PART I FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) Unaudited consolidated financial statements for Capital Southwest Corporation for the quarter ended June 30, 2025, are presented [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets marginally decreased to $1.88 billion, while net assets increased to $916.5 million as of June 30, 2025 Consolidated Balance Sheet Highlights (in thousands, except per share data) | Metric | June 30, 2025 (Unaudited) | March 31, 2025 | | :--- | :--- | :--- | | **Total Investments (at fair value)** | $1,780,198 | $1,785,299 | | **Total Assets** | $1,882,412 | $1,882,840 | | **Total Liabilities** | $965,938 | $999,207 | | **Total Net Assets** | $916,474 | $883,633 | | **Net Asset Value per Share** | $16.59 | $16.70 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Total investment income increased to $55.9 million, with net assets from operations rising to $27.0 million for the quarter ended June 30, 2025 Quarterly Operating Results (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Total Investment Income** | $55,947 | $51,354 | | **Total Operating Expenses** | $23,230 | $20,068 | | **Net Investment Income** | $31,889 | $28,859 | | **Net Realized Gain on Investments** | $15,704 | $711 | | **Net Unrealized Depreciation on Investments** | $(20,592) | $(15,535) | | **Net Increase in Net Assets from Operations** | $27,001 | $14,035 | | **Net Increase in Net Assets from Operations – Basic EPS** | $0.50 | $0.31 | [Consolidated Statements of Changes in Net Assets](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased by $32.8 million to $916.5 million, driven by operations and stock issuance, partially offset by dividends for the quarter Reconciliation of Net Assets (in thousands) | Description | Amount | | :--- | :--- | | **Net Assets at March 31, 2025** | **$883,633** | | Issuance of common stock | $41,172 | | Dividends to shareholders | $(35,344) | | Net investment income | $31,889 | | Net realized gain on investments | $15,704 | | Net unrealized depreciation on investments | $(20,592) | | Other (Share-based comp, etc.) | $12 | | **Net Assets at June 30, 2025** | **$916,474** | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities was $30.5 million, with a net increase in cash of $3.7 million, ending the quarter at $48.5 million Summary of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2025 | | :--- | :--- | | **Net Cash Provided by Operating Activities** | $30,493 | | **Net Cash Used in Investing Activities** | $(141) | | **Net Cash Used in Financing Activities** | $(26,684) | | **Net Increase in Cash** | $3,668 | | **Cash, Cash Equivalents and Restricted Cash at End of Period** | $48,539 | [Consolidated Schedule of Investments](index=9&type=section&id=Consolidated%20Schedule%20of%20Investments) The investment portfolio totaled $1.78 billion across 122 companies, with debt investments comprising 90.7% as of June 30, 2025 Portfolio Composition by Investment Type at June 30, 2025 (in thousands) | Investment Type | Fair Value | % of Total Portfolio | | :--- | :--- | :--- | | First lien loans | $1,595,338 | 89.6% | | Second lien loans | $17,383 | 1.0% | | Subordinated debt | $1,264 | 0.1% | | Preferred equity | $66,230 | 3.7% | | Common equity & warrants | $96,526 | 5.4% | | Earnout | $3,457 | 0.2% | | **Total** | **$1,780,198** | **100.0%** | Top 5 Industry Concentrations at June 30, 2025 (by Fair Value) | Industry | Fair Value (in thousands) | % of Total Portfolio | | :--- | :--- | :--- | | Healthcare Services | $207,499 | 11.7% | | Consumer Products | $156,589 | 8.8% | | Media & Marketing | $147,986 | 8.3% | | Consumer Services | $130,230 | 7.3% | | Food, Agriculture & Beverage | $123,570 | 7.0% | [Notes to Consolidated Financial Statements](index=56&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, investment valuation, debt facilities, and unfunded commitments, highlighting BDC and RIC status - The company operates as an internally managed Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes[116](index=116&type=chunk) - As of June 30, 2025, investments on non-accrual status represented approximately **0.8% of the total investment portfolio at fair value** and **2.6% at cost**[136](index=136&type=chunk) - As of June 30, 2025, the company had total unfunded commitments of **$223.0 million**, consisting of **$222.4 million in debt** and **$0.5 million in equity**[257](index=257&type=chunk)[259](index=259&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=99&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses performance, financial condition, and capital resources, noting a 10.5% increase in net investment income and strong liquidity Quarterly Performance Summary | Metric | Q1 FY2026 (ended Jun 30, 2025) | Q1 FY2025 (ended Jun 30, 2024) | Change | | :--- | :--- | :--- | :--- | | **Total Investment Income** | $55.9M | $51.4M | +8.9% | | **Net Investment Income** | $31.9M | $28.9M | +10.5% | | **Net Increase in Net Assets from Operations** | $27.0M | $14.0M | +92.4% | - The increase in investment income was primarily due to a **21.7% increase in the average cost basis of debt investments** held year-over-year, from **$1.38 billion to $1.67 billion**[310](index=310&type=chunk) - As of June 30, 2025, the company had **$46.9 million in unrestricted cash** and **$397.2 million of unused capacity** under its Credit Facilities[324](index=324&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=112&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate risk, with 96.3% of the debt portfolio at floating rates, and sensitivity analysis provided - As of June 30, 2025, approximately **96.3% of the company's debt investment portfolio at fair value** bore interest at floating rates, with **100% of these subject to contractual minimum interest rate floors**[347](index=347&type=chunk) Interest Rate Sensitivity Analysis (as of June 30, 2025) | Basis Point Change | Increase (decrease) in Net Investment Income (in thousands) | Increase (decrease) in Net Investment Income per Share | | :--- | :--- | :--- | | (200 bps) | $(25,548) | $(0.46) | | (100 bps) | $(12,807) | $(0.23) | | 50 bps | $6,403 | $0.12 | [Item 4. Controls and Procedures](index=114&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The President and Chief Executive Officer and the Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of June 30, 2025[350](index=350&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[351](index=351&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=115&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no currently pending material legal proceedings - The company has no currently pending material legal proceedings[353](index=353&type=chunk) [Item 1A. Risk Factors](index=115&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[354](index=354&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=115&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No sales of unregistered securities or share repurchases occurred during the quarter ended June 30, 2025 - There were no sales of unregistered securities during the quarter[355](index=355&type=chunk) - The company did not repurchase any shares under its share repurchase program during the three months ended June 30, 2025[356](index=356&type=chunk) [Item 3. Defaults Upon Senior Securities](index=115&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon its senior securities during the period - None[357](index=357&type=chunk) [Item 4. Mine Safety Disclosures](index=115&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[358](index=358&type=chunk) [Item 5. Other Information](index=115&type=section&id=Item%205.%20Other%20Information) No other material information or director/officer trading plans were reported during the period - No director or officer entered into any Rule 10b5-1 trading plans or other trading arrangements during the quarter[360](index=360&type=chunk) [Item 6. Exhibits](index=116&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, indentures, and required certifications

Financial Data and Key Metrics Changes - The company reduced the investment portfolio weighted average debt to EBITDA from 3.5 times to 3.4 times [4] - The investment revenue pick rate decreased from 7.6% to 5.8% [4] - The non-accrual rate improved from 1.7% to 0.8% of the investment portfolio at fair value [4] - Pre-tax net investment income was reported at $0.61 per share, with total investment income increasing to $55.9 million from $52.4 million in the prior quarter [18] - The company's NAV per share decreased from $16.70 to $16.59 [21] Business Line Data and Key Metrics Changes - The company generated $27.2 million in realized gains from two equity investment exits during the quarter [5] - The on-balance sheet credit portfolio grew year-over-year by 21% to $1.6 billion [10] - 100% of new portfolio company debt originations were first lien senior secured [10] - The equity co-investment portfolio consisted of 80 investments with a total fair value of $166 million, representing 9% of the total portfolio [12] Market Data and Key Metrics Changes - The company reported $115 million in total new commitments to three new portfolio companies and 12 existing portfolio companies [6] - Approximately 55% of total capital commitments during the quarter were follow-on offerings in performing portfolio companies [7] - The company noted a distinct pickup in the volume and quality of deals in the past six weeks [8] Company Strategy and Development Direction - The company transitioned its regular dividend payment frequency from quarterly to monthly, declaring a total of $0.58 in regular dividends for the quarter [5] - The company received final approval from the SBA for its second SBIC license, allowing access to $175 million in additional SBA debentures [6] - The company aims to maintain a conservative leverage approach while being opportunistic in raising secured and unsecured debt capital [23] Management's Comments on Operating Environment and Future Outlook - Management noted a competitive landscape in the lower middle market, with banks and non-bank lenders being aggressive in deploying capital [26] - The company anticipates significant activity in terms of new platform company originations and add-on activity in the existing portfolio [8] - Management expressed confidence in maintaining dividends based on the current UTI balance of $1 per share and expectations of continued gains from the equity portfolio [20] Other Important Information - The company reported a robust balance sheet liquidity with approximately $444 million in cash and undrawn leverage commitments [21] - The regulatory leverage ended the quarter at a debt to equity ratio of 0.82 to 1, down from 0.89 to 1 in the prior quarter [23] Q&A Session Summary Question: Can you talk about the competitive landscape right now? - Management noted a supply-demand dynamic with a scarcity of quality assets and aggressive competition from banks and non-bank lenders [26][27] Question: What underpins your optimism in the M&A market? - Management highlighted a strong pipeline with $110 million of originations already closed and additional deals pending [36][37] Question: What is the outlook on operating leverage? - Management indicated that operating leverage is expected to trend down to 1.4% to 1.5% by the end of the fiscal year [40][41] Question: How do you view the competitive pressure from banks? - Management acknowledged that banks are currently competitive, which is driving lower spreads, but noted that this could change [52][53] Question: Any updates on adding an asset manager vehicle within the BDC? - Management confirmed ongoing efforts to enhance earnings and origination capabilities, potentially through strategic initiatives [56] Question: Can you provide a breakout between new versus add-on opportunities? - Management indicated a robust quarter with approximately 75% of originations being new opportunities [62]

Financial Highlights - Q1 2026 Pre-Tax Net Investment Income ("NII") was $32.7 million, or $0.61 per share[16] - Net realized gains of $27.2 million were generated from the exit of two equity investments[16] - Undistributed Taxable Income ("UTI") increased to $1.00 per share as of June 30, 2025, from $0.79 per share as of March 31, 2025[16] - The investment portfolio at fair value was approximately $1.8 billion[16] - Net Asset Value per share was $16.59[16] Investment Activity - CSWC originated $115.2 million in total new committed investments during the quarter, with $63.9 million funded at close[17] - New committed investments consisted of $113.4 million in first lien debt and $1.8 million in equity[17] - Total proceeds of $80.6 million were generated from the exit of three debt investments and two equity investments, including net realized gains of $27.1 million[17] - Cumulative weighted average IRR of 13.6% on 101 portfolio company exits, generating $1.2 billion in proceeds since launch of credit strategy in January 2015[17] Portfolio Composition - First lien investments accounted for 89.6% of the portfolio at fair value as of June 30, 2025[20, 32] - Equity investments accounted for 9.3% of the portfolio at fair value as of June 30, 2025[20, 32] - Approximately 92% of all debt investments are currently rated a "1" or "2"[22]

Group 1: Earnings Performance - Capital Southwest (CSWC) reported quarterly earnings of $0.59 per share, matching the Zacks Consensus Estimate, but down from $0.63 per share a year ago [1] - The company had revenues of $55.95 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 2.21% and up from $51.35 million year-over-year [2] - Over the last four quarters, the company has surpassed consensus EPS estimates only once [1] Group 2: Stock Performance and Outlook - Capital Southwest shares have increased approximately 3.7% since the beginning of the year, compared to the S&P 500's gain of 7.1% [3] - The company's earnings outlook, including current consensus earnings expectations, will be crucial for future stock performance [4] - The current consensus EPS estimate for the upcoming quarter is $0.59 on revenues of $56.33 million, and for the current fiscal year, it is $2.35 on revenues of $228.18 million [7] Group 3: Industry Context - The Financial - Investment Management industry, to which Capital Southwest belongs, is currently ranked in the top 24% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Capital Southwest's stock performance [5][6]

Group 1 - Samuel Smith has extensive experience in dividend stock research and investment, having served as lead analyst and Vice President at notable firms [1] - He is a Professional Engineer and Project Management Professional, holding degrees in Civil Engineering & Mathematics and a Masters in Engineering with a focus on applied mathematics and machine learning [1] - Samuel leads the High Yield Investor investing group, collaborating with Jussi Askola and Paul R. Drake to balance safety, growth, yield, and value in investment strategies [2] Group 2 - High Yield Investor provides real-money core, retirement, and international portfolios, along with regular trade alerts and educational content [2] - The service includes an active chat room for investors to engage and share insights [2]

Core Insights - Capital Southwest (NASDAQ: CSWC) is highlighted as a leading Business Development Company (BDC) suitable for investment, particularly due to its internally-managed structure [1] - Recent months have seen significant uncertainty for investors as the stock price of CSWC has declined [1] Company Overview - CSWC is recognized for its strong focus on dividend investing, which is considered an accessible path to achieving financial freedom [1] - The company operates in various sectors including technology, real estate, software, finance, and consumer staples, which form the core of its investment portfolio [1] Investment Strategy - The article emphasizes the importance of dividend investing as a strategy for building long-term wealth and financial stability [1] - Insights are shared to demystify the process of dividend investing, making it more approachable for potential investors [1]

Group 1 - iREIT+HOYA Capital focuses on income-producing asset classes that provide sustainable portfolio income, diversification, and inflation hedging [1] - Monthly recurring income streams are beneficial for dividend investors, particularly for those replacing job income, as they help match regular expenses [2] Group 2 - The article emphasizes the importance of performing due diligence and drawing personal conclusions before making investment decisions [4] - Seeking Alpha highlights that past performance does not guarantee future results and that views expressed may not reflect the platform's overall stance [5]

Form 8-K Current Report [Filing Information](index=1&type=section&id=Filing%20Information) This section details the registrant's filing information, registered securities, and non-emerging growth company status - The report was filed by Capital Southwest Corporation on July 15, 2025[1](index=1&type=chunk) Registered Securities | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | :--- | :--- | :--- | | Common Stock, $0.25 par value per share | CSWC | The Nasdaq Global Select Market | | 7.75% Notes due 2028 | CSWCZ | The Nasdaq Global Select Market | - The registrant is not an emerging growth company[3](index=3&type=chunk) [Reported Events](index=2&type=section&id=Reported%20Events) This section outlines the announcement of preliminary financial results for the fiscal quarter ended June 30, 2025 [Item 2.02 Results of Operations and Financial Condition](index=2&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) Preliminary financial estimates for the quarter ended June 30, 2025, were announced and filed under the Securities Exchange Act of 1934 - The company issued a press release on July 15, 2025, announcing preliminary financial estimates for the fiscal quarter ended June 30, 2025[5](index=5&type=chunk) - The press release is attached as Exhibit 99.1 and is incorporated by reference into the filing[5](index=5&type=chunk) - The disclosed information, including Exhibit 99.1, is considered 'filed' for the purposes of Section 18 of the Securities Exchange Act of 1934[6](index=6&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=2&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This section lists the exhibits for the Form 8-K filing, primarily the press release containing preliminary financial information Exhibits Filed | Exhibit No. | Description | | :--- | :--- | | 99.1 | Press Release issued by Capital Southwest Corporation on July 15, 2025 | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | [Signatures](index=3&type=section&id=Signatures) The report is formally authorized and signed by the President and Chief Executive Officer on July 15, 2025 - The report was signed on July 15, 2025, by Michael S. Sarner, President and Chief Executive Officer[10](index=10&type=chunk)

Core Viewpoint - Capital Southwest Corporation has announced preliminary operating results for the first quarter of its 2026 fiscal year, indicating positive financial performance and upcoming earnings release details [1][4]. Financial Performance - The preliminary estimate of pre-tax net investment income for the first quarter of 2026 is projected to be between $0.60 and $0.61 per share [2]. - The estimated net investment income for the same period is expected to range from $0.58 to $0.59 per share [2]. - The preliminary estimate of net asset value per share as of June 30, 2025, is between $16.55 and $16.65 [3]. - Non-accruals as a percentage of the total investment portfolio are estimated at 2.6% at cost and 0.8% at fair value [3]. Upcoming Events - Capital Southwest will finalize and release its first quarter 2026 results on August 6, 2025, after market close [4]. - A live webcast for investors is scheduled for August 7, 2025, at 1:00 p.m. Eastern Time [4]. Company Overview - Capital Southwest Corporation is a Dallas-based business development company with approximately $1.8 billion in investments at fair value as of March 31, 2025 [7]. - The company focuses on providing flexible financing solutions to support the acquisition and growth of middle market businesses, with investments ranging from $5 million to $50 million [7].

Group 1 - The current market environment favors income investors as growth stocks are being prioritized over value stocks [1] - Many technology stocks are experiencing high valuations, prompting a shift towards income-generating investments for recurring cash flow [1] - The focus is on defensive stocks with a medium- to long-term investment horizon [1]