Saratoga Investment (SAR) Q1 2025 earnings summary

Executive summary

• Adjusted net investment income (NII) per share rose 12% sequentially to $1.05, with strong dividend coverage and high portfolio quality, as 98.3% of credits are in the top category and only three investments are on non-accrual, representing up to 1.6% of fair value.

• Net asset value (NAV) per share was $26.85, down 1% sequentially and 6% year-over-year, but up 21% since FY17; NAV at quarter-end was $367.9 million.

• Dividend increased to $0.74 per share, a 6% rise year-over-year and the seventeenth consecutive quarterly increase, with a current yield of 13.1%.

• Realized losses of $21.2 million on Netreo and Zollege were partially offset by $13.9 million in unrealized appreciation; restructuring of Zollege is complete and Pepper Palace is nearly complete.

• Portfolio AUM was $1.096 billion, up 1.1% year-over-year but down 3.8% sequentially.

Financial highlights

• Adjusted NII for the quarter was $14.3 million, up 12% year-over-year and sequentially; total investment income was $38.7 million, up 11.7% year-over-year.

• Adjusted NII yield reached 15.5%, up from 15% last year and 14% last quarter.

• EPS for Q1 FY25 was $0.48, up from $0.39 in Q4 FY24.

• Total expenses (excluding interest, fees, and taxes) increased to $2.9 million, mainly due to restructuring-related legal and regulatory costs.

• Weighted average interest rate on outstanding debt was 5.58%, up from 5.34% a year ago.

Outlook and guidance

• Management remains confident in the portfolio's resilience and expects continued strong performance, supported by robust liquidity and a healthy pipeline, though new deal activity is modest.

• Dividend policy will be reviewed quarterly, with current over-earning providing flexibility for future economic shifts.

• Management aims to expand the asset base without sacrificing credit quality, leveraging available financing to grow AUM and NII.

• Early signs of increased M&A activity in the lower middle market are emerging.