Saratoga Investment (SAR) Q2 2025 earnings summary

Executive summary

• Net investment income (NII) for the quarter was $18.2 million, up 38.3% year-over-year and 26.9% sequentially, with NII per share rising to $1.33 and NAV per share increasing 0.8% sequentially to $27.07.

• Dividend of $0.74 per share declared, up 4% year-over-year, yielding 12.7%–12.8%, and over-earned by NII.

• All four non-accrual/watchlist investments resolved, including full repayment of Knowland and Netreo, and restructurings of Zollege and Pepper Palace, now under new management.

• Portfolio quality remains high, with 99.7% of credits in the top category and only two small non-accruals at quarter-end, both resolved during Q2 FY25.

• Return on equity for the last 12 months was 5.8%, with annualized ROE for the quarter at 14.4%.

Financial highlights

• Total investment income for the quarter was $43.0 million, up 21% year-over-year, and $81.7 million for the six months, up 16% year-over-year.

• Adjusted NII yield rose to 19.7%, up 420bps from the previous quarter.

• Portfolio fair value was $1.041 billion, 0.2% above cost, invested in 50 companies, one CLO, and one JV.

• Net realized losses and unrealized appreciation totaled $4.7 million, including a $34.0 million realized loss on Pepper Palace, offset by $28.7 million unrealized appreciation.

• EPS for Q2 FY25 was $0.97, up from $0.48 in Q1 FY25.

Outlook and guidance

• Management expects continued strong performance, supported by robust underwriting, high-quality sponsors, and a strong investment pipeline.

• Early signs of increased M&A activity in the lower middle market as interest rates decline.

• Over $385 million in investment capacity positions the company for future growth.

• Dividend coverage remains strong, with over $3 per share in undistributed spillover income.

• Management aims to expand the asset base without sacrificing credit quality.