Saratoga Investment Corp. · NYSE:SAR
Saratoga Investment — Q2 2023 Earnings Presentation
30 slides from Saratoga Investment's earnings presentation, Oct 5, 2022
Slide 1: Fiscal Second Quarter 2023 Shareholder Presentation
Saratoga Investment Corp. Fiscal Second Quarter 2023 Shareholder Presentation October 5, 2022
Slide 2: Continued Growth and Strong Long-Term Performance
Continued Growth and Strong Long-Term Performance Fiscal Second Quarter 2023 Highlights: • Continued high quality portfolio and strong performance ▫ Investment quality remains strong 95.6% of loan investments with highest internal rating and only one non-accrual ▫ Return on equity of 4.8% for LTM
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 $955 $800 $818 $600 80% 99.0% 98.3% 96.8% 98.6% 98.5% 95.6% $554 94.2% 94.1% 93.3% 90.5% $400 $486 82.4% $402 $343 $200 $284 $293 $241 $206 $95 $155 $0 60% Performing
Slide 4: Q2 FY23: Strong Financial Foundation and Momentum
Q2 FY23: Strong Financial Foundation and Momentum Key Performance Metrics for the Fiscal Quarter For the quarter ended and as of August 31, 2021 May 31, 2022 August 31, 2022 ($ in millions except per share) $10,000 Net investment income $6,393 $7,976 $7,698 $0 $8,000 Adjusted net investment income*
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 Q2FY23) NAV: 2% decrease this quarter. 292% increase since Saratoga took over management. NAV/Share: 1.5% decrease this quarter. 29% increase since FY17 with increases 17 of the last 21 quarters. (in millions
Slide 6: Quarterly Reconciliation of NII and NAV per Share
Quarterly Reconciliation of NII and NAV per Share Reconciliation of Quarterly Adjusted NII per Share • Zero net accretion/dilution from share repurchase plan and DRIP. $(0.01) $0.05 $(0.17) $0.15 $0.03 $0.58 $0.53 Adjusted NII per Increase in non-CLO Net Decrease in CLO Net Increase in Increase in B
Slide 7: Dry Powder Remains Available
Dry Powder Remains Available Total Remaining Fixed / Borrowing Available Maturity Floating (As of August 31, 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 2
Slide 8: Portfolio Composition and Yield
Portfolio Composition and Yield Portfolio Composition – $954.7m Portfolio Yield – 9.0% (Based on Fair Values (Weighted Average as of August 31, 2022) Current Yield of Existing Portfolio) Structured Structured Second Second Lien Finance Lien Finance Common 7.9% Securities Common 2.5% Securities Equit
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% 7.7% 9.0% Totals* 8.9% $800 8.0% $700 10.5% $600 11.6% 9.9% $ Millions $500 11.4% 9.5% 9.5% $400 14.6% 5.9% 9.6% 21.2% $300 7.6% 5.3% 9.8% 16.4% 14.0% 6.2% 10.
Slide 10: Accretive Impact of Increased Rates with Lag Effect on Earnings
Accretive Impact of Increased Rates with Lag Effect on Earnings Q2 actual 3-Month LIBOR Impact on Portfolio* earnings does not 4.00% reflect full quarter impact of Q2 3.63% 3.50% average rate 3.00% 3.10% increase (47bps) 2.54% or quarter-end 2.50% closing rate Yield (%) 2.07% difference 2.00% (anoth
Slide 11: Diversified Across Geography
Diversified Across Geography Investments Diversified Geographically Southwest 12% Northeast 14.1% West 17.6% Other 7.7% Midwest 18.9% Northwest 0.3% Southeast 29.4% 11
Slide 12: Diversified Across Industry
Diversified Across Industry Investments across 42 distinct industries Structured Finance Securities(1), Marketing Orchestration 3.40% Software, 3.00% Sports Management, 2.80% Education Services, 3.60% Talent Acquisition Software, 2.70% Specialty Food Retailer , 2.80% Healthcare Services, Direct Sell
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 $81,109 $80,000 $70,000 $60,000 $50,000 $42,877 $40,000 $30,000 $20,000 $13,398 $12,368 $8,106 $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* 6.0% SAR is one of only 13 BDCs to have positive 3.9% 3.7% 3.3% net realized gains for the past three years. 4.0% 2.1% 2.2% 0.9% 0.8% 0.6% 0.6% 0.3% 2.0% 0.3%
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 3.97x1^ Average Middle Market March 31, 2022 June 30, 2022 All Senior 4.08x 4.03x 1st Lien/Mezz 5.41x 5.61x 3.97x1 1st L
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- Q3 ◊ Q3 Q3 Calendar* 2018 ∆ 2019 ∆ 2020 ∆ 2021 ∆ 2022 ◊ 2021 ∆ 2022 ◊ •~68% of deal
Slide 17: Demonstrated Strong Track Record
Demonstrated Strong Track Record Realized Investments Unrealized Investments 1 (Gross Unlevered IRR%) (Gross Unlevered IRR%) 20% $490.7m $89.8m 18.1% $835.5m 16% 18% 17.1% 16.4% $281.5m $212.0m 16% 14% $255.1m $902.3m 12.1% 11.8% 14% 12% $408.8m 12.7% 10.6% 12% 10% 9.0% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0
Slide 18: SBIC I Fully Funded - SBIC II Still Available
SBIC I Fully Funded - SBIC II Still Available SBIC second license provided $300 SBIC I Assets* $103m, $107m, $78m and $15m of available capacity in FY20, FY21, FY22 and Q2FY23 respectively (debt and equity at $250 2:1 leverage) $50.9 $10.5 $19.1 $50.9 $19.1 $6.6 $2.6 SBIC II Assets* $200 $104.9 $2.7
Slide 19: Long-Term Dividend Growth
Long-Term Dividend Growth • Established dividend policy to pay regular quarterly cash dividends Dividends Per Share* to stockholders pursuant to dividend reinvestment plan (“DRIP”) in 2014 $0.56 $0.56 $0.55 • Increased dividend by $0.54 $0.54 $0.53 $0.53 $0.53 $0.53 $0.52 $0.52 $0.51 $0.50 $0.49 $0.
Slide 20: SAR LTM Total Return In Line With BDC Index
SAR LTM Total Return In Line With BDC Index LTM Total Return (%) (September 2021 to September 2022) SAR -0.4% v BDC Index -0.4% 15.00% Hundreds 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 SAR-Total Return (Daily
Slide 21: Long-Term Performance at Top of BDC Industry
10 20 0 -100 50 -50 0 100 150 (80) (70) (60) (50) (40) (30) (20) (10) 0 20 60 80 40 (80) (60) (40) (20) (100) FDUS GAIN CGBD FDUS SCM CSWC OFS ARCC GAIN NEWT NMFC PSEC BKCC OCSL PNNT SSSS FSK HTGC BCSF SAR ARCC HRZN PSEC TPVG MAIN WHF BXSL GLAD CCAP SCM PFLT TSLX PTMN NMFC OCSL OFS TCPC PTMN AINV MA
Slide 22: Solid Long-Term Performance
Solid Long-Term Performance Interest % on Portfolio LTM NII Yield LTM ROE Regulatory Debt/Equity 12.0% 10% 9.2% 9.2% 8% 7.3% 120% 118.9% 9.9% 118.9% 9.6% 10.0% 9.1% 9% 7% 118% 5.7% 6% 8.0% 8% 7.6% 4.8% 116% 5% 6.0% 7% 114% 4% 112.4% 4.0% 6% 3% 112% 2% 2.0% 5% 110% 1% 0.0% 4% 108% 0% SAR BDC Mean BDC
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 54c per share for the quarter ended August 31, 2022, up 23% last ► Strong long-term dividend fifteen mon
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 available financing to b
Slide 25: Questions?
Questions? & K' SARATOGA Pt INVESTMENT CORP.
Slide 26: Appendix
& K' SARATOGA Pt INVESTMENT CORP.
Slide 27: KPIs – Balance Sheet – Q2 FY23
KPIs – Balance Sheet – Q2 FY23 FMV Inve stme nt Po rtfo lio FMV Investment Portfolio Pe rio d (in millio ns) (in millions) Q2-21 $ 508.1 $1,000.0 Q3-21 $ 546.9 $900.0 Q4-21 $ 554.3 $800.0 Q1-22 $ 677.8 $700.0 Q2-22 $ 666.1 $600.0 Q3-22 $ 661.8 Q4-22 $ 817.6 $500.0 Q1-23 $ 894.5 $400.0 Q2-23 $ 954.7
Slide 28: KPIs – Income Statement – Q2 FY23
KPIs – Income Statement – Q2 FY23 Ne t Inte re st Margin Net Interest Margin Excluding CLO Pe rio d (in millio ns) (in millions) Q2-21 $ 7.8 Q3-21 $ 7.7 $11.0 Q4-21 $ 8.7 $10.0 Q1-22 $ 7.7 Q2-22 $ 8.6 $9.0 Q3-22 $ 8.0 Q4-22 $ 9.0 $8.0 Q1-23 $ 9.2 Q2-23 $ 11.0 $7.0 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22
Slide 29: KPIs – Income Statement– Q2 FY23 (continued)
KPIs – Income Statement– Q2 FY23 (continued) EPS $2.50 Perio d EPS Q2-21 $ 1.95 $2.00 Q3-21 $ 0.57 Q4-21 $ 0.83 $1.50 Q1-22 $ 1.88 $1.00 Q2-22 $ 0.71 Q3-22 $ 0.73 $0.50 Q4-22 $ 0.70 Q1-23 $ (0.12) $- Q2-23 $ 0.08 $(0.50) Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 LTM ROE 25.0% Perio d LTM
Slide 30: KPIs - SAR Net Interest Margin
KPIs - SAR Net Interest Margin SAR has quadrupled its Net Interest Margin since taking over management Net Interest Margin $41,129 5% increase in LTM $38,964 $38,127 313% increase in 11 years $33,364 $30,236 $24,185 $19,460 $17,309 $18,414 $14,096 $11,904 $9,956 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY