Part I. Financial Information [Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) The consolidated financial statements present Saratoga Investment Corp.'s financial position as of May 31, 2025, and its performance for the three-month period then ended, highlighting total assets of $1.20 billion and a net increase in net assets of $13.9 million [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of May 31, 2025, Saratoga's total assets increased to $1.20 billion, with net assets growing to $396.4 million, though Net Asset Value (NAV) per share decreased to $25.52 Consolidated Statements of Assets and Liabilities Highlights (in thousands) | Metric | May 31, 2025 | February 28, 2025 | | :--- | :--- | :--- | | Total investments at fair value | $968,318 | $978,078 | | Total assets | $1,202,269 | $1,191,544 | | Total liabilities | $805,900 | $798,878 | | Total net assets | $396,369 | $392,665 | | **Net asset value per share** | **$25.52** | **$25.86** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended May 31, 2025, total investment income decreased to $32.3 million, resulting in a net increase in net assets of $13.9 million, or $0.91 per share, driven by a shift from net realized/unrealized losses to gains Quarterly Operating Results (in thousands, except per share data) | Metric | Three months ended May 31, 2025 | Three months ended May 31, 2024 | | :--- | :--- | :--- | | Total investment income | $32,319 | $38,678 | | Total operating expenses | $22,177 | $24,343 | | Net investment income | $10,142 | $14,335 | | Net realized and unrealized gain (loss) | $3,790 | $(7,725) | | **Net increase in net assets** | **$13,932** | **$6,610** | | **Earnings per share** | **$0.91** | **$0.48** | [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) For the quarter ended May 31, 2025, net assets increased by $3.7 million, primarily due to a $13.9 million net gain from operations and $8.8 million from capital share transactions, partially offset by $19.0 million in distributions Reconciliation of Net Assets for the three months ended May 31, 2025 (in thousands) | Description | Amount | | :--- | :--- | | Net assets at beginning of period | $392,665 | | Net increase from operations | $13,932 | | Distributions to shareholders | $(18,980) | | Net increase from capital share transactions | $8,752 | | **Net assets at end of period** | **$396,369** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) During the three months ended May 31, 2025, the company generated $32.3 million in cash from operating activities, resulting in a net increase in cash and cash equivalents of $19.6 million Summary of Cash Flows (in thousands) | Activity | Three months ended May 31, 2025 | Three months ended May 31, 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $32,291 | $52,145 | | Net cash from financing activities | $(12,728) | $645 | | **Net increase in cash** | **$19,563** | **$52,790** | | Cash at end of period | $224,287 | $93,297 | [Consolidated Schedule of Investments](index=9&type=section&id=Consolidated%20Schedule%20of%20Investments) As of May 31, 2025, Saratoga's investment portfolio had a fair value of $968.3 million across 46 portfolio companies, primarily composed of first lien term loans, with top concentrations in Healthcare Services, Consumer Services, and HVAC Services and Sales Investment Portfolio Composition by Type (May 31, 2025) | Investment Type | Fair Value (in millions) | % of Net Assets | | :--- | :--- | :--- | | Non-control/Non-affiliate | $875.4 | 220.9% | | Affiliate | $52.0 | 13.1% | | Control | $40.9 | 10.3% | | **Total Investments** | **$968.3** | **244.3%** | Top 5 Industry Concentrations by Fair Value (May 31, 2025) | Industry | Fair Value (in millions) | % of Total Portfolio | | :--- | :--- | :--- | | Healthcare Services | $83.6 | 8.6% | | Consumer Services | $59.2 | 6.1% | | HVAC Services and Sales | $53.8 | 5.6% | | Real Estate Services | $51.7 | 5.3% | | Healthcare Software | $45.9 | 4.7% | - The total fair value of the investment portfolio was **$968.3 million** as of May 31, 2025, compared to **$978.1 million** as of February 28, 2025[10](index=10&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=119&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance for the quarter ended May 31, 2025, highlighting a decrease in investment income, stable portfolio credit quality, and adequate liquidity with an asset coverage ratio of 163.8% [Overview](index=121&type=section&id=MD%26A%20Overview) Saratoga Investment Corp. is a BDC focused on generating income and capital appreciation by investing in U.S. middle-market companies, operating as a RIC and utilizing leverage through its SBIC subsidiaries, credit facilities, and a CLO - The company's investment objective is to generate current income and long-term capital appreciation from investments in private U.S. middle-market companies[389](index=389&type=chunk) - The company operates two SBIC subsidiaries, SBIC II LP and SBIC III LP, which allow for up to **$350.0 million** in combined SBA-guaranteed debentures[391](index=391&type=chunk) - In June 2024, the company completed the fifth refinancing of its Saratoga CLO and amended its Live Oak Credit Facility, increasing the available borrowings from **$50.0 million** to **$75.0 million**[392](index=392&type=chunk)[394](index=394&type=chunk) [Portfolio and Investment Activity](index=129&type=section&id=Portfolio%20and%20Investment%20Activity) For the quarter ended May 31, 2025, the company had net repayments of $14.2 million, with the $968.3 million portfolio composed of 127 investments in 46 companies, primarily first lien term loans, and maintaining strong credit quality with 90.6% rated 'Green' Quarterly Investment Activity (in millions) | Activity | Three months ended May 31, 2025 | Three months ended May 31, 2024 | | :--- | :--- | :--- | | New/Existing Investments | $50.1 | $39.3 | | Exits and Repayments | $(64.3) | $(75.7) | | **Net Activity** | **$(14.2)** | **$(36.4)** | Portfolio Composition by Type (May 31, 2025) | Investment Type | % of Total Portfolio | Weighted Avg. Current Yield | | :--- | :--- | :--- | | First lien term loans | 86.9% | 11.4% | | Second lien term loans | 0.7% | 16.8% | | Unsecured term loans | 1.7% | 10.6% | | Structured finance securities | 2.8% | 15.6% | | Equity interests | 7.9% | - | | **Total** | **100.0%** | **10.7%** | Credit Quality (CMR) Distribution (May 31, 2025) | Color Score | % of Total Portfolio (Fair Value) | | :--- | :--- | | Green (Performing) | 90.6% | | Yellow (Underperforming) | 0.1% | | Red (Default/Loss Expected) | 0.2% | | N/A (Equity/CLO) | 9.1% | [Results of Operations](index=134&type=section&id=Results%20of%20Operations) For Q1 FY2026, total investment income decreased by 16.4% YoY to $32.3 million, while total operating expenses fell 8.9% to $22.2 million, resulting in net investment income of $10.1 million and a net realized gain of $2.9 million Investment Income Comparison (in thousands) | Income Source | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Interest from investments | $28,004 | $34,306 | | Interest from cash | $2,027 | $625 | | Management fee income | $705 | $804 | | Dividend Income | $999 | $1,547 | | Other income | $583 | $1,396 | | **Total Investment Income** | **$32,318** | **$38,678** | Operating Expenses Comparison (in thousands) | Expense Source | Q1 FY2026 | Q1 FY2025 | | :--- | :--- | :--- | | Interest and debt financing | $12,452 | $12,962 | | Base management fees | $4,333 | $4,983 | | Incentive management fees | $2,537 | $3,585 | | Other operating expenses | $2,850 | $2,875 | | **Total Operating Expenses** | **$22,177** | **$24,343** | - The decrease in interest income was due to an **11.6% decrease** in the size of the investment portfolio and a reduction in the weighted average current yield from **11.5% to 10.6%**, primarily due to lower SOFR rates[454](index=454&type=chunk) - The company recognized a net realized gain of **$2.9 million**, primarily from the sale of equity in Identity Automation Systems[470](index=470&type=chunk)[472](index=472&type=chunk)[473](index=473&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=139&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company maintains a diverse liquidity profile with $131.6 million in cash, available credit facilities, and SBA debentures, reporting an asset coverage ratio of 163.8% and unfunded commitments totaling $136.4 million - The company's asset coverage ratio was **163.8%** as of May 31, 2025, exceeding the regulatory minimum of **150%**[490](index=490&type=chunk)[564](index=564&type=chunk) Contractual Obligations as of May 31, 2025 (in thousands) | Obligation | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Encina Credit Facility | $32,500 | $32,500 | $0 | $0 | $0 | | Live Oak Credit Facility | $37,500 | $0 | $37,500 | $0 | $0 | | SBA debentures | $170,000 | $0 | $0 | $20,000 | $150,000 | | Unsecured Notes | $551,375 | $204,000 | $347,375 | $0 | $0 | | **Total** | **$791,375** | **$236,500** | **$384,875** | **$20,000** | **$150,000** | - As of May 31, 2025, the company had unfunded commitments of **$136.4 million**, with **$77.7 million** at the company's discretion and **$58.6 million** at the portfolio company's discretion upon meeting certain covenants[568](index=568&type=chunk)[569](index=569&type=chunk)[570](index=570&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=160&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with approximately 95.1% of debt investments and credit facilities bearing floating rates, where a hypothetical 100 basis point increase would positively impact net interest income - As of May 31, 2025, approximately **95.1%** of the company's debt investments bear interest at floating rates, while **4.9%** are at fixed rates, and the Encina and Live Oak credit facilities are also floating rate[575](index=575&type=chunk) Interest Rate Sensitivity Analysis (Annualized, in thousands) | Basis Point Change | Change in Interest Income | Change in Interest Expense | Change in Net Interest Income (pre-incentive) | Change in Net Interest Income (post-incentive) | | :--- | :--- | :--- | :--- | :--- | | +100 | $8,629 | $(700) | $7,929 | $6,343 | | -100 | $(8,580) | $700 | $(7,880) | $(6,304) | [Controls and Procedures](index=161&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of May 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[581](index=581&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended May 31, 2025[581](index=581&type=chunk) Part II. Other Information [Other Disclosures](index=162&type=section&id=Other%20Disclosures) The company reports no material legal proceedings or changes to risk factors, no defaults on senior securities, and an extended share repurchase plan with no shares repurchased during the quarter - The company is not subject to any material legal proceedings[583](index=583&type=chunk) - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 28, 2025[584](index=584&type=chunk) - The company's share repurchase plan, authorizing up to **1.7 million shares**, was extended to January 15, 2026, with no shares repurchased in the three months ended May 31, 2025, and **1,035,203 shares** purchased to date under the plan[585](index=585&type=chunk)

Core Insights - The article emphasizes the importance of a hybrid investment strategy that combines classic dividend growth stocks with Business Development Companies, REITs, and Closed End Funds to enhance investment income while achieving total returns comparable to traditional index funds [1]. Investment Strategy - The investment approach focuses on high-quality dividend stocks and assets that provide long-term growth potential, which can significantly contribute to income generation [1]. - A balanced portfolio that includes both growth and income-generating assets can lead to efficient investment income while maintaining a total return aligned with the S&P [1].

Earnings Results - Saratoga Investment Corp. is set to release its first-quarter earnings results on July 8, with analysts expecting earnings of 72 cents per share, a decrease from $1.05 per share in the same period last year [1] - The projected quarterly revenue is $32.79 million, down from $38.68 million a year earlier [1] Recent Performance - On May 7, Saratoga Investment reported weaker-than-expected results for the fourth quarter [2] - The company's shares increased by 0.5%, closing at $24.80 on the preceding Monday [2] Analyst Ratings - Casey Alexander from Compass Point downgraded the stock from Buy to Neutral, reducing the price target from $25.25 to $24.25 on June 9, 2025 [4] - Bryce Rowe from B. Riley Securities maintained a Neutral rating with a price target of $25 on October 10, 2024 [4]

Core Viewpoint - Saratoga Investment Corp. will report its financial results for the fiscal quarter ended May 31, 2025, on July 8, 2025, with a conference call scheduled for July 9, 2025, to discuss these results [1][2]. Company Overview - Saratoga Investment Corp. is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses [3]. - The company primarily invests in senior and unitranche leveraged loans and mezzanine debt, with a lesser focus on equity, to finance ownership changes, strategic acquisitions, recapitalizations, and growth initiatives [3]. - The objective of Saratoga Investment is to generate attractive risk-adjusted returns through current income and long-term capital appreciation from its debt and equity investments [3]. - The company is regulated as a business development company under the Investment Company Act of 1940 and is externally managed by Saratoga Investment Advisors, LLC, which focuses on credit-driven strategies [3]. - Saratoga Investment Corp. owns two active SBIC-licensed subsidiaries and manages a $550 million collateralized loan obligation (CLO) fund, along with co-managing a joint venture fund that owns a $400 million CLO [3]. - The company holds 52% of the Class F and 100% of the subordinated notes of the CLO, as well as 87.5% of both the unsecured loans and membership interests of the JV and 87.5% of the Class E notes of the JV CLO [3]. - The diverse funding sources and a permanent capital base enable Saratoga Investment to offer a wide range of financing solutions [3].

Core Viewpoint - Saratoga Investment Corp. has declared a base quarterly dividend of $0.75 per share for the second quarter of fiscal 2026, continuing its strong dividend distribution history and providing a 12.5% dividend yield based on its recent stock price of $24.08 per share [1][2]. Dividend Declaration - The declared dividends for the second quarter of fiscal 2026 are as follows: - June 2025: $0.25 per share, record date July 8, 2025, payment date July 24, 2025 - July 2025: $0.25 per share, record date August 6, 2025, payment date August 21, 2025 - August 2025: $0.25 per share, record date September 4, 2025, payment date September 24, 2025 [1]. Historical Dividend Distributions - The total dividend for fiscal year 2026 is projected to be $1.50 per share, with consistent monthly dividends of $0.25 per share since fiscal Q1 2026 [3]. - Historical dividends per share for previous fiscal years include: - Fiscal 2025: $2.96 total, with quarterly distributions of $0.74 - Fiscal 2024: $2.86 total, with quarterly distributions of $0.71 to $0.73 - Fiscal 2023: $2.44 total, with quarterly distributions ranging from $0.53 to $0.69 [3]. Company Overview - Saratoga Investment is a specialty finance company focused on providing customized financing solutions to U.S. middle-market businesses, primarily through senior and unitranche leveraged loans and mezzanine debt [4]. - The company aims to generate attractive risk-adjusted returns through current income and long-term capital appreciation from its investments [4]. - Saratoga Investment is regulated as a business development company and is externally managed by Saratoga Investment Advisors, LLC [4].

Core Viewpoint - Saratoga Investment (SAR) has received an upgrade to a Zacks Rank 2 (Buy), indicating a positive outlook based on rising earnings estimates, which significantly influence stock prices [1][4]. Earnings Estimates and Revisions - The Zacks Consensus Estimate for Saratoga Investment indicates expected earnings of $3.17 per share for the fiscal year ending February 2026, reflecting a year-over-year decline of 16.8% [9]. - Over the past three months, the Zacks Consensus Estimate for Saratoga Investment has increased by 0.8%, suggesting a positive trend in earnings estimates [9]. Zacks Rating System - The Zacks rating system is based solely on a company's changing earnings picture, making it a valuable tool for investors to gauge stock performance [2][3]. - The system classifies stocks into five groups, with Zacks Rank 1 (Strong Buy) stocks historically generating an average annual return of +25% since 1988 [8]. - Saratoga Investment's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [10][11].

Core Insights - The Zacks Rank system emphasizes earnings estimates and revisions to identify winning stocks [1] - Value investing remains a preferred strategy for finding strong stocks across various market conditions [2] - The Style Scores system, particularly the "Value" category, helps investors identify stocks with strong value characteristics [3] Company Analysis: Saratoga Investment Corp (SAR) - Saratoga Investment Corp (SAR) holds a Zacks Rank of 2 (Buy) and a Value grade of A, indicating strong potential [4] - The stock's current P/E ratio is 7.44, significantly lower than the industry average of 9.03, suggesting it may be undervalued [4] - SAR's Forward P/E has fluctuated between 5.96 and 8.79 over the past year, with a median of 7.45, indicating stable valuation metrics [4] - The P/S ratio for SAR is 2.46, compared to the industry's average P/S of 3.41, further supporting the notion of undervaluation [5] - These metrics contribute to SAR's strong Value grade, highlighting its potential as an attractive investment opportunity [6]

Core Insights - The article emphasizes the importance of a hybrid investment strategy that combines classic dividend growth stocks with Business Development Companies, REITs, and Closed End Funds to enhance investment income while achieving total returns comparable to traditional index funds [1]. Investment Strategy - The company advocates for a balanced approach to investing, focusing on both growth and income to optimize returns [1]. - The strategy aims to create a robust portfolio that not only generates income but also captures total returns on par with the S&P 500 [1].

Company Performance - Saratoga Investment reported quarterly earnings of $0.56 per share, missing the Zacks Consensus Estimate of $0.77 per share, and down from $0.94 per share a year ago, representing an earnings surprise of -27.27% [1] - The company posted revenues of $31.3 million for the quarter ended February 2025, missing the Zacks Consensus Estimate by 7.29%, and down from $37.23 million year-over-year [2] - Over the last four quarters, Saratoga Investment has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [2] Market Performance - Saratoga Investment shares have increased by approximately 3.9% since the beginning of the year, contrasting with the S&P 500's decline of -4.7% [3] - The current consensus EPS estimate for the upcoming quarter is $0.79 on revenues of $33.7 million, and for the current fiscal year, it is $3.15 on revenues of $137.08 million [7] Industry Outlook - The Financial - SBIC & Commercial Industry, to which Saratoga Investment belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact the stock's performance [5][6]

Assets and Investment Performance - Assets Under Management (AUM) as of February 28, 2025, was $978.1 million, a decrease of 14.1% from $1.139 billion as of February 29, 2024, but an increase of 1.9% from $960.1 million as of the last quarter[6]. - Total investment income for the fiscal year 2025 was $148.9 million, an increase of $5.2 million or 3.6% from the previous year, while Q4 investment income was $31.3 million, a decrease of 15.9% year-over-year[6]. - The company originated $41.8 million in one new portfolio company and six follow-ons during Q4, with total originations for the fiscal year at $168.1 million[5]. - The fair value of Saratoga Investment's portfolio was $978.1 million, excluding $204.7 million in cash and cash equivalents[8]. - Cost of investments made during the year ended February 28, 2025, was $168.1 million, including 35 follow-ons and three new portfolio company investments[8]. - Principal repayments during the year ended February 28, 2025, were $312.1 million, including four equity realizations and nine full repayments[8]. - The overall portfolio composition consisted of 88.7% first lien term loans and 7.4% common equity[8]. - The weighted average current yield on the portfolio was 10.8%, with 11.3% on first lien term loans[8]. - Interest income from non-control/non-affiliate investments increased to $119,478,418 in 2025 from $113,521,652 in 2024, an increase of approximately 5.2%[30]. Net Asset Value and Dividends - Net Asset Value (NAV) increased to $392.7 million, up $22.5 million or 6.1% from the previous year, with NAV per share at $25.86[3][5]. - As of February 28, 2025, NAV was $392.7 million, an increase of $22.5 million from $370.2 million as of February 29, 2024[8]. - NAV per share decreased to $25.86 as of February 28, 2025, from $27.12 as of February 29, 2024[8]. - The company declared dividends of $3.31 per share for the fiscal year, a 15.7% increase from $2.86 per share in fiscal 2024, including a special dividend of $0.35 per share[3][5]. - The Board of Directors declared a base quarterly dividend of $0.74 per share for the fiscal quarter ended February 28, 2025[14]. - The company plans to transition to a monthly dividend structure, increasing the quarterly base dividend to $0.75 per share for the first quarter of fiscal 2026, implying a 12.1% dividend yield based on the stock price of $24.86[5]. Financial Performance and Ratios - Net Investment Income (NII) per share for the fiscal year was $3.81, down from $4.10 the previous year, with adjusted NII for Q4 at $0.56 per share, reflecting a decrease of 37.2% year-over-year[3][6]. - The company reported a return on equity (ROE) of 7.5% for the fiscal year, up from 2.5% the previous year[3][5]. - Return on equity (ROE) for the last twelve months was 7.5%, up from 2.5% for the comparable period last year[8]. - The asset coverage ratio improved slightly from 161.1% in February 2024 to 162.9% in February 2025[28]. - Weighted average basic and diluted earnings per common share for the year ended February 28, 2025, was $2.02, compared to $0.71 in the previous year[31]. Cash and Liabilities - The company has $204.7 million in cash available for investments or debt repayment, down from $250.2 million in the previous quarter[5]. - The company’s cash and cash equivalents increased significantly from $8,692,846 in February 2024 to $148,218,491 in February 2025, an increase of approximately 1,603.0%[26]. - Total liabilities decreased from $820,981,727 in February 2024 to $798,878,389 in February 2025, a reduction of about 2.7%[26]. - As of February 28, 2025, the company had a total of $292.2 million of undrawn credit facility borrowing capacity and cash[13]. Investment Income and Realized Gains - Net investment income for the year ended February 28, 2025, was $53,002,603, compared to $56,874,308 for the previous year, representing a decrease of about 5.0%[30]. - Total investment income increased to $148,855,238 for the year ended February 28, 2025, up from $143,719,906 in the prior year, an increase of approximately 3.0%[30]. - The net investment income yield for the three months ended February 28, 2025, was 8.4%, compared to 14.0% for the same period in 2024[39]. - The company reported a net realized loss from investments of $42,029,324 for the year ended February 28, 2025, compared to a gain of $153,583 in the previous year[30]. - The net realized gain from investments for the three months ended February 28, 2025, was $7,169,655, compared to a minimal gain of $2,327 in the same period of 2024[33]. - The net change in unrealized appreciation (depreciation) on investments for the three months ended February 28, 2025, was a loss of $14,766,637, compared to a loss of $7,164,613 in the prior year[33].