Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corps' 2024 Fiscal Third 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 Third 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 third quarter 2024 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 Oberbeck, who will be making a few introductory remarks.

Thank you, Henry, and welcome, everyone. Saratoga's adjusted net investment income per share increased 31% as compared to last year, yet decreased slightly as compared to last quarter. The sequential quarterly per share decrease equates to the 7 cents dilution from the increased weighted average shares outstanding from our recent ATM equity issuances, with much of that cash yet to be deployed. This quarterly performance significantly exceeded our recently increased dividend by 40%. The level of interest rates stabilized in the recent quarter, resulting in elevated margins in our growing portfolio relative to the past year. In addition, the continued general contraction of available credit for smaller middle market businesses and our ongoing development of sponsor relationships has created an abundant flow of attractive investment opportunities from high quality sponsors at attractive 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, has positioned us well with the increase in interest rates delivering increased margins. Most importantly, at the foundation of our performance is the high quality nature, resilience, and balance of our approximately $1.11 billion portfolio, which has been marked down 3% overall versus cost in this challenging environment. Our core BDC portfolio, excluding our CLO and JB, is down less than 1% versus cost, including markdowns in four specific credits, partially offset by $4.3 million of net realized appreciation in the rest of the core BDC portfolio. This overall portfolio performance reflects the strength of our underwriting and our solid, growing portfolio of companies and sponsors in well-selected industry segments. Our portfolio strength is further manifested in our many key performance indicators this past quarter outlined on slide two, including, first, quarterly adjusted NII increased by 44%, and NII per share increased by 24 cents, or 31%, over the past year. Second, current assets under management grew to approximately $1.11 billion, a record level, and third, Our dividends increased to $0.72 per share, up 6% from $0.68 per share in Q3 last year, and over-earned by 40% as compared to this quarter's $1.01 per share adjusted NII. We continue to approach the market with 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 no new portfolio investments in this fiscal quarter, but had 14 smaller follow-on investments in existing portfolio companies we know well with strong business models and balance sheets. Originations this quarter totaled $36 million, with $2 million of repayments and amortization. Our credit quality for this quarter remained high at 97.1% of credits rated in our highest credit category, despite adding our Zollich investment this quarter as our third investment on non-accrual. With 86% of our investments in quarter end and first lien debt and our overall portfolio generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stressed situations, we believe our portfolio and leverage is well-structured for challenging economic conditions and uncertainty. Saratoga's annualized third quarter dividend of $0.72 per share and adjusted net investment income of $1.01 per share imply an 11% dividend yield and a 15.4% earnings yield based on its recent stock price of $26.16 per share on January 8, 2024. The over-earning of the dividend by $0.29 this quarter, or $1.16 annualized per share, increases NAV, supports the increasing dividend level, and growth and provides a concussion against adverse events. In volatile economic conditions, such as we are currently experiencing, balance sheet strength, liquidity, and NAV preservation remain paramount for us. First, we raised $48 million of equity since the end of Q1, increasing our NAV from $338 million as of May 31, 2023, to approximately $373 million on a pro forma basis including the equity rate at the beginning of December, using our November 30th, 2023 NAV as a basis. This equity provides additional balance sheet strength, reduces our regulatory leverage and supports our strong originations. And second, at quarter end, we had a substantial $222 million of investment capacity available to support our portfolio companies with $145 million available through our newly approved SBIC refund $30 million from our expanded revolving credit facility, and $47 million in cash. Saratoga Investments' third quarter demonstrated solid performance within our key performance indicators as compared to the quarters ended November 30, 2022 and August 31, 2023. Our adjusted NII is $13.1 million this quarter, up 44% from last year and down 1% from last quarter. Our adjusted NII per share is $1.01 this quarter, up 31% from $0.77 last year and down 6% from $1.08 last quarter. Latest 12-month return on equity is 6.6%, up from 4% last year and down from 9.6% last quarter. Our NAV per share is $27.42, down 2.9% from $28.25 last year and down 3.6% from $28.44 last quarter. And our quarter end NAB is up to $360 million from $336 million last year, but down slightly from $362 million last quarter. 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 three 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. While this past quarter and fiscal year have seen some markdowns to a handful of credits in our core BDC portfolio, as well as our CLL and JV investments in the broadly syndicated loan market, slide four demonstrates how our long-term average return on equity over the past 10 years is well above the BDC industry average and has remained consistently strong over the past decade. 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.