Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q2 2020 Earnings Presentation
24 slides from Capital Southwest's earnings presentation, Nov 5, 2019
Slide 1: Capital Southwest Corporation Q2 2020 Earnings Presentation
Capital Southwest Corporation Q2 2020 Earnings Presentation November 5, 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: Q2 2020 Highlights
Q2 2020 Highlights Financial Highlights • Q2 2020 Pre-Tax Net Investment Income (“NII”) of $7.4MM or $0.42 per share ◦ Includes $472K of one-time expense ($0.03 per share) for write-off of deferred offering costs related to previous registration statement on Form N-2 • Paid $0.40 per share in Regula
Slide 7: Track Record of Strong Dividend Yield and Consistent Dividend Coverage
Track Record of Strong Dividend Yield and Consistent Dividend Coverage • In the last twelve months ending 9/30/19, CSWC generated $1.68 per share in Pre-Tax NII and paid out $1.53 per share in regular dividends ◦ Cumulative Pre-Tax NII Regular Dividend Coverage of 108% since the 2015 spin-off • Anno
Slide 8: History of Value Creation
History of Value Creation Total Value (Net Asset Value + Cumulative Dividends Paid) Increase of $5.70 at 9/30/2019 from 9/30/2015 Spin-off of CSWI Page 8
Slide 9: 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 10: Credit Portfolio Heavily Weighted Towards First Lien and LMM Investments
Credit Portfolio Heavily Weighted Towards First Lien and LMM Investments First Lien and LMM Investments have increased to 87% and 76% of the credit portfolio, respectively, as of 9/30/19 Robust LMM Credit Portfolio Growth Credit Portfolio Heavily Weighted to First Lien $387.2 24% 24% 22% 87% 87% $27
Slide 11: CSWC Originations
CSWC Originations $29.7MM in new committed investments originated during the quarter and $33.0MM in new committed investments originated subsequent to quarter end Portfolio Originations Q2 2020 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield to
Slide 12: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $14.0MM in proceeds from one prepayment during the quarter • Full prepayment of Tinuiti Inc. credit investment, generating a realized gain of $0.2MM and IRR of 13.7% • Cumulative IRR of 15.5% on 27 portfolio exits generating $213.9MM in proceeds since launch of c
Slide 13: 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 Q2 2020 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 27 11 Total Cost $328,833 $101,320 Total
Slide 14: CSWC Portfolio Mix as of 9/30/19 at Fair Value
CSWC Portfolio Mix as of 9/30/19 at Fair Value Current Investment Portfolio of $539MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Page 14
Slide 15: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $215MM is 95% first lien with average hold size of 2.2% of the I-45 portfolio Current I-45 Portfolio (By Type) Current I-45 Portfolio (By Industry) Telecommunications Telecommunications Retail Retail Healthcare & Pharmaceuticals Capital Equipment Capita
Slide 16: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/18 3/31/19 6/30/19 9/30/19 Investment Income Interest Income $10,070 $10,320 $11,346 $11,237 Dividend Income 3,352 3,342 4,019 3,587 Fees and Other Income 449 646 434 394 Total Inv
Slide 17: Operating Leverage Trend
Operating Leverage Trend Continue to realize operating efficiencies of internally-managed structure migrating to a target operating leverage of sub-2.5% (2) Total Assets Operating Expenses(1) as % of Average Total Assets Note: FY16 includes only the quarters after the 2015 spin-off. Q1 FY20 and Q2 F
Slide 18: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 12/31/18 3/31/19 6/30/19 9/30/19 Assets Portfolio Investments $496,740 $524,071 $533,491 $538,876 Cash & Cash Equivalents 10,774 9,924 11,969 30,019 Deferred Tax Asset 2,294 1,807 1,672 1,6
Slide 19: Significant Unused Debt Capacity with Long-Term Duration
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 L + 2.50% subject to certain Credit Facility (1) $295.0 MM conditions December 2023 $108.0 MM $183.6 MM (2) Decembe
Slide 20: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/18 3/31/19 6/30/19 9/30/19 Portfolio Statistics Fair Value of Debt Investments $350,685 $367,727 $381,704 $387,168 Average Debt Investment Hold Siz
Slide 21: Investment Income Detail
Investment Income Detail Constructing a portfolio of investments with recurring cash yield • Non-Cash and Non-Recurring investment income remain a minor portion of Total Investment Income Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 12/31/18 3/31/19 6/30/19 9/30/19 Investme
Slide 22: Key Financial Metrics
Key Financial Metrics Strong Pre-Tax Net Investment Income and Regular Dividend growth driven by net portfolio growth and investment performance Quarter Ended Quarter Ended Quarter Ended Quarter Ended 12/31/18 3/31/19 6/30/19 9/30/19 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Avg Di
Slide 23: Interest Rate Sensitivity
Interest Rate Sensitivity Fixed vs. Floating Portfolio Exposure (1) Illustrative Annual Illustrative Annual NII Change in Base Interest Rates NII Change ($'s) Change (Per Share) (100 bps) $(2,350,416) $(0.13) (75 bps) (1,781,438) (0.10) (50 bps) (1,212,459) (0.07) (25 bps) (643,480) (0.04) 25 bps 78
Slide 24: 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 Christine S. Battist Chief Financial Officer, Secretary &