Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q1 2024 Earnings Presentation
26 slides from Capital Southwest's earnings presentation, Aug 8, 2023
Slide 1: Q1 2024 Earnings Presentation
Capital Southwest Corporation Q1 2024 Earnings Presentation August 8, 2023 8333 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 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 7.75% Not
Slide 6: Q1 2024 Highlights
Q1 2024 Highlights Financial Highlights • Q1 2024 Pre-Tax Net Investment Income (“NII”) of $25.0 MM or $0.67 per share compared to $0.65 per share in the prior quarter, an increase of 3% • Increased Regular Dividend to $0.56 per share for the quarter ending September 30, 2023, an increase of 3.7% co
Slide 7: Track Record of Consistent Dividends Continues
Track Record of Consistent Dividends Continues • In the last twelve months ended 6/30/2023, CSWC generated $2.46 per share in Pre-Tax NII and paid out $2.09 per share in Regular Dividends ◦ LTM Pre-Tax NII Regular Dividend Coverage of 118% • Cumulative Pre-Tax NII Regular Dividend Coverage of 109% s
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase from Credit Strategy of $12.98 per share through 6/30/2023 Page 8
Slide 9: 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 10: Credit Portfolio Heavily Weighted Towards First Lien Investments
Credit Portfolio Heavily Weighted Towards First Lien Investments 97% of credit portfolio in first lien senior secured loans with an average investment hold size of 1.2% as of 6/30/23 Credit Portfolio Heavily Weighted to First Lien 97% 96% 93% 92% 90% 86% 82% 64% 43% 41% 28% 10% 10% 8% 6% 16% 8% 8% 4
Slide 11: Q1 2024 Originations
Q1 2024 Originations $111.9 MM in total new committed investments to six new portfolio companies and seven existing portfolio companies • $94.3 MM funded at close Portfolio Originations Q1 2024 Total Debt Funded Total Equity Unfunded Debt Yield to Name Industry Type Funded at Close Commitments at at
Slide 12: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $3.4 MM in total proceeds from one portfolio company exit • During the quarter, CSWC exited one equity investment, generating proceeds of $3.4 MM and an IRR of 13.0% • Cumulative IRR of 14.1% on 68 portfolio company exits generating $802 MM in proceeds since laun
Slide 13: CSWC Investment Portfolio Composition
CSWC Investment Portfolio Composition Maintaining appropriate portfolio leverage while receiving attractive risk-adjusted returns Investment Portfolio - Statistics (in $000's) 3/31/2023 6/30/2023 Total CSWC Total CSWC Portfolio Portfolio Number of Portfolio Companies 85 89 Total Cost $1,139,352 $1,2
Slide 14: CSWC Portfolio Mix as of June 30, 2023 at Fair Value
CSWC Portfolio Mix as of June 30, 2023 at Fair Value Current Investment Portfolio of $1.3 B continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) (Note 1) I-45 SLF consists of 95% first lien senior secured debt (Note 2) Equity rep
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 Investment Rating 3/31/2023 Investment Rating Investment Rating 6/30/2023 Upgrades Downgrades Fair % of Fair % o
Slide 16: I-45 SLF Portfolio Overview
I-45 SLF Portfolio Overview I-45 SLF loan portfolio of $132 MM is 95% first lien senior secured debt Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Business Services Telecommunications 17% 16% Healthcare & Pharmaceuticals 13% 9% 10% Telecommunications High Tech Industries Cons
Slide 17: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/22 12/31/22 3/31/23 6/30/23 Investment Income Interest Income $22,119 $27,639 $31,622 $34,819 PIK Interest Income 1,384 1,501 1,870 1,656 Dividend Income 2,527 2,382 2,207 2,703 Fee
Slide 18: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally managed structure Total Assets Operating Expenses(1) as % of Average Total Assets Note: Operating Leverage calculated as last twelve months operating expenses (excluding interest expense) divided by average annual asse
Slide 19: NAV per Share Bridge for Quarter Ended 6/30/2023
NAV per Share Bridge for Quarter Ended 6/30/2023 Earnings / Dividends Investment Portfolio Other Corporate $0.08 per Share Valuation Change $(0.05) per Share $(0.02) per Share Note: "Other Corporate" consists primarily of ($0.13) per share dilution from annual issuance of RSUs Page 19
Slide 20: 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 (1) $140.0 MM 4.50% January 2026 $140.0 MM N/A I-45 Credit Facility (2) $100.0 MM Term SOFR +
Slide 21: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 9/30/22 12/31/22 3/31/23 6/30/23 Assets Portfolio Investments $1,056,931 $1,150,046 $1,206,388 $1,285,318 Cash & Cash Equivalents 30,238 21,686 21,585 21,278 Other Assets 26,002 30,425 29,7
Slide 22: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 9/30/22 12/31/22 3/31/23 6/30/23 Portfolio Statistics Fair Value of Debt Investments $903,451 $990,298 $1,037,595 $1,110,915 Average Debt Investment Hold
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) 9/30/22 12/31/22 3/31/23 6/30/23 Investment Income Breakdown Cash Interest $21,173 $26,619 $30,712 $33,703 Cash Dividends 2,527 2,382 2,20
Slide 24: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 9/30/22 12/31/22 3/31/23 6/30/23 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 25: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure (1) Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change ($ Per Share) (200 bps) (19,108,365) (0.49) (150 bps) (14,331,274) (0.37) (100 bps) (9,554,183) (0.25) (50 bps) (4,777,091) (0.
Slide 26: Corporate Information
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 Christine S. Battist Chief Financial Officer, S