Executive Summary

Q1 FY26 delivered resilient core performance with adjusted NII/share up 17.9% QoQ to $0.66 and GAAP EPS of $0.91, while Total Investment Income (TII) rose 3.3% QoQ to $32.32M but fell 16.4% YoY due to lower base rates and AUM following outsized repayments over the past year .
Versus S&P Global consensus, SAR missed on EPS ($0.66 vs $0.72*) and TII ($32.32M vs $32.79M*); both shortfalls were modest and largely reflect the rate reset and portfolio mix dynamics rather than credit deterioration .
Net interest margin expanded to $15.6M from $13.7M QoQ on higher non‑CLO interest income and lower interest expense; management emphasized strong liquidity ($224.3M cash) and total undrawn capacity of $430.3M to support deployment when market conditions improve .
Dividend framework reaffirmed with $0.25 per share per month declared for Q2 FY26 ($0.75 total), implying an 11–12% yield at the time of declaration and supporting income-focused positioning; NAV rose $3.7M QoQ, while NAV/share fell due to a temporary dividend record-date timing effect explained by management .

What Went Well and What Went Wrong

What Went Well

Net interest margin expanded meaningfully QoQ to $15.6M (from $13.7M), driven by higher non‑CLO interest income and lower interest expense after debt redemptions .
Credit quality remained strong: only two investments on non‑accrual (Zollege, Pepper Palace) and both restructured; 99.7% of credits in the highest internal category; first-lien concentration at 86.9% .
Liquidity and capacity robust: $224.3M cash, $70.0M revolver availability, $136.0M undrawn SBA debentures; total undrawn borrowing capacity of $430.3M supports future originations and portfolio support .

What Went Wrong

Year-over-year pressure: TII declined 16.4% YoY as lower base rates (SOFR) and lower AUM from net repayments weighed on interest income; core portfolio yield decreased from 12.6% (May-24) to 11.5% (May-25) .
Sequential dilution: ATM share issuance reduced NII/share by ~$0.04; average assets were relatively flat and average yields were unchanged, tempering per-share earnings power .
NAV/share optics: despite NAV rising $3.7M QoQ, reported NAV/share fell to $25.52 due to a one-time record-date timing effect from switching to monthly dividends; ex‑this effect, NAV/share would have been $26.02 (+0.6%) .

Financial Results

Headline P&L, Capital, and Returns

Metric	Q1 FY25 (May-24)	Q4 FY25 (Feb-25)	Q1 FY26 (May-25)
Total Investment Income ($M)	$38.68	$31.30	$32.32
Adjusted NII per Share ($)	$1.05	$0.56	$0.66
GAAP EPS ($)	$0.48	$(0.05)	$0.91
NAV ($M)	$367.86	$392.67	$396.37
NAV per Share ($)	$26.85	$25.86	$25.52
ROE – Annualized Quarter (%)	7.2%	(0.7%)	14.1%

Actuals vs S&P Global Consensus (Q1 FY26)

Metric	Actual	Consensus Mean	Surprise
EPS ($)	$0.66	$0.72*	-$0.06*
Total Investment Income ($M)	$32.32	$32.79*	-$0.48M*

Values with asterisks retrieved from S&P Global.

KPIs and Balance Sheet

KPI	Q4 FY25 (Feb-25)	Q1 FY26 (May-25)
Net Interest Margin ($M)	$13.7	$15.6
Cash & Cash Equivalents ($M)	$204.7	$224.3
Regulatory Leverage (Asset Coverage Ratio)	162.9%	163.8%
Undrawn Borrowing Capacity ($M)	$428.2	$430.3
AUM ($M)	$978.08	$968.32
Originations ($M)	$41.80	$50.09
Repayments ($M)	$15.87	$64.33
Core Portfolio Weighted Avg Interest Rate	11.5%	11.5%
Weighted Avg Current Yield (Total Portfolio)	10.8%	10.7%
Non‑Accruals (% FV / % Cost)	0.3% / 0.5%	0.3% / 0.6%

Portfolio Mix (Q1 FY26)

Asset Type	Mix (%)
First Lien Term Loans	86.9%
Second Lien Term Loans	0.7%
Unsecured Term Loans	1.7%
Structured Finance Securities	2.8%
Common Equity	7.9%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Base Dividend	Q1 FY26	$0.75 total per quarter (monthly $0.25, March–May 2025)	Declared and paid as scheduled	Maintained
Base Dividend	Q2 FY26	$0.75 total per quarter implied by policy	$0.75 total per quarter (monthly $0.25; record/pay dates in June–Aug detailed)	Maintained

No formal quantitative revenue, margin, OpEx, OI&E, or tax guidance provided in the Q1 materials. Management emphasized liquidity, pipeline, and disciplined deployment pacing .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY25)	Current Period (Q1 FY26)	Trend
Macro/tariffs & deal flow	Early signs of improving lower middle-market M&A but macro/tariff volatility remained a headwind; focus on prudence .	Slower deal volume and M&A activity following recent tariff developments; still executed new originations and realizations .	Slightly worsening near term, but pipeline intact.
Credit quality	99.7% in top category; 2 non‑accruals restructured; first‑lien 88.7% .	99.7% in top category; same two non‑accruals; first‑lien 86.9% .	Stable to improving risk posture.
Earnings drivers	TII pressured by rate resets and AUM; adjusted NII/share $0.56; NIM $13.7M .	Net interest margin expanded to $15.6M; adjusted NII/share up to $0.66; EPS $0.91 .	Improving sequentially.
Liquidity/leverage	$204.7M cash; undrawn capacity $428.2M; asset coverage 162.9% .	$224.3M cash; undrawn capacity $430.3M; asset coverage 163.8% .	Strong and stable.
Dividend policy	Shift to monthly; quarterly base increased to $0.75 starting Q1 FY26 .	Q2 FY26 dividend maintained at $0.75 per quarter (monthly) .	Stable; income-supportive.

Note: The Q1 FY26 earnings call transcript is available externally (e.g., Seeking Alpha), and aligns with these themes (EPS and revenue modest misses; liquidity and portfolio quality emphasized) .

Management Commentary

“This quarter’s highlights include a 17.9% increase in adjusted NII per share from the previous quarter, continued growth of NAV, a strong return on equity beating the industry… and most importantly, a continued solid performance from the core BDC portfolio in a volatile macro environment.”
“Our quarter-end cash position increased from $204.7 million last quarter to $224.3 million… This level of cash improves our current regulatory leverage of 163.8% to 188.1%, netting available cash against outstanding debt.”
“Our overall credit quality… remained steady at 99.7% of credits rated in our highest category, with the two investments remaining on non-accrual… both successfully restructured… representing only 0.3% and 0.6% of fair value and cost, respectively.”

Q&A Highlights

Net interest margin drivers: Management cited a $1.4M increase in non‑CLO interest income and a $0.5M decrease in interest expense after debt actions as key NIM levers .
Per-share dynamics: ATM issuance impact diluted NII/share by ~$0.04 QoQ; management framed issuance as supporting liquidity and future growth .
Liquidity and deployment: With $430.3M total capacity and $224.3M cash, the company can fund high-quality opportunities and support portfolio companies amid macro volatility .
Credit quality clarification: Non‑accruals limited and restructured; portfolio remains predominantly first‑lien with strong sponsor backing .
(Transcript reference: July 9, 2025 earnings call) .

Estimates Context

Q1 FY26 EPS of $0.66 missed S&P Global consensus of ~$0.72*, and TII of $32.32M missed ~$32.79M*, consistent with third-party summaries (modest misses) .
Key estimate drivers: rate resets (lower SOFR), portfolio mix, and timing of repayments/originations; management highlighted late‑quarter repayments and full benefit of prior-quarter originations .
Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

Core earnings resilience with sequentially higher NIM and adjusted NII/share despite a tough YoY comp from rate resets and lower AUM; watch deployment pace and rate path for EPS re‑acceleration .
Balance sheet strength (cash + undrawn capacity ~$430M) provides dry powder to lean into attractive originations and support existing positions; this underpins downside protection .
Credit quality remains a differentiator (minimal non‑accruals, first‑lien focus), supporting NAV stability and lower tail risk in a choppy macro backdrop .
Dividend visibility is high with monthly payouts at $0.75 per quarter maintained; income yield remains compelling for BDC investors .
Estimate path: modest Q1 miss likely reflects timing and rates; if deployment ramps and rates stabilize, Street models may drift higher on NIM normalization and asset growth .
Watch list: pace of M&A/deal flow after tariff-related slowdown, CLO/JV marks, and incremental ATM usage/dilution vs. ROE benefits from growth .
Near-term trading: stock may be sensitive to deployment updates and commentary on SOFR trajectory; dividend stability and credit metrics provide support on pullbacks .

Appendix: Additional Data Points

Total portfolio fair value increased by $3.8M in Q1; core non‑CLO marked up $2.6M; CLO/JV markdown net $(0.2)M; realized gains $2.9M .
Weighted average current yield on total portfolio: 10.7% (first‑lien 11.3%) at Q1 end .
Share repurchase plan remains authorized through Jan 15, 2026; no purchases in Q1 .

Sources: Q1 FY26 8‑K earnings press release and financials (July 8, 2025) ; Q4 FY25 8‑K (May 7, 2025) for trend context ; Q2 FY26 8‑K (Oct 7, 2025) for subsequent trajectory references . Earnings call transcript reference (July 9, 2025) . Values with asterisks retrieved from S&P Global.

SARATOGA INVESTMENT CORP. (SAR)·Q1 2026 Earnings Summary