Core Insights - The article emphasizes the importance of a hybrid investment strategy that combines high-quality dividend stocks with other investment vehicles like Business Development Companies, REITs, and Closed End Funds to enhance income while achieving total returns comparable to traditional index funds [1]. Group 1: Investment Strategy - The company advocates for a diversified approach to investing, focusing on both growth and income to maximize returns [1]. - A solid base of classic dividend growth stocks is highlighted as essential for building a robust investment portfolio [1]. - The strategy aims to achieve a total return that aligns with the performance of the S&P index, indicating a balanced risk-return profile [1].

Investment Portfolio - The total fair value of the investment portfolio increased to $1,701.3 million as of December 31, 2024, from $1,476.6 million as of March 31, 2024[344]. - The company had investments in 125 portfolio companies with an aggregate cost of $1,713.3 million as of December 31, 2024, compared to 116 companies with a cost of $1,476.7 million as of March 31, 2024[344]. - Investments on non-accrual status represented approximately 2.7% of the total investment portfolio's fair value as of December 31, 2024, compared to 2.3% as of March 31, 2024[341]. - The fair value of the investment portfolio at the end of the nine months ended December 31, 2024, was $1,701.3 million, compared to $1,365.0 million at the end of the same period in 2023[358]. - The company received distributions-in-kind of investments totaling $6.4 million in connection with the dissolution of I-45 SLF LLC[358]. Debt Investments - Approximately 97.8% of the debt investment portfolio bore interest at floating rates as of December 31, 2024, with a weighted average contractual minimum interest rate of 1.46%[345]. - The weighted average annual effective yield on debt investments was 12.1% as of December 31, 2024, down from 13.3% as of March 31, 2024[346]. - As of December 31, 2024, the total debt portfolio was valued at $1,542.5 million, with Investment Rating 1 at $414.0 million (26.9%), Rating 2 at $1,047.9 million (67.9%), Rating 3 at $78.7 million (5.1%), and Rating 4 at $2.0 million (0.1%)[353]. - The average monthly cost basis of debt investments increased by 24.3% from $1,154.4 million to $1,435.1 million year-over-year[375]. - The company specializes in providing customized debt and equity financing to lower middle market (LMM) companies, targeting those with annual EBITDA between $3.0 million and $25.0 million[333]. Investment Income - Total investment income for the three months ended December 31, 2024, was approximately $52.0 million, a 7.0% increase from $48.6 million in the same period of 2023[361]. - Interest income for the three months ended December 31, 2024, totaled $41.2 million, up from $36.6 million in the same period of 2023, driven by a 24.6% increase in the average monthly cost basis of debt investments[363]. - Net investment income for the three months ended December 31, 2024, was $30.3 million, a 5.0% increase from $28.9 million in the same period of 2023[360]. - For the nine months ended December 31, 2024, total investment income was approximately $152.0 million, a $20.3 million, or 15.4%, increase compared to the same period in 2023[374]. - Net investment income for the nine months ended December 31, 2024, increased by $9.7 million, or 12.1%, to $90.3 million, attributed to a $20.3 million increase in total investment income[379]. Expenses and Losses - The ratio of last twelve months operating expenses as a percentage of average total assets improved to 1.61% for the nine months ended December 31, 2024, from 1.84% for the same period in 2023[336]. - Employee compensation expense decreased by $1.2 million, or 23.0%, to $4.0 million for the three months ended December 31, 2024, primarily due to a decrease in accrued bonus compensation[366]. - The company recorded a net realized loss on investments of $12.8 million for the three months ended December 31, 2024, compared to a loss of $7.8 million in the same period of 2023[360]. - Total net realized loss on investments for the nine months ended December 31, 2024, was $22.4 million, compared to a loss of $20.2 million for the same period in 2023, indicating a year-over-year increase in losses of approximately 10.9%[380][382]. - The net unrealized depreciation on investments for the nine months ended December 31, 2024, was $14.6 million, while for the same period in 2023, it was a net unrealized appreciation of $9.9 million, reflecting a significant decline in investment value[381][382]. Cash Flow and Liquidity - Cash and cash equivalents as of December 31, 2024, were approximately $36.0 million, an increase from $23.6 million as of December 31, 2023, representing a year-over-year increase of about 52.5%[387][388]. - Operating activities used $158.5 million in cash during the nine months ended December 31, 2024, primarily due to new portfolio investments of $466.9 million, partially offset by $226.9 million from sales and repayments[387]. - Financing activities provided cash of $163.5 million during the same period, mainly from net proceeds of $223.1 million from the issuance of 2029 Convertible Notes and $111.0 million from the Equity ATM Program[387]. - The Company had $376.2 million of unused capacity under its Credit Facilities as of December 31, 2024, indicating strong liquidity to support investment and operating activities[389]. - The asset coverage ratio as of December 31, 2024, was 209%, well above the minimum requirement of 150% set by the 1940 Act[386]. Equity and Shareholder Activities - The Equity ATM Program was increased to allow for the sale of up to $1.0 billion in common stock, reflecting the Company's strategy to enhance capital resources[400]. - In Q4 2024, the company sold 2,364,147 shares under the Equity ATM Program, generating gross proceeds of $53.62 million, a decrease from $66.55 million in Q4 2023[401]. - For the nine months ended December 31, 2024, the company sold 4,702,227 shares, raising gross proceeds of $112.54 million, compared to $134.97 million in the same period of 2023[401]. - Cumulatively, the company has sold 30,048,664 shares under the Equity ATM Program, raising $641.4 million in gross proceeds and $631.5 million in net proceeds after commissions[401]. - As of December 31, 2024, the company had $358.6 million available under the Equity ATM Program[401]. Dividends and Commitments - The company declared a total dividend of $0.64 per share for the quarter ending March 31, 2025, with a record date of March 14, 2025[409]. - The company had total unfunded commitments of approximately $192.8 million as of December 31, 2024[404]. Risk Factors - The company continues to monitor supply chain disruptions, labor shortages, and geopolitical instability, which may impact portfolio companies[350]. - Interest rate risk is significant, with a potential decrease in net investment income of $24.01 million per share if interest rates decrease by 200 basis points[415].

Financial Data and Key Metrics Changes - Pre-tax net investment income was $30.7 million or $0.64 per share, compared to $30 million or $0.64 per share in the prior quarter [30] - Total investment income increased to $52 million from $48.7 million in the prior quarter, driven primarily by a $3.2 million increase in fees and other income [30] - The company maintained a regular dividend of $0.58 per share and increased the supplemental dividend to $0.06 per share for the March quarter [31][33] Business Line Data and Key Metrics Changes - The company generated $317.5 million in new commitments to nine new portfolio companies and 20 existing portfolio companies during the quarter [8][22] - Over 41% of total capital commitments were follow-on financings in performing companies [9] - The credit portfolio ended the quarter at $1.5 billion, representing year-over-year growth of 31% from $1.2 billion as of December 2023 [20] Market Data and Key Metrics Changes - The company reported a weighted average yield of 12.1% in its credit portfolio, with a weighted average leverage of 3.6x EBITDA [26] - The number of portfolio upgrades significantly exceeded downgrades, with approximately 95% of the portfolio rated in the top two categories [27] - Cash flow coverage of debt service obligations across the portfolio remained healthy at 3.5x [27] Company Strategy and Development Direction - The company focuses on lending and investing in the lower middle market, with approximately 94% of its credit portfolio backed by private equity firms [16] - The company aims to maintain a conservative posture regarding overall risk management while growing its balance sheet [21] - The company is excited about its continued participation in the SBA program, which is a key component of its capitalization strategy [11] Management's Comments on Operating Environment and Future Outlook - Management noted that the M&A market has been active and is expected to continue into 2025, with visibility on exits from the portfolio [50][51] - The company is monitoring the impact of tariffs and immigration policies on its portfolio, with preliminary analysis indicating that around 10% of the portfolio could be affected [63][64] - Management expressed confidence in the ability to continue distributing quarterly supplemental dividends based on the current UTI balance and expected realized gains [33] Other Important Information - The company issued $230 million in convertible notes with a coupon of 5.125% to redeem $140 million in January 2026 notes and pay down its revolving credit facility [10][36] - The company raised approximately $54 million in gross equity proceeds through its Equity ATM Program at a weighted average share price of $22.68 per share [12] - The company expects to receive final approval for its second SBIC license imminently [41] Q&A Session Summary Question: Insights on new investment M&A activity trends - Management noted that the M&A market was active in the fourth quarter and has continued into the first quarter, with early signs of increased activity in 2025 [50][51] Question: Impact of call protection on prepayments - Management expects to see some level of prepayments in the future, estimating that 10% to 15% of the portfolio may rotate in 2025 [60] Question: Exposure to tariffs and their impact - Approximately 10% of the portfolio could see some impact from tariffs, but the first lien senior secured position is expected to mitigate risks [64] Question: Update on SBA license and funding costs - The company expects to ramp up quickly once the SBA license is received, with anticipated borrowing costs between 4% and 5% [75] Question: Competition and spread compression - The market has seen spread compression of about 50 to 100 basis points over the past nine months, but loan-to-value ratios remain consistent [84][87] Question: Changes in non-accrual relationships - One non-accrual was restructured, and the company is monitoring the performance of others for potential improvements [89][92] Question: Staffing levels and deal activity - The company is continually assessing staffing needs to accommodate growing deal activity, with plans to add professionals as necessary [100][102] Question: Future dividend distribution strategy - The company anticipates climbing UTI to the $0.80 range by next quarter and plans to distribute more than the current run rate [112]

Capital Southwest Corporation Q3 2025 Earnings Presentation February 4, 2025 8333 Douglas Avenue, Suite 1100 | Dallas, Texas 75225 | 214.238.5700 | capitalsouthwest.com Important Notices Page 2 • 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 not purport to be complete and no obl ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): January 15, 2025 CAPITAL SOUTHWEST CORPORATION (Exact Name Of Registrant As Specified In Charter) Texas 814-00061 75-1072796 (Commission File Number) (IRS Employer Identification No.) (State or Other Jurisdiction of Incorporation) 8333 Douglas Avenue, Suite 1100 Dallas, Texas 75225 (Address of ...

DALLAS, Feb. 03, 2025 (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 third fiscal quarter ended December 31, 2024. Third Quarter Fiscal Year 2025 Financial Highlights Total Investment Portfolio: $1.7 billion Credit Portfolio of $1.5 ...

DALLAS, Jan. 31, 2025 (GLOBE NEWSWIRE) -- Capital Southwest Corporation ("Capital Southwest" 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, announced today the U.S. federal income tax treatment of its 2024 dividends. U.S. Federal Income Tax Treatment of 2024 Dividends Capital Southwest paid dividends totaling $2.53 per share that are attributable to the ta ...

DALLAS, Jan. 15, 2025 (GLOBE NEWSWIRE) -- Capital Southwest Corporation (“Capital Southwest”) (Nasdaq: CSWC), an internally managed business development company focused on providing flexible financing solutions to support the acquisition and growth of middle market businesses, is pleased to announce its preliminary operating results for the third quarter of its 2025 fiscal year (quarter ended December 31, 2024) and its third quarter 2025 earnings release and conference call schedule. Capital Southwest’s pre ...

I have been bullish on Capital Southwest (NASDAQ: CSWC ) since March 2024, when I issued my first article on this high quality and equity focused BDC. The total return performance has not been that good, with the returns (includingRoberts Berzins has over a decade of experience in the financial management helping top-tier corporates shape their financial strategies and execute large-scale financings. He has also made significant efforts to institutionalize REIT framework in Latvia to boost the liquidity of ...

Dividend Increase and Financial Performance - Capital Southwest raised its base dividend by $0.01 per share to $0.58 per share in the last quarter [1] - The company experienced a substantial increase in its dividend pay-out ratio due to lower net income [1] Analyst and Author Background - The author is a financial researcher and investor with a focus on innovation, disruption, growth buyouts, and value stocks [1] - The author writes about current events and industry news, providing research and investment opportunities [1]