Saratoga Investment (SAR) Q2 2025 earnings summary

Executive summary

• Net investment income (NII), adjusted NII, and net asset value (NAV) per share all increased sequentially, with NII per share rising 26.7% to $1.33 and NAV per share up 0.8% to $27.07.

• Dividend of $0.74 per share declared, up 4.2% year-over-year, yielding 12.7%–12.8%, and supported by substantial spillover income.

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

• Portfolio quality remains high, with 99.7% of credits in the highest category and 85.2% of investments in first lien debt.

• Return on equity (ROE) for Q2 FY25 was 14.4% annualized, with a 10-year average ROE of 10.0%, consistently outperforming the BDC industry.

Financial highlights

• Adjusted NII for the quarter was $18.2 million, up 38.3% year-over-year and 26.9% sequentially, with adjusted NII yield at 19.7%.

• Total investment income for the quarter was $43.0 million, up 21.1% year-over-year, and fair value of the investment portfolio was $1.041 billion.

• NAV at quarter-end was $372.1 million, up from $362.1 million last year and $367.9 million last quarter.

• 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.

• Operating expense ratio (LTM) at 4.2%, below BDC median.

Outlook and guidance

• Management expects continued strong cash generation and aims to expand the asset base without sacrificing credit quality.

• Pipeline remains strong, with $56.7 million in new originations and $20.5 million in repayments post-quarter.

• Over $3 per share in undistributed spillover income provides additional dividend support.

• Expectation of continued rate declines over the next 12 months, with portfolio well-positioned due to fixed-cost liabilities and floating-rate assets.