Saratoga(SAR) - 2026 Q1 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements 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 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 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 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 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 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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][394] Portfolio and Investment Activity 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 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] - The company recognized a net realized gain of $2.9 million, primarily from the sale of equity in Identity Automation Systems[470][472][473] Financial Condition, Liquidity and Capital Resources 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][564] 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][569][570] Quantitative and Qualitative Disclosures About Market Risk 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] 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 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] - No material changes to internal control over financial reporting occurred during the quarter ended May 31, 2025[581] Part II. Other Information Other Disclosures 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] - 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] - 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]