Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2019 Earnings Presentation
26 slides from Capital Southwest's earnings presentation, Jun 4, 2019
Slide 1: Capital Southwest Corporation Q4 2019 Earnings Presentation
Capital Southwest Corporation Q4 2019 Earnings Presentation June 4, 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: Fiscal Year 2019 Highlights
Fiscal Year 2019 Highlights Financial Highlights • 37% Total Return to Shareholders in FY 2019 ◦ Share price appreciated to $21.04 from $17.02 in prior year, an increase of 24% ◦ Total dividends of $2.27 per share compared to $0.99 per share in prior year, an increase of 129% • Investments at Fair V
Slide 7: Fiscal Year 2019 Highlights cont.
Fiscal Year 2019 Highlights cont. Financial Highlights • Strengthened Balance Sheet Through Variety of Capital Raising Activities ◦ Amended and upsized the CSWC Revolving Credit Facility to $270MM from $180MM ▪ Subsequent to fiscal year end, upsized Credit Facility by additional $25MM to $295MM ◦ Ra
Slide 8: Q4 2019 Highlights
Q4 2019 Highlights Financial Highlights • Q4 2019 Pre-Tax Net Investment Income (“NII”) of $7.2MM or $0.42 Per Share • Paid $0.38 Per Share in Regular Dividends, Plus $0.10 Per Share Supplemental Dividend ◦ Total Dividends for the quarter of $0.48 per share ◦ UTI Balance at quarter end of $1.14 per
Slide 9: CSWC Originations and Prepayments - Q4 2019
CSWC Originations and Prepayments - Q4 2019 $28.9MM in New Committed Investments During the Quarter ($28.1MM funded at close) at a Weighted Average Debt YTM of 12.5% Portfolio Originations Q4 2019 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield
Slide 10: CSWC Originations and Prepayments Subsequent to Quarter End
CSWC Originations and Prepayments Subsequent to Quarter End $22.7MM in New Committed Investments (all funded at close) at a Weighted Average Debt YTM of 10.6% Portfolio Originations Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield to Name Industr
Slide 11: Dividend Per Share
Track Record of Increasing Dividends Continues • In the Last Twelve Months Ending 3/31/19, CSWC Generated $1.48 Per Share in Pre-Tax NII and Paid Out $1.37 Per Share in Regular Dividends ◦ Fourteen consecutive quarters of regular dividend per share growth • Cumulative Regular Dividend Coverage of 10
Slide 12: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $5.03 at 3/31/19 from 9/30/15 Spin-off of CSWI $23.0 $22.71 $22.5 $21.99 $22.04 $22.0 $21.58 $21.5 $21.0 $20.90 $4.09 $20.5 $3.15 $19.98 $2.71 $3.61 $20.0 $1.82 $19.54 $19.5 $19.00 $1.54 $19.0 $1.28 $18.6
Slide 13: 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 14: CSWC Credit Portfolio Heavily Weighted Towards First Lien and LMM Investments
CSWC Credit Portfolio Heavily Weighted Towards First Lien and LMM Investments First Lien and LMM Investments have Increased to 86% and 78% of the Credit Portfolio as of 3/31/19, Respectively Credit Portfolio Heavily Weighted to First Lien Robust LMM Credit Portfolio Growth 500.0 500.0 400.0 400.0 $3
Slide 15: 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 Q4 2019 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 26 10 Total Cost $325,343 $84,712 Total F
Slide 16: CSWC Portfolio Mix as of 3/31/19 at Fair Value
CSWC Portfolio Mix as of 3/31/19 at Fair Value Current Investment Portfolio of $524.1MM Continues to be Diverse Across Industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Restaurants: 2% Telecommunications: 1% Software & IT Services: 1% Commodities & Mining:
Slide 17: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 Loan Portfolio of $237.5MM is 94% First Lien with Average Hold Size of 2.1% of the I-45 Portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Telecommunications 6% 3% Telecommunications 3% 20% 3% 3% 3% 4% Consumer Products & 11% Retail 6% 94% Re
Slide 18: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/18 9/30/18 12/31/18 3/31/19 Investment Income Interest Income $7,643 $9,232 $10,070 $10,320 Dividend Income 3,075 3,158 3,352 3,342 Fees and Other Income 389 205 449 646 Total Inves
Slide 19: Operating Expenses as % of Avg Assets
Operating Leverage Improves Continue to Realize Operating Efficiencies of Internally-Managed Structure Migrating to a Target Operating Leverage of sub-2.5% 4.9% Operating Expenses as % of Avg Assets 5% $600 $552 $517 $524 4.2% Total Assets ($MM) $451 $417 4% $400 3.7% $326 3.4% $284 3.0% 2.9% 3% $20
Slide 20: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 6/30/18 9/30/18 12/31/18 3/31/19 Assets Portfolio Investments $411,330 $491,601 $496,740 $524,071 Cash & Cash Equivalents 12,532 10,193 10,774 9,924 Deferred Tax Asset 2,116 2,060 2,294 1,8
Slide 21: Principal Payments ($MM)
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) $270.0 MM L + 2.50% subject to December 2023 $141.0 MM $125.6 MM(3) certain conditions December
Slide 22: Portfolio Statistics
Portfolio Statistics Continuing to Build a Well Performing Credit Portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/18 9/30/18 12/31/18 3/31/19 Portfolio Statistics Fair Value of Debt Investments $272,133 $336,717 $350,685 $367,727 Average Debt Investment Hold Siz
Slide 23: Investment Income Detail
Investment Income Detail Constructing a Portfolio of Investments with Recurring Cash Yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 6/30/18 9/30/18 12/31/18 3/31/19 Investme
Slide 24: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Regular Dividend Growth Driven by Net Portfolio Growth and Investment Performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 6/30/2018 9/30/18 12/31/18 3/31/19 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg
Slide 25: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) 3% 97% Fixed Floating Change in Base Interest Illustrative Annual Illustrative Annual NII Rates NII Change ($'s) Change (Per Share) (100 bps) $(2,491,237) $(0.14) (75 bps) $(1,964,093) $(0.11) (50 bps) $(1,381,136) $(0.08) (25 bps)
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) LLP Christine S. Battist Chief Financial Officer