Capital Southwest(US:CSWC)2025-08-07 20:13PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Unaudited consolidated financial statements for Capital Southwest Corporation for the quarter ended June 30, 2025, are presented Consolidated Statements of Assets and Liabilities 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 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 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 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 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 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 purposes116 - 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 cost136 - 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 equity257259 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 billion310 - As of June 30, 2025, the company had $46.9 million in unrestricted cash and $397.2 million of unused capacity under its Credit Facilities324 Item 3. Quantitative and Qualitative Disclosures About Market Risk 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 floors347 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 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, 2025350 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls351 PART II OTHER INFORMATION Item 1. Legal Proceedings The company reports no currently pending material legal proceedings - The company has no currently pending material legal proceedings353 Item 1A. Risk Factors 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-K354 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 quarter355 - The company did not repurchase any shares under its share repurchase program during the three months ended June 30, 2025356 Item 3. Defaults Upon Senior Securities The company reports no defaults upon its senior securities during the period - None357 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable358 Item 5. Other Information 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 quarter360 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, indentures, and required certifications