Saratoga Investment Corp. · NYSE:SAR
Saratoga Investment — Q3 2023 Earnings Presentation
30 slides from Saratoga Investment's earnings presentation, Jan 11, 2023
Slide 1: Fiscal Third Quarter 2023 Shareholder Presentation
Saratoga Investment Corp. Fiscal Third Quarter 2023 Shareholder Presentation January 11, 2023
Slide 2: Continued Growth and Strong Long-Term Performance
Continued Growth and Strong Long-Term Performance Fiscal Third Quarter 2023 Highlights: • Continued high quality portfolio and strong performance ▫ Investment quality remains strong 96.0% of loan investments with highest internal rating and only one non-accrual (1.0% of fair value, 1.6% of cost) ▫
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 $982 $800 $818 $600 80% 98.3% 96.8% 98.6% 99.0% 98.5% 94.2% 96.0% 94.1% 93.3% $554 90.5% $400 $486 82.4% $402 $343 $200 $284 $293 $241 $206 $95 $155 $0 60% Performing
Slide 4: Q3 FY23: Strong Financial Foundation and Momentum
Q3 FY23: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Quarter For the quarter ended November 30, November 30, and as of August 31, 2022 2021 2022 ($ in millions except per share) $9,000 Net investment income $5,197 $7,698 $9,877 $5,000 Adjusted net investment incom
Slide 5: 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 Q3FY23) NAV: 0.5% decrease this quarter. 290% increase since Saratoga took over management. NAV/Share: Decrease of 0.1% this quarter. 23% increase since FY18 with increases 15 of the last 19 quarters. (in mil
Slide 6: 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) $0.01 $(0.01) ( $0.04 ) $0.24 $0.77 $0.58 Adjusted NII per Increase in non-CLO Net
Slide 7: Dry Powder Remains Available
Dry Powder Remains Available Total Remaining Fixed / Borrowing Available Maturity Floating (As of November 30, 2022) Capacity Outstanding Liquidity Period Rate Secured Revolving Credit $50.0 million $25.0 million $25.0 million 2 Years Floating Facility SBIC I $67.7 million $67.7 million $0.0 million
Slide 8: Portfolio Composition and Yield
Portfolio Composition and Yield Portfolio Composition – $982.0m Portfolio Yield – 10.4% (Based on Fair Values (Weighted Average as of November 30, 2022) Current Yield of Existing Portfolio) Structured Structured Common Finance Second Lien Finance Equity Second Lien Common Securities 7.20% Securities
Slide 9: 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% 10.4% Totals* $900 7.4% $800 $700 8.9% 8.5% $600 $ Millions 8.5% 11.6% $500 11.4% 11.7% $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 10: Accretive Impact of Increased Rates with Lag Effect on Earnings
Accretive Impact of Increased Rates with Lag Effect on Earnings 3-Month LIBOR Impact on Portfolio* Q3 actual earnings 6.00% do not reflect full quarter impact of 4.75% 4.78% Q3 average rate 5.00% increase (50bps) 4.09% nor quarter-end 4.00% closing rate 3.59% difference (another Yield (%) 3.00% 69bp
Slide 11: Diversified Across Geography
Diversified Across Geography Investments Diversified Geographically Southwest 13.4% Northeast 15.0% West 17.3% Other 8.8% Northwest Midwest 0.3% 19.5% Southeast 25.8% 11
Slide 12: Diversified Across Industry
Diversified Across Industry Investments across 39 distinct industries Financial Services, 2.67% Legal Software, 2.11% Direct Selling Software, 2.62% Hospitality/Hotel, 3.86% Investment Fund, 2.73% Restaurant, 2.51% Mentoring Software, 2.18% Payroll Services, 1.58% Talent Acquisition Software, 2.65%
Slide 13: 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 14: 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* 5.4% 6.0% SAR is one of only 11 BDCs to have positive net realized gains for the past three years. 5.0% 3.1% 4.0% 3.0% 2.0% 0.9% 0.4% 2.2% 0.9% 0.2% 0.2% 0.1%
Slide 15: Exercising Disciplined Investment Judgment While Growing Origination Pace
Exercising Disciplined Investment Judgment While Growing Origination Pace SAR Debt Multiples/Deals Closed (2018-2022) Portfolio leverage with non-recurring revenue underwriting is 4.19x1^ Average Middle Market June 30, 2022 September 30, 2022 All Senior 4.03x 4.01x 1st Lien/Mezz 5.61x 5.40x 1st Lien
Slide 16: 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 Calendar* 2018 ∆ 2019 ∆ 2020 ∆ 2021 ∆ 2022 • ~69% of deal flow from private equity sponsors • ~31
Slide 17: Demonstrated Strong Track Record
Demonstrated Strong Track Record Realized Investments Unrealized Investments 1 (Gross Unlevered IRR%) (Gross Unlevered IRR%) 20% $534.3m $89.8m $879.4m 16% 18% 17.2% 17.5% 16.4% $255.3m 14% $262.4m $229.2m 16% $935.5m 14.1% 12.3% 11.9% 14% 12% 11.2% $443.9m 12% 10% 9.1% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0
Slide 18: SBIC I and II Fully Funded - SBIC III Fully Available
SBIC I and II Fully Funded - SBIC III Fully Available $300 Zero debentures undrawn $10.0** $250 Zero debentures undrawn $200 $28.4 * $ Millions $150 $265.1 $100 $156.7 $175.0m debentures undrawn $50 16% 27% 0% $0 SBIC I SBIC II SBIC III * SBIC I cash only available for debenture repayments and small
Slide 19: 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 $0.68 • Increased dividend by $0.56 $0.56 $0.55 $0.54 $0.54 211% since program $0.53 $0.53 $0.53 $0.53 $0.52 $0
Slide 20: SAR LTM Total Return In Line With BDC Index
SAR LTM Total Return In Line With BDC Index LTM Total Return (%) (December 2021 to December 2022) SAR -2% v BDC Index -6% 15.00% Hundreds 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% -30.00% Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 SAR-T
Slide 21: Long-Term Performance at Top of BDC Industry
20 40 60 80 0 (80) (60) (40) (20) (100) -100 50 -50 0 100 150 10 20 0 (80) (70) (60) (50) (40) (30) (20) (10) OCSL FDUS FDUS CGBD CSWC SCM HRZN OFS PSEC FCRD ARCC RWAY GAIN TCPC HTGC PTMN SAR ARCC OFS NMFC NEWT BKCC GLAD MFIC WHF FSK SCM OCSL CGBD SAR TPVG PNNT TSLX PSEC PNNT CION NMFC PFLT PTMN LRF
Slide 22: Solid Long-Term Performance
Solid Long-Term Performance Interest % on Portfolio LTM NII Yield LTM ROE Regulatory Debt/Equity 14.0% 12% 7% 160% 136.60 10.8% 6.0% % 11.7% 11% 6% 140% 12.0% 10.8% 10.4% 9.5% 113.4% 114.5% 10% 9.3% 120% 10.0% 5% 9% 4.0% 100% 8.0% 4% 8% 3.1% 80% 6.0% 3% 7% 60% 4.0% 6% 2% 40% 2.0% 5% 1% 20% 4% 0% 0%
Slide 23: 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 declared of 68c per share for the quarter ended November 30, 2022, up 55% last ► Strong long-term dividend eighteen
Slide 24: 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 25: Questions?
Questions? & K' SARATOGA Pt INVESTMENT CORP.
Slide 26: Appendix
& K' SARATOGA Pt INVESTMENT CORP.
Slide 27: KPIs – Balance Sheet – Q3 FY23
KPIs – Balance Sheet – Q3 FY23 FMV Inve stme nt Po rtfo lio FMV Investment Portfolio Pe rio d (in millio ns) (in millions) Q3-21 $ 546.9 $1,000.0 Q4-21 $ 554.3 $900.0 Q1-22 $ 677.8 Q2-22 $ 666.1 $800.0 Q3-22 $ 661.8 $700.0 Q4-22 $ 817.6 $600.0 Q1-23 $ 894.5 Q2-23 $ 954.7 $500.0 Q3-21 Q4-21 Q1-22 Q2-
Slide 28: KPIs – Income Statement – Q3 FY23
KPIs – Income Statement – Q3 FY23 Ne t Inte re st Margin Net Interest Margin Excluding CLO Pe rio d (in millio ns) (in millions) Q3-21 $ 7.7 $15.0 Q4-21 $ 8.7 Q1-22 $ 7.7 $13.0 Q2-22 $ 8.6 $11.0 Q3-22 $ 8.0 $9.0 Q4-22 $ 9.0 Q1-23 $ 9.2 $7.0 Q2-23 $ 11.0 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-2
Slide 29: KPIs – Income Statement – Q3 FY23 (continued)
KPIs – Income Statement– Q3 FY23 (continued) EPS $2.00 Pe rio d EPS Q3-21 $ 0.57 $1.50 Q4-21 $ 0.83 Q1-22 $ 1.88 $1.00 Q2-22 $ 0.71 Q3-22 $ 0.73 Q4-22 $ 0.70 $0.50 Q1-23 $ (0.12) Q2-23 $ 0.08 $- Q3-23 $ 0.51 $(0.50) Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 LTM ROE Pe rio d LTM ROE 19.0%
Slide 30: KPIs - SAR Net Interest Margin
KPIs - SAR Net Interest Margin SAR has more than quadrupled its Net Interest Margin Since taking over management Net Interest Margin 20% increase in LTM $46,901 $38,964 371% increase in 12 years $38,127 $33,364 $30,236 $24,185 $19,460 $17,309 $18,414 $14,096 $11,904 $9,956 FY12 FY13 FY14 FY15 FY16 F