Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's 2024 Fiscal Second 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 your questions. At this time, I would like to turn the call over to Saratoga Investment Corp's Chief Financial and Chief Compliance Officer, Mr. Henry Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corps' 2024 Fiscal Second 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 second 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 adjusted net investment income per share increased 86% as compared to last year and remained unchanged as compared to last quarter. This performance outpaced our recent and significant dividend increases and reflected growth in AUM and margin improvement from rising rates on our largely floating rate assets 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. We believe Saratoga continues to be well positioned potential future economic opportunities and challenges saratoga's credit structure with largely interest-only covenant-free long-duration debt incorporating maturities primarily two to ten years out positions us particularly well for the 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, which has been marked down 1.4% overall versus cost in this challenging environment. Our core BDC portfolio, excluding our CLO and JV, is up 0.2% versus cost, reflecting the strength of our underwriting in our solid growing portfolio of companies and sponsors in well-selected industry segments. This quarter's unrealized depreciation of $5.7 million reflects $15.4 million net unrealized depreciation related to our Pepper Palace investment, significantly offset by a broad appreciation across the rest of our core and broadly syndicated portfolios. Consistent with Q2 and since quarter end, we continue to see improvements in pricing in the broadly syndicated loan market that would increase that portfolio fair value if marked as of today. Importantly, we raised $34 million of equity since last quarter end, increasing our NAV from $338 million as of May 31, 2023 to approximately $372 million on a pro forma basis as of today, using our August 31, 2023 NAV as a basis. This equity provides additional balance sheet strength and reduces our regulatory leverage and supports our strong originations. Our portfolio strength is further manifested in our many key performance indicators this past quarter outlined on slide two, including, first, following sequential quarterly adjusted NII per share increases of 33% in Q3, 27% in Q4, and 10% in Q1, adjusted NII remained unchanged from Q1 at $1.08 per share, including a $0.03 dilution from the increased share count resulting from our ATM equity issuances. These earnings reflects 86% increase from 58 cents last year. Second, current assets under management grew to approximately $1.1 billion, a record level. And third, our dividend increased to 71 cents per share, our largest dividend yet, up 31% from 54 cents per share in Q2 last year, up 1.4% from 70 cents per share last quarter. and over-earned by 52% as compared to this quarter's $1.08 per share adjusted NII. We continue our prudence and discernment in terms of new commitments in the current environment. Our originations this quarter demonstrate that, despite an overall robust pipeline, there are periods like the current one where many of the investments we review do not meet our high-quality credit standards. We originated one new portfolio company investment this fiscal quarter It had 17 smaller follow-on investments in existing portfolio companies we know well with strong business models and balance sheets. Urgent Nations this quarter totaled $28 million with $6 million of repayments and amortization. Our credit quality for this quarter remained high at 98.2% of credits rated in our highest credit category, adding one additional credit to non-accrual with two now on non-accrual in total. 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 challenging economic conditions and uncertainty. Saratoga's annualized second quarter dividend of 71 cents per share and adjusted net investment income of $1.08 per share imply an 11.7% dividend yield and a 17.8% earnings yield based on its recent stock price of $24.24 on October 6, 2023. The over-earning of the dividend by 37 cents this quarter, or $1.48 annualized per share, increases NAV, supports the increasing dividend level and growth, and provides a cushion against adverse events. 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 quarter end was strong. $362 million of mark-to-market equity, supporting $571 million of long-term covenant-free non-SBIC debt, $189 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 $141 million, with $58 million committed and $83 million discretionary. Our debt maturity schedule ranges primarily from 2 to 10 years, providing a solid credit structure at a fixed cost and with favorable terms, positioning us well for both the current rising rate environment or should overall economic challenges arise. And at quarter end, we had a substantial $239 million of investment capacity available to support our portfolio companies, with $161 million available to our newly approved SBIC III fund, $30 million from our expanded revolving credit facility, and $48 million in cash. Saratoga's investments, Saratoga Investments' second quarter demonstrated strong performance within our key performance indicators, as compared to the quarters ended August 31, 2022 and May 31, 2023. Our adjusted NII is $13.2 million this quarter, up 89% from last year and up 2% from last quarter. Our adjusted NII per share is $1.08 this quarter, up 86% from $0.58 last year and unchanged from $1.08 last quarter. Latest 12 months return on equity is 9.6% up from 4.8% last year and up from 7.2% last quarter, and beating the industry average of 5.1%. Our NAV per share is $28.44, up 0.6% from 28-27 last year and down 0.1% from 28-48 last quarter, and substantially ahead of the latest 12 months industry average that is down 3.5%. and our NAV is up to $372 million from $338 million last quarter, including the $10 million raised in equity since quarter end. 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 13 years ago, and the quality of our credits remains high, with only two credits on non-accrual. 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.