Saratoga Investment Corp

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 Corp's Chief Financial and Chief Compliance Officer, Mr. Henry Steenkamp. Please go ahead, sir.

Thank you. I would like to welcome everyone to Saratoga Investment Corps Fiscal Third 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 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 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 Q3 results reflects our November 30th 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 continued NAV growth from the previous quarter and year, with stable NAV per share, an increase in NAI of 3 cents per share from the previous quarter, a strong 13.5% return on equity beating the industry, net originations of $17.2 million, including three new portfolio companies, and importantly, continued solid performance from the core BDC portfolio in a volatile macro environment. Continuing our historical strong dividend distribution history, we announced a monthly base dividend of 25 cents per share or 75 cents per share in aggregate for the fourth quarter of fiscal 2026, which when annualized represents a 12.9% yield based on the stock price of 2319 as of January 6th, 2026, offering strong current income from an investment value standpoint. Though we did see an increase in adjusted NAI of 3 cents per share from the previous quarter, Our third quarter NII of 61 cents per share continues to reflect the impact of the last 12 months' trend in decreasing levels of short-term interest rates and spreads on Saratoga Investments' largely floating-rate assets, as well as continued high levels of repayments. Strong originations outpaced repayments during the third quarter, which, when coupled with the repayment of a $12 million baby bond, resulted in our cash positions quarter end decreasing to $169.6 million. though we still have significant cash available to be deployed accretively in investments or to repay existing debt. During the quarter, we began to see an increase in M&A activity despite continued competitive market dynamics. Our portfolio again saw multiple debt repayments in Q3. We had strong new originations, resulting in net originations of $17.2 million for the quarter. Specifically, we originated $72.1 million in three new investments, and nine follow-ons, as well as closing on new investments in multiple BBB and BBB structured credit 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, which is continuing post-quarter end with four new portfolio company investments, either closed or in closing in Q4 so far, which further improves our run rate earnings. 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 and resilience of our 1.016 billion portfolio with all four historically challenged portfolio company situations resolved. Our current non-core CLO portfolio was marked up, including realized gains, by $2.9 million this quarter, more than offsetting the CLO and JV markdown of $0.4 million, resulting in the fair value of the portfolio increasing by $2.5 million during the quarter. As of quarter end, our total portfolio fair value was 1.7% above cost, while our core non-CLO portfolio remains 2.1% 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 third quarter, our net interest margin increased from $13.1 million last quarter to $13.5 million, driven primarily by a $.5 million decrease in interest expense reflecting the recent $12 million baby bond repayments. This quarter's interest income remained relatively unchanged, benefiting from first, average non-CLO assets increasing by approximately 0.9% to $962 million, and second, this quarter's repayments resulting in various accelerated OID recognitions. This was largely offset by two factors. First, the absolute yields of the core non-CLO BDC portfolio reducing from 11.3% to 10.6% due to SOFR rates resetting from earlier reductions, combined with the impact of lower yielding new originations during the quarter, and second, the timing of new originations and repayments in Q3. In addition, the full period impact of the 0.5 million shares issued through the ATM program in Q2 and the partial impact of the additional 0.1 million shares issued in Q3 resulted in a one cent per share dilution to NAI per share. Our overall credit quality for this quarter continued to improve to 99.8% of credits rated in our highest category. There's just one investment remaining on non-accrual status, Pepper Palace, which has been successfully restructured, representing only 0.2% of fair value and 0.4% of cost. With 83.9% 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 stressed 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 tensions and volatility in the broader underwriting, M&A and macro environment, we remain confident in our experienced management team, robust pipeline, strong leverage structure, and disciplined underwriting standards to continue steadily increase the size, quality, and investment performance of our portfolio over the long term and deliver compelling risk-adjusted returns to shareholders. 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 $396 million of investment capacity to support our portfolio companies, with $136 million available through our existing SBIC III license, $90 million from our two revolving credit facilities, and $169.6 million in cash. This level of cash improves our current regulatory leverage of 168.4% to 183.7% net leverage, netting available cash against outstanding debt. Moving on to Saratoga Investments' fiscal 2026 third quarter, key performance indicators as compared to the quarters ended November 30, 2024 and August 31, 2025. Our quarter-end NAV was $413 million, up 10.2%, from $375 million last year and up 0.7% from $410.5 million last quarter. Our NAV per share was $25.59, down from $26.95 last year and $25.61 last quarter. Our adjusted NAI was $9.8 million this quarter, down 21.3% from last year and up 7.8% from last quarter. Our adjusted NII per share was 61 cents this quarter, down 32.2% from last year, and up 5.2% from last quarter. Adjusted NII yield was 9.5% this quarter, down from 13.3% last year, and up from 9% last quarter. And latest 12 months return on equity was 9.7%, up from 9.2% last year, and 9.1% last quarter, and above the industry average of 6.6%. While last year saw markdowns to a small number of credits in our score BDC, slide 3 illustrates how our recent results have delivered an ROE of 9.7% for the last 12 months, above the industry average of 6.6%. Additionally, our long-term average return on equity over the past 12 years of 10.1% 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 nine of the past 12 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 15 years ago, despite a slight pullback recently reflecting significant repayments. This quarter saw originations again outpacing repayments, resulting in an increase in AUM as compared to the previous quarter, and we continue to expect long-term AUM growth. The quality of our credits remains strong with just one recently restructured investment remaining on non-accrual, Pepper Palace. 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 and volatile credit and 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.