SAY — Saratoga Investment Corp 8.125%

Summary of Saratoga Investment Corp (SAY) Q2 2026 Earnings Call

1. Key Financial Results and Metrics:

• Net Asset Value (NAV): Increased to $410.5 million, up 10.3% year-over-year and 3.6% quarter-over-quarter.
• NAV per Share: $25.61, down from $27.07 a year ago but up from $25.52 last quarter.
• Adjusted Net Investment Income (NII): $9.1 million, down 50.1% year-over-year and 10.5% quarter-over-quarter; adjusted NII per share was $0.58, down 56.4% year-over-year and 12.1% quarter-over-quarter.
• Adjusted NII Yield: 9%, down from 19.7% a year ago and 10.3% last quarter.
• Return on Equity (ROE): 9.1%, up from 5.8% last year and above the industry average of 7.3%.
• Cash Position: $201 million available for deployment, with total liquidity of $407 million.

2. Strategic Updates and Business Highlights:

• Continued growth in NAV and a strong reputation in the market, with net originations of $22.4 million.
• Successful return of the Xolage investment to accrual status, reducing nonaccrual investments to just one, representing 0.2% of portfolio fair value.
• Ongoing focus on high-quality investments, with 84.3% of the portfolio in first lien debt.
• Strong business development efforts are yielding new investment opportunities, with three new portfolio companies closed or in closing.

3. Forward Guidance and Outlook:

• Management remains optimistic about future economic opportunities despite current geopolitical tensions and macroeconomic volatility.
• Plans to maintain a disciplined approach to underwriting while capitalizing on available cash for investments.
• The board will continue to evaluate dividend levels quarterly, with a current base dividend of $0.75 per share for 2026, reflecting a 12.3% yield based on recent stock prices.

4. Bad News, Challenges, or Points of Concern:

• Adjusted NII has significantly declined due to lower average assets and interest rates, leading to concerns about dividend coverage.
• The competitive landscape is tightening, with larger market participants entering the lower middle market, potentially impacting deal terms and pricing.
• The M&A environment remains muted, affecting the volume of new investment opportunities.
• Concerns about the impact of AI on software companies in the portfolio, necessitating careful underwriting and evaluation.

5. Notable Q&A Insights:

• Management acknowledged the challenges in maintaining dividend coverage due to lower NII and emphasized the importance of not compromising underwriting standards.
• There is a strong focus on expanding business development efforts to improve deal flow, with recent increases in term sheets issued.
• Management expressed confidence in the long-term performance of CLO investments, differentiating their strategy from other BDCs that have struggled with CLO equity.
• The team is actively monitoring competitive pressures and is prepared to adjust strategies as necessary to maintain portfolio quality and performance.

Overall, while Saratoga Investment Corp has demonstrated solid NAV growth and maintained a strong portfolio, it faces challenges related to declining NII, competitive pressures, and a muted M&A environment, necessitating a cautious yet optimistic approach moving forward.