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SARATOGA INVESTMENT CORP. (SAR)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY2025 total investment income was $31.30M, down 12.8% QoQ and 15.9% YoY; adjusted NII per share fell to $0.56 and GAAP EPS was -$0.05, reflecting lower base rates and the full-period impact of Q3 repayments .
  • NAV rose to $392.7M (+4.7% QoQ, +6.1% YoY) though NAV/share decreased to $25.86 due to higher share count and dividends; AUM increased 1.9% QoQ to $978.1M .
  • Saratoga transitioned to monthly dividends of $0.25 per month ($0.75 quarterly) beginning Q1 FY2026; implied dividend yield 12.1% based on $24.86 share price on May 6, 2025 .
  • Portfolio credit quality remained strong (non‑accruals 0.3% FV/0.5% cost); core non‑CLO marked down $3.4M, CLO/JV marked down $2.7M, offset by $7.2M realized gains on three equity realizations .
  • Q4 missed Wall Street consensus: EPS $0.56 vs $0.73 and revenue $31.30M vs $33.22M; the excise tax ($0.13/share) and rate/AUM headwinds were key drivers. Bold miss likely to drive near-term sentiment; dividend change and NAV growth are positive offsets *.

What Went Well and What Went Wrong

What Went Well

  • NAV increased to $392.7M (+$17.8M QoQ), supported by equity ATM proceeds and realized gains; management highlighted rising AUM and lower leverage from higher NAV .
  • Re-acceleration in originations: $41.8M in Q4 (one new platform, six follow-ons) and $45.5M post-quarter (two new platforms, six follow-ons), signaling pipeline traction .
  • Dividend transition to monthly at $0.25 per month ($0.75 quarterly) with 12.1% implied yield; CEO emphasized strong distribution history and confidence in underwriting and liquidity .

Quote: “Our Q4 adjusted NII of $0.56 per share…reflects the impact of…decreasing…short-term interest rates and spreads…This has resulted in $204.7 million of cash available to be deployed accretively…” .

What Went Wrong

  • Earnings pressure: adjusted NII per share fell to $0.56 from $0.90 QoQ and $0.94 YoY; CFO cited $2.4M excise tax ($0.13/share) and lower base rates/AUM as primary drivers .
  • Valuation marks: $3.4M net unrealized depreciation in core non‑CLO and $2.7M in CLO/JV; total net portfolio value reduction related to marks of $7.6M in Q4 .
  • Dilution and lower NAV/share: weighted average shares rose to 14.5M; NAV/share declined to $25.86 due to dividends and share issuance despite NAV growth .

Financial Results

Income, EPS, and Yield Progression

MetricQ2 2025Q3 2025Q4 2025
Total Investment Income ($USD Millions)$43.00 $35.88 $31.30
GAAP EPS ($)$0.97 $0.64 -$0.05
Net Investment Income per share ($)$1.33 $0.90 $0.56
Adjusted NII per share ($)$1.33 $0.90 $0.56
NII Yield (%)19.7% 13.3% 8.4%

Q4 2025 vs Wall Street Consensus (S&P Global)

MetricConsensus Estimate*ActualSurpriseBeat/Miss
EPS (Primary) ($)0.731*0.56 -0.17Miss
Revenue ($USD Millions)33.22*31.30 -1.92Miss

Values retrieved from S&P Global.*

Segment/Asset Mix

Composition (%)Q2 2025Q3 2025Q4 2025
First Lien Term Loans85.2% 86.8% 88.7%
Second Lien Term Loans2.5% 0.6% 0.7%
Unsecured Term Loans1.6% 1.7% 1.7%
Structured Finance Securities2.2% 1.9% 1.5%
Common Equity8.5% 9.0% 7.4%

KPIs

KPIQ2 2025Q3 2025Q4 2025
AUM ($USD Millions)$1,041.0 $960.1 $978.1
NAV ($USD Millions)$372.1 $374.9 $392.7
NAV per Share ($)$27.07 $26.95 $25.86
Originations ($USD Millions)$2.6 $84.5 $41.8
Repayments ($USD Millions)$60.1 $160.4 $15.9
Cash & Equivalents ($USD Millions)$162.0 $250.2 $204.7
Core Portfolio Yield (%)12.6% 11.8% 11.5%
Non‑Accruals (% FV / % Cost)0.3% / 0.4% 0.3% / 0.3% 0.3% / 0.5%
WA Common Shares (Millions)13.7 13.8 14.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend Policy (Base)Q1 FY2026Quarterly $0.74/share Monthly $0.25/share ($0.75 quarterly) Raised (+$0.01/qtr)
Dividend Yield (Implied)Q1 FY2026N/A12.1% at $24.86 share price New disclosure
Q4 FY2025 DividendQ4 FY2025N/A$0.74/share paid Mar 25, 2025 Maintained

No explicit revenue, margin, OpEx, OI&E, or tax rate guidance provided in Q4 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 FY2025)Current Period (Q4 FY2025)Trend
M&A/pipelineEarly signs of lower middle market M&A; two new platforms post Q2 ; Q3 strong deployments but outsized repayments Net deployments in Q4, continued post‑quarter originations (two new platforms) Improving pipeline
Rates/yieldCore portfolio yield 12.6%; stable rates in Q2 Core yield fell to 11.5%; ~2/3 of decrease from SOFR declines Pressure from lower base rates
Credit quality/non‑accrualsTwo non‑accruals (Zollege, Pepper Palace); watchlist resolved (Knowland, Netreo) Non‑accruals unchanged, minimal exposure; progress on restructurings Stable/managed
Tariffs/macroNot highlightedManagement sees tariff uncertainty; limited direct exposure given SaaS/services tilt New headwind, manageable
Leverage/liquidityNet leverage improved via cash; dry powder available $428.2M capacity; cash $204.7M; discussion on baby bonds callable, cautious on calling Strong balance sheet
DividendsQ3 special dividend $0.35 fulfilled distribution reqs Transition to monthly dividends; 12.1% implied yield Shareholder-friendly
Equity issuanceLimited in Q2; small in Q3 $32.4M ATM at/above NAV; rationale: delever, strengthen balance sheet Strategic, some dilution

Management Commentary

  • “The core BDC portfolio [is] demonstrating solid performance in a volatile macro environment… [and] $204.7 million of cash available to be deployed accretively” .
  • “Our quarter‑end cash…is $204.7 million…This level of cash improves our…162.9% regulatory leverage to 186.2% net leverage” .
  • “Recognizing the challenges posed by…tariff discussions…we remain confident in our…robust pipeline, strong leverage structure, and high underwriting standards” .
  • CFO: “Adjusted NII per share is $0.69 for Q4 when adding back the annual excise tax ($0.13)…lower base rates and AUM reduced investment income” .
  • CIO: “Lower middle market deal volumes remain down…we’re expanding business development…portfolio fair value is 1.6% above cost (core)” .

Q&A Highlights

  • Pipeline and mix: Activity steady but hard to predict given tariffs/macros; investing to broaden BD and personnel to grow over time .
  • Deployment/returns: Targeting deals accretive versus all‑in cost of capital; SBIC debentures (~5.25% all‑in) enhance accretion .
  • Spillover/excise tax: Spillover “just over $3/share”; excise tax recognized only when definitive (post‑Jan 1) per accounting; quarterly accrual not practical given flexibility to pay before year‑end .
  • Equity issuance despite cash: Management emphasized deleveraging/fortifying balance sheet and opportunistic equity windows in BDCs; long‑term performance focus .
  • Debt calls: Baby bonds callable; calling not compelling given reissuance costs and cash earning ~4.25%; prefer liquidity optionality .

Estimates Context

  • Q4 FY2025 results missed consensus on both EPS and revenue: EPS $0.56 vs $0.73 and revenue $31.30M vs $33.22M; 7 EPS estimates and 6 revenue estimates underpin consensus. Estimate EPS for BDCs typically represents NII per share, aligning with reported $0.56 adjusted NII per share *.
  • With lower base rates and prior quarter repayments weighing on investment income, near‑term estimate revisions likely trend lower for EPS/revenue; dividend policy change to monthly could stabilize income expectations *.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Q4 earnings pressure was driven by lower base rates and Q3 repayment drag; headline misses versus consensus on EPS and revenue may weigh on near‑term sentiment *.
  • NAV increased meaningfully and liquidity remains robust ($428.2M capacity; $204.7M cash), supporting portfolio growth without external financing; balance sheet strength is a key buffer .
  • Monthly dividend initiation ($0.75 quarterly) with 12.1% implied yield is a supportive catalyst for income investors; sustained coverage will depend on redeployment pace and rate trajectory .
  • Credit quality remains solid with minimal non‑accruals (0.3% FV/0.5% cost) and realized gains ($7.2M) demonstrating underwriting discipline; CLO/JV marks are a monitoring item .
  • Watch for redeployment of $200M+ cash and SBIC debenture draws (~5.25% all‑in) to drive accretive NII; management is expanding BD to accelerate asset growth .
  • Tariff/macro commentary suggests limited direct exposure given portfolio tilt to SaaS/services; still, rate path and M&A volumes will influence originations and yields .
  • Equity issuance at/above NAV de‑levered the balance sheet but added dilution; management prioritizes long‑term growth and fortress capital positioning over near‑term EPS optics .
Notes: 
- Revenue refers to Total Investment Income. 
- EPS (Primary) in consensus for BDCs commonly aligns with NII per share. 
- Values marked with * are retrieved from S&P Global.