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'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 off to our President and Chief Executive Officer, Bowen Diehl.

Thank you, Chris, and thanks to everyone for joining us for our second quarter fiscal year 2023 earnings call. We are glad to be here this morning and excited to update you on our company’s performance and portfolio as we continue to execute our investment strategy and manage your capital responsibly. Throughout our discussion, we will refer to various slides in our earnings presentation, which is available on our website at www.capitalsouthwest.com. You can also find our quarterly earnings press release issued last evening on our website. We will start on Slide 6 of the earnings presentation, where we have outlined some key performance highlights for the quarter. During this period, we generated pretax net investment income of $0.54 per share, representing a 20% increase over the $0.45 per share reported a year ago in the September quarter. The $0.54 per share significantly exceeds our regular dividend of $0.50 per share paid during the quarter. As announced earlier, our Board has declared a $0.02 increase in our regular dividend to $0.52 per share for the quarter ending December 31, 2022. This increase marks a 4% rise from the $0.50 per share paid in September and an 11% increase over the $0.47 per share paid in December of last year. These dividend increases stem from the growth and performance of our portfolio, alongside improvements in our operational efficiency. Additionally, due to the Federal Reserve's aggressive interest rate hikes and the resultant excess earnings from our floating debt portfolio, our Board of Directors has also declared a supplemental dividend of $0.05 per share for the December quarter, bringing the total dividends declared for this quarter to $0.57 per share. While the future of dividend declarations rests with our Board, we anticipate that Capital Southwest will continue to issue supplemental dividends as long as base rates remain well above historical averages. Lastly, I want to point out that, as we have in the past, we aim to distribute supplemental dividends as we realize gains from our equity co-investment portfolio. During the quarter, acquisition and financing activities in the lower middle market remained strong. Portfolio growth was fueled by $86 million in new commitments, which included $67 million in commitments to five new portfolio companies and $19 million in add-on commitments to five existing companies. This growth was partially offset by $14 million in proceeds from two debt prepayments and a debt sale during the quarter. On the capitalization side, we raised $26.9 million in equity through our ATM program at an average price of $19.48 per share, reflecting an average of 118% of the prevailing net asset value per share. Our liquidity remains strong, with approximately $170 million in cash and undrawn capital commitments at the quarter's close. We have been careful in funding a substantial portion of our investment growth through accretive equity issuances via our ATM program, as we believe this is crucial. We maintain a conservative approach to BDC leverage in light of economic uncertainties. Overall, we are satisfied with the strength of our balance sheet, which has a regulatory leverage ratio of 1.1:1, a solid liquidity position, and almost half of our liabilities consist of fixed-rate unsecured bonds, with our earliest debt maturity not due until 2026. On Slides 7 and 8, we highlighted our consistent history of strong dividend growth, reliable dividend coverage, and solid value creation since our credit strategy's launch in January 2015. Since then, we have raised our regular dividend to shareholders 24 times and have never cut the regular dividend, even during the challenging COVID pandemic. Additionally, during this same period, we have declared 18 special or supplemental dividends totaling $3.61 per share from excess earnings and realized gains from our investment portfolio. We believe that our consistent dividend growth, strong portfolio performance, and sustained access to capital markets underscore the effectiveness of our investment and capitalization management strategies, as well as our commitment to aligning all of our decisions with shareholders' interests. Continuing this strong track record is vital to us, as delivering long-term shareholder value through maintaining and growing both dividends and NAV per share is a top priority for our company. Now turning to Slide 9, our investment strategy laid out for shareholders since January 2015 has evolved. Most of our activities are in the core lower middle market, where we serve as the first lien senior secured lender, typically supporting a private equity firm’s acquisition of a growing company in this segment. We also frequently take minority equity positions in the companies through co-investments made alongside private equity firms. In fact, 90% of our credit portfolio is supported by private equity firms, which offer essential guidance and leadership to portfolio companies and provide potential new capital as needed. Our lower middle market strategy is further enhanced by participating in club deals with larger companies alongside like-minded lenders with whom we have a proven track record. Almost all of these club deals are also backed by private equity firms. As of the end of the quarter, our equity co-investment portfolio included 46 investments valued at a total of $102.6 million, with $38.6 million in embedded unrealized gains, roughly $1.34 per share. This equity portfolio, which makes up about 10% of our total portfolio’s fair value as of the end of the quarter, continues to give shareholders exposure to the attractive upside of these growing lower middle market businesses, which will result in NAV per share growth and supplemental dividends over time. As shown on Slide 10, our on-balance sheet credit portfolio, excluding our I-45 Senior Loan Fund, grew 4% to $930 million compared to $865 million at the end of the previous quarter. Over the past year, our credit portfolio has increased by $214 million or 31% from $689 million at the end of September 2021. In the current quarter, 95% of new portfolio company debt originations were first lien senior secured, and at the end of the quarter, 94% of our total credit portfolio was first lien senior secured. On Slide 11, we detailed the $86 million of capital invested in and committed to portfolio companies during the quarter. The committed capital this quarter included $64 million in first lien senior secured debt and $3 million in second lien senior secured debt to five new portfolio companies, along with $18 million in first lien senior secured debt to five existing companies and $816,000 in equity co-investments to two existing companies. Moving to Slide 12, we continued our track record of successful exits with two debt prepayments and one debt sale during the quarter. In total, these exits produced around $14 million in proceeds, with a weighted average IRR of 10.1%. Since launching our credit strategy, we have realized 66 portfolio exits, yielding $716 million in proceeds—$763 million altogether—resulting in a cumulative weighted average IRR of 14.7%. The market for acquisition capital remains active, but we have observed a slowdown in refinancing activity. Consequently, we expect to see solid net portfolio growth in the near future. Our investment pipeline remains strong in both volume and variety of deal sources. We are pleased with our strong market position as a leading debt and equity capital partner in the lower middle market, evidenced by the wide range of relationships across the country that our team utilizes to source quality opportunities. Regarding deal origination, we find underwriting certain industries more challenging given current economic uncertainty. However, it has been an essential part of our underwriting for the past eight years to conduct stress case downside models for new deals, simulating an extreme recession shortly after closing. Therefore, our underwriting approach in today’s environment hasn’t significantly changed, even as our models now include much higher base rates than in the past. We continue to align the leverage levels we are willing to risk on a company with the potential performance volatility of its business and industry throughout the economic cycle. Performance can vary greatly across different industries through the economic cycle, so getting this aspect right is paramount in the underwriting process. Specifically, we require solid underwriting standards that ensure our loans remain well within the portfolio company's enterprise value and that our interest is secure throughout the cycle in a stress case financial model. On Slide 13, we provide key statistics for our on-balance sheet portfolio as of the end of the quarter, excluding our I-45 Senior Loan Fund. The total portfolio at fair value was approximately 85% first lien senior secured debt, 5% second lien senior secured debt, and 10% equity co-investments. The credit portfolio boasted a weighted average yield of 10.6% and a weighted average leverage of 4.1 times. Moving to Slide 14, we outlined the rating migration in our portfolio for this quarter. During the quarter, we upgraded six loans, totaling fair value of $37.9 million, while downgrading three loans with a fair value of $18.3 million. As a reminder, all loans initially receive an investment rating of 2 on a four-point scale, where 1 represents the highest rating and 4 the lowest. We feel confident about our portfolio’s performance, with 97% of it at fair value rated in one of the top two categories. As shown on Slide 15, our total investment portfolio—including our I-45 Senior Loan Fund—continues to be well-diversified across various industries, with an asset mix that provides strong security for our shareholders’ capital. The portfolio remains heavily skewed towards first lien senior secured debt, and only 5% is allocated to second lien senior secured debt. I will now turn the call over to Michael to delve into the details of our financial performance for the quarter.

Thanks, Bowen. Specific to our performance for the September quarter, as summarized on Slide 17, we earned pretax net investment income of $15 million or $0.54 per share. We paid out $0.50 per share in regular dividends. As mentioned earlier, our Board has approved an increase to the regular dividend for the December quarter to $0.52 per share and declared a $0.05 per share supplemental dividend for the December quarter. Maintaining a consistent track record of meaningfully covering our dividend with pretax net investment income is important to our investment strategy. We continue our strong track record of regular dividend coverage with 106% for the last 12 months ended September 30, 2022, and 107% cumulative since the launch of our credit strategy in January 2015. Given the floating rate nature of our credit portfolio, rising interest rates continue to be a significant tailwind to our net investment income. The base rate index used to calculate interest on a majority of our loans reset in early October to 3.75%, up from this early July, which reset at 2.29%. This significant increase quarter-over-quarter will provide another immediate step-up in portfolio income in the December quarter. With that as context, we will continue to execute our policy of having regular dividends follow the trajectory of recurring pretax NII per share. As such, we will thoughtfully grow our regular dividend to a level, which can be sustained should interest rates decrease to a neutral level. In addition, while interest rates remain elevated, our intent is to distribute excess pretax NII to our shareholders each quarter through supplemental dividends. As in the past, it is also our intent to distribute future additional supplemental dividends as we realize gains in our equity portfolio. Based upon the interest rate environment and the continued strong performance of our equity portfolio, we expect to continue to distribute quarterly supplemental dividends for the foreseeable future. For the quarter, our investment portfolio generated total investment income of $26.8 million, producing a weighted average yield on all investments of 10.3%. Total investment income was $4.3 million higher this quarter due to our higher average balance of credit investments outstanding, in addition to the tailwind provided from a significant increase in LIBOR and SOFR base rates. As of the end of the quarter, we had approximately $9 million of our investments on nonaccrual, representing 0.9% of our investment portfolio at fair value. Finally, as of the end of the quarter, the weighted average yield on our loan portfolio was 10.6% for the quarter. As seen on Slide 18, we further improved LTM operating leverage to 2% as of the end of the quarter. Achieving 2% or lower operating leverage was one of our initial long-term goals when we relaunched the CSWC as a middle market lender back in 2015. Though we are pleased to have reached this milestone, looking ahead, we expect to experience continued operating leverage efficiencies due to our internally managed structure. Turning to Slide 19. The company's NAV per share at the end of the September quarter decreased by $0.01 per share to $16.53. The primary driver of the NAV per share decrease for the quarter was $8.4 million of unrealized losses on the on-balance sheet debt portfolio, partially offset by $4.2 million of net appreciation on the equity portfolio. Additionally, there was approximately $800,000 of depreciation at I-45, most of which was mark-to-market quote activity in the syndicated market. We also generated $0.13 per share of accretion from the issuance of common stock at a premium to NAV per share under our equity ATM program. Despite the sustained volatility in the equity markets, we are pleased to have had the ability to continually raise equity above NAV per share through the equity ATM program. Turning to Slide 20. As Bowen mentioned earlier, we are pleased to report that our balance sheet liquidity continues to be strong, with approximately $170 million in cash and undrawn leverage commitments as of the end of the quarter. Based on our borrowing basis at the end of the quarter, we have full access to the incremental revolver capacity, and we'll look to opportunistically increase commitment to the facility in the near term. Our bank syndicate continues to support our growth, and we are pleased with the flexibility the revolving credit facility provides to our capital structure. In addition, we have submitted a new leverage commitment application to the FDA to obtain an additional $50 million in debentures, which we expect to receive in the coming weeks. We continue to see strong origination volume in SBIC eligible investments and will opportunistically invest given the lower cost nature of the SBIC debentures. As of September 30, 2022, approximately 47% of our capital structure liabilities were unsecured, and our earliest debt maturity is in January 2026. Our regulatory leverage, as seen on Slide 21, ended the quarter at a debt-to-equity ratio of 1.11:1, down from 1.23:1 as of the December 2021 quarter. Over the past year, we have made a concerted effort to strengthen our balance sheet to ensure we are prepared for any macroeconomic headwinds that we may encounter. These efforts have included our opportunistic unsecured bond issuances at record low rates in late calendar year 2021, our continued support from banking relationships, which have allowed for steady growth in our revolver facility commitments, and our continued diligence in moderating leverage through accretive share issuances on our equity ATM program. We will continue to work towards strengthening the balance sheet, ensuring adequate liquidity and maintaining conservative leverage and covenant cushions throughout the economic cycle.

Thanks, Michael. And thank you, everyone, for joining us today. We appreciate the opportunity to provide you an update on our business and progress executing our strategy as stewards of our stakeholders' capital. Our company and portfolio continue to perform well. I continue to be impressed by the job our team has done in building a robust asset base deal origination capability as well as a flexible capital structure. As to the uncertainty in the economy, again, we have been underwriting with a full economic cycle mentality since day one, which we believe has positioned us well for the potential economic volatility in the coming months and years. In summary, we have a credit portfolio heavily weighted to first lien senior secured debt allocated across a broader array of companies and industries, 90% of which is backed by private equity firms. We believe our first lien senior secured debt strategy is working, and we feel very good about the health and positioning of our company and portfolio. Finally, we continue to believe that our performance demonstrates the investment acumen and capital structure management capability of our team at Capital Southwest, and we are excited to continue to execute our investment strategy as stewards of our stakeholders' capital. This concludes our prepared remarks. Operator, we are ready to open the line for Q&A.

Our first question will come from Kevin Fultz from JMP Securities.

My first question is on portfolio company interest coverage. Clearly, the Fed has hiked rates more aggressively than we anticipated 6 months ago. And I'm just curious if you could share your thoughts on the potential impact that the forward LIBOR or SOFR curve could have on portfolio company interest coverage?

Thank you for the question. As I mentioned in our previous quarterly calls, we conduct a fixed charge coverage analysis of our portfolio. We assess the company's performance against the current base rate and interest coverage, and we adjust the model by raising the base rates to simulate potential increases. This allows us to identify when a number of companies might enter the red zone based on a static fixed charge coverage ratio calculation. I can tell you that when the base rate reaches 5.5%, several companies will definitely be in that red zone. Most of these companies are owned by private equity firms. However, about half of them have significant equity value below our debt and are backed by well-funded private equity firms. In my opinion, these firms will not allow the company to default on interest payments. I expect we might receive calls from private equity firms proposing to restructure payments, for example, suggesting they pay us a portion of cash interest at a better rate. This would benefit both the company and the private equity firm in the short term. Given the equity value and ownership structures, I believe this would be a favorable trade. Overall, at rates of 5.5% and above, the situation may become tighter, but I find comfort in the leverage levels of our portfolio companies and the fact that 90% are owned by private equity firms that are aware of these scenarios. I feel confident as a lender that our shareholders will be well-protected.

Okay. That's really helpful, Bowen. And then just one more, if I may. The total PIK income increased to 5.9% of total interest income this quarter, which is up from 3.6% in the June quarter. Can you just discuss what drove that increase, whether that was amendment-driven or if you originated new investments that were structured with the PIK component?

Yes. The increase primarily comes from two companies. One was restructured this quarter and had been in nonaccrual last quarter. The sponsor invested a significant amount into the business, and the lender group agreed to defer interest payments for a few quarters as part of the restructuring. The second company is also sponsor-owned and made a challenging acquisition, leading them to request a deferral on a portion of interest while they address issues related to that acquisition. This situation is somewhat unique but reflects part of our business, and it accounts for the increase from the previous quarter.

Our next question comes from Mike Schleien from Landenburg.

Bowen, I appreciate your comments on how you approach underwriting. I suppose what I'd like to ask is that what changed recently in the third quarter is that EBITDA, generally speaking, in the middle market turned negative in terms of year-over-year changes. And that includes health care, which is a major focus for you and a lot of BDCs. So with that in mind, notwithstanding the fact that you're underwriting to the downside, in the health care sector, does that affect the sorts of companies you're willing to fund given where we are in the cycle today?

Thank you for the question. The health care sector carries unique risks that aren't solely linked to the economy, primarily related to regulatory and reimbursement rate changes. These are the two main areas we need to navigate carefully in underwriting within this space. When we analyze our 97% performing portfolio, which includes categories one and two, and adjust for a few companies that have made significant acquisitions this quarter—thereby inflating their growth figures—we see that the overall revenue growth for the portfolio averages around 4%, while EBITDA growth averages approximately 0.5%. Both metrics have experienced a slight decline compared to last quarter. This might indicate a slowing economy, though that's not definitive. From a lending perspective, we consider these figures to be relatively strong. We do have some challenged credits, which is typical for lenders like us, and our focus is on managing those effectively. Looking at the 97% of our portfolio gives us a positive outlook, although these financials are a month or two old due to how quarterly valuations are completed. Overall, we believe the portfolio is performing well.

I appreciate that explanation, Bowen. Looking at the syndicated loan market and the senior loan fund, we've experienced significant volatility. There was a false signal during the quarter, followed by a decline in prices as the quarter closed. Notably, there's considerable variation in pricing, and distress ratios have increased significantly. As portfolio managers, do you find yourselves in a position to capitalize on that volatility regarding credits that seem mispriced? Perhaps you can leverage the pull-to-par effect? Or are you more cautious about the economic outlook and prefer to wait and see how things develop?

It's an interesting question. The majority of our focus is on leading deals in the lower middle market, where our returns are quite favorable. We haven't engaged in any new activities within the syndicated book. If there are significant discrepancies in pricing value between us and Main Street, we can certainly take advantage of that. However, we haven't observed enough of those situations yet. The difficulty with syndicated credit is that the information available is often incomplete. Being a small part of a large loan means you follow the crowd, and if things go wrong, decisions on restructuring or management aren't in our hands, unlike in the lower middle market. Therefore, we haven't dedicated much time to searching for syndicated names to invest in. It's not a primary focus for us due to the opportunities and consistent performance we see in the lower middle market. While it’s certainly possible that we could pursue opportunities if the market becomes extreme, we're not prioritizing that at the moment.

And we've also seen either on-balance sheet or with I-45, just the mark-to-market volatility, as you noted earlier, Mickey, which from an earnings perspective and sort of managing the ship, that's probably a little less stable, certainly less stable than having lower middle-market companies that have more stable valuations.

If it got extreme and you're buying loans very, very cheap, it would be tempting. But it's not a priority for us.

I understand. Bowen, my last question, we're all talking about rising interest rates, but the forward actually has rates starting to go down later next year. So I'd like to understand what kind of floor rates you're negotiating today? And what I'm really thinking about is the long-term sort of recurring earnings power of the portfolio as rates start to go down perhaps a year from now?

Thank you for the question. There are a few points to mention. Michael highlighted in his prepared comments that we are increasing our regular dividend in line with our net interest income, but we are doing so cautiously to ensure it remains sustainable even if interest rates decrease back to more typical levels. We believe that after the recession, rates will return to neutral levels. On the loan side, we have begun to request a 2% floor for all our deals, up from the previous 1%. So far, we haven't encountered much resistance to this change, and I feel optimistic about it. We are aiming for our base case term sheet to include 2% floors.

Our next question will come from the line of Kyle Joseph from Jefferies.

Congratulations on a strong quarter. Could you clarify the situation regarding nonaccruals? They decreased during the quarter, and I believe you mentioned restructuring one of your investments. Can you provide insight into the inflows and outflows related to that, and how they relate to the realized and unrealized losses for the quarter?

Sure. We had two nonaccruals that were removed and two that were added. In both instances, the changes were more related to regulatory and customer issues rather than economic factors.

All right. And then transition to the origination side. It sounds like you guys still have a decent pipeline despite macroeconomic activity. Can you just give a sense for, a, behavior of other originators, have you seen some players have to pull back because of either leverage or economic concerns and then give us a sense for what kind of spreads you're seeing on the lower middle market deals you guys are leading?

Yes, that's a good question. I would say that we have observed spreads across the market increasing by 25 to 50 basis points. It seems that some lenders are pulling back, either in terms of funding or for other reasons. However, the market remains quite strong, and lenders are still active. We've lost a few deals in the past month due to pricing and leverage, meaning our pricing is somewhat higher and our leverage is a bit lower compared to what others are offering. This situation is fairly typical. While it would be beneficial for us to see spreads widen by 100 basis points and for lenders to be less aggressive, there is certainly competition in the market.

Our next question will come from Robert Dodd from Raymond James.

Regarding interest coverage, Bowen, it seems you haven't received many incoming amendment requests. Michael, my question is about the index, which has increased from 229 to 375, a rise of 150 basis points in just three months for these buyers. The forward curve suggests the next reset could go up by another 100 basis points. At what point do you think we will start seeing those amendment requests come in? The curve doesn't quite reach the 550 flip point you mentioned, yet it is on the rise, and others have also noted a lack of amendment calls. When do you anticipate those requests might start, if at all?

Yes, it's an interesting question. If you look at our earlier analysis, we have at 5.5% a number of companies that it's quite challenging for. Currently, our weighted average interest coverage in our portfolio is in the range of 2.25% to 2.5%. This means that as a portfolio, companies can manage a higher base rate increase than we expect to see. However, some companies do start to feel pressure at the margin, like at 5.5%. I speculate that around 5% to 5.5% base rates, we will begin to receive those phone calls. These are private equity firms, and they will be careful about making that request. They won't reach out until they absolutely need to. Instead of piling on more debt, they will likely opt to make the interest payment, which effectively eases the interest burden compared to if they continued to PIK. I believe they will approach those calls carefully, but I think we and the industry will start receiving some of those phone calls if we reach base rates of 5% to 5.5%.

Understood. I don't think we necessarily go undisclosed; maybe it doesn't happen at all. Regarding the strength in the current competitive market, you mentioned that you lost a couple of deals. Was there any specific area in the market where that strength is particularly evident? Is it still primarily in business services and recurring revenue, or is the market starting to vary a bit, with some types of deals possibly excluded from that intense competition? Any insights on that?

I would describe the current situation as a bit of a barbell. On one side, there are high-quality credits that involve high-margin, service-based businesses, as well as essential services that are unlikely to be heavily impacted during a recession. The debt being sought for these deals has a loan-to-value ratio of 30% to 40%, with strong margins and minimal capital expenditure or working capital burden. There is substantial competition for these types of deals, which we favor. It’s true that some might say there are fewer lenders in the market, but we don’t have direct insights into the lower middle market or how many lenders are active. We mainly get an indirect sense of the competition. While there is intense competition for higher-quality credit deals, there’s significantly less competition for riskier credits. If you’re inclined to take on some risk with a private equity firm focused on operational improvements, it's riskier, but in this market, you will be compensated for that risk. Overall, the cost of that risk in today’s market is higher than it was six or twelve months ago. Yes, thanks for the question. I appreciate it. We have seen that sponsors have generally stepped up in the cases we’ve observed, or we have introduced a new deal structure. This could involve converting some of that debt into an equity stake in the company if the business model is slightly shifting, and we can negotiate that. Overall, the sponsors are committed to supporting both of those deals. Thanks, everyone. We appreciate the opportunity, as always, to give you an update on the business. Interesting times out there, and these are really good questions. We appreciate them. So thanks for your time, and we look forward to giving you future updates in the future.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.