Saratoga Investment Corp. · NYSE:SAR
Saratoga Investment — Q1 2024 Earnings Presentation
30 slides from Saratoga Investment's earnings presentation, Jul 11, 2023
Slide 1: Fiscal First Quarter 2024 Shareholder Presentation
Saratoga Investment Corp. Fiscal First Quarter 2024 Shareholder Presentation July 11, 2023
Slide 2: Continued Growth and Outperformance in Q1
Continued Growth and Outperformance in Q1 Fiscal First Quarter 2024 Highlights: • Continued high quality portfolio and strong performance ▫ Investment quality remains strong 96.5% of loan investments with highest internal rating and one non-accrual (0.9% of fair value/1.5% of cost) ▫ Return on equ
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% $1,084 $1,000 $973 $800 $818 $600 80% 98.3% 96.8% 98.6% 99.0% 98.5% 96.5% 94.2% 94.1% 95.9% 93.3% $554 90.5% $400 $486 82.4% $402 $343 $200 $284 $293 $241 $206 $95 $155 $0 60
Slide 4: Q1 FY24: Strong Financial Foundation and Momentum
Q1 FY24: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Quarter For the quarter ended February 28, and as of May 31, 2022 May 31, 2023 2023 ($ in millions except per share) $20,000 Net investment income $7,976 $9,649 $15,959 $10,000 $0 $20,000 Adjusted net investment
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 FYQ124) NAV: 3% decrease this quarter. 292% increase since Saratoga took over management. NAV/Share: 2% decrease this quarter. 30% increase since FY17 with increases 16 of the last 21 quarters. $30 (in millio
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 $(0.02) $(0.01) $(0.09) $0.15 $0.07 $1.08 $0.98 Adjusted NII per Increase in non-CLO Net Decrease in Increase in base Non-recurrence of excise Decrease from
Slide 7: Dry Powder Remains Available
Dry Powder Remains Available Total Fixed / Borrowing Available Remaining Floating (As of May 31, 2023) Capacity Outstanding Liquidity Maturity Period Rate Secured Revolving Credit $65.0 million $35.0 million $30.0 million 3 Years Floating Facility SBIC I $27.0 million $27.0 million $0.0 million 2-3
Slide 8: Portfolio Composition and Yield
Portfolio Composition and Yield Portfolio Composition – $1,084.1m Portfolio Yield – 11.4% (Based on Fair Values (Weighted Average as of May 31, 2023) Current Yield of Total Existing Portfolio) Structured Finance Structured Second Lien Securities Common Common 1.4% Second Lien Finance 3.1% Equity Sec
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% 10.7% 11.4% Totals* $1,000 6.5% $900 7.4% $800 $700 8.9% 8.5% $600 $ Millions 8.5% 11.6% $500 11.4% 12.7% 12.1% $400 14.6% 5.9% 9.5% 7.6% 5.3% 21.2% $300 16.4%
Slide 10: Accretive Impact of Increased Rates with Lag Effect on Earnings
Accretive Impact of Increased Rates with Lag Effect on Earnings SOFR Impact on Portfolio 5.29% 6.00% 5.28% 5.00% Q1 actual earnings 5.02% do not reflect full 4.98% quarter impact of 4.00% Q1 average rate increase (4bps) Yield (%) nor current closing 3.00% rate difference (another 26bps) 2.00% 99% of
Slide 11: Diversified Across Geography
Diversified Across Geography Investments Diversified Geographically Southwest 11.5% Northeast 12.3% West 19.7% Other 7.4% Midwest 20.7% Northwest 0.2% Southeast 28.2% 11
Slide 12: Diversified Across Industry
Diversified Across Industry Investments across 42 distinct industries Structured Finance Health/Fitness Franchisor, A&E (architecture Education Services, 3.43%Securities, 3.13% 2.92% Healthcare Services, 2.93% Talent Acquisition Software,+ engineering) 2.49% Software, 2.24% Sports Management, 2.47%
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 $81,582 $80,000 $70,000 $60,000 $50,000 $42,877 $40,000 $30,000 $20,000 $13,398 $12,368 $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 Cost* 4.2% 6.0% SAR is top 5 and one of only 14 BDCs 4.0% to have positive net realized gains for 1.8% 1.7% 1.3% 1.0% the past three years. 0.7% 0.7% 0.7% 0.5% 0.5% 0.2
Slide 15: 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 4.90x1^ Average Middle Market 12/31/2022 3/31/2023 All Senior 4.00x 3.68x 1st Lien/Mezz 4.98x 4.92x 4.90x1 1st Lien/2nd
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 LTM Q1- Q1- ∆ 2020 ∆ 2021 ∆ 2022 ∆ Q2 Q2 ∆ Q2 2019 Calendar* 2023 2022 2023 • ~62% of deal flow f
Slide 17: Demonstrated Strong Track Record
Demonstrated Strong Track Record Realized Investments Unrealized Investments 1 (Gross Unlevered IRR%) (Gross Unlevered IRR%) 25% $74.8m 20% 22.8% $553.6m 18% $89.8m $907.7 16.8% 16.0% 16% 15.6% 20% $264.2 14% 12.5% 12% $274.7m 15% 10% $1,077.2m $253.5m $474.1m 12.6% 8% 10.7% 10.7% 11.0% 6% 10% 4% 2%
Slide 18: SBIC I and II Fully Funded - SBIC III Fully Available
SBIC I and II Fully Funded - SBIC III Fully Available $300 $6.5m $250 $200 Zero debentures undrawn $ Millions $175.0m $3.5m debentures $150 undrawn $262.6 $100 $146.1 $18.6m $50 $48.7 13% 24% 4% $0 SBIC I SBIC II SBIC III * SBIC I cash only available for debenture repayments and small follow-ons. **
Slide 19: Long-Term Dividend Growth
Long-Term Dividend Growth • Established dividend policy to pay regular Dividends Per Share* quarterly cash dividends to $0.70 $0.69 $0.68 stockholders pursuant to dividend reinvestment plan $0.56 $0.56 $0.55 $0.54 $0.54 (“DRIP”) in 2014 $0.53 $0.53 $0.53 $0.53 $0.52 $0.52 $0.51 $0.50 $0.49 $0.48 • I
Slide 20: SAR LTM Total Return Beats the BDC Index
SAR LTM Total Return Beats the BDC Index LTM Total Return (%) (June 2022 to June 2023) SAR +30% v BDC Index +18% 40.00% Hundreds 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 SAR
Slide 21: Long-Term Performance at Top of BDC Industry
20 40 60 0 (60) (40) (20) -100 50 0 100 150 -50 50 0 100 150 200 (50) (100) CION FDUS FDUS FCRD OCSL OFS SCM HTGC SCM CGBD HRZN CGBD FDUS CSWC PTMN SAR TSLX PFX LRFC ARCC PNNT HTGC SAR SCM ORCC FCRD GAIN HRZN CSWC SAR RWAY FSK GLAD BXSL HTGC CGBD NMFC OCSL TPVG ARCC NMFC OFS CSWC PFLT WHF ICMB ARCC
Slide 22: Differentiated Long-Term Outperformance
Differentiated Long-Term Outperformance Interest % on Portfolio Regulatory Debt/Equity LTM NII Yield LTM ROE 14.0% 13% 8% 11.9% 7.2% 179.7% 12.7% 180% 12.5% 12% 12.0% 10.8% 7% 11% 10.5% 170% 12.0% 6% 10% 160% 5% 150% 9% 10.0% 4% 8% 140% 2.7% 123.0 3% 130% 118.6 7% % 8.0% 2% 1.5% % 6% 120% 5% 1% 110%
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 ► Strong long-term dividend dividend declared of 70c per share for the quarter ended May 31, 2023, up 32% over prior year, re
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 – Q1 FY24
KPIs – Balance Sheet – Q1 FY24 FMV Investment Po rtfo lio FMV Investment Portfolio Perio d (in millio ns) (in millions) $1,100.0 Q1-22 $ 677.8 $1,000.0 Q2-22 $ 666.1 $900.0 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 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23
Slide 28: KPIs – Income Statement – Q1 FY24
KPIs – Income Statement – Q1 FY24 Ne t Inte re st Margin Net Interest Margin Excluding CLO Pe rio d (in millio ns) Q1-22 $ 7.7 (in millions) Q2-22 $ 8.6 $17.5 Q3-22 $ 8.0 $15.5 Q4-22 $ 9.0 $13.5 Q1-23 $ 9.2 $11.5 Q2-23 $ 11.0 Q3-23 $ 14.5 $9.5 Q4-23 $ 15.2 $7.5 Q1-24 $ 17.5 Q1-22 Q2-22 Q3-22 Q4-22 Q
Slide 29: KPIs – Income Statement– Q1 FY24 (continued)
KPIs – Income Statement– Q1 FY24 (continued) Pe rio d EPS EPS $2.50 Q1-22 $ 1.88 Q2-22 $ 0.71 $2.00 Q3-22 $ 0.73 $1.50 Q4-22 $ 0.70 $1.00 Q1-23 $ (0.12) $0.50 Q2-23 $ 0.08 $- Q3-23 $ 0.51 $(0.50) Q4-23 $ 1.62 $(1.00) Q1-24 $ (0.02) Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Q3-23 Q4-23 Q1-24 Pe rio d LTM R
Slide 30: KPIs - SAR Net Interest Margin Continues to Grow
KPIs - SAR Net Interest Margin Continues to Grow SAR has quintupled its Net Interest Margin since taking over management Net Interest Margin 52% increase in LTM $60,261 $52,456 505% increase in 12 years $38,964 $38,127 $33,364 $30,236 $24,185 $19,460 $17,309 $18,414 $14,096 $11,904 $9,956 FY12 FY13