Saratoga(SAR) - 2025 Q2 - Quarterly Results

Financial Highlights Saratoga Investment Corp. reported strong Q2 2025 results, with NII per share at $1.33 and NAV per share at $27.07, supporting a $0.74 dividend Q2 2025 Key Financial Metrics | ($ in thousands, except per share) | August 31, 2024 | May 31, 2024 | August 31, 2023 | | :--- | :--- | :--- | :--- | | Assets Under Management (AUM) | 1,040,711 | 1,095,559 | 1,098,945 | | Net Asset Value (NAV) | 372,054 | 367,855 | 362,079 | | NAV per share | 27.07 | 26.85 | 28.44 | | Total Investment Income | 43,003 | 38,678 | 35,514 | | Net Investment Income (NII) per share | 1.33 | 1.05 | 1.15 | | Adjusted NII per share | 1.33 | 1.05 | 1.08 | | Earnings per share | 0.97 | 0.48 | 0.65 | | Dividends per share (declared) | 0.74 | 0.74 | 0.71 | - The company highlighted a return to increasing NAV per share and continued substantial overearning of its record-level dividend[2] - Key performance indicators for the quarter include a 26.7% sequential increase in adjusted NII per share (to $1.33) and a $0.22 sequential increase in NAV per share (to $27.07)[3] Management Commentary and Business Update Management resolved all non-accrual investments, including Knowland's full repayment, and restructured Zollege and Pepper Palace, while maintaining strong liquidity and high credit quality - Successfully resolved the last of four non-accrual/watchlist investments with the full repayment of the Knowland investment, which included all accrued and reserved interest[2][3] - Completed restructurings for Zollege and Pepper Palace, taking control of both investments and bringing in new CEOs These investments now have a combined fair value of $3.6 million[3] - Credit quality improved, with 99.7% of credits rated in the highest category Only Zollege and Pepper Palace remain on non-accrual status, representing just 0.3% of the portfolio's fair value[5] - The company's cash position grew to $162.0 million due to net repayments of $57.6 million during the quarter[5] Detailed Financial Results (Quarter ended August 31, 2024) Q2 FY2025 total investment income rose 21.1% to $43.0 million, driven by a Knowland interest reserve reversal, with Adjusted NII increasing to $18.2 million and NAV per share reaching $27.07 Financial Performance vs. Prior Periods | Metric | Q2 FY2025 | Q2 FY2024 | Q1 FY2025 | | :--- | :--- | :--- | :--- | | Total Investment Income | $43.0M | $35.5M | $38.7M | | Adjusted NII | $18.2M | $13.2M | $14.3M | | NAV per share | $27.07 | $28.44 | $26.85 | | AUM | $1.041B | $1.099B | $1.096B | - The increase in investment income was primarily due to the reversal of a $7.9 million interest reserve for the Knowland investment, which was fully repaid[6] - Return on Equity (ROE) for the last twelve months was 5.8%, down from 9.6% in the prior year period However, the annualized ROE for the quarter was strong at 14.4%[9] Portfolio and Investment Activity As of August 31, 2024, the investment portfolio's fair value was $1.041 billion, primarily in first lien term loans (85.2%), with minimal Q2 originations but significant post-quarter-end activity Portfolio Composition (as of August 31, 2024) | Investment Type | Percentage of Portfolio | | :--- | :--- | | First lien term loans | 85.2% | | Second lien term loans | 2.5% | | Unsecured term loans | 1.6% | | Structured finance securities | 2.2% | | Common equity | 8.5% | - Investment activity in Q2 was characterized by low originations ($2.6 million) and high repayments ($60.1 million)[12] - The portfolio experienced a net realized loss of $33.5 million, primarily due to a $34.0 million loss on the Pepper Palace restructuring, offset by net unrealized appreciation of $28.7 million[12] - Subsequent to quarter-end, the company originated approximately $56.7 million in new investments and had one repayment of $20.5 million, for a net increase of $36.2 million[15] Liquidity and Capital Resources As of August 31, 2024, Saratoga had $385.5 million in total undrawn borrowing capacity, comprising credit facilities, cash, and SBA debentures, with no ATM share sales during the quarter Available Liquidity (as of August 31, 2024) | Source | Amount (in millions) | | :--- | :--- | | Undrawn Credit Facilities | $87.5 | | Cash and Cash Equivalents | $162.0 | | Undrawn SBA Debentures | $136.0 | | Total Undrawn Capacity | $385.5 | - Outstanding borrowings include $52.5 million on revolving credit facilities, $214.0 million in SBA debentures, and multiple series of listed and unlisted notes[16] - The company has an active ATM offering program for up to $300.0 million of common stock, but no shares were sold during the three and six months ended August 31, 2024[18] - On June 14, 2024, the company amended its Live Oak Credit Facility, increasing the available borrowings from $50.0 million to $75.0 million[20] Shareholder Returns Saratoga continues to provide shareholder returns via dividends, declaring a $0.74 per share quarterly dividend, and an extended share repurchase program, though no shares were repurchased this quarter Dividend The Board declared a quarterly dividend of $0.74 per share for Q2 FY2025, a 4.2% increase year-over-year, continuing a consistent trend of dividend growth - A quarterly dividend of $0.74 per share was declared for Q2 FY2025, paid on September 26, 2024[21] Recent Dividend History (per share) | Declaration Date | Amount (per share) | | :--- | :--- | | Aug 22, 2024 | $0.74 | | May 23, 2024 | $0.74 | | Feb 15, 2024 | $0.73 | | Nov 15, 2023 | $0.72 | | Aug 14, 2023 | $0.71 | Share Repurchase Plan The company's share repurchase plan was extended to January 2025, authorizing up to 1.7 million shares, though no shares were repurchased this quarter, with 1,035,203 shares purchased to date - No shares were repurchased during the three and six months ended August 31, 2024[23] - The share repurchase plan was extended to January 15, 2025, with authorization to repurchase up to 1.7 million shares[23] Financial Statements The consolidated financial statements show total assets of $1.21 billion and net assets of $372.1 million as of August 31, 2024, with $43.0 million in total investment income for the quarter Consolidated Statements of Assets and Liabilities As of August 31, 2024, Saratoga's total assets were $1.21 billion, with total net assets of $372.1 million ($27.07 per share) and an asset coverage ratio of 159.6% Key Balance Sheet Items (as of August 31, 2024) | Item | Amount (in millions) | | :--- | :--- | | Total Investments at Fair Value | $1,040.7 | | Cash and Cash Equivalents | $162.0 | | Total Assets | $1,214.7 | | Total Liabilities | $842.6 | | Total Net Assets | $372.1 | | NAV per Share | $27.07 | Consolidated Statements of Operations For Q2 FY2025, total investment income was $43.0 million, with net investment income at $18.2 million, resulting in a $13.3 million net increase in net assets from operations ($0.97 per share) Statement of Operations (Three Months Ended Aug 31, 2024) | Item | Amount (in millions) | | :--- | :--- | | Total Investment Income | $43.0 | | Total Operating Expenses | $24.8 | | Net Investment Income | $18.2 | | Net Realized/Unrealized Loss | ($4.9) | | Net Increase in Net Assets | $13.3 | | Earnings Per Share | $0.97 | Statement of Operations (Six Months Ended Aug 31, 2024) | Item | Amount (in millions) | | :--- | :--- | | Total Investment Income | $81.7 | | Total Operating Expenses | $49.1 | | Net Investment Income | $32.5 | | Net Realized/Unrealized Loss | ($12.6) | | Net Increase in Net Assets | $19.9 | | Earnings Per Share | $1.45 | Supplemental Non-GAAP Reconciliations The company reconciles Adjusted Net Investment Income, a non-GAAP measure excluding capital gains incentive fees, showing no difference from NII for Q2 FY2025 ($18.2 million, or $1.33 per share) - Adjusted NII is a non-GAAP measure that excludes capital gains incentive fees related to realized and unrealized gains to provide a clearer view of operational earnings[37] NII to Adjusted NII Reconciliation (Three Months Ended) | ($ in thousands, except per share) | August 31, 2024 | August 31, 2023 | | :--- | :--- | :--- | | Net Investment Income | $18,197 | $13,965 | | Capital Gains Incentive Fee Adj. | $0 | ($808) | | Adjusted Net Investment Income | $18,197 | $13,156 | | NII per share | $1.33 | $1.15 | | Adjusted NII per share | $1.33 | $1.08 |