• Capital Southwest Announces Financial Results for Fourth Fiscal Quarter and Fiscal Year Ended March 31, 2023

    المصدر: Nasdaq GlobeNewswire / 22 مايو 2023 16:01:00   America/New_York

    DALLAS, May 22, 2023 (GLOBE NEWSWIRE) -- Capital Southwest Corporation (“Capital Southwest,” “CSWC” or the “Company”) (Nasdaq: CSWC), an internally managed business development company focused on providing flexible financing solutions to support the acquisition and growth of middle market businesses, today announced its financial results for the fourth fiscal quarter and fiscal year ended March 31, 2023.

    Fourth Quarter Fiscal Year 2023 Financial Highlights

    • Total Investment Portfolio: $1.2 billion
      • Credit Portfolio of $1.0 billion:
        • 96% 1st Lien Senior Secured Debt
        • $61.7 million in new committed credit investments
        • Weighted Average Yield on Debt Investments: 12.8%
        • Current non-accruals with a fair value of $3.9 million, representing 0.3% of the total investment portfolio
      • Equity Portfolio of $117.5 million, excluding investment in I-45 Senior Loan Fund ("I-45 SLF")
        • $5.6 million in new equity co-investments
      • CSWC Investment in I-45 SLF of $51.3 million at fair value
        • I-45 SLF portfolio of $143.7 million
          • Portfolio consists of 36 issuers: 95% 1st Lien Debt
        • $86.0 million of debt outstanding at I-45 SLF
          • I-45 SLF fund leverage of 1.34x debt to equity at fair value
        • I-45 SLF paid a $1.9 million quarterly dividend to CSWC; an annualized yield of 14.8%
    • Pre-Tax Net Investment Income: $22.8 million, or $0.65 per weighted average share outstanding
    • Dividends: Paid $0.53 per share Regular Dividend and $0.05 per share Supplemental Dividend
      • 113% LTM Pre-Tax NII Regular Dividend Coverage
      • Total Dividends for the quarter ended March 31, 2023 of $0.58 per share
    • Net Realized and Unrealized Depreciation: $4.2 million
      • $2.4 million of net depreciation related to the credit portfolio
      • $1.2 million of net depreciation related to I-45 SLF
      • $0.6 million of net depreciation related to the equity portfolio
    • Balance Sheet:
      • Cash and Cash Equivalents: $21.6 million
      • Total Net Assets: $590.4 million
      • Net Asset Value (“NAV”) per Share: $16.37
    • Received Baa3 Investment Grade Rating from Moody's Investors Service with Stable Outlook

    Fiscal Year 2023 Financial Highlights

    • Total Investment Portfolio: Increased by $269.8 million in total fair value, from $936.6 million to $1.2 billion, representing 29% growth during the year
      • Credit Portfolio increased by $243.8 million, representing 31% growth during the year
    • Operating Leverage: Improved to 1.9% as of March 31, 2023 from 2.2% as of March 31, 2022
    • Pre-Tax Net Investment Income: $69.0 million for the fiscal year, or $2.30 per weighted average diluted share compared to $1.90 per weighted average diluted share in the prior fiscal year, representing 21% growth
    • Dividends: Declared and Paid Total Dividends of $2.28 per share
      • $2.03 per share in regular dividends, an increase of 12% compared to the prior year
      • $0.15 per share in special dividends
      • $0.10 per share in supplemental dividends
      • Undistributed Taxable Income ("UTI") balance at the end of the fiscal year ended March 31, 2023 was $0.45 per share

    In commenting on the Company’s results, Bowen Diehl, President and Chief Executive Officer, stated, “Our portfolio continued to perform well this quarter, producing $0.65 of pre-tax net investment income. On the capitalization front, we continued to programmatically raise equity through our equity at-the-market program, raising $29.2 million in gross proceeds at 118% of the prevailing NAV per share during the quarter. Over the past twelve months, we have raised over $207 million in equity capital and reduced our regulatory leverage from 1.16x down to 0.88x as of the March 31, 2023 quarter end. In consideration of the performance of our portfolio, improvements in our operating leverage, and rising market interest rates, the Board of Directors has declared an increase in our regular quarterly dividend to $0.54 per share for the June 30, 2023 quarter. In addition, given the excess earnings being generated by our floating rate debt portfolio, our Board of Directors has also declared a supplemental dividend of $0.05 per share for the June 30, 2023 quarter, resulting in total dividends for the June quarter of $0.59 per share. While future dividend declarations are at the discretion of our Board of Directors, it is our intent to continue to distribute quarterly supplemental dividends for the foreseeable future while base rates remain materially above long-term historical averages and we have a meaningful UTI balance. Finally, we are very pleased to have received an investment grade rating from Moody’s Investors Service during the quarter. We believe this is further market corroboration of our strong investment track record, first lien focused investment strategy, and prudent balance sheet management.”

    Fourth Quarter Fiscal Year Investment Activities

    Originations

    During the quarter ended March 31, 2023, the Company originated $67.3 million in new commitments, consisting of investments in five new portfolio companies totaling $49.5 million and add-on commitments in nine portfolio companies totaling $17.8 million. New portfolio company investment transactions that closed during the quarter ended March 31, 2023 are summarized as follows:

    C&M Conveyor, Inc. (dba Innoveyance), $13.0 million 1st Lien Senior Secured Debt: Innoveyance is a designer and manufacturer of material handling systems such as conveyor systems, automation systems, transfer cars and more.

    Island Pump and Tank, LLC, $9.0 million 1st Lien Senior Secured Debt, $1.5 million Revolving Loan, $0.8 million Preferred Equity: Island Pump and Tank is a leading provider of installation, maintenance, and environmental services to fueling stations in the Northeast.

    GPT Industries, LLC, $6.2 million 1st Lien Senior Secured Debt, $3.0 million Revolving Loan, $1.0 million Preferred Equity: GPT Industries is a manufacturer of electrical isolation products for oil and gas pipelines, primarily for maintenance and repair use.

    Cavalier Buyer, Inc. (dba James River Cardiology), $6.5 million 1st Lien Senior Secured Debt, $2.0 million Revolving Loan, $0.6 million Preferred and Common Equity: James River Cardiology is a cardiology group practicing out of six clinics, two office-based labs and several local hospitals in the Richmond, VA area.

    Guardian Fleet Services, Inc., $4.5 million 1st Lien Senior Secured Debt with Warrants, $1.5 million Preferred Equity: Guardian Fleet Services is a vertically-integrated hauling, towing, recovery, and specialized transportation operator serving the Florida and south Georgia markets.

    Prepayments and Exits

    During the quarter ended March 31, 2023, the Company received full prepayment on one debt investment totaling $16.8 million.

    Amware Fulfillment LLC: Proceeds of $16.8 million, generating an IRR of 13.0%.

    Fourth Fiscal Quarter 2023 Operating Results

    For the quarter ended March 31, 2023, Capital Southwest reported total investment income of $37.2 million, compared to $32.8 million in the prior quarter. The increase in investment income was primarily attributable to an increase in average debt investments outstanding and an increase in the weighted average yield on investments.

    For the quarter ended March 31, 2023, total operating expenses (excluding interest expense) were $5.6 million, compared to $6.2 million in the prior quarter. The decrease in operating expenses was primarily attributable to a decrease in accrued bonus compensation in the current quarter.

    For the quarter ended March 31, 2023, interest expense was $8.8 million as compared to $7.9 million in the prior quarter. The increase was primarily attributable to an increase in average debt outstanding and an increase in the weighted average interest rate on total debt.

    For the quarter ended March 31, 2023, total pre-tax net investment income was $22.8 million, compared to $18.7 million in the prior quarter.

    During the quarter ended March 31, 2023, Capital Southwest recorded total net realized and unrealized losses on investments of $4.2 million, compared to $16.4 million in the prior quarter. For the quarter ended March 31, 2023, this included net realized and unrealized losses on debt investments of $2.4 million, net unrealized losses on I-45 SLF of $1.2 million, net realized and unrealized losses on equity investments of $0.1 million, and $0.5 million of net unrealized depreciation related to deferred tax associated with our wholly owned subsidiary that has elected to be a taxable entity (the "Taxable Subsidiary"). The net increase in net assets resulting from operations was $18.2 million for the quarter, compared to $2.9 million in the prior quarter.

    The Company’s NAV at March 31, 2023 was $16.37 per share, as compared to $16.25 at December 31, 2022. The increase in NAV per share from the prior quarter is primarily due to the issuance of common stock at a premium to NAV per share through the Equity ATM Program (as described below) and pre-tax net investment income in excess of dividends paid for the quarter.

    Fiscal Year 2023 Operating Results

    For the year ended March 31, 2023, Capital Southwest reported total investment income of $119.3 million, compared to $82.2 million in the prior year. The increase in investment income was primarily attributable to an increase in average debt investments outstanding and an increase in the weighted average yield on investments.

    For the year ended March 31, 2023, total operating expenses (excluding interest expense) were $21.4 million, compared to $19.0 million in the prior year. The increase in operating expenses during the current year was primarily attributable to an increase in employee compensation, audit fees and in expenses related to the Company's new office space. Additionally, there was an increase in professional fees incurred in connection with the compensation consultant engaged by the Compensation Committee and the initial fee related to being assigned an investment grade rating by Moody's Investors Services.

    For the year ended March 31, 2023, interest expense was $28.9 million as compared to $19.9 million in the prior year. The increase was primarily attributable to an increase in average debt outstanding and an increase in the weighted average interest rate on total debt.

    For the year ended March 31, 2023, total pre-tax net investment income was $69.0 million, compared to $43.3 million in the prior year.

    During the year ended March 31, 2023, Capital Southwest recorded total net realized and unrealized losses on investments of $35.6 million, compared to net realized and unrealized gains on investments of $17.3 million in the prior year. For the year ended March 31, 2023, this included net realized and unrealized losses on debt investments of $24.9 million, net unrealized losses on I-45 SLF of $11.1 million, net realized and unrealized gains on equity investments of $6.9 million, and $6.5 million of net unrealized depreciation related to deferred tax associated with the Taxable Subsidiary. The net increase in net assets resulting from operations was $33.1 million for the year, compared to $42.8 million in the prior year.

    The Company’s NAV at March 31, 2023 was $16.37 per share, as compared to $16.86 at March 31, 2022. The decrease in NAV per share from the prior year is primarily due to net realized and unrealized losses on investments, partially offset by the issuance of common stock at a premium to NAV per share through both an underwritten public equity offering and the Equity ATM Program (as described below).

    Liquidity and Capital Resources

    At March 31, 2023, Capital Southwest had approximately $21.6 million in unrestricted cash and money market balances, $235.0 million of total debt outstanding on the Credit Facility (as defined below), $139.1 million, net of unamortized debt issuance costs, of the 4.50% Notes due January 2026 outstanding, $147.3 million, net of unamortized debt issuance costs, of the 3.375% Notes due October 2026 and $116.3 million, net of unamortized debt issuance costs, of SBA Debentures (as defined below) outstanding. As of March 31, 2023, Capital Southwest had $164.4 million in available borrowings under the Credit Facility. The regulatory debt to equity ratio at the end of the quarter was 0.88 to 1.

    On November 17, 2022, the Company completed an underwritten public equity offering of 2,534,436 shares of common stock, including shares issuable pursuant to the underwriters' option to purchase additional shares, at a public offering price of $18.15 per share, raising $46.0 million of gross proceeds. Net proceeds were $44.1 million after deducting underwriting discounts and offering expenses.

    The Company has an "at-the-market" offering (the "Equity ATM Program"), pursuant to which the Company may offer and sell, from time to time through sales agents, shares of its common stock having an aggregate offering price of up to $650,000,000. During the quarter ended March 31, 2023, the Company sold 1,526,016 shares of its common stock under the Equity ATM Program at a weighted-average price of $19.15 per share, raising $29.2 million of gross proceeds. Net proceeds were $28.8 million after commissions to the sales agents on shares sold. Cumulative to date, the Company has sold 16,613,122 shares of its common stock under the Equity ATM Program at a weighted-average price of $20.75, raising $344.7 million of gross proceeds. Net proceeds were $339.1 million after commissions to the sales agents on shares sold. As of March 31, 2023, the Company has $305.3 million available under the Equity ATM Program.

    In August 2016, CSWC entered into a senior secured credit facility (the “Credit Facility”) to provide additional liquidity to support its investment and operational activities. Borrowings under the Credit Facility accrue interest on a per annum basis at a rate equal to the applicable SOFR rate plus 2.15%. The Credit Facility's revolver period ends on August 9, 2025 with a final maturity of August 9, 2026. At March 31, 2023, the Credit Facility had total commitments of $400 million from a group or eleven bank lenders and $235.0 million in borrowings outstanding.

    On April 20, 2021, our wholly owned subsidiary, Capital Southwest SBIC I, LP (“SBIC I”), received a license from the Small Business Administration (the "SBA") to operate as a Small Business Investment Company ("SBIC") under Section 301(c) of the Small Business Investment Act of 1958, as amended. The SBIC license allows SBIC I to obtain leverage by issuing SBA-guaranteed debentures ("SBA Debentures"), subject to the issuance of a leverage commitment by the SBA. SBA debentures are loans issued to an SBIC that have interest payable semi-annually and a ten-year maturity. The interest rate is fixed shortly after issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities. Current statutes and regulations permit SBIC I to borrow up to $175 million in SBA Debentures with at least $87.5 million in regulatory capital, subject to SBA approval. As of March 31, 2023, SBIC I had a total leverage commitment from the SBA in the amount of $130.0 million, of which $10.0 million remains unused.

    In November 2015, I-45 SLF entered into a senior secured credit facility led by Deutsche Bank. On March 30, 2023, the I-45 credit facility was amended to permanently reduce total commitments to $100 million from a group of four bank lenders. After giving effect to the amendment, borrowings under the I-45 credit facility bear interest at a rate equal to Term SOFR plus 2.41%. The I-45 credit facility is scheduled to mature in March 2026. As of March 31, 2023, I-45 SLF had $86.0 million in borrowings outstanding under the I-45 credit facility.

    Share Repurchase Program

    On July 28, 2021, the Company's board of directors (the "Board") approved a share repurchase program authorizing the Company to repurchase up to $20 million of its outstanding shares of common stock in the open market at certain thresholds below its NAV per share, in accordance with guidelines specified in Rules 10b5-1(c)(1)(i)(B) and 10b-18 under the Securities Exchange Act of 1934. On August 31, 2021, the Company entered into a share repurchase agreement, which became effective immediately, and the Company will cease purchasing its common stock under the share repurchase program upon the earlier of, among other things: (1) the date on which the aggregate purchase price for all shares equals $20 million including, without limitation, all applicable fees, costs and expenses; or (2) upon written notice by the Company to the broker that the share repurchase agreement is terminated. During the quarter ended March 31, 2023, the Company did not repurchase any shares of the Company’s common stock under the share repurchase program.

    Regular Dividend of $0.54 Per Share and Supplemental Dividend of $0.05 Per Share for Quarter Ended June 30, 2023

    On April 26, 2023, the Board declared a total dividend of $0.59 per share for the quarter ended June 30, 2023, comprised of a Regular Dividend of $0.54 per share and a Supplemental Dividend of $0.05 per share.

    The Company's dividend will be payable as follows:

    Regular Dividend

    Amount Per Share: $0.54
    Ex-Dividend Date: June 14, 2023
    Record Date: June 15, 2023
    Payment Date: June 30, 2023

    Supplemental Dividend

    Amount Per Share: $0.05
    Ex-Dividend Date: June 14, 2023
    Record Date: June 15, 2023
    Payment Date: June 30, 2023

    When declaring dividends, the Board reviews estimates of taxable income available for distribution, which may differ from net investment income under generally accepted accounting principles. The final determination of taxable income for each year, as well as the tax attributes for dividends in such year, will be made after the close of the tax year.

    Capital Southwest maintains a dividend reinvestment plan ("DRIP") that provides for the reinvestment of dividends on behalf of its registered stockholders who hold their shares with Capital Southwest’s transfer agent and registrar, American Stock Transfer and Trust Company.  Under the DRIP, if the Company declares a dividend, registered stockholders who have opted into the DRIP by the dividend record date will have their dividend automatically reinvested into additional shares of Capital Southwest common stock. 

    Fourth Quarter 2023 Earnings Results Conference Call and Webcast

    Capital Southwest has scheduled a conference call on Tuesday, May 23, 2023, at 11:00 a.m. Eastern Time to discuss the fourth quarter 2023 financial results. You may access the call by using the Investor Relations section of Capital Southwest's website at www.capitalsouthwest.com, or by using http://edge.media-server.com/mmc/p/654v82e7.

    An audio archive of the conference call will also be available on the Investor Relations section of Capital Southwest’s website.

    For a more detailed discussion of the financial and other information included in this press release, please refer to the Capital Southwest's Annual Report on Form 10-K for the year ended March 31, 2023 to be filed with the Securities and Exchange Commission and Capital Southwest’s Fourth Fiscal Quarter 2023 Earnings Presentation to be posted on the Investor Relations section of Capital Southwest’s website at www.capitalsouthwest.com.

    About Capital Southwest

    Capital Southwest Corporation (Nasdaq: CSWC) is a Dallas, Texas-based, internally managed business development company with approximately $1.2 billion in investments at fair value as of March 31, 2023. Capital Southwest is a middle market lending firm focused on supporting the acquisition and growth of middle market businesses with $5 million to $35 million investments across the capital structure, including first lien, second lien and non-control equity co-investments. As a public company with a permanent capital base, Capital Southwest has the flexibility to be creative in its financing solutions and to invest to support the growth of its portfolio companies over long periods of time.

    Forward-Looking Statements

    This press release contains historical information and forward-looking statements with respect to the business and investments of Capital Southwest, including, but not limited to, the statements about Capital Southwest's future performance and financial performance and financial condition, and the timing, form and amount of any distributions or supplemental dividends in the future. Forward-looking statements are statements that are not historical statements and can often be identified by words such as "will," "believe," "expect" and similar expressions and variations or negatives of these words. These statements are based on management's current expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. These risks include risks related to: changes in the markets in which Capital Southwest invests; changes in the financial, capital, and lending markets; changes in the interest rate environment and its impact on our business and our portfolio companies; regulatory changes; tax treatment; our ability to operate our wholly owned subsidiary, Capital Southwest SBIC I, LP, as a small business investment company; an economic downturn and its impact on the ability of our portfolio companies to operate and the investment opportunities available to us; the impact of supply chain constraints and labor shortages on our portfolio companies; and the elevated levels of inflation and its impact on our portfolio companies and the industries in which we invests.

    Readers should not place undue reliance on any forward-looking statements and are encouraged to review Capital Southwest's Annual Report on Form 10-K for the year ended March 31, 2023 and subsequent filings, including the "Risk Factors" sections therein, with the Securities and Exchange Commission for a more complete discussion of the risks and other factors that could affect any forward-looking statements. Except as required by the federal securities laws, Capital Southwest does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

    Investor Relations Contact:

    Michael S. Sarner, Chief Financial Officer
    214-884-3829

     
    CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
    (In thousands, except shares and per share data)
        
     March 31, March 31,
     2023 2022
     (Unaudited)  
    Assets   
    Investments at fair value:   
    Non-control/Non-affiliate investments (Cost: $947,829 and $721,392, respectively)$966,627  $747,132 
    Affiliate investments (Cost: $191,523 and $140,911, respectively) 188,505   131,879 
    Control investments (Cost: $80,800 and $76,000, respectively) 51,256   57,603 
    Total investments (Cost: $1,220,152 and $938,303, respectively) 1,206,388   936,614 
    Cash and cash equivalents 21,585   11,431 
    Receivables:   
    Dividends and interest 18,430   12,106 
    Escrow 363   1,344 
    Other 647   2,238 
    Income tax receivable 368   158 
    Debt issuance costs (net of accumulated amortization of $5,642 and $4,573, respectively) 3,717   4,038 
    Other assets 6,186   6,028 
    Total assets$1,257,684  $973,957 
        
    Liabilities   
    SBA Debentures (Par value: $120,000 and $40,000, respectively)$116,330  $38,352 
    January 2026 Notes (Par value: $140,000 and $140,000, respectively) 139,051   138,714 
    October 2026 Notes (Par value: $150,000 and $150,000, respectively) 147,263   146,522 
    Credit facility 235,000   205,000 
    Other liabilities 16,761   14,808 
    Accrued restoration plan liability 598   2,707 
    Income tax payable 156   1,240 
    Deferred tax liability 12,117   5,747 
    Total liabilities 667,276   553,090 
        
    Commitments and contingencies (Note 10)   
        
    Net Assets   
    Common stock, $0.25 par value: authorized, 40,000,000 shares; issued, 38,415,937 shares at March 31, 2023 and 27,298,032 shares at March 31, 2022 9,604   6,825 
    Additional paid-in capital 646,586   448,235 
    Total distributable (loss) earnings (41,845)  (10,256)
    Treasury stock - at cost, 2,339,512 shares (23,937)  (23,937)
    Total net assets 590,408   420,867 
    Total liabilities and net assets$1,257,684  $973,957 
    Net asset value per share (36,076,425 shares outstanding at March 31, 2023 and 24,958,520 shares outstanding at March 31, 2022)$16.37  $16.86 
            


     
    CAPITAL SOUTHWEST CORPORATION AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)
    (In thousands, except shares and per share data)
          
     Years Ended
     March 31,
     2023 2022 2021
    Investment income:     
    Interest income:     
    Non-control/Non-affiliate investments$87,982  $58,136  $42,880 
    Affiliate investments 11,658   7,122   6,126 
    Payment-in-kind interest income:     
    Non-control/Non-affiliate investments 2,382   2,051   4,268 
    Affiliate investments 3,060   1,160   3,018 
    Dividend income:     
    Non-control/Non-affiliate investments 1,824   1,654   1,752 
    Affiliate investments 141   28   33 
    Control investments 7,337   6,720   6,609 
    Fee income:     
    Non-control/Non-affiliate investments 4,057   4,833   3,233 
    Affiliate investments 638   494   122 
    Control investments 100   —   — 
    Other income 121   17   21 
    Total investment income 119,300   82,215   68,062 
    Operating expenses:     
    Compensation 9,870   8,838   7,756 
    Share-based compensation 3,705   3,585   2,944 
    Interest 28,873   19,924   17,941 
    Professional fees 3,180   2,489   2,193 
    General and administrative 4,632   4,077   3,115 
    Total operating expenses 50,260   38,913   33,949 
    Income before taxes 69,040   43,302   34,113 
    Federal income, excise and other taxes 630   181   637 
    Deferred taxes (301)  434   1,805 
    Total income tax provision 329   615   2,442 
    Net investment income$68,711  $42,687  $31,671 
    Realized (loss) gain     
    Non-control/Non-affiliate investments$(5,872) $7,136  $(6,908)
    Affiliate investments (11,027)  140   (1,628)
    Income tax provision (130)  (1,442)  — 
    Total net realized (loss) gain on investments, net of tax (17,029)  5,834   (8,536)
    Net unrealized (depreciation) appreciation on investments     
    Non-control/Non-affiliate investments (6,942)  20,940   21,218 
    Affiliate investments 6,014   (4,750)  (2,825)
    Control investments (11,147)  (2,755)  12,598 
    Income tax provision (6,514)  (1,968)  (2,236)
    Total net unrealized (depreciation) appreciation on investments, net of tax (18,589)  11,467   28,755 
    Net realized and unrealized (losses) gains on investments (35,618)  17,301   20,219 
    Realized loss on extinguishment of debt —   (17,087)  (1,007)
    Realized loss on disposal of fixed assets —   (86)  — 
    Net increase in net assets from operations$33,093  $42,815  $50,883 
          
    Pre-tax net investment income per share - basic and diluted$2.30  $1.90  $1.79 
    Net investment income per share – basic and diluted$2.29  $1.87  $1.66 
    Net increase in net assets from operations – basic and diluted$1.10  $1.87  $2.67 
    Weighted average shares outstanding – basic and diluted 30,015,533   22,839,835   19,060,131 
                


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