Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q4 2023 Earnings Presentation
27 slides from Capital Southwest's earnings presentation, May 22, 2023
Slide 1: Q4 2023 Earnings Presentation
Q4 2023 Earnings Presentation 8333 Douglas Avenue, Suite 1100 | Dallas, Texas 75225 | 214.238.5700 | capitalsouthwest.com May 23, 2023 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 Chris Rehberger VP Finance / 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”) • Internally Managed BDC with RIC tax treatment for U.S. federal income tax purposes • 26 employees based in Dallas, Texas • Total Balance Sheet Assets of $1.3 B as of Ma
Slide 6: Fiscal Year 2023 Highlights
Page 6 Fiscal Year 2023 Highlights Financial Highlights (1) Operating Leverage calculated as last twelve months operating expenses (excluding interest expense) divided by average annual assets • Investments at Fair Value of $1.2 B compared to $937 MM in prior year, an increase of 29% • Pre-Tax Net I
Slide 7: Q4 2023 Highlights
Page 7 • 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, 2023 ◦ Increased Regular Dividen
Slide 8: Track Record of Consistent Dividends Continues
Page 8 • In the 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 ◦ LTM Pre-Tax NII Regular Dividend Coverage of 113% • Cumulative Pre-Tax NII Regular Dividend Coverage of 108% since December 2015 • Total of $3.71 per
Slide 9: History of Value Creation
Page 9 History of Value Creation $17.68 $17.38 $18.63 $20.90 $22.71 $21.97 $24.90 $28.27 $30.06 $17.68 $17.34 $17.80 $19.08 $18.62 $15.13 $16.01 $16.86 $16.37 $0.26 $0.26 $1.16 $2.31 $2.71 $3.41 $3.66$0.04 $0.57 $1.56 $2.93 $4.53 $6.18 $8.00 $10.03 Net Asset Value Per Share Cumulative Special/Supple
Slide 10: Credit Investment Strategy
Page 10 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 and non-sponsored d
Slide 11: Credit Portfolio Heavily Weighted Towards First Lien Investments
Page 11 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 $ (M ill io ns ) A verage H old S ize % $93 $167 $239 $368 $4
Slide 12: Q4 2023 Originations
Page 12 $67.3 MM in total new committed investments to five new portfolio companies and nine existing portfolio companies Q4 2023 Originations Portfolio Originations Q4 2023 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000
Slide 13: Portfolio Exits Q4 2023
Page 13 Portfolio Exits Q4 2023 Name Industry Type Net Proceeds ($000s) Realized Gain / (Loss) ($000s) IRR Amware Fulffillment LLC Distribution First Lien $16,838 $3 13.0% Total / Wtd. Avg $16,838 $3 13.0% Track Record of CSWC Exits Continues • During the quarter, CSWC exited one debt investment, ge
Slide 14: CSWC Investment Portfolio Composition
Page 14 CSWC Investment Portfolio Composition Note: All metrics above exclude the I-45 SLF (1) At March 31, 2023 and December 31, 2022, we had equity ownership in approximately 62% and 59%, respectively, of our investments (2) The weighted-average annual effective yields were computed using the effe
Slide 15: Quarter-over-Quarter Investment Rating Migration
Page 15 Approximately 96% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate strong performance Investment Rating 12/31/2022 Investment Rating Upgrades Investment Rating Downgrades 3/31/2023 # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans
Slide 16: CSWC Portfolio Mix as of March 31, 2023
Page 16 CSWC Portfolio Mix as of March 31, 2023 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $1.2 B continues to be diverse across industries First Lien 83.0% I-45 SLF 4.3% Second Lien 3.0% Equity 9.7% Media & Marketi
Slide 17: I-45 SLF Portfolio Overview
Page 17 I-45 SLF Portfolio Overview Current I-45 Portfolio (By Industry) 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 (1) For the quarter ended March 31, 2023, three portfolio companies are excluded from this calculatio
Slide 18: Income Statement
Page 18 Income Statement (In Thousands, except per share amounts) Quarter Ended 6/30/22 Quarter Ended 9/30/22 Quarter Ended 12/31/22 Quarter Ended 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 2,2
Slide 19: Operating Leverage Trend
Page 19 Operating Leverage Trend Continue to realize operating efficiencies 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 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.2% 1.9% FY 16 FY 17 FY 18 FY 19 FY 20
Slide 20: NAV per Share Bridge for Quarter Ended 3/31/2023
Page 20 $16.25 $0.65 $(0.53) $(0.05) $(0.10) $(0.02) $0.11 $0.06 $16.37 12 /31 /20 22 NAV/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 21: Significant Unused Debt Capacity with Long-Term Duration
Page 21 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 Ter
Slide 22: Balance Sheet
Page 22 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 6/30/22 Quarter Ended 9/30/22 Quarter Ended 12/31/22 Quarter Ended 3/31/23 Assets 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,
Slide 23: Portfolio Statistics
Page 23 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 calculated at cost (2) Excludes CSWC equi
Slide 24: Investment Income Detail
Page 24 Investment Income Detail Constructing a portfolio of investments with recurring cash yield (In Thousands) Quarter Ended 6/30/22 Quarter Ended 9/30/22 Quarter Ended 12/31/22 Quarter Ended 3/31/23 Investment Income Breakdown Cash Interest $17,414 $21,173 $26,619 $30,712 Cash Dividends 2,186 2,
Slide 25: Key Financial Metrics
Page 25 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 26: Interest Rate Sensitivity
Page 26 Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure (1) Note: Illustrative change in annual NII is based on a projection of CSWC’s existing debt investments as of 3/31/2023, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Mont
Slide 27: Corporate Information
Page 27 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