Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's 2023 Fiscal Year End and Fourth Quarter Financial Results Conference Call. Please note that today's call is being recorded. During today's presentation, all parties will be in a listen-only mode. Following management's prepared remarks, we will open the line for questions. At this time, I'd like to turn the call over to Saratoga Investment Corp's Chief Financial and Compliance Officer, Mr. Henry Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's 2023 fiscal year-end and fourth quarter earnings conference call. Today's conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required to do so by law. Today we will be referencing a presentation during our call. You can find our fiscal year end and fourth quarter 2023 shareholder presentation in the events and presentations section of our investor relations website. A link to our IR page is in the earnings press release distributed last night. A replay of this conference call will also be available. Please refer to our earnings press release for details. I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Overbeck, who will be making a few introductory remarks.

Thank you, Henry, and welcome, everyone. Saratoga's 27% and 85% increases in adjusted net investment income per share, as compared to last year and last year's fourth quarter, respectively, outpaced our recent and significant dividend increases and reflects the positive effects of rising rates on the 99% of our credit assets that are floating rates, which are 89% of total assets under management, the balance being equity, in contrast to the largely fixed interest rates paid on financing liabilities. Higher and rising interest rates and a general contraction of available credit are producing higher margins on our portfolio, and importantly, an abundant flow of attractive investment opportunities from high-quality sponsors at increasingly improving pricing, terms, and absolute rates. Saratoga's credit structure, with largely interest-only, covenant-free, long-duration debt, incorporating maturities two to 10 years out, positions us particularly well for a rising and potentially higher-for-longer interest rate environment. Most importantly, at the foundation of our performance is the high-quality nature and resilience of our portfolio, reflected in an NAV per share decline in this challenging environment of just 0.5% since last year, demonstrating the strength of our underwriting in solid, growing portfolio companies and sponsors and in well-selected industry segments. This portfolio resilience is evidenced by NAV per share increasing 3.3% from Q3 to $29.18. These positive effects are further manifested in our many record key performance indicators this past year and continuing since year end, including, first, sequential quarterly adjusted NII per share increases of 33% in Q3, up from $0.58 to $0.77 per share, and 27% in Q4, up from $0.77 to $0.98 per share. Current assets under management growing to over $1 billion. Third, dividend increases to 69 cents per share, up 30% from 53% in Q4 last year, and over-earned by 42% as compared to this quarter's 98 cents per share adjusted NII. Fourth, $301 million in long-term fixed-rate callable capital recently raised in six offerings in volatile markets to support record growth while maintaining our BBB Plus investment grade rating. And fifth, receipt of our third SBIC license providing $175 million of available debt capacity to further support our small business portfolio consistent with the SBA's mission. Our existing portfolio companies are generally performing well with our overall fair value 1% above cost. We continue to be highly discerning in terms of new commitments in the current environment, something we focused on extensively throughout the quarter. Our pipeline remains robust with many actionable opportunities. And while our AUM decreased slightly this quarter to $973 million since quarter end, we have closed numerous investments, totaling approximately 119 million, including five new portfolio companies and 17 follow-on ones in existing portfolio companies with strong business models and balance sheets we know well. And with 82% of our investments at quarter end in first lien and generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stress situations. We believe our portfolio is well structured from future economic conditions and uncertainty. Saratoga's annualized fourth quarter dividend of 69 cents per share and adjusted net investment income of 98 cents per share imply an 11.3 percent dividend yield and 16.1 percent earnings yield based on its recent stock price of 24.38 per share on May 1, 2023. The over-earning of the dividend by 29 cents this quarter, or $1.16 annualized per share, increases NAV, supports the increased dividend level, and also provides a cushion against adverse events. To briefly recap the past quarter on slide two. First, we continue to strengthen our financial foundation in Q4 by maintaining a high level of investment credit quality with 96% of our loan investments retaining our highest credit rating at quarter end and with only one investment on non-accrual. Generating a return on equity of 7.2% on a trailing 12 month basis versus the industry average of 0.6%, recognizing $10.5 million in net unrealized appreciation, with the core BDC portfolio appreciating by 3.1 million, and the remaining 7.4 million primarily reflecting broadly syndicated loan market volatility in the CLO and JV, and registering a gross unlevered IRR of 11.6% on our total unrealized portfolio, and a gross unlevered IRR of 15.7% on total realizations of $908 million. Second, our assets under management increased to $973 million this quarter, a 19% increase from $818 million last year, and a 1% decrease from $982 million as of last quarter. Subsequent to year end, we've added net originations of $109 million, bringing total AUM to close to $1.1 billion. In volatile economic conditions such as we are currently experiencing, balance sheet strength, liquidity, and NAB preservation remain paramount for us. Our capital structure at year end was strong. $347 million of mark-to-market equity supporting $494 million of long-term covenant-free non-SBIC debt, $202 million of long-term covenant-free SBIC debentures, and $32.5 million of long-term revolving borrowings. Our total committed undrawn lending and discretionary funding facilities outstanding to existing portfolio companies are $109 million, with $49 million committed and $60 million discretionary. Our debt maturity schedule ranges from two to ten years out, providing a solid credit structure at a fixed cost and with favorable terms, positioning us well for both a rising rate environment or should overall economic challenges arise. At February 28, 2023, we had $277 million of investment capacity available to support our portfolio companies, with $148 million available to our newly approved SBIC III fund, $32.5 million in our expanded revolving credit facility, and $96 million in cash. And further expanding our liquidity base, subsequent to quarter end, We issued $20 million of new private baby bonds and a new $57.5 million public baby bond trading under the ticker SAZ. Finally, based on our overall performance and liquidity, the Board of Directors declared a quarterly dividend of 69 cents per share for the quarter ended February 28th, 2023, an increase of one cent or 1.5% from last quarter, and our largest quarterly dividend ever, which was paid on March 30th, 2023. Saratoga Investments' fourth quarter demonstrated strong performance within our key performance indicators as compared to the quarters ended February 28, 2022, and November 30, 2022. Our adjusted NII is $11.6 million this quarter, up 82% from last year and up 27% from last quarter. Our adjusted NII per share is $0.98 this quarter, up 85% from $0.53 last year, and up 27% from $0.77 last quarter. Latest 12 months return on equity is 7.2%, down from 13.9% last year, and up from 4% last quarter. And our NAV per share is $29.18, down 0.5% from $29.33 last year, and up 3.3% from $28.25 last quarter. Comparing fiscal 2023 and 2022, adjusted NII is up 33 percent from $25.7 million to $34.1 million, and adjusted NII per share is up 27 percent from $2.24 to $2.85. Henry will provide more detail later. As you can see on slide three, Our assets under management have steadily and consistently risen since we took over the BDC almost 13 years ago, and the quality of our credits remains high, with only one credit on non-accrual, the same as last quarter. Our management team is working diligently to continue this positive trend as we deploy our available capital into our growing pipeline, while at the same time being appropriately cautious in this volatile and evolving credit environment. With that, I would like to now turn the call back over to Henry review our financial results, as well as the composition and performance of our portfolio.