Saratoga Investment Corp

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Saratoga Investment Corporation's fiscal year end and fourth quarter 2025 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 Corporation'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 Corps 2025 Fiscal Full Year 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, full-year, and fourth-quarter 2025 SHELDA 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 Investment Corp. highlights this quarter include net positive originations generated from our pipeline, including one new portfolio company originated in the quarter and two new companies since quarter end, an increase in AUM on a fair value basis following significant repayments, lower statutory and absolute leverage from an increase in NAV, and importantly, the core BDC portfolio demonstrating solid performance in a volatile macro environment. Building on our strong dividend distribution history with a base quarterly dividend of 74 cents per share declared and distributed for the fiscal fourth quarter, we announced a transition to a monthly dividend structure, increasing our quarterly base dividend by one cent per share to 25 cents per share per month, or 75 cents per share in aggregate for the first quarter of fiscal 26. From overall investment value and current yield perspective, our annualized first quarter dividend of 75 cents per share implies a 12.1% dividend yield based on the stock price of 24.86 per share on May 6, 2025. Our Q4 adjusted NII of 56 cents per share further adjusted for a $0.13 per share annual excise tax expense, is $0.69 per share and reflects the impact of the past nine months' trend of decreasing levels of short-term interest rates and spreads on Saratoga's investments' largely floating-rate assets and the full-period impact of the recent outsized repayments. This has resulted in $205 million of cash available at year-end to be deployed accretively in investments or to repay existing debt. During the quarter, we continue to see the early stages of a potential increase in M&A in the lower middle market, reflected in multiple equity realizations in Q4, in addition to significant new originations. The three equity realizations generated $7.2 million of realized gains, while we originated $41.8 million from a combination of one new portfolio company and six follow-ons. Our strong reputation and differentiated market positioning combined with our ongoing development of sponsor relationships, continues to create attractive investment opportunities from high-quality sponsors. These trends have continued since quarter end, with $45.5 million of originations, including two new portfolio companies and six follow-ons, and $24.5 million of partial or full repayments of investments. We continue to remain prudent and discerning in terms of new commitments in the current volatile environment, We believe Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges. At the foundation of our strong operating performance is the high-quality nature, resilience, and balance of our $978 million portfolio in the current environment. Where we have encountered significant challenges in four of our portfolio companies over the past year, we have completed decisive action and resolved all four of these companies' challenges through two sales and two restructurings. Our current core non-CLO portfolio was marked down by $3.4 million this quarter. The CLO and JV were marked down by $2.7 million, and an unrealized depreciation charge of $1.5 million resulted in an overall reduction of $7.6 million in portfolio value. We had three equity realizations generating overall realized gains of $7.2 million. The $1.5 million unrealized depreciation charge resulted from late changes in the pricing of one of the realizations. Our total portfolio fair value is now 2.2% below cost, while our core non-CLO portfolio is 1.6% above cost. The overall financial performance and solid earnings power of our current portfolio reflects strong underwriting in our growing portfolio companies and sponsors in well-selected industry segments. Our overall credit quality for this quarter remains steady at 99.7% of credits rated in our highest category, with two investments remaining on non-accrual status being Zolage and Pepper Palace, both of which have been restructured, representing only 0.3% and 0.5% of fair value and cost, respectively. With 88.7% 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 company leverage is well-structured for future economic conditions and uncertainty. Recognizing the challenges posed by the current tariff discussions and the volatility seen in the broader macro environment, we remain confident in our experienced management team, solid pipeline, strong leverage structure, and high underwriting standards to continue to steadily increase our portfolio size, quality, and investment performance over the long term to deliver exceptional risk-adjusted returns to shareholders. Mike will touch more on the impact of tariffs on our portfolio companies. As always, and particularly in the current uncertain environment, balance sheet strength liquidity, and NAV preservation remain paramount for us. At quarter end, we maintained a substantial $428 million of investment capacity to support our portfolio companies, with $136 million available through our existing SBIC III license, $87.5 million from our two revolving credit facilities, and $205 million in cash. This level of cash improves our current regulatory leverage of 162.9%, to 186.2% net leverage, netting available cash against outstanding debt. Saratoga Investments' fourth quarter of fiscal 2025 key performance indicators as compared to the quarters ended February 29th, 2024 and November 30th, 2024 are as follows. Our quarter end NAV was $329.7 million, up 6.1% from $370.2 million last year, and up 4.7 percent from $374.9 million last quarter. The $17.8 million increase in NAV sequentially resulted from ATM sales of 1.2 million shares at NAV for net proceeds of $32.4 million, partially offset by net realized gains and unrealized depreciation. Our adjusted NII is $8 million this quarter, down 37.2 percent from last year and 35.4 percent from last quarter. And our adjusted NII per share is 56 cents this quarter, down 40.4 percent from 94 cents last year, and down 37.8 percent from 90 cents last quarter, netting the annual exercise tax of $2.4 million, or 13 cents, results in an adjusted NII of 69 cents in Q4. Adjusted NII yield is 8.4 percent this quarter, down from 14 percent last year, and from 13.3% last quarter. Latest 12 months return on equity is 7.5%, up from 2.5% last year, and down from 9.2% last quarter, slightly below the industry average of 8.9%. And our NAV per share is $25.86, down from $27.12 last year, and down from $26.95 last quarter. While these past 12 months have seen markdowns to a small number of credits in our core BDC portfolio, resulting in a latest 12 months return on equity of 7.5%, which is below the industry average of 8.9%, slide three illustrates how our long-term average return on equity over the last 11 years is well above the BDC industry average of 10.3% versus the industry's 7%. Our long-term return on equity has remained strong over the past decade plus, beating the industry eight of the past 11 years and consistently positive every year. 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. Outsized repayments offset healthy originations this year, resulting in our AUM declining, yet a solid Q4 originations quarter put us back on the AUM growth trajectory. One quarter of AUM decline in Q3 does not detract from our expectation of long-term AUM growth. The quality of our credits remains strong, with only two recently restructured Pepper Palace and Zollich credits on non-accrual consistent with last quarter. Our management team is working diligently to continue this positive trend as we deploy our significant levels of available capital into our pipeline, while at the same time being appropriately cautious in this evolving credit and volatile economic environment. With that, I would like to turn the call over to Henry to review our financial results, as well as the composition and performance of our portfolio.