Saratoga Investment Corp (NYSE: SAR) Q1 2026 Earnings | 07/09/2025

On July 9, 2025, Saratoga Investment Corp (Saratoga) held its Fiscal First Quarter 2026 Earnings Conference Call. Key discussions revolved around the company's financial performance, portfolio quality, and strategic approach to a volatile market environment.

Q1 2026 Financial and Operational Highlights:

• Adjusted Net Investment Income (NII): Adjusted NII per share increased by 17.9% from the previous quarter to $0.66, primarily due to the non-recurrence of an annual excise tax and increased non-CLO net interest income. However, it was down 37.1% from the prior year due to lower Assets Under Management (AUM) from repayments and decreasing short-term interest rates.

• Dividend: Saratoga announced a base dividend of $0.25 per share per month, totaling $0.75 per share for Q2 fiscal 2026, representing an 11.8% annualized yield.

• Net Asset Value (NAV): Quarter-end NAV was $396.4 million, up 0.9% from the previous quarter and 7.8% year-over-year. NAV per share was $25.52, a slight decrease from last quarter and last year, primarily attributed to a one-time impact of $0.50 per share due to the transition to monthly dividend distributions. Excluding this, NAV per share would have increased by 0.6% to $26.02.

• Portfolio Activity: The quarter saw $2.9 million in realized gains from an equity realization and multiple debt repayments. Saratoga invested $50.1 million in two new portfolio companies, six follow-on investments, and new investments in multiple BBB CLO debt securities.

• Credit Quality: The portfolio maintained strong credit quality with 99.7% of credits in the highest category. Only two investments (Zollage and Pepper Palace), both successfully restructured, remained on non-accrual status, representing a very low percentage of fair value and cost. Saratoga's non-accrual rate of 0.6% of cost is significantly lower than the industry average of 3.7%.

• Liquidity and Leverage: Saratoga maintains $430 million in investment capacity, including $224 million in cash, providing substantial flexibility for future deployments without external financing. The company's regulatory leverage stood at 163.8% (188.1% net leverage after netting cash).

Investment Strategy and Market Outlook:

• Disciplined Asset Selection: Despite a slower deal volume and M&A activity in the lower middle market, Saratoga remains committed to prudent and discerning investment decisions, prioritizing credit quality over AUM growth.

• Expanded Business Development: The company is significantly expanding its business development efforts, hiring new professionals to enhance origination capabilities and leverage existing relationships with sponsors.

• Lower Middle Market Focus: Saratoga strongly believes the lower end of the middle market offers the best risk-adjusted returns due to robust due diligence, conservative capital structures, stronger legal protections, and greater ability for active portfolio management.

• CLO Debt Securities: A new initiative involves investing in BBB and BBB CLO debt securities, which offer attractive yields, low long-term default rates, and more liquidity compared to other asset classes.

• Portfolio Performance: The core non-CLO portfolio was marked up by $2.6 million, reflecting its strength. The company's long-term return on equity (10.2% over 11 years) consistently outperforms the BDC industry average (6.9%).

• Outlook: While near-term growth may remain challenged by macro factors and unpredictable repayments, Saratoga's strong balance sheet, experienced management, robust pipeline, and disciplined underwriting standards position it well to navigate uncertainties and deliver long-term value to shareholders.