Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's 2025 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'll open the line for questions. At this time, I'd like to turn the call over to Saratoga Investment Corp's Chief Financial Officer and Chief Compliance Officer, Mr. Henry Steenkamp. Sir, please go ahead.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's 2025 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 2025 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 for the quarter increased by 12% as compared to last quarter, as stable interest rates have resulted in elevated recurring net interest margins on our portfolio relative to the past year. This quarter's earnings reflects elevated earnings power and quality versus a year ago, with a 19% increase in recurring net interest margin generated by the 9% increase in average assets under management and the sustained levels of increased interest rates and spreads on Saratoga's investments largely floating rate assets, while costs of long-term balance sheet liabilities are largely fixed. This quarter's net investment income of $1.05 per share significantly exceeded our recently increased $0.74 dividend by 42%. In addition, our ongoing development of sponsor relationships continues to create attractive investment opportunities from high-quality sponsors, despite the constrained general volume of M&A over the last couple of years. We believe Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges. Saratoga's largely fixed-rate, interest-only, covenant-free, long-duration credit structure with maturities primarily two to ten years out positions the company well with the elevated level of interest rates delivering substantially increased margins and industry-leading dividend coverage versus largely fixed credit costs and limits risks from creditors in crisis situations. Most importantly, at the foundation of our elevated level of NII performance, is the high-quality nature, resilience, and balance of our approximately $1.096 billion portfolio. Our core BDC portfolio fair value, excluding our CLO and JV, and our two restructured Pepper Palace and Tholage investments, exceeds its cost by 3.3%. We have taken decisive action with respect to Pepper Palace and Zolage, assuming full control over both investments through consensual restructurings with the prior sponsors and establishing a combined remaining fair value of $4.4 million. The Zolage restructuring was completed during the first quarter, and the Pepper Palace restructuring is imminent. We are actively implementing management changes, capital structure improvements, and business plan adjustments, which have the potential for future increases in recovery value. With these two restructurings substantially completed, we have resolved uncertainties related to two of the three portfolio companies on our watch list. The overall financial performance and strong earnings power of our current remaining portfolio reflects the strength of the underwriting in our solid growing portfolio of companies in well-selected industry segments. 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. During the quarter, we originated no new portfolio company investments while benefiting from 16 smaller follow-on investments in existing portfolio companies we know well with strong business models and balance sheets. With originations this quarter totaling $39 million versus $76 million of repayments and amortization, Our quarter-end cash position has grown to $93.3 million, improving effective leverage from 159.6% regulatory leverage to 171.2% net leverage, netting available cash against outstanding debt. Including the increase in cash since quarter-end through this week, net leverage improves further to 186%. Our credit quality for this quarter remained high at 98.3% of credits rated in our highest category, with three investments currently still in non-accrual, representing 1.6% of fair value. With 86% of our investments at quarter end in 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 first quarter dividend of 74 cents per share and adjusted net investment income of $1.05 per share imply a 13.1% dividend yield and an 18.6% earnings yield based on our recent stock price of $22.59 per share on July 8, 2024. The over-earning of the dividend by 31 cents this quarter or $1.24 annualized per share, increases NAV, supports the increasing dividend level and portfolio growth, as well as providing 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. On March 27, 2024, we entered into a special purpose vehicle and a new three-year financing credit facility with Live Oak Bank which provides for incremental borrowings in an aggregate amount of up to $50 million. We upsized this to $75 million in June and added two new banking relationships. Including this new facility at quarter end, we maintained a substantial $299 million of investment capacity to support our portfolio companies, with $136 million available through our newly approved SBIC III fund, $70 million from our two revolving credit facilities, and $93 million in cash. Saratoga Investments' first quarter demonstrated a solid level of performance with our key performance indicators as compared to the quarters ended May 31, 2023 and February 29, 2024. Our adjusted NII is $14.3 million this quarter, up 12% from last year and last quarter. Our adjusted NII per share is $1.05. this quarter, down 3 percent from $1.08 last year, and up 12 percent from 94 cents last quarter. Adjusted NII yield is 15.5 percent this quarter, up from 15 percent last year, and up from 14 percent last quarter. Latest 12 months return on equity is 4.4 percent, down from 7.2 percent last year, and up from 2.5 percent last quarter. Our NAV per share is $26.85, down 6% from $28.48 last year, and down 1% from $27.12 last quarter. And our quarter end NAV is $368 million, up from $337 million last year, and slightly down from $370 million last quarter. While this past year has seen markdowns to a small number of credits in our core BDC portfolio, Slide three illustrates how our long-term average return on equity over the last 10 years is well above the BDC industry average at 10.5% versus the industry's 6.7%, and has remained consistently strong over the past decade, beating the industry eight of the past 10 years. As you can see on slide four, our assets under management have steadily and consistently risen since we took over the BDC 14 years ago, and the quality of our credits remains solid, with only three credits on non-accrual, unchanged from last quarter. Our management team is working diligently to continue this positive trend as we deploy our available capital into our pipeline, while at the same time being appropriately cautious in this volatile and evolving credit environment. With that, I would like to turn the call back over to Henry to review our financial results, as well as the composition and performance of our portfolio.