Income Interest Income $37,841 $39,923 $42,987 $43,698 PIK Interest Income 4,073 2,953 3,051 2,398 Dividend Income 4,672 1,887
Slide 17: Operating Leverage Trend
Page 17 Operating Leverage Trend Continuing to improve Operating Leverage through benefits of internally-managed structure Period Ending To ta l A ss et s ( $M M ) O perating Expenses as % of A vg A ssets $284 $326 $417 $552 $585 $736 $974 $1,258 $1,557 $1,544 $1,604 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.
Slide 18: NAV per Share Bridge for Quarter Ended 9/30/24
Page 18 $16.60 $0.64 $(0.58) $(0.06) $(0.15) $(0.03) $0.13 $0.04 $16.59 6/3 0/2 02 4 N AV/Shar e Pre- Tax Net I nv est ment In com e Regu lar Divi den d Sup ple ment al D ivi den d Net C han ge in Valu ati on of Debt Port fol io Net C han ge in Valu ati on of Equ ity Port fol io Accr eti on fro m Eq
Slide 19: Significant Unused Debt Capacity with Long-Term Duration
Page 19 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 October 2026 Notes (2) $150.0 MM 3.375
Slide 20: Balance Sheet
Page 20 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Assets Portfolio Investments $1,365,037 $1,476,561 $1,468,126 $1,508,507 Cash & Cash Equivalents 23,605 32,273 33,299 47,237 Other Assets 40
Slide 21: Portfolio Statistics
Page 21 Portfolio Statistics (1) CSWC utilizes an internal 1 - 4 investment rating system in which 1 represents material outperformance and 4 represents material underperformance. All new investments are initially set to 2. Weighted average investment rating is calculated at cost. (2) At Fair Value
Slide 22: Investment Income Detail
Page 22 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 12/31/2023 Quarter Ended 3/31/2024 Quarter Ended 6/30/2024 Quarter Ended 9/30/2024 Investment Income Breakdown Cash Interest $36,743 $38,881 $41,998 $42,629 Cash Dividends
Slide 23: Key Financial Metrics
Page 23 Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance (1) Return on Equity is calculated as the quarterly annualized Pre-Tax NII, Realized Earnings, or Total Earnings, respectively, divided by equity at the end
Slide 24: Interest Rate Sensitivity
Page 24 Note: Illustrative change in annual NII does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in the portfolio. It also does not adjust for other business developments, including future originations and repayments. Accordingly, no assu
Slide 25: Corporate Information
Page 25 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 Chicago, ILChristine S. Battist Chief F