Saratoga Investment Corp

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 Corps' Fiscal First Quarter 2026 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 and 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 2026 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. For everyone new to our story, please note that our fiscal year end is February 28th, so any reference to Q1 results reflects our May 31st quarter end period. 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 a 17.9% increase in adjusted NII per share from the previous quarter, continued growth of NAV, a strong return on equity beating the industry average, two new portfolio company investments, and most importantly, a continued solid performance from the core BDC portfolio in a volatile macro environment. Building on our historical strong dividend distribution history, We announced a base dividend of 25 cents per share per month or 75 cents per share in aggregate for the second quarter of fiscal 2026. Our annualized second quarter dividend of 75 cents per share represents an 11.8% yield based on the stock price of 2544 as of July 7, 2025, offering strong current income from an investment value standpoint. Our Q1 adjusted NII of 66 cents per share continues to reflect the impact of the past 12-month trend of decreasing levels of short-term interest rates and spreads on Saratoga Investments' largely floating rate assets and the continued effect of the recent repayments. This has resulted in $224 million of cash as of quarter end available to be deployed accretively in investments or to repay existing debt. During the quarter, we continued to see a slower level of deal volume and M&A activity in the lower middle market following the recent tariff developments and a slowdown in new debt issuances. Despite these macro factors, our portfolio had multiple debt repayments and an equity realization in Q1, in addition to healthy new originations generating $2.9 million of realized gains and $50.1 million invested in two new portfolio companies. six follow-ons and new investments in multiple BB CLO debt securities. 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, while we 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 and resilience of our $968.3 million portfolio in the current environment, with all four challenge portfolio company situations resolved. Our current core non-CLO portfolio was marked up by $2.6 million this quarter, and the CLO and JV were marked down by $0.2 million. We also had $0.6 million net realized appreciation on an equity realization and numerous debt repayments that generated $2.2 million of life-to-date realized gains, further net realized gains of $0.7 million from escrow payments on the Netreo and Hematera investments, and $0.2 million of net appreciation in our new BBB investments, resulting in the fair value of the portfolio increasing by $3.8 million during the quarter. As of quarter end, our total portfolio fair value was 2.1% below cost, while our core non-CLO portfolio was 1.7% 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. During the first quarter, our net interest margin expanded meaningfully from $13.7 million last quarter to $15.6 million, driven by a $1.4 million increase in non-CLO interest income as the full benefit of Q4 originations was realized and repayments largely occurred late in Q1. Average yields were relatively unchanged. This was further supported by a $0.5 million decrease in interest expense, reflecting the full quarter benefit of repaying $44 million in SBIC II debentures at year end and the partial period impact of retiring the $20 million, 8.75% baby bond this quarter. In addition, the full period impact of the 1.2 million shares issued through the ATM program in Q4 and the partial impact of the additional 0.2 million shares issued in Q1 resulting in a $0.04 per share dilution to NAI per share. Our overall credit quality for this quarter remains steady at 99.7% of credits rated in our highest category, with the two investments remaining a non-accrual status being Zollage and Pepper Palace, both of which have been successfully restructured, representing only 0.3% and 0.6% of fair value and cost, respectively. 0.9% of our investments at quarter end and 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. As we continue to navigate the challenges posed by the current geopolitical landscape and the volatility seen in the broader underwriting and macro environment, we remain confident in our experienced management team robust pipeline, strong leverage structure, and high underwriting standards to continue to steadily increase the size, quality, and investment performance of our portfolio over the long term and deliver exceptional risk-adjusted returns to our shareholders. As always, and particularly in the current uncertain environment, balance sheet strength, liquidity, and NAB preservation remain paramount for us. At quarter end, we maintained a substantial $430 million of investment capacity to support our portfolio companies, with $136 million available through our existing SBIC-3 license, $70 million from our two revolving credit facilities, and $224 million in cash. This level of cash improves our current regulatory leverage of 163.8% to 188.1% net leverage, netting available cash against outstanding debt. Moving on to Saratoga Investment's fiscal 26 first quarter, key performance indicators as compared to the quarters ended May 31st, 2024 and February 28th, 2025. Our quarter end NAV was $396.4 million, up 7.8% from $367.9 million last year, and up 0.9% from $392.7 million last quarter. Our adjusted NII was $10.1 million this quarter, down 29.3 percent from last year and up 26.2 percent from last quarter. Our adjusted NII per share was 66 cents this quarter, down 37.1 percent from $1.05 last year and up 17.9 percent from 56 cents last quarter. Adjusted NII yield was 10.3 percent this quarter, down from 15.5 percent last year and up from 8.4 percent last quarter. Latest 12 months return on equity was 9.3% up from 4.4% last year and up from 7.5% last quarter and above the industry average of 7%. And our NAV per share was 25.52 down from 26.85 last year and down from 25.86 last quarter. Of note, the recently implemented change to monthly dividend distributions resulted in the March and April dividend record dates falling into this first quarter for an additional one-time dividend reducing NIV per share by $0.50. Excluding this one-time occurrence, NIV per share would have risen to $26.02, reflecting a $0.16 or 0.6% increase. While last year saw markdowns to a small number of credits in our core BDC, slide 3 illustrates how our recent strong results have delivered a return on equity of 9.3% for the last 12 months, above the industry average of 7%. Additionally, our long-term average return on equity over the past 11 years of 10.2% is well above the BDC industry average of 6.9%. 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. Of note, the weighted average common shares outstanding in Q1 was 15.3 million, increasing from 14.5 million and 13.7 million shares for the last quarter and last year's first quarter, respectively. Adjusted NII was $10.1 million this quarter, down 29.3% from last year and up 26.2% from last quarter. This quarter's increase in adjusted NII as compared to the prior quarter was primarily due to the non-reoccurrence this quarter of the $2.4 million annual excise tax recognized in the prior quarter. The decrease from the previous year's first quarter was largely due to lower AUM from recent significant repayments and lower base interest rates. The weighted average interest rate on the core BDC portfolio of 11.5% this quarter compares to 12.6% as of the previous year's first quarter and 11.5% as of last quarter. The yield reduction from last year primarily reflects the SOFR base rate decreases over the past year. Total expenses for this first quarter 2026, excluding interest and debt financing expenses, base management fees and incentive fees, and income and excise taxes, decreased $0.1 million to $2.8 million as compared to $2.9 million last year, and increased $1.4 million from $1.4 million last quarter. This represents 0.8% of average total assets on an annualized basis, unchanged from last quarter and down from 1% last 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, despite a slight pullback recently reflecting significant repayments. This quarter saw significant repayments again, offsetting solid originations. This recent AUM decline does not detract from our expectation of long-term AUM growth. The quality of our credits remains strong, with only the 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 long-term 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 now turn the call over to Henry to review our financial results, as well as the composition and performance of our portfolio.