Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for signing by. Welcome to Saratoga Investment Corps' 2024 Fiscal First 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 would like to turn the call over to Saratoga Investment Corps' Chief Financial and Chief Compliance Officer, Mr. Henry Steenkamp, sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's 2024 Fiscal First 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 first quarter 2024 shareholder presentation in the events and presentation 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 Oberbeck, who will be making a few introductory remarks.

Thank you, Henry, and welcome, everyone. Saratoga's 10% and 104% increases in adjusted net investment income per share, as compared to last quarter and last year's first quarter, respectively, outpaced our recent and significant dividend increases and reflects growth in AUM and margin improvement from rising rates on our largely floating rate assets, in contrast to the largely fixed rates paid on our 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. We believe Saratoga continues to be well-positioned for potential future economic opportunities and challenges. Saratoga's credit structure, with largely interest-only, covenant-free, long-duration debt, incorporating maturities primarily two to 10 years out, positions us well, particularly well, for a rising and potentially higher for longer interest rate environment, coupled with market volatility. Most importantly, at the foundation of our performance, is the high quality nature and resilience of our approximately $1.1 billion portfolio, marked down just 0.9% overall. Our core BDC portfolio, excluding our CLO and JV, is up 1.3% versus cost, reflecting the strength of our underwriting and our solid growing portfolio companies and sponsors in well-selected industry segments. This quarter's unrealized depreciation of $16.3 million reflects the interest rate market and economic volatility in the current environment across our diverse assets, including both our core and broadly syndicated loan portfolios, with approximately two-thirds of the markdown in this BSL or broadly syndicated loan space. As an example of the volatility in our markets, the unrealized reported losses in the BSL portfolio would be nearly one-third recovered if that portfolio were marked as of today. Our portfolio strength is further manifested in our many key performance indicators this past quarter, including, first, following sequential quarterly adjusted NII per share increases of 33% in Q3 and 27% in Q4, adjusted NII increased another 10% in Q1, almost doubling from $0.58 to $1.08 per share over the last three quarters. current assets under management grew to approximately $1.1 billion. Third, dividend increases to 70 cents per share, up 32% from 53 cents per share in Q1 last year, up 1.4% from 69 cents per share last quarter, and over-earned by 54% as compared to this quarter's $1.08 per share adjusted NII. And fourth, $77.5 million in long-term fixed-rate callable capital recently raised in volatile markets to support record growth while maintaining our BBB Plus investment-grade rating. While being increasingly discerning in terms of new commitments in the current environment, this quarter demonstrates a robust pipeline. We originated seven new portfolio company investments in this fiscal quarter and 20 follow-on investments in existing portfolio companies we know well, with strong business models and balance sheets. Originations this quarter totaled $140 million, with $11 million of repayments and amortization. Our credit quality for this quarter remained high at 96.5% of credits rated in our highest category, with still only one credit on non-accrual. With 85% of our investments at quarter end in first lien debt and generally supported by strong enterprise values and balance sheets, in industries that have historically performed well in stress situations, we believe our portfolio and leverage is well-structured for future economic conditions and uncertainty. Verifoga's annualized first quarter dividend of 70 cents per share and adjusted net investment income of $1.08 per share imply a 10.2% dividend yield and a 15.7% earnings yield based on its recent stock price of $27.43 per share on July 7, 2023. The over-earning of the dividend by 38 cents this quarter, or $1.52 annualized per share, increases NAV, supports the increased dividend level and growth, and provides a cushion against adverse events. To summarize the past quarter on slide two, First, we continue to strengthen our financial foundation as indicated by our strong Q1 portfolio performance and credit quality, both this quarter and life to date since Saratoga took over the management of the BDC. Second, our assets under management increased to approximately $1.1 billion this quarter, a record level. Third, in volatile economic conditions such as we are currently experiencing, balance sheet strength, liquidity, and NAV preservation remain paramount for us. Our capital structure at year end was strong. 337.5 million of mark-to-market equity supporting $571 million of long-term covenant-free non-SBIC debt, $202 million of long-term covenant-free SBIC debentures, and $35 million of long-term revolving borrowings. Our total committed undrawn lending and discretionary funding facilities outstanding to existing portfolio companies are $143 million with 84 million committed and 59 million discretionary. Our debt maturity schedule ranges primarily from two to 10 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. And at quarter end, We had $231 million of investment capacity available to support our portfolio companies, with $148 million available through our newly approved SBIC III Fund, $30 million from our expanded revolving facility, and $53 million in cash. Finally, based on our overall performance and liquidity, the Board of Directors most recently declared quarterly dividend of 70 cents per share, which was paid on June 29th, 2023, was our largest quarterly dividend ever. Saratoga Investments' first quarter demonstrated strong performance in our key performance indicator as compared to the quarters ended May 31st, 2022 and February 28th, 2023. Our adjusted NII is $12.8 million this quarter, up 101% from last year and up 11% from last quarter. Our adjusted NII per share is $1.08 this quarter up 104% from 53 cents last year, and up 10% from 98 cents last quarter. Latest 12 months return on equity is 7.2%, up from 6.9% last year, and unchanged from 7.2% last quarter, and beating the industry average of 1.5%. And our NIA per share is 28.48%. down 0.7% from 2869 last year and down 2.4% from 2918 last quarter and substantially ahead of the latest 12 months industry average of a negative 7.3%. 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 to review our financial results, as well as the composition and performance of our portfolio.