Capital Southwest Corporation operates as a business development company (BDC), specializing in credit, private equity, and venture capital investments focused on middle ...
Capital Southwest Corporation is a publicly traded investment company headquartered in Dallas, Texas, and was established on April 19, 1961. It has elected to be regulated as a business development company under the Investment Company Act of 1940 and is internally managed, meaning its investment and operating functions are performed ...Capital Southwest Corporation is a publicly traded investment company headquartered in Dallas, Texas, and was established on April 19, 1961. It has elected to be regulated as a business development company under the Investment Company Act of 1940 and is internally managed, meaning its investment and operating functions are performed by its own employees rather than an external investment adviser. Michael S. Sarner serves as President and Chief Executive Officer. The company reported approximately 36 full-time employees, placing it in the 0-100 employee category.
Capital Southwest’s core business is supplying flexible capital to privately held U.S. companies, particularly businesses in the lower middle market. Its investment activities are credit-focused but can include equity participation. Financing structures include senior debt, first-lien and second-lien loans, unitranche facilities, subordinated or mezzanine debt, preferred equity, common equity, warrants, and equity co-investments. The company generally seeks non-controlling equity positions when investing alongside debt, while retaining flexibility to make both majority and minority investments in selected situations.
The firm typically supports companies undertaking expansion, acquisitions, refinancing, dividend recapitalizations, platform buyouts, and sponsor-backed or management-led transactions. Its stated investment interests include industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, technology-enabled services, and software-as-a-service businesses. Additional areas of interest include energy services and products, industrial technologies, automation, process controls, specialized equipment, filtration, measurement and testing, differentiated chemicals, coatings, adhesives, engineered materials, professional tools, and other specialized industrial products. The company generally avoids startups, publicly traded companies, real estate development, project finance, direct oil and gas exploration, troubled businesses, and turnaround situations.
For lower-middle-market opportunities, Capital Southwest has described a preference for companies with revenue above $10 million, consistent profitability, and a history of meaningful growth. It often evaluates businesses with EBITDA below approximately $15 million in this segment, while also considering larger upper-middle-market opportunities. Investment sizes commonly range from roughly $5 million to $25 million, with debt investments generally between $5 million and $20 million, equity investments potentially reaching $50 million, and co-investments extending to approximately $40 million. The firm may seek board representation and can hold investments over extended periods.
From the supplied trailing-twelve-month data, Capital Southwest had a market capitalization of approximately $1.56 billion, book value per share of about $17.31, return on equity of approximately 11.0%, and a reported dividend yield near 8.7%. These figures are market- and period-dependent and should not be interpreted as guarantees of future performance. As a BDC, the company’s results are influenced by portfolio credit quality, interest rates, investment income, leverage, realized gains or losses, funding costs, and the valuation of privately held portfolio companies. Its business model is therefore materially different from that of a conventional operating manufacturer or service company: capital deployment, portfolio diversification, credit underwriting, income generation, and preservation of net asset value are central operational priorities.
YoYYoY means Year-over-Year. It compares the latest annual value with the previous annual value to show long-term trend strength.
QoQQoQ means Quarter-over-Quarter. It compares the latest quarter with the immediately previous quarter to show short-term momentum changes.
RevenueThe total money that came through the front door from selling things, before paying a single bill. Think of it as the grand total of every credit card swipe from customers. (YoY compares this year to last year's performance, while QoQ compares the current three months to the previous three).
$245.9M
+50.1%
+13.8%
Net IncomeThe absolute bottom line. If the company paid every single supplier, employee, banker, and tax collector, this is the actual money left in their pocket at the end of the day.
$113.0M
+60.2%
-10.0%
Gross MarginThe basic markup. If they sell a $100 pair of sneakers, this percentage tells you how much of that price tag is profit right after paying for the rubber and shoelaces, but before paying for things like store rent or TV commercials.
+94.3%
+42.0%
-5.9%
Operating MarginThe 'day job' efficiency score. Out of every dollar a customer spends, this shows how many cents the company keeps after making the product AND paying for all the everyday corporate overhead (like salaries, marketing, and keeping the lights on).
+76.9%
+58.6%
-14.2%
Net MarginThe final take-home percentage. When you strip away every conceivable cost, tax, and interest payment, this is the exact number of cents the company truly gets to keep from every dollar in sales.
+45.9%
+6.7%
-20.9%
Free Cash FlowThe holy grail of corporate cash. It's the spendable, physical money left over after the business pays for its daily operations AND buys the big, expensive upgrades (like new factories or servers) it needs to survive. This is the 'free' money they can use to pay dividends or buy back stock.
$-193.5M
+11.6%
-35.9%
FCF MarginThe ultimate cash conversion rate. It shows how good the company is at turning regular sales directly into cold, hard, spendable cash. A high percentage means the business is an absolute cash-printing machine.
-78.7%
+41.1%
-19.4%
Debt / EquityThe financial risk gauge. It compares how much of the company's empire was built using borrowed money (loans) versus the owners' own money (shareholders). A high number means they are heavily leveraged and playing a riskier game; a low number means they are playing it safe.
111.9%
+3.4%
-59.1%
Current RatioThe 12-month survival check. It simply compares the cash they have right now (plus things they can quickly turn into cash) against the immediate bills they absolutely must pay this year. A score above 1 means they have enough in the wallet to cover the upcoming bills without panicking.
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Total AssetsThe absolute size of the company's empire. It bundles together absolutely everything of value they own—from the cash in the register and the inventory in the warehouse, to the software patents in the vault and the factories on the ground.
Operator: 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.
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's 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.
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 2/3 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 proposal to support the company by casting their affirmative vote prior to the September 1 meeting date. Turning to the financial results. During the first fiscal quarter, we generated pretax net investment income of $0.57 per share, …
