Saratoga(SAR) - 2026 Q2 - Quarterly Results

Executive Summary Saratoga Investment Corp. reported increased NAV and ROE, resolved a non-accrual investment, and achieved significant net originations, maintaining strong credit quality Key Highlights Saratoga Investment Corp. reported a 3.6% increase in NAV and 0.4% increase in NAV per share from the previous quarter, achieving a quarterly ROE of 13.8% which surpassed the BDC industry average - NAV increased by 3.6% from the previous quarter, and NAV per share increased by 0.4%[1] - Quarterly Return on Equity (ROE) was 13.8%, outperforming the BDC industry average of 7.3%[1] - Zollege investment returned to accrual status, reducing non-accrual investments to one, representing only 0.2% of the portfolio at fair value[1][2] CEO Commentary The CEO highlighted continued NAV and NAV per share growth, strong ROE, and net originations of $22.4 million, focusing on prudent new commitments and high credit quality - Announced a base dividend of $0.25 per share per month, totaling $0.75 per share for Q3 fiscal 2026, representing a 12.3% yield[3] - Net originations for the quarter were $22.4 million, with $52.2 million in new originations (three follow-ons and new BB/BBB structured credit securities)[2][3] - Overall credit quality remained steady at 99.7% of credits rated in the highest category, with only one investment (Pepper Palace) remaining on non-accrual status, representing 0.2% of fair value[5] - The fair value of the portfolio increased by $3.8 million during the quarter, driven by $3.9 million net appreciation in the core non-CLO portfolio[4] Financial Performance Overview The company reported mixed financial results with sequential AUM and NAV growth, but decreased investment income and NII year-over-year, while maintaining strong ROE Summary Financial Information The company's summary financial information for the fiscal second quarter 2026 shows an increase in NAV and NAV per share quarter-over-quarter, despite a decrease in total investment income and net investment income per share compared to both the previous quarter and the prior year Summary Financial Information (Q2 FY2026 vs. Q1 FY2026 vs. Q2 FY2025) | ($ in thousands, except per share) | August 31, 2025 | May 31, 2025 | August 31, 2024 | | :--------------------------------- | :-------------- | :----------- | :-------------- | | Assets Under Management (AUM) | 995,295 | 968,318 | 1,040,711 | | Net Asset Value (NAV) | 410,500 | 396,369 | 372,054 | | NAV per share | 25.61 | 25.52 | 27.07 | | Total Investment Income | 30,626 | 32,319 | 43,003 | | Net Investment Income (NII) per share | 0.58 | 0.66 | 1.33 | | Adjusted NII per share | 0.58 | 0.66 | 1.33 | | Earnings per share | 0.84 | 0.91 | 0.97 | | Dividends per share (declared) | 0.75 | 0.75 | 0.74 | | Return on Equity – annualized quarter | 13.8% | 14.1% | 14.4% | | Originations | 52,222 | 50,086 | 2,584 | | Repayments | 29,824 | 64,330 | 60,140 | Discussion of Quarterly Financial Results For the quarter ended August 31, 2025, AUM increased sequentially but decreased year-over-year, with total investment income and adjusted NII declining due to non-recurring interest income and lower base rates - AUM as of August 31, 2025, was $995.3 million, a 2.8% increase from the previous quarter ($968.3 million) but a 4.4% decrease from the prior year ($1.041 billion)[6] Total Investment Income Trends | Period | Amount ($ millions) | Change YoY | Change QoQ | | :----- | :------------------ | :--------- | :--------- | | Aug 31, 2025 | 30.6 | -28.8% | -5.2% | | May 31, 2025 | 32.3 | - | - | | Aug 31, 2024 | 43.0 | - | - | - Total investment income decrease was primarily due to non-recurrence of $7.9 million interest income from Knowland investment, base rate decreases, and lower AUM levels[7] Adjusted Net Investment Income (NII) Trends | Period | Amount ($ millions) | Change YoY | Change QoQ | | :----- | :------------------ | :--------- | :--------- | | Aug 31, 2025 | 9.1 | -50.1% | -10.5% | | May 31, 2025 | 10.1 | - | - | | Aug 31, 2024 | 18.2 | - | - | NAV and NAV per Share Trends | Metric | Aug 31, 2025 | May 31, 2025 | Aug 31, 2024 | | :----- | :----------- | :----------- | :----------- | | NAV ($ millions) | 410.5 | 396.4 | 372.1 | | NAV per share | 25.61 | 25.52 | 27.07 | Return on Equity (ROE) Trends | Metric | Aug 31, 2025 (LTM) | May 31, 2025 (LTM) | Aug 31, 2024 (LTM) | | :----- | :----------------- | :----------------- | :----------------- | | LTM ROE | 9.1% | 9.3% | 5.8% | | Annualized Qtr ROE | 13.8% | 14.1% | 14.4% | - Weighted average common shares outstanding increased to 15.8 million for the quarter ended August 31, 2025, up from 15.3 million last quarter and 13.7 million last year[8] Adjusted Net Investment Income (Non-GAAP) Reconciliation The company provides adjusted net investment income (NII) as a non-GAAP measure, which for the three and six months ended August 31, 2025, was identical to GAAP NII due to no changes in accrued capital gains incentive fees Adjusted Net Investment Income Reconciliation (Three Months Ended August 31) | Metric | August 31, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Net Investment Income | $9,080,733 | $18,197,398 | | Changes in accrued capital gains incentive fee | - | - | | Adjusted net investment income | $9,080,733 | $18,197,398 | | Net investment income yield | 9.0% | 19.7% | | Adjusted net investment income yield | 9.0% | 19.7% | | Net investment income per share | $0.58 | $1.33 | | Adjusted net investment income per share | $0.58 | $1.33 | Adjusted Net Investment Income Reconciliation (Six Months Ended August 31) | Metric | August 31, 2025 | August 31, 2024 | | :------------------------------------------ | :-------------- | :-------------- | | Net Investment Income | $19,222,765 | $32,532,403 | | Changes in accrued capital gains incentive fee | - | - | | Adjusted net investment income | $19,222,765 | $32,532,403 | | Net investment income yield | 9.6% | 17.6% | | Adjusted net investment income yield | 9.6% | 17.6% | | Net investment income per share | $1.24 | $2.37 | | Adjusted net investment income per share | $1.24 | $2.37 | Portfolio and Investment Activity The company's portfolio fair value increased with new investments and repayments, maintaining a conservative composition primarily in first lien debt, with significant post-quarter origination activity Quarterly Investment Activity During the quarter ended August 31, 2025, Saratoga Investment's portfolio fair value was $995.3 million, with $52.2 million in new investments and $29.8 million in repayments, resulting in a net increase from appreciation - Fair value of the portfolio was $995.3 million, invested in 44 portfolio companies, one CLO, one JV, and twenty BB/BBB CLO debt investments[9] - Cost of investments made during the quarter was $52.2 million, including three follow-on investments[9] - Principal repayments totaled $29.8 million, including two full and four partial repayments[9] - The fair value of the portfolio increased by $3.8 million due to net realized gains and unrealized appreciation, including $3.9 million net appreciation in the core non-CLO portfolio[9] - Since 2010, the company has generated $1.29 billion in repayments and sales, with a gross unlevered IRR of 14.9% on $2.34 billion in total originations[9] Portfolio Composition and Yield The portfolio is predominantly composed of first lien debt (84.3%), reflecting a conservative investment strategy, with an overall weighted average current yield of 10.4% Overall Portfolio Composition | Investment Type | Percentage of Portfolio | | :-------------- | :---------------------- | | First lien term loans | 84.3% | | Second lien term loans | 0.7% | | Unsecured term loans | 1.7% | | Structured finance securities | 5.4% | | Common equity | 7.9% | Weighted Average Current Yield by Investment Type | Investment Type | Weighted Average Current Yield | | :-------------- | :----------------------------- | | Overall Portfolio | 10.4% | | First lien term loans | 11.0% | | Second lien term loans | 16.9% | | Unsecured term loans | 10.5% | | Structured finance securities | 12.2% | | Equity interests | 0.0% | Post-Quarter End Activity Subsequent to quarter-end, Saratoga Investment has closed or is in the process of closing approximately $52.3 million in new originations, with an anticipated net increase in investments of $39.5 million after repayments - Subsequent to quarter-end, approximately $52.3 million in new originations (three new portfolio companies, two follow-ons) have closed or are in closing[10] - Two repayments totaling $12.8 million occurred post-quarter, resulting in a net anticipated increase in investments of approximately $39.5 million[10] Liquidity and Capital Management The company maintains a strong liquidity position with $70.0 million in outstanding credit facility borrowings, $170.0 million in SBA debentures, and $406.8 million in total undrawn borrowing capacity Outstanding Borrowings As of August 31, 2025, Saratoga Investment had $70.0 million in outstanding combined borrowings under its revolving credit facilities, along with $170.0 million in SBA debentures and various listed and unlisted notes payable totaling $509.4 million - Combined outstanding borrowings under senior secured revolving credit facilities totaled $70.0 million[14] - SBA debentures outstanding amounted to $131.0 million for SBIC II and $39.0 million for SBIC III, totaling $170.0 million[14] - The company had $269.4 million of listed baby bonds and $250.0 million of unsecured unlisted institutional bond issuances outstanding[14] Undrawn Borrowing Capacity Saratoga Investment maintained a strong liquidity position with $270.8 million in undrawn credit facility capacity and cash, plus an additional $136.0 million in undrawn SBA debentures, bringing the total undrawn borrowing capacity to $406.8 million - Total undrawn credit facility borrowing capacity and cash and cash equivalents was $270.8 million ($70.0 million from credit facilities + $200.8 million cash)[14] - An additional $136.0 million in undrawn SBA debentures was available from the existing SBIC III license[14] - Total Saratoga Investment undrawn borrowing capacity was $406.8 million[14] - The company had $47.0 million of committed undrawn lending commitments and $49.2 million of discretionary funding commitments[14] Equity Distribution Agreement (ATM) Saratoga Investment has an active At-The-Market (ATM) equity distribution agreement, through which it sold 443,406 shares for gross proceeds of $11.4 million during the quarter ended August 31, 2025 - The company has an active ATM offering for up to $300.0 million of common stock[17] - During the three months ended August 31, 2025, 443,406 shares were sold for gross proceeds of $11.4 million at an average price of $25.86[17] - As of August 31, 2025, a total of 8,532,953 shares have been sold through the ATM for gross proceeds of $225.7 million[17] Shareholder Returns Saratoga Investment declared a $0.75 per share quarterly dividend and maintained an active share repurchase plan, though no shares were bought back this quarter Dividend Declaration and History Saratoga Investment declared a base quarterly dividend of $0.75 per share for the third quarter of fiscal 2026, payable in three monthly installments of $0.25 per share, with DRIP shares issued at a 5% discount - A base quarterly dividend of $0.75 per share was declared for Q3 fiscal 2026, consisting of three monthly $0.25 per share dividends[16] Q3 Fiscal 2026 Monthly Dividends | Month | Amount Per Share | Record Date | Payment Date | | :------------ | :--------------- | :---------- | :----------- | | September 2025 | $0.25 | October 7, 2025 | October 23, 2025 | | October 2025 | $0.25 | November 4, 2025 | November 20, 2025 | | November 2025 | $0.25 | December 2, 2025 | December 18, 2025 | - Shareholders can receive dividends in cash or common stock, with DRIP shares issued at a 5% discount to the average market price[16] Dividend History (Fiscal Years 2023-2026) | Period (Fiscal Year ends Feb) | Base Dividend Per Share | Special Dividend Per Share | Total Dividend Per Share | | :---------------------------- | :---------------------- | :------------------------- | :----------------------- | | Full Year Fiscal 2026 (Projected) | $2.25 | - | $2.25 | | Full Year Fiscal 2025 | $2.96 | $0.35 | $3.31 | | Full Year Fiscal 2024 | $2.86 | - | $2.86 | | Full Year Fiscal 2023 | $2.44 | - | $2.44 | Share Repurchase Plan The company's Share Repurchase Plan, extended to January 15, 2026, allows for repurchases of up to 1.7 million shares, with 1,035,203 shares purchased to date, though none in the current quarter - The Share Repurchase Plan was extended to January 15, 2026, allowing repurchases of up to 1.7 million shares[20] - As of August 31, 2025, 1,035,203 shares have been purchased at an average price of $22.05, totaling approximately $22.8 million[19] - No shares were purchased under the plan during the three and six months ended August 31, 2025[19] Company Information and Disclosures Saratoga Investment Corp. is a BDC providing financing to middle-market businesses, with details on investor communications, forward-looking statement disclaimers, and contact information About Saratoga Investment Corp. Saratoga Investment Corp. is a specialty finance company regulated as a Business Development Company (BDC), providing customized financing solutions to U.S. middle-market businesses, and managing CLO and JV funds - Saratoga Investment Corp. is a specialty finance company regulated as a Business Development Company (BDC)[22] - The company provides customized financing solutions to U.S. middle-market businesses, primarily investing in senior and unitranche leveraged loans and mezzanine debt[22] - It manages a $650 million collateralized loan obligation (CLO) fund and co-manages a joint venture (JV) fund that owns a $400 million CLO fund[22] Conference Call/Webcast Information A live webcast and conference call for the fiscal second quarter 2026 financial results were scheduled for October 8, 2025, at 10:00 a.m. ET, with replay availability on the company's investor relations website - Fiscal Second Quarter 2026 conference call/webcast was scheduled for October 8, 2025, at 10:00 a.m. Eastern Time[23] - Access to the live webcast and presentation was available via the 'Events & Presentations' section of Saratoga Investment Corp.'s investor relations website[23] Forward-Looking Statements The press release contains forward-looking statements subject to various risks and uncertainties, including market changes, economic downturns, and interest rate volatility, with no duty to update except as required by law - Forward-looking statements are based on beliefs, assumptions, and expectations, and are not guarantees of future performance[24] - Risks and uncertainties include changes in markets, financial conditions, economic downturns, interest rate volatility, trade policies, supply chain constraints, labor shortages, and inflation[24] - The company undertakes no duty to update forward-looking statements, and readers are encouraged to review SEC filings for a complete discussion of risks[25] Contacts Contact information for Saratoga Investment Corporation's Chief Financial Officer, Henri Steenkamp, and investor relations representatives from The Equity Group Inc., Lena Cati and Val Ferraro, is provided - Henri Steenkamp, Chief Financial Officer, can be reached at 212-906-7800[26] - Lena Cati and Val Ferraro from The Equity Group Inc. are listed as investor relations contacts[26] Consolidated Financial Statements The consolidated financial statements show an increase in total assets and net assets, despite a decrease in investment income, driven by positive net realized and unrealized gains Consolidated Statements of Assets and Liabilities As of August 31, 2025, total assets increased to $1,206.2 million from $1,191.5 million at February 28, 2025, primarily driven by an increase in total investments at fair value, leading to an increase in total net assets to $410.5 million Key Balance Sheet Figures | Metric | August 31, 2025 ($) | February 28, 2025 ($) | | :-------------------------------- | :------------------ | :-------------------- | | Total investments at fair value | 995,295,010 | 978,077,750 | | Cash and cash equivalents | 105,660,178 | 148,218,491 | | Total assets | 1,206,211,434 | 1,191,543,857 | | Revolving credit facilities | 70,000,000 | 52,500,000 | | SBA debentures payable | 170,000,000 | 170,000,000 | | Total liabilities | 795,711,866 | 798,878,389 | | Total net assets | 410,499,568 | 392,665,468 | | NET ASSET VALUE PER SHARE | 25.61 | 25.86 | | Asset Coverage Ratio | 166.6% | 162.9% | Consolidated Statements of Operations (Three Months) For the three months ended August 31, 2025, total investment income decreased significantly to $30.6 million from $43.0 million in the prior year, but positive net realized and unrealized gains resulted in a net increase in net assets from operations of $13.3 million Key Income Statement Figures (Three Months Ended August 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------------------------ | :------- | :------- | | Total investment income | 30,625,756 | 43,003,375 | | Total operating expenses | 21,545,023 | 24,805,977 | | NET INVESTMENT INCOME | 9,080,733 | 18,197,398 | | Net realized and unrealized gain (loss) on investments | 4,204,402 | (4,879,759) | | NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | 13,285,135 | 13,317,639 | | WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE | 0.84 | 0.97 | | WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 15,775,387 | 13,726,142 | Consolidated Statements of Operations (Six Months) For the six months ended August 31, 2025, total investment income decreased to $62.9 million from $81.7 million in the prior year, but a positive net realized and unrealized gain led to a net increase in net assets from operations of $27.2 million Key Income Statement Figures (Six Months Ended August 31) | Metric | 2025 ($) | 2024 ($) | | :------------------------------------------ | :------- | :------- | | Total investment income | 62,944,373 | 81,681,525 | | Total operating expenses | 43,721,608 | 49,149,122 | | NET INVESTMENT INCOME | 19,222,765 | 32,532,403 | | Net realized and unrealized gain (loss) on investments | 7,994,633 | (12,604,326) | | NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | 27,217,398 | 19,928,077 | | WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE | 1.75 | 1.45 | | WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 15,560,114 | 13,704,759 |