Capital Southwest Corporation

Thank you for joining today's Capital Southwest first quarter fiscal year 2027 earnings call. Participating on the call today are Michael Sarner, Chief Executive Officer, Chris Rehberger, Chief Financial Officer, Josh Weinstein, Chief Investment Officer, and Amy Baker, Executive Vice President Accounting. I will now turn the call over to Amy Baker.

Thank you. I would 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's 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 from such statements. for information concerning these risks and uncertainties see Capital Southwest publicly available filings with the SEC. 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 over to our President and Chief Executive Officer, Michael Sarner.

Thanks, Amy. and thank you everyone for joining us for our first quarter fiscal year 2027 earnings call. We're pleased to be with you today and look forward to discussing our results for the quarter. Before turning to the quarter, I want to highlight that we are still seeking additional shareholder votes for our proposal to increase Capital Southwest's authorized shares. The company has received substantial shareholder support for the proposal to date As of today, approximately 89% of votes cast have been cast in favor of the proposal. However, because approval under Texas law requires the affirmative vote of holders of at least two-thirds of all outstanding shares, shareholder participation remains critical to the proposal's approval. A failure to vote has the same practical effect as a vote against the proposal. The proposal would provide Capital Southwest with the flexibility to continue executing the strategy that has supported the company's growth and long-term performance. Approval would not by itself authorize the issuance of any new shares. Rather, it would ensure that the company has sufficient authorized shares available to issue accretive equity when attractive investment opportunities arise. Additionally, I would like to highlight that ISS and Glass-Lewis have both issued reports recommending that shareholders vote for the proposal. We would encourage all shareholders who have not voted or have voted against the proposals to support the company by casting their affirmative vote prior to the September 1st meeting date. Turning to the financial results, during the first fiscal quarter, we generated pre-tax net investment income of 57 cents per share. supported by strong recurring earnings across the portfolio. Our undistributed taxable income balance remains robust at 87 cents per share, reflecting consistent realization activity. Although our UTI balance declined this quarter as a result of normal annual corporate activity, we remain confident in our ability to continue growing this balance over time. Chris will provide additional detail later in the call. Our Board of Directors has declared a $0.58 regular dividend for the September quarter payable monthly in each of July, August, and September 2026. And has also declared a quarterly supplemental dividend of $0.06 per share payable in September, bringing total dividends declared for the September quarter to $0.64 per share. Turning to originations, deal flow in the lower middle market was strong this quarter. We closed $222 million in total new commitments across 11 new portfolio companies and 16 existing portfolio companies. Add-on financings continue to be an important source of originations for us as over the last 12 months, add-ons as a percentage of total new commitments have been 25%. These opportunities allow us to deploy capital into businesses we know well with proven management teams and sponsors. Our investment pipeline of new opportunities continues to meaningfully expand. Over the last 12 months, We have screened approximately 1,300 deals of which we've closed 19 new platform companies. That is an increase from the 1,200 deals we screened in fiscal year 2025 and 1,000 deals we screened in fiscal year 2024. We have continued to source more deals with each passing year while our close rate has decreased from 1.7% in fiscal year 2024 to 1.5% today. This highlights both our discipline underwriting process and our continued penetration into opportunities in the lower middle market. Demonstrating our continued investment discipline, for new platform deals closed during the June quarter, weighted average senior leverage was 2.8 times debt to EBITDA and weighted average loan to value was 29%, providing a substantial equity cushion beneath our debt. Over the past 12 months, new platform originations have averaged 3.1 times senior leverage and 34% loan to value, further underscoring our consistent commitment to conservative underwriting. Additionally, our portfolio continues to benefit from the broad industry diversification with an average position size of 0.8% per company, which helps mitigate company-specific risk. Furthermore, the weighted average yield on our debt portfolio increased to 10.9% during the quarter, up from 10.8% in the previous quarter. The main driver of this increase was an increase in the weighted average spread of our portfolio, which reflects our continued ability to originate high quality opportunities while maintaining attractive spread economics, even amidst a more competitive and tighter spread credit environment. On the capitalization front, we raised 64 million in gross equity proceeds through our ATM program this quarter. Our ability to assess the ATM program continues to be meaningful competitive advantage for Capital Southwest. In a market where fewer publicly traded BDCs are trading above book value, our improved price to book valuation gives us a differentiated ability to raise growth capital in a way that is accretive to NAV and supportive of long-term shareholder value. We believe our relative position has strengthened significantly over the past few years, and it provides us with the flexibility that many of our peers simply do not have today. In fact, only six BDCs were trading above book on June 30, 2026, down from 17 BDCs on June 30, 2024. Additionally, while the median BDC price to book multiple declined from 0.96 times to 0.73 times over that same two-year period, CSWC has continued to trade well above book value in a range of 1.2 times to 1.5 times. I'll now hand the call over to Josh to review more Thank you, Michael.