Saratoga Investment Corp. · NYSE:SAR
Saratoga Investment — Q3 2024 Earnings Presentation
31 slides from Saratoga Investment's earnings presentation, Jan 10, 2024
Slide 1: Fiscal Third Quarter 2024 Shareholder Presentation
Saratoga Investment Corp. Fiscal Third Quarter 2024 Shareholder Presentation January 10, 2024
Slide 2: Steady Growth and Performance in Q3FY24
Steady Growth and Performance in Q3FY24 Fiscal Third Quarter 2024 Highlights: • Continued high quality portfolio and strong performance • Investment quality remains strong • 97.1% of loan investments with highest internal rating and three non-accruals (2.6% of fair value/ 6.0% of cost) • Return on e
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 $1,114 100% $1,000 $973 $800 $818 $600 80% 98.3% 96.8% 98.6% 99.0% 98.5% $554 94.2% 94.1% 95.9% 97.1% 93.3% $486 90.5% $400 82.4% $402 $343 $284 $293 $200 $241 $206 $155 $95 $0 60
Slide 4: Strong and Consistent Long-Term ROE
Strong and Consistent Long-Term ROE Long-Term Return on Equity 25% 23.6% 20% 13.9% 15% 13.2% 13.4% 10.6% 10.8% 9.3% 9.4% 9.0% 10% 8.5% 8.9% 8.5% 7.5% 7.5% 7.2% 6.6% 6.6% 6.3% 5.0% 5% 0.9% 0.6% 0.4% 0% FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 LTM FY Average 2024 10 Year
Slide 5: Q3 FY24: Strong Financial Foundation and Momentum
Q3 FY24: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Quarter For the quarter ended November 30, November 30, and as of August 31, 2023 2022 2023 ($ in millions except per share) $15,000 $10,000 Net investment income $9,877 $13,965 $14,166 $5,000 $0 $15,000 $10,000
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 (FY 11 to FYQ3 24) NAV: 1% decrease this quarter. 318% increase since Saratoga took over management. NAV/Share: 4% decrease this quarter. 25% increase since FY17 with increases 20 of the last 27 quarters. (in millions
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 $0.01 $0.03 $(0.04) $(0.07) $1.08 $1.01 Adjusted NII per Increase in non-CLO Net Increase in Increase in operating expenses Decrease from net dilution of Ad
Slide 8: Dry Powder Remains Available
Dry Powder Remains Available Total Remaining Fixed / (As of November 30, Borrowing Available Maturity Call Period Floating 2023) Capacity Outstanding Liquidity Period Rate Secured Revolving $65.0 million $35.0 million $30.0 million 2 Years - Floating Credit Facility SBIC I $0.0 million $0.0 million
Slide 9: Portfolio Composition and Yield
Portfolio Composition and Yield Portfolio Composition – $1,114.0m Portfolio Yield – 11.4% (Based on Fair Values (Weighted Average as of November 30, 2023) Current Yield of Total Existing Portfolio) Structured Structured Finance Second Lien Second Lien Finance Common Equity Securities 1.3% Common 6.0
Slide 10: 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% 11.4% 11.3% 11.4% Totals* $1,000 8.0% 6.5% 6.0% 7.4% $800 8.9% $ Millions $600 11.6% 12.6% 12.5% 11.4% 12.7% 12.1% $400 5.9% 14.6% 5.3% 21.2% 9.5% 7.6% 1
Slide 11: Increased Rates have Stabilized
Increased Rates have Stabilized SOFR Impact on Portfolio 5.40% 6.00% 5.37% 5.37% 99% of our interest earning assets are 5.00% 5.39% variable rate. 5.31%5.24% 5.38% 96% of our 4.00% borrowings (all debt except $35.0 Yield (%) 3.00% million credit facility) is fixed rate. All our 6%+ 2.00% fixed rate
Slide 12: Diversified Across Geography
Diversified Across Geography Investments Diversified Geographically Southwest 11.0% Northeast 12.9% West 19.7% Other 6.6% Midwest 22.1% Northwest 0.0% Southeast 27.7% 12
Slide 13: Diversified Across Industry
Diversified Across Industry Investments across 43 distinct industries Restaurant, 2.0% Mental Healthcare Services, 3.4% Mentoring Software, Dental 2.0% Practice Management, 2.8% Direct Selling Architecture & Engineering Software, 2.2% Software, 2.3% Marketing Orchestration Specialty Food Retailer, 0
Slide 14: 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 $81,642 $80,000 $70,000 $60,000 $50,000 $42,877 $40,000 $30,000 $20,000 $13,398 $12,368 $8,495 $10,000 $4,874 $1,271 $3,276 $
Slide 15: 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 Cost* 4.5% 6.0% SAR is one of only 13 BDCs to have positive net realized gains for the past three years. 4.0% 1.8% 1.4% 0.9% 0.9% 0.7% 0.6% 0.5% 0.5% 0.4% 0.3% 2.0% 0.1
Slide 16: 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 4.30x1^ Average Middle Market 6/30/2023 9/30/2023 All Senior 3.81x 3.85x 1st Lien/Mezz 4.61x 5.53x 1st Lien/2nd Lien 5.1
Slide 17: Pipeline Growth Resuming Post-COVID-19
Pipeline Growth Resuming Post-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 2019 ∆ 2020 ∆ 2021 ∆ 2022 ∆ 2023 Calendar* • ~61% of deal flow from private equity sponsors • ~39%
Slide 18: Demonstrated Strong Track Record – 13.8% IRR on $2.1bn
Demonstrated Strong Track Record – 13.8% IRR on $2.1bn Realized Investments ^ Unrealized Investments 1 ^ (Gross Unlevered IRR%) (Gross Unlevered IRR%) $118.7m 20% 19.0% 20% $89.8m $560.9m 17.2% $917.0m 16.8% 15.7% 16% $266.3m $298.1m 15% $273.0m 12.6% 12.2% $1,167.1m 12% 11.5% $477.3m 10.9% 9.3% 10%
Slide 19: SBIC I and II Fully Funded - SBIC III Availability
SBIC I and II Fully Funded - SBIC III Availability $300 $0.5 $250 $200 All debentures repaid $145.0m debentures $ Millions undrawn $150 $0.6 $250.0 $0.2 $100 $136.8 $50 $102.6 12% 22% 9% $0 SBIC I SBIC II SBIC III * SBIC I cash available to the BDC and license surrender process currently being compl
Slide 20: Long-Term Dividend Growth
Long-Term Dividend Growth • Established dividend policy to pay regular quarterly cash Dividends Per Share* dividends to stockholders pursuant to dividend $0.72 reinvestment plan $0.71 $0.70 $0.69 $0.68 (“ IP”) in 2014 • Increased dividend by $0.56 $0.56 $0.55 $0.54 $0.54 $0.53 $0.53 $0.53 $0.53 $0.5
Slide 21: SAR LTM Total Return Lagging BDC Index Creates Opportunity
SAR LTM Total Return Lagging BDC Index Creates Opportunity LTM Total Return (%) (December 2022 to December 2023) SAR +14% v BDC Index +30% 35.00% Hundreds 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23
Slide 22: Long-Term Performance at Top of BDC Industry
0 20 40 60 (60) (40) (20) -100 100 150 200 0 -50 50 100 150 0 50 (50) (100) CSWC FDUS OFS CCAP FDUS GAIN GECC CGBD HTGC OBDC PNNT OCSL HTGC BKCC CSWC BCSF CSWC GLAD BXSL GAIN CGBD TSLX FSK OFS PNNT MAIN ARCC GAIN BCSF TSLX FSK OCSL SAR CION CCAP HRZN HRZN LRFC FSK MAIN SAR MAIN GBDC SCM PNNT OFS HTG
Slide 23: Differentiated Long-Term Performance
Differentiated Long-Term Performance Interest % on Portfolio Regulatory Debt/Equity LTM NII Yield LTM ROE 14.0% 13.2% 16% 10% 180% 14.6% 12.5% 12.7% 15% 8.6% 168.6% 9% 170% 14% 7.5% 12.0% 13% 12.4% 8% 160% 12.0% 6.6% 12% 7% 150% 11% 6% 10.0% 10% 5% 140% 9% 4% 130% 8% 110.6 112.8 3% 120% % 8.0% 7% %
Slide 24: Establishing Competitive Edge vs. Other BDCs
Establishing Competitive Edge vs. Other BDCs Outstanding performance characteristics Increased quarterly dividend by 211% since program launched until Covid deferral; Latest dividend declared of 72c per share for the quarter ended November 30, 2023, up 6% over prior year and ► Strong long-term divid
Slide 25: 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 26: Questions?
Questions? & K' SARATOGA Pt INVESTMENT CORP.
Slide 27: Appendix
& K' SARATOGA Pt INVESTMENT CORP.
Slide 28: KPIs – Balance Sheet – Q3 FY24
KPIs – Balance Sheet – Q3 FY24 FMV Inve stme nt Po rtfo lio Pe rio d (in millio ns) FMV Investment Portfolio Q3-22 $ 661.8 $1,200.0 (in millions) Q4-22 $ 817.6 $1,100.0 Q1-23 $ 894.5 $1,000.0 Q2-23 $ 954.7 $900.0 Q3-23 $ 982.0 $800.0 Q4-23 $ 972.6 $700.0 Q1-24 $ 1,084.1 $600.0 Q2-24 $ 1,098.9 Q3-22
Slide 29: KPIs – Income Statement – Q3 FY24
KPIs – Income Statement – Q3 FY24 Ne t Inte re st Margin Net Interest Margin Excluding CLO Pe rio d (in millio ns) (in millions) Q3-22 $ 8.0 Q4-22 $ 9.0 $20.0 Q1-23 $ 9.2 $18.0 Q2-23 $ 11.0 $16.0 Q3-23 $ 14.5 $14.0 $12.0 Q4-23 $ 15.2 $10.0 Q1-24 $ 17.5 $8.0 Q2-24 $ 19.6 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23
Slide 30: KPIs – Income Statement– Q3 FY24 (continued)
KPIs – Income Statement– Q3 FY24 (continued) Pe rio d EPS Q3-22 $ 0.73 $2.00 EPS Q4-22 $ 0.70 $1.50 Q1-23 $ (0.12) $1.00 Q2-23 $ 0.08 $0.50 Q3-23 $ 0.51 Q4-23 $ 1.62 $- Q1-24 $ (0.02) $(0.50) Q2-24 $ 0.65 $(1.00) Q3-24 $ (0.31) Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 Q4-23 Q1-24 Q2-24 Q3-24 Pe rio d LTM ROE L
Slide 31: KPIs - SAR Net Interest Margin Continues to Grow
KPIs - SAR Net Interest Margin Continues to Grow SAR has increased its Net Interest Margin sixfold since taking over management Net Interest Margin $73,527 57% increase in LTM 639% increase in 12 years $52,456 $38,964 $38,127 $33,364 $30,236 $24,185 $19,460 $17,309 $18,414 $14,096 $11,904 $9,956 FY1