Capital Southwest(CSWC)2025-02-04 21:06Investment 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].