Capital Southwest Corporation

I will now turn the call over to Chris Rehberger.

Thank you. I'd like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management 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 in such statements. For information concerning these risks and uncertainties, The company does not undertake any obligation to 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, except as required by law. I will now hand the call off to our President and Chief Executive Officer, Rowan Deaton.

Thanks, Chris, and thank you to everyone for joining us for our first quarter fiscal year 2023 earnings call. We are pleased to be with you this morning and look forward to giving you an update on the performance of our company and our portfolio as we continue to diligently execute our investment strategy for stewards of your capital. Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found on our website at www.capitalsouthwest.com. You will also find our quarterly earnings release issued last evening on our website. We'll begin on slide six of the earnings presentation, where we have summarized some of the key performance highlights for the quarter. During the quarter, we generated pre-tax net investment income of 50 cents per share, which represented 11% growth over the 45 cents per share generated in the year-ago June quarter. The 50 cents per share more than earned our regular dividend paid during the quarter of 48 cents per share. Total dividends for the quarter were 63 cents per share, which included a special dividend of 15 cents per share, also paid out during the quarter. We are pleased to announce today that our Board has declared a $0.02 per share increase in our regular dividend of $0.50 per share for the quarter ending September 30, 2022. This increase represented 4.2% growth over the $0.48 per share paid out in the June quarter and 16% growth over the $0.43 per share paid out in the year-ago September quarter. This increase in our recurring regular dividend reflects the increased earnings power of our portfolio resulting from the increase in market interest rates over the past few months, the growth and performance of our credit portfolio, and the improvements in our operating leverage. During the quarter, acquisition and financing activity in the lower middle market continued to be strong. This quarter, we surpassed the $1 billion threshold in total investment assets, representing 7.5% growth for the quarter and 26% portfolio growth over the past year. Portfolio growth during the quarter was driven by $148 million in new commitments consisting of commitments to six new portfolio companies totaling $139 million and add-on commitments to eight existing portfolio companies totaling $9 million. This was offset by $50 million in proceeds from three debt repayments and one equity exit during the quarter. On the capitalization front, we raised $46.8 million of equity through our ATM program at an average price of $20.60 per share representing an average of 123% of the prevailing net asset value per share. Our liquidity remains robust at approximately 180 million in cash, undrawn capital commitments as of the end of the quarter. We feel very good about the condition of our portfolio overall and of our company. That said, we have remained diligent in funding a meaningful portion of our investment asset growth with accretive equity issuances on our equity ATM program, as we think it is critical that we maintain a conservative mindset to BDC leverage given the uncertainty of the economy and capital markets. On slide seven and eight, we illustrate our continued track record of producing steady dividend growth, consistent dividend coverage, and value creation since the launch of our credit strategy. We believe the solid performance of our portfolio, as well as our company's sustained access to the capital market, has demonstrated the strength of our investment and capitalization management strategy. Maintenance and growth of both shareholder dividends and NAV per share remain as core tenets of our long-term investment objective of creating long-term value for our shareholders. Turning to slide 9 as a refresher, our investment strategy has remained consistent since its launch in January of 2015. We continue to focus on our core lower middle market lending strategy, where we directly originate and lead opportunities. consisting primarily of first-line senior secured loans with smaller equity co-investments made alongside many of our loans. As of the end of the quarter, our equity co-investment portfolio consisted of 44 investments with a total fair value of $89.5 million, which included $26.6 million in embedded unrealized appreciation for approximately $0.97 per share. Our equity portfolio, which represented approximately 9% of our total portfolio fair value over the end of the quarter, continues to provide our shareholders the participation and the attractive upside potential of these growing lower middle market businesses, which will come in the form of NAB per share growth and special dividends over time. As illustrated on slide 10, our on-balance sheet credit portfolios at the end of the quarter, excluding our I-45 Senior Loan Fund, grew 9% to $865 million as compared to $794 million as of the end of the prior quarter. Over the past year, our credit portfolio has grown $194 million or 29% from $671 million as of June 2021. For the quarter, 100% of the new portfolio company debt originations were first lien senior secured debt. And as of the end of the quarter, 94% of our total credit portfolio was first lien senior security. On slide 11 and 12, we detail the $148 million of capital invested in and committed to portfolio companies during the quarter. Capital committed this quarter included $136 million in first lien senior security debt committed to six new portfolio companies, including four in which we also co-invested a total of $3.1 million in equity. Finally, during the quarter, we also committed $9 million in first lien senior secured debt to eight existing portfolio companies. Turning to slide 13, we continued our track record of successful exits with three debt prepayments and one equity exit during the quarter. In total, these exits generated $49 million in total proceeds, realizing gains of $2.3 million and generating a weighted average IRR of 19.6%. Since the launch of our credit strategy over seven and a half years ago, we have had 63 portfolio exits representing $745 million in proceeds that have generated a cumulative weighted average IRR of 14.8%. The market for acquisition capital continues to be active, albeit at a slower pace than we saw at the turn of calendar year 21. Not surprisingly, we have also seen a slowdown in refinancing activities. As a result, we would expect continued solid net portfolio growth in the near term. The activity in our investment pipeline is strong in terms of volume and quality of deal opportunities, as well as the breadth of financial sponsors and other deal sources represented. We are pleased with the strong market position that our team has established in the lower middle market as a premier debt and equity capital partner. as evidenced by the broad array of relationships across the country from which our team is sourcing quality opportunities. On slide 14, we detail some key stats for our on-balance sheet portfolios at the end of the quarter, again, excluding our 45 senior loan funds. As of the end of the quarter, the total portfolio fair value was weighted 85.4% to first lien senior secured debt, 5.1% to second lien senior secured debt, and 0.1% to subordinated debt and 9.4% to equity co-investment. The credit portfolio had a weighted average yield of 9.3% and weighted average leverage through our security of four times, both flat from the prior quarter. Turning to slide 15, we have laid out the rating migration within our portfolio. During the quarter, we had one loan with a fair value of $10 million upgraded from a 2 to a 1. We had three small loan positions across two portfolio companies with an aggregate fair market value of $10 million downgraded from a 2 to a 3. And we had one loan position with a fair value of $693,000 downgraded from a 3 to a 4. As a reminder, all loans upon origination are initially assigned an investment rating of 2 on a 4-point scale, with 1 being the highest rating and 4 being the lowest rating. At the end of the quarter, we have 74 loans representing 95% of our investment portfolio fair value rated in one of the top two categories, a one or a two. The number of one-rated loans decreased from seven to five this quarter, and all three of the loan prepayments this quarter had a rating of one, offset by the aforementioned portfolio company that was upgraded and added to the list of one-rated loans this quarter. In aggregate, we had a total of 10 loans representing approximately 5% of the portfolio fair value rated at three or at four as of the end of the quarter. As illustrated on slide 16, our total investment portfolio continues to be well diversified across industries with an asset mix which provides strong security for our shareholders' capital. The portfolio remains heavily weighted towards personally and senior secured debt with only 5% of the total portfolio and secondly in senior secured debt. I'll also note that 90% of our credit portfolio is backed by a financial sponsor, providing for potentially meaningful financial support for these portfolio companies if needed. I will now hand the call over to Michael to review more specifics of our financial performance for the quarter.