Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q3 2019 Earnings Presentation
23 slides from Capital Southwest's earnings presentation, Feb 5, 2019
Slide 1: Capital Southwest Corporation Q3 2019 Earnings Presentation
Capital Southwest Corporation Q3 2019 Earnings Presentation February 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: Q3 2019 Highlights
Q3 2019 Highlights Financial Highlights • Q3 2019 Pre-Tax Net Investment Income (“NII”) of $6.8MM or $0.40 per share • Paid $0.36 per share in Regular Dividends, plus $0.10 per share Supplemental Dividend ◦ Total Dividends for the quarter of $0.46 per share • Investment Portfolio at Fair Value incre
Slide 7: Track Record of Increasing Dividends Continues
Track Record of Increasing Dividends Continues • In the last twelve months ending 12/31/18, CSWC generated $1.35 per share in Pre-Tax NII and paid out $1.27 per share in regular dividends ◦ Twelve consecutive quarters of regular dividend per share growth • Cumulative Regular Dividend Coverage of 103
Slide 8: 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 9: Strong Track Record and Growing First Lien Credit Portfolio
Strong Track Record and Growing First Lien Credit Portfolio CSWC Credit Portfolio heavily weighted towards First Lien and LMM Investments • First Lien and LMM Investments have increased to 86% and 77% of the credit portfolio, respectively, as of 12/31/18 Credit Portfolio Heavily Weighted to First Li
Slide 10: CSWC Originations - Q3 2019
CSWC Originations - Q3 2019 $25.7MM in new committed investments during the quarter ($23.3MM funded at close) at a weighted average debt YTM of 11.1% Portfolio Origination Q3 2019 Total Debt Total Equity Unfunded Funded at Close Funded at Close Commitments at Debt Spread Debt Yield to Name Industry
Slide 11: Track Record of CSWC Exits Continues
Track Record of CSWC Exits Continues $18.0MM in proceeds from prepayments and exits during the quarter • Exited a legacy equity investment this quarter (Deepwater Corrosion Services) generating a realized gain of $1.7 MM (originated April 2013) • Cumulative IRR of 16.3% on 25 portfolio exits generat
Slide 12: 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 Q3 2019 Lower Middle Upper Middle (In Thousands) Market (1) Market Number of Portfolio Companies 25 10 Total Cost $306,920 $82,929 Total F
Slide 13: CSWC Portfolio Mix as of 12/31/18 at Fair Value
CSWC Portfolio Mix as of 12/31/18 at Fair Value Current Investment Portfolio of $497MM continues to be diverse across industries Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Software & IT Services: 1% Telecommunications: 1% Financial Services: 2% Commodities & Mi
Slide 14: Interest Rate Sensitivity
Interest Rate Sensitivity Debt Portfolio Exposure at 12/31/18 Well-Positioned for Rising Interest Rate Environment Fixed vs. Floating Portfolio Exposure (1) 3% 97% Fixed Floating Change in Base Interest Illustrative Annual Illustrative Annual NII Rates NII Change ($'s) Change (Per Share) (50bps) $(1
Slide 15: I-45 Portfolio Overview
I-45 Portfolio Overview I-45 loan portfolio of $239MM is 95% 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) 5% 2% 2% Telecommunications Telecommunications 2% 17% 3% 5% 5% Retail 13% 5% 6% 95% Capital Retail Equipm
Slide 16: Income Statement
Income Statement Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 3/31/2018 6/30/2018 9/30/18 12/31/18 Investment Income Interest Income $6,575 $7,643 $9,232 $10,070 Dividend Income $3,069 $3,075 $3,158 $3,352 Fees and Other Income $230 $389 $205 $449
Slide 17: Operating Leverage Improves
Operating Leverage Improves Continue to realize operating efficiencies of internally-managed structure migrating to a target operating leverage of sub-2.5% $1,000 6% Operating Expenses as % of Avg Assets $800 5% 4.9% Total Assets ($MM) $600 $517 $524 4.2% $451 4% $417 $400 $326 3.7% $284 3.4% 3% $20
Slide 18: Balance Sheet
Balance Sheet Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands, except per share amounts) 3/31/2018 6/30/2018 9/30/18 12/31/18 Assets Portfolio Investments $393,095 $411,330 $491,601 $496,740 Cash & Cash Equivalents $7,907 $12,532 $10,193 $10,774 Deferred Tax Asset $2,050 $2,116
Slide 19: Principal Payments
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 $122.0 MM $144.6 MM (3) certain conditions December
Slide 20: Portfolio Statistics
Portfolio Statistics Continuing to build a well performing credit portfolio Quarter Ended Quarter Ended Quarter Ended Quarter Ended (In Thousands) 3/31/2018 6/30/2018 9/30/18 12/31/18 Portfolio Statistics Fair Value of Debt Investments $239,122 $272,133 $336,717 $350,685 Average Debt Investment Hold
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) 3/31/2018 6/30/2018 9/30/18 12/31/18 Inve
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 3/31/2018 6/30/2018 9/30/18 12/31/18 Key Financial Metrics Pre-Tax Net Investment Income Per Wtd Av
Slide 23: 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 Christine S. Battist Chief Financial Officer, Secr