Saratoga Investment Corp. · NYSE:SAR
Saratoga Investment — Q4 2023 Earnings Presentation
32 slides from Saratoga Investment's earnings presentation, May 3, 2023
Slide 1: Fiscal Year-End and Fourth Quarter 2023 Shareholder Presentation
Saratoga Investment Corp. Fiscal Year-End and Fourth Quarter 2023 Shareholder Presentation May 3, 2023
Slide 2: Continued Growth and Outperformance in FY23 and Q4
Continued Growth and Outperformance in FY23 and Q4 Fiscal Year-End and Fourth Quarter 2023 Highlights: • Continued high quality portfolio and strong performance ▫ Investment quality remains strong 95.9% of loan investments with highest internal rating and one non-accrual (1.0% of fair value, 1.6%
Slide 3: Continued Asset Growth and Strong Credit Quality
Continued Asset Growth and Strong Credit Quality Asset Base Expansion Trend Overall Credit Quality Remains Strong $1,200 100% $1,000 $973 $800 $818 $600 80% 98.3% 96.8% 98.6% 99.0% 98.5% $554 94.2% 94.1% 95.9% 93.3% $400 $486 90.5% $402 82.4% $343 $200 $284 $293 $241 $206 $95 $155 $0 60% Investments
Slide 4: Q4 FY23: Strong Financial Foundation and Momentum
Q4 FY23: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Quarter For the quarter ended February 28, November 30, February 28, and as of 2022 2022 2023 ($ in millions except per share) $11,000 $6,000 Net investment income $5,797 $9,877 $9,649 $1,000 $11,000 Adjusted ne
Slide 5: FY23: Strong Financial Foundation and Momentum
FY23: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Year For the year ended and as of Feb 28, 2021 Feb 28, 2022 Feb 28, 2023 ($ in millions except per share) $45,000 Net investment income $23,113 $19,943 $35,201 $30,000 $15,000 $40,000 Adjusted net investment income
Slide 6: Long-Term Accretive NAV and NAV Per Share Growth
Long-Term Accretive NAV and NAV Per Share Growth Net Asset Value and NAV per Share (FY11 to FY23) NAV: 3% increase this quarter. 303% increase since Saratoga took over management. NAV/Share: 3% increase this quarter. 33% increase since FY17 with increases 16 of the last 20 quarters. $30 $355.8 (in m
Slide 7: Quarterly Reconciliation of NII and NAV per Share
Quarterly Reconciliation of NII and NAV per Share • Impacts are shown net of incentive fees Reconciliation of Quarterly Adjusted NII per Share • Zero net accretion/dilution from share repurchase plan and DRIP. $(0.01) $(0.07) $0.25 $(0.01) $0.05 $0.98 $0.77 Adjusted NII per Increase in non-CLO Net D
Slide 8: Annual Reconciliation of NII and NAV per Share
Annual Reconciliation of NII and NAV per Share • Impacts are shown net of incentive fee Reconciliation of Annual Adjusted NII per Share $(0.23) $0.11 $(0.12) $(0.01)) ($0.31) $1.17 $2.85 $2.24 Adjusted NII per Increase in non-CLO Decrease in CLO Net Increase in Increase in Base Increase in Operating
Slide 9: Dry Powder Remains Available
Dry Powder Remains Available Total Remaining Fixed / Borrowing Available Maturity Floating (As of February 28, 2023) Capacity Outstanding Liquidity Period Rate Secured Revolving Credit $65.0 million $32.5 million $32.5 million 3 Years Floating Facility SBIC I $27.0 million $27.0 million $0.0 million
Slide 10: Portfolio Composition and Yield
Portfolio Composition and Yield Portfolio Composition – $972.6m Portfolio Yield – 10.7% (Based on Fair Values (Weighted Average as of February 28, 2023) Current Yield of Existing Portfolio) Structured Finance Structured Second Lien Securities Common Second Lien Finance Common Equity 1.5% 4.3% Equity
Slide 11: Yield of BDC Growing With Rising Rates
Yield of BDC Growing With Rising Rates Weighted Average Current Yields Annual 13.4% 14.0% 11.8% 11.8% 11.1% 10.8% 11.1% 10.7% 9.3% 9.1% 7.7% 10.7% $900 Totals* 7.4% $800 $700 8.9% $600 8.5% 11.6% $ Millions $500 8.5% 11.4% 12.1% $400 14.6% 5.9% 9.5% 7.6% 5.3% 21.2% $300 16.4% 14.0% 6.2% 9.6% 25.2% 9
Slide 12: Accretive Impact of Increased Rates with Lag Effect on Earnings
Accretive Impact of Increased Rates with Lag Effect on Earnings LIBOR Impact on Portfolio Q4 actual earnings 6.00% do not reflect full 4.97% 5.25% quarter impact of 4.78% Q4 average rate 5.00% increase (15bps) 4.81% 4.09% nor quarter-end 4.00% 4.66% closing rate 3.59% difference (another Yield (%) 1
Slide 13: Diversified Across Geography
Diversified Across Geography Investments Diversified Geographically Southwest 12.7% Northeast 13.7% West 17.8% Other 9.5% Northwest Midwest 0.3% 20.6% Southeast 25.4% 13
Slide 14: Diversified Across Industry
Diversified Across Industry Investments across 38 distinct industries Talent Acquisition Software, 2.67% Direct Selling Software, 2.65% Restaurant, 2.55% Specialty Food Retailer , 2.51% Marketing Orchestration Financial Services, 2.70% Software, 1.92% Mentoring Software, 2.20% Mental Healthcare Serv
Slide 15: Net Realized Gains Help Protect Shareholder Capital
Net Realized Gains Help Protect Shareholder Capital Cumulative net realized gains reflect portfolio credit quality Net Realized Gains $ in thousands (all investments) $90,000 $81,491 $80,000 $70,000 $60,000 $50,000 $42,877 $40,000 $30,000 $20,000 $12,368 $13,398 $8,495 $10,000 $3,276 $4,874 $562 $1,
Slide 16: Strong Net Realized Gains Flow from Disciplined Underwriting
Strong Net Realized Gains Flow from Disciplined Underwriting Last 3 Year Average Realized Gains (Loss) as a Percentage of Portfolio at Cost* 10.0% SAR is one of only 14 BDCs to have positive net 5.70% realized gains for the past three years. 2.00% 5.0% 1.90% 1.20% 1.10% 1.04% 0.80% 0.70% 0.60% 0.50%
Slide 17: Exercising Disciplined Investment Judgment While Growing Origination Pace
Exercising Disciplined Investment Judgment While Growing Origination Pace SAR Debt Multiples/Deals Closed (2018-2023) Portfolio leverage with non-recurring revenue underwriting is 4.63x1^ Average Middle Market 9/30/2022 12/31/2022 All Senior 4.01x 4.00x 1st Lien/Mezz 5.40x 4.98x 4.63x1 1st Lien/2nd
Slide 18: Pipeline Growth Interrupted by COVID-19
Pipeline Growth Interrupted by COVID-19 New business opportunities severely impacted by COVID-19 but healthy success in term sheets and deals executed driven by investments in team and strong reputation LTM Q1 Calendar* 2018 ∆ 2019 ∆ 2020 ∆ 2021 ∆ 2022 ∆ 2023 • ~65% of deal flow from private equity
Slide 19: Demonstrated Strong Track Record
Demonstrated Strong Track Record Realized Investments Unrealized Investments 1 (Gross Unlevered IRR%) (Gross Unlevered IRR%) 20% $89.8m $553.6m 16% 18% 17.4% $907.7m 16.8% $240.3m 14% $248.1m 15.7% 16% 12.8% 947.2m $264.2m 12.2% $458.9m 11.6% 14% 12% 12.6% 10.3% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0
Slide 20: SBIC I and II Fully Funded - SBIC III Fully Available
SBIC I and II Fully Funded - SBIC III Fully Available $350 $300 $22.3 $250 Zero debentures undrawn $ Millions $200 $1.9 $4.8 $150 $263.9 $100 $144.2 $175.0m debentures undrawn $50 15% 27% 0% $0 SBIC I SBIC II SBIC III * SBIC I cash only available for debenture repayments and small follow-ons. ** Cas
Slide 21: Long-Term Dividend Growth
Long-Term Dividend Growth • Established dividend policy to pay regular Dividends Per Share* quarterly cash dividends to stockholders pursuant to dividend reinvestment plan (“DRIP”) in 2014 $0.69 $0.68 • Increased dividend by $0.56 $0.56 211% since program $0.55 $0.54 $0.54 $0.53 $0.53 $0.53 $0.53 $0
Slide 22: SAR LTM Total Return In Line With BDC Index
SAR LTM Total Return In Line With BDC Index LTM Total Return (%) (April 2022 to April 2023) SAR -6% v BDC Index -8% 15.00% Hundreds 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 SAR US Equity SPBDC
Slide 23: BDC Total Return (%)
0.00 10.00 20.00 (80.00) (70.00) (60.00) (50.00) (40.00) (30.00) (20.00) (10.00) (50.00) (50.00) 0.00 100.00 150.00 200.00 250.00 0.00 100.00 150.00 (100.00) (100.00) 50.00 50.00 FCRD CGBD FDUS SCM PFX OCSL FDUS PTMN CSWC CGBD OFS GAIN BXSL FDUS SCM MAIN TPVG ARCC AINV PFLT HTGC SUNS PSEC HRZN CION
Slide 24: Differentiated Outperformance
Differentiated Outperformance Interest % on Portfolio LTM NII Yield LTM ROE Regulatory Debt/Equity 14.0% 11% 8% 152.7% 12.1% 11.9% 10.2% 10.0% 7.2% 160% 11.6% 9.9% 12.0% 10% 7% 140% 117.9% 123.5% 10.0% 9% 6% 120% 5% 100% 8.0% 8% 4% 3.1% 80% 6.0% 7% 3% 60% 4.0% 6% 2% 40% 2.0% 5% 1% 0.6% 20% 0.0% 4% 0
Slide 25: Establishing Competitive Edge vs. Other BDCs
Establishing Competitive Edge vs. Other BDCs Outstanding performance characteristics Increased quarterly dividend by 211% since program launched until recent deferral; Latest dividend ► Strong long-term dividend declared of 69c per share for the quarter ended February 28, 2023, up 30% over prior yea
Slide 26: Objectives for the Future
Objectives for the Future • Expand our asset base without sacrificing credit quality while benefitting from scale • Increase our capacity to source, analyze, close and manage our investments by adding to our management team and processes • Utilize benefits of fully deploying diverse and available fi
Slide 27: Questions?
Questions? & K' SARATOGA Pt INVESTMENT CORP.
Slide 28: Appendix
& K' SARATOGA Pt INVESTMENT CORP.
Slide 29: KPIs – Balance Sheet – Q4 FY23
KPIs – Balance Sheet – Q4 FY23 FMV Inve stme nt Po rtfo lio FMV Investment Portfolio Pe rio d (in millio ns) Q4-21 $ 554.3 (in millions) $1,000.0 Q1-22 $ 677.8 $900.0 Q2-22 $ 666.1 Q3-22 $ 661.8 $800.0 Q4-22 $ 817.6 $700.0 Q1-23 $ 894.5 $600.0 Q2-23 $ 954.7 $500.0 Q3-23 $ 982.0 Q4-21 Q1-22 Q2-22 Q3-
Slide 30: KPIs – Income Statement – Q4 FY23
KPIs – Income Statement – Q4 FY23 Ne t Inte re st Net Interest Margin Excluding CLO Margin (in millions) Pe rio d (in millio ns) Q4-21 $ 8.7 $15.5 Q1-22 $ 7.7 $13.5 Q2-22 $ 8.6 Q3-22 $ 8.0 $11.5 Q4-22 $ 9.0 $9.5 Q1-23 $ 9.2 $7.5 Q2-23 $ 11.0 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 Q4-23 Q3-2
Slide 31: KPIs – Income Statement– Q4 FY23 (continued)
KPIs – Income Statement– Q4 FY23 (continued) EPS $2.00 Pe rio d EPS Q4-21 $ 0.83 $1.50 Q1-22 $ 1.88 Q2-22 $ 0.71 $1.00 Q3-22 $ 0.73 Q4-22 $ 0.70 $0.50 Q1-23 $ (0.12) Q2-23 $ 0.08 $- Q3-23 $ 0.51 Q4-23 $ 1.62 $(0.50) Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 Q4-23 LTM ROE Pe rio d LTM ROE Q4-21
Slide 32: KPIs - SAR Net Interest Margin Continues to Grow
KPIs - SAR Net Interest Margin Continues to Grow SAR has quadrupled its Net Interest Margin since taking over management Net Interest Margin $52,456 35% increase in LTM $38,964 427% increase in 11 years $38,127 $33,364 $30,236 $24,185 $19,460 $17,309 $18,414 $14,096 $11,904 $9,956 FY12 FY13 FY14 FY1