Capital Southwest Corporation · NASDAQ:CSWC
Capital Southwest — Q3 2022 Earnings Presentation
27 slides from Capital Southwest's earnings presentation, Feb 1, 2022
Slide 1: Q3 2022 Earnings Presentation
Q3 2022 Earnings Presentation 5400 Lyndon B. Johnson Freeway, Suite 1300 | Dallas, Texas 75240 | 214.238.5700 | capitalsouthwest.com February 1, 2022 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 • September 2015: completed tax free spin off of CSW Industrials ("Spin Off") (NASDAQ
Slide 6: Q3 2022 Highlights
Page 6 • Q3 2022 Pre-Tax Net Investment Income (“NII”) of $11.8 MM or $0.51 per share ◦ Paid $0.47 per share Regular Dividend ◦ Paid $0.50 per share Supplemental Dividend • Increased Regular Dividend to $0.48 per share for the quarter ending March 31, 2022, an increase of 2.1% compared to the prior
Slide 7: Track Record of Consistent Dividends Continues
Page 7 • In the last twelve months ended 12/31/2021, CSWC generated $1.84 per share in Pre-Tax NII and paid out $1.76 per share in Regular Dividends • Cumulative Pre-Tax NII Regular Dividend Coverage of 107% since the 2015 Spin-Off • Total Special and Supplemental Dividends of $3.41 per share since
Slide 8: History of Value Creation
Page 8 History of Value Creation $17.68$17.22$17.38$17.49$17.95$18.26$18.63$19.00$19.54$19.98 $20.90$21.58$21.99$22.04$22.71$23.16$23.38$23.07 $21.97$22.30 $23.22 $24.11 $24.90 $26.00$26.32 $27.12 $17.68$17.22$17.34$17.39$17.74$17.88$17.8 $17.96$18.26$18.44$19.08$18.87$18.84$18.43$18.62$18.58$18.30
Slide 9: Investment Strategy: Lower and Upper Middle Market
Page 9 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 $30 MM ◦ Both Sponsored and Non-sponsored de
Slide 10: Credit Portfolio Heavily Weighted Towards First Lien Investments
Page 10 Credit Portfolio Heavily Weighted Towards First Lien Investments 91% of Credit Portfolio as of 12/31/2021 in first lien senior secured loans Credit Portfolio Heavily Weighted to First Lien $ (M ill io ns ) $272 $337 $351 $368 $382 $387 $456 $474 $487 $521 $531 $573 $671 $689 $745 6/30/2018 9
Slide 11: Q3 2022 Originations
Page 11 $268.3 MM in total new committed investments to fourteen new portfolio companies and twelve existing portfolio companies Q3 2022 Originations Portfolio Originations Q3 2022 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Clos
Slide 12: Q3 2022 Originations (continued)
Page 12 Q3 2022 Originations Portfolio Originations Q3 2022 Name Industry Type Total Debt Funded at Close ($000s) Total Equity Funded at Close ($000s) Unfunded Commitments at Close ($000s) Debt Yield to Maturity SIB Holdings, LLC Business services First Lien / Equity $7,427 $500 $2,573 7.43% Air Con
Slide 13: Portfolio Exits Q3 2022
Page 13 Portfolio Exits Q3 2022 Name Industry Type Net Proceeds ($000s) Realized Gain ($000s) IRR VTX Holdings, Inc. (dba Vertex One) Software & IT services First Lien - Last Out $21,575 $316 13.9% ICS Distribution, LLC (dba Relevant Rental Solutions) Industrial services First Lien - Last Out $20,50
Slide 14: CSWC Investment Portfolio Composition
Page 14 CSWC Investment Portfolio Composition Note: All metrics above exclude the I-45 Senior Loan Fund (1) At December 31, 2021 and September 30, 2021, we had equity ownership in approximately 56% and 49%, respectively, of our investments (2) The weighted-average annual effective yields were comput
Slide 15: Credit Portfolio Investment Rating Migration
Page 15 Four loans upgraded and no loans downgraded during the quarter Investment Rating 9/30/2021 Investment Rating Upgrades Investment Rating Downgrades 12/31/2021 # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portfolio (FV) # of Loans Fair Value ($MM) % of Portf
Slide 16: CSWC Portfolio Mix as of 12/31/2021
Page 16 CSWC Portfolio Mix as of 12/31/2021 at Fair Value Current Investment Portfolio (By Type) Current Investment Portfolio (By Industry) Current Investment Portfolio of $877 MM continues to be diverse across industries First Lien 78% I-45 SLF LLC (a) 7% Second Lien 6% Subordinated Debt 1% Equity
Slide 17: I-45 Portfolio Overview
Page 17 I-45 Portfolio Overview Current I-45 Portfolio (By Industry) I-45 loan portfolio of $180.0 MM is 95% first lien senior secured debt with average hold size of 2.4% of the I-45 portfolio (1) Through I-45 security Telecommunications Services: Consumer Current I-45 Portfolio (By Type) I-45 Portf
Slide 18: Income Statement
Page 18 Income Statement (In Thousands, except per share amounts) Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Investment Income Interest Income $12,282 $14,626 $16,100 $16,921 PIK Interest Income 2,796 975 879 814 Dividend Income 1,661 2,657 2,070 1,714 F
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 $836 $867 $913 4.9% 4.2% 3.7% 3.0% 2.8% 2.4% 2.3% 2.3% 2.3% FY 16 FY 17 FY 18 FY
Slide 20: NAV per Share Bridge from Quarter Ended 9/30/2021
Page 20 $16.36 $0.51 $(0.47) $(0.50) $(0.09) $0.20 $(0.09) $0.24 $0.03 $16.19 9/30/2021 NAV/Share Pre- Tax Net I nvest ment In come Regular Dividend Supplem ental Dividend Net C hange in Debt P ortfo lio Net C hange in Equity Portfo lio Net C hange in I-4 5 Portfo lio Accr etio n fro m Equity Iss ua
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) $150.0 MM L +
Slide 22: Balance Sheet
Page 22 Balance Sheet (In Thousands, except per share amounts) Quarter Ended 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Assets Portfolio Investments $688,432 $798,647 $818,218 $876,765 Cash & Cash Equivalents 31,613 16,543 26,840 18,668 Other Assets 15,539 20,858 21,7
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 3/31/21 Quarter Ended 6/30/21 Quarter Ended 9/30/21 Quarter Ended 12/31/21 Investment Income Breakdown Cash Interest $11,668 $13,939 $15,370 $16,164 Cash Dividends 1,660 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 12/31/2021, adjusted only for changes in Base Interest Rate. Base Interest Rate used in this analysis is 3-Mon
Slide 27: Corporate Information
Page 27 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 LLP Chicago, ILChristine S. Battist Chief