Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2023 Earnings Presentation
27 slides from Capital Southwest's earnings presentation, May 23, 2023
Slide 1: Capital Southwest Corporation Q4 2023 Earnings Presentation
capital southwest Capital Southwest Corporation 04 2023 Earnings Presentation May 23, 2023 $333 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
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: Fiscal Year 2023 Highlights
Fiscal Year 2023 Highlights Financial Highlights * Investments at Fair Value of $1.2 B compared to $937 MM in prior year, an increase of 29% * Pre-Tax Net Investment Income increased to $2.30 per share from $1.90 per share in prior year, an increase of 21% « Paid Regular Dividends of $2.03 compared
Slide 7: Q4 2023 Highlights
Q4 2023 Highlights Financial Highlights * Q4 2023 Pre-Tax Net Investment Income (“NII”) of $22.8 MM or $0.65 per share compared to $0.60 per share in the prior quarter, an increase of 8% * Paid $0.53 per share Regular Dividend and $0.05 per share Supplemental Dividend for the quarter ended March 31,
Slide 8: Track Record of Consistent Dividends Continues
Track Record of Consistent Dividends Continues + Inthe last twelve months ended 3/31/2023, CSWC generated $2.30 per share in Pre-Tax NII and paid out $2.03 per share in Regular Dividends e LTM Pre-Tax Nil Regular Dividend Coverage of 113% * Cumulative Pre-Tax NII Regular Dividend Coverage of 108% si
Slide 9: History of Value Creation
$35.00 $30.00 $25.00 ~ $20.00 $15.00 $10.00 $5.00 $0.00 History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase from Credit Strategy of $12.38 per share through 3/31/2023 $30.06 7 $28.27 $24.90 $22.71 $21.97 $20.90 ; - | : 5 ve \ .s 9 9 \ 2 3 on™ an av a ye ao’ P
Slide 10: 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 $35 MM with hold sizes generally $5 MM to $35 MM ° Both sponsored
Slide 11: Credit Portfolio Heavily Weighted Towards First Lien Investments
Credit Portfolio Heavily Weighted Towards First Lien Investments 96% of credit portfolio in first lien senior secured loans with an average investment hold size of 1.3% as of 3/31/23 Credit Portfolio Heavily Weighted to First Lien 7.0% $1,250.0 + 5.6% 6.0% $1,038 $1,000.0 > A $750.0 i g z o o 8 z $5
Slide 12: Q4 2023 Originations
Q4 2023 Originations $67.3 MM in total new committed investments to five new portfolio companies and nine existing portfolio companies * $59.6 MM funded at close tn a oe ae Inc. (DBA Business services First Lien $13,000 Ss s— 12.5% Island Pump and Tank, LLC cones First Lien / Equity $9,000 $750 $1,5
Slide 13: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $16.8 MM in total proceeds from one portfolio company exit * During the quarter, CSWC exited one debt investment, generating proceeds of $16.8 MM and an IRR of 13.0% * Cumulative IRR of 14.5% on 68 portfolio company exits generating $798 MM in proceeds since laun
Slide 14: CSWC Investment Portfolio Composition
CSWC Investment Portfolio Composition Maintaining appropriate portfolio leverage while receiving attractive risk-adjusted returns (in $000's) 12/31/2022 3/31/2023 Total CSWC Total CSWC Portfolio Portfolio Number of Portfolio Companies 81 85 Total Cost $1,083,712 $1,139,352 Total Fair Value $1,102,42
Slide 15: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration Approximately 96% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate strong performance A Investment Rating Investment Rating Investment Rating 12/31/2022 Downgrades 3/31/2023 z Value Poriolio| {#9 —
Slide 16: CSWC Portfolio Mix as of March 31, 2023 at Fair Value
CSWC Portfolio Mix as of March 31, 2023 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Equity 9.7% 3.0% First Lien 83.0% Prue RNe Tctail T% (Note 1) I-45 SLF consists of 95% first lien senior secured debt (Note 2) Equity represents equity co-investmen
Slide 17: I-45 SLF Portfolio Overview
l-45 SLF Portfolio Overview I-45 SLF loan portfolio of $144 MM is 95% first lien senior secured debt with average hold size of 2.8% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Business Services Healthcare & Pharmaceuticals High Tech Industries Telecomm
Slide 18: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/22 9/30/22 12/31/22 3/31/23 Investment Income Interest Income $18,260 $22,119 $27,639 $31,622 PIK Interest Income 687 1,384 1,501 1,870 Dividend Income 2,186 2,527 2,382 2,207 Fees
Slide 19: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure r 6% $1,258 $1,250 5% $1,000 4% $750 - + 3% Total Assets (SMM) $500 siassy Say jo % se sasuadxy SuneiodQ $250 + 2% so ~ 1% FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 Period Ending [EBB Total Asse
Slide 20: NAV per Share Bridge for Quarter Ended 3/31/2023
NAV per Share Bridge for Quarter Ended 3/31/2023 ' 1 1 ' $17.5 ' H H H ' 1 1 ' ' ' ' ' ' ' 1 ' $17 ‘ $0.65 ! \ ' ' ' ' ' 1 ' ' 1 ' ' 1 1‘ Cs re 7 i ' ' so.11 $0.06 ' $16.37 nee ' —— ' ' $(0.53) 00) $16 1 + $(0,10) $(0.02) | H H H H H t ' ' ' $15.5 ' ' : H ' ' ' ' ' ' ' ' t 1 ' ' $15 ' ' ' H ' 1 = '
Slide 21: 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 |") $140.0 MM 450% January 2026 $140.0 MM NIA 1-45 Credit Facility 7) $100.0 MM Term SOFR + 2
Slide 22: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/22 9/30/22 12/31/22 3131123 Portfolio Investments $1,006,640 $1,056,931 $1,150,046 $1,206,388 Cash & Cash Equivalents 18,770 30,238 21,686 21,585 Other Assets 28,549 26,002 30,425 29,7
Slide 23: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (in Thousands) 6/30/22 9/30/22 12/31/22 3/31/23 Fair Value of Debt Investments $865,432 $903,451 $990,298 $1,037,595 Average Debt Investment Hold Size $12,727 $12,906 $
Slide 24: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield Quarter Ended | QuarterEnded | QuarterEnded | Quarter Ended (in Thousands) 6/30/22 9/30/22 12/31/22 3/31/23 Cash Interest $17,414 $21,173 $26,619 $30,712 Cash Dividends 2,186 2,527 2,382 2,208 PIK Income 687 1
Slide 25: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 6/30/22 9/30/22 12/31/22 3/31/23 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 26: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure H Fixed © Floating Illustrative Annual Illustrative Annual Nil Change in Base Interest Rates Nil Change ($'s) Change ($ Per Share) (200 bps) (16,942,166) (0.47) (150 bps) (12,706,625) (0.35) (100 bps) (8,471,083) (0.23) (60 bps)
Slide 27: Corporate Information
Corporate Information Inside Director Bowen S. Diehl Independent Directors David R. Brooks Christine S. Battist Jack D. Furst William R. Thomas Ramona Rogers-Windsor Senior Management Bowen S. Diehl President & Chief Executive Officer Michael S. Sarner Chief Financial Officer, Secretary & Treasurer