Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q3 2023 Earnings Presentation
27 slides from Capital Southwest's earnings presentation, Jan 31, 2023
Slide 1: Capital Southwest Corporation Q3 2023 Earnings Presentation
Capital Southwest Corporation Q3 2023 Earnings Presentation January 31, 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”) • Internally
Slide 6: Q3 2023 Highlights
Q3 2023 Highlights Financial Highlights • Q3 2023 Pre-Tax Net Investment Income (“NII”) of $18.7 MM or $0.60 per share • Paid $0.52 per share Regular Dividend and $0.05 per share Supplemental Dividend for the quarter ended December 31, 2022 ◦ Increased Regular Dividend to $0.53 per share for the qua
Slide 7: Track Record of Consistent Dividends Continues
Track Record of Consistent Dividends Continues • In the last twelve months ended 12/31/2022, CSWC generated $2.14 per share in Pre-Tax NII and paid out $1.98 per share in Regular Dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 Spin-Off • Total of $3.66 per share S
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $11.68 per share at 9/30/2022 from 9/30/2015 Spin-off of CSWI Page 8
Slide 9: Investment Strategy
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 and non
Slide 10: 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 as of 12/31/22 Credit Portfolio Heavily Weighted to First Lien 96% 94% 94% 93% 91% 91% 92% 90% 91% 91% 90% 90% 87% 90% 87% 86% 85% 86% 86% 7% 9% 10% 10% 9% 9% 8% 8% 8% 7% 7% 6%
Slide 11: Q3 2023 Originations
Q3 2023 Originations $164.0 MM in total new committed investments to five new portfolio companies and twelve existing portfolio companies • $108.3 MM funded at close Portfolio Originations Q3 2023 Total Debt Funded Total Equity Unfunded Debt Yield to Name Industry Type Funded at Close Commitments at
Slide 12: Q3 2023 Originations (Cont.)
Q3 2023 Originations (Cont.) Portfolio Originations Q3 2023 Total Debt Funded Total Equity Unfunded Debt Yield to Name Industry Type Funded at Close Commitments at at Close ($000s) ($000s) Close ($000s) Maturity Other Equity Co-Investments Various Equity $— $855 $— N/A DR Sub, LLC Healthcare Service
Slide 13: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $12.4 MM in total proceeds from two portfolio company exits • During the quarter, CSWC exited one debt investment and one equity investment, generating total proceeds of $12.4 MM and a weighted average IRR of 10.1% • Cumulative IRR of 14.6% on 67 portfolio compan
Slide 14: CSWC Investment Portfolio Composition
CSWC Investment Portfolio Composition Maintaining appropriate portfolio leverage while receiving attractive risk-adjusted returns Investment Portfolio - Statistics (in $000's) 9/30/2022 12/31/2022 Total CSWC Total CSWC Portfolio Portfolio Number of Portfolio Companies 78 81 Total Cost $988,644 $1,08
Slide 15: Quarter-over-Quarter Investment Rating Migration
Quarter-over-Quarter Investment Rating Migration Approximately 95% of all debt investments are currently rated a "1" or "2" as credit portfolio continues to demonstrate strong performance Investment Rating 9/30/2022 Investment Rating Investment Rating 12/31/2022 Upgrades Downgrades Fair % of Fair %
Slide 16: CSWC Portfolio Mix as of December 31, 2022 at Fair Value
CSWC Portfolio Mix as of December 31, 2022 at Fair Value Current Investment Portfolio of $1.2 B continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) (Note 1) I-45 SLF consists of 94% first lien senior secured debt (Note 2) Equity
Slide 17: I-45 SLF Portfolio Overview
I-45 SLF Portfolio Overview I-45 SLF loan portfolio of $161.0 MM is 94% first lien senior secured debt with average hold size of 2.6% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Business Services Telecommunications 14% Healthcare & Pharmaceuticals 13%
Slide 18: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 3/31/22 6/30/22 9/30/22 12/31/22 Investment Income Interest Income $17,611 $18,260 $22,119 $27,639 PIK Interest Income 543 687 1,384 1,501 Dividend Income 1,961 2,186 2,527 2,382 Fees an
Slide 19: 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 20: NAV per Share Bridge for Quarter Ended 12/31/2022
NAV per Share Bridge for Quarter Ended 12/31/2022 Earnings / Dividends Investment Portfolio Other Corporate $0.03 per Share Valuation Change $0.06 per Share $(0.37) per Share Page 20
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 (1) $140.0 MM 4.50% January 2026 $140.0 MM N/A I-45 Credit Facility (2) $150.0 MM L + 2.15% M
Slide 22: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 3/31/22 6/30/22 9/30/22 12/31/22 Assets Portfolio Investments $936,614 $1,006,640 $1,056,931 $1,150,046 Cash & Cash Equivalents 11,431 18,770 30,238 21,686 Other Assets 25,912 28,549 26,002
Slide 23: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 3/31/22 6/30/22 9/30/22 12/31/22 Portfolio Statistics Fair Value of Debt Investments $793,834 $865,432 $903,451 $990,298 Average Debt Investment Hold Siz
Slide 24: 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) 3/31/22 6/30/22 9/30/22 12/31/22 Investment Income Breakdown Cash Interest $16,785 $17,414 $21,173 $26,619 Cash Dividends 1,962 2,186 2,52
Slide 25: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Dividend Yield driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 3/31/22 6/30/22 9/30/22 12/31/22 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Diluted Sha
Slide 26: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Credit Portfolio Exposure (1) Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (100 bps) (8,240,645) (0.22) (75 bps) (6,180,483) (0.17) (50 bps) (4,120,322) (0.11) (25 bps) (2,060,161) (0.06) 25
Slide 27: 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