• Saratoga Investment Corp. Announces Fiscal Second Quarter 2024 Financial Results

    Source: Nasdaq GlobeNewswire / 09 Oct 2023 16:05:40   America/New_York

    NEW YORK, Oct. 09, 2023 (GLOBE NEWSWIRE) -- Saratoga Investment Corp. (NYSE:SAR) (“Saratoga Investment” or “the Company”), a business development company (“BDC”), today announced financial results for its 2024 fiscal second quarter, with Net Investment Income (“NII”) per share down 15% from last quarter though up 80% over last year’s second quarter, and adjusted NII per share unchanged from last quarter, and up 86% from last year. The substantial year-over-year increase in earnings reflect growth in Assets under Management (“AUM”), stable overall portfolio performance and margin improvement from rising rates on Saratoga Investment’s largely floating rate assets, with costs of financing liabilities remaining largely fixed.

    Saratoga Investment’s annualized second quarter dividend of $0.71 per share and adjusted net investment income of $1.08 per share imply an 11.7% dividend yield and 17.8% earnings yield based on its recent stock price of $24.24 per share on October 6, 2023. This substantial overearning of the dividend by 37c this quarter, or $1.48 annualized per share, increases Net Asset Value (“NAV”), and also provides both support for increased growth and a cushion against adverse events.

    Summary Financial Information

    The Company’s summarized financial information is as follows:

     For the three
    months ended and
    as of August 31,
    2023    		For the three
    months ended and
    as of May 31,
    2023    		For the three
    months ended and
    as of August 31,
    2022
     ($ in thousands except per share)
    AUM1,098,945 1,084,098 954,664 
    NAV362,079 337,451 337,213 
    NAV per share28.44 28.48 28.27 
    Investment Income35,514 34,632 21,853 
    Net Investment Income per share1.15 1.35 0.64 
    Adjusted Net Investment Income per share1.08 1.08 0.58 
    Earnings per share0.65 (0.02)0.08 
    Dividends per share (declared)0.71 0.70 0.54 
    Return on Equity – last twelve months9.6% 7.2% 4.8% 
    – annualized quarter9.0% (0.2%) 1.1% 
    Originations27,447 139,819 140,612 
    Repayments6,036 11,067 75,079 
           

    “Rising interest rates are producing increased margins on our growing portfolio, and both the general contraction of available credit and our ongoing investment in sponsor relationships are creating an abundant flow of attractive investment opportunities from high quality sponsors at competitive pricing, terms and absolute rates. Saratoga continues to be well positioned for this environment on the asset side, with 85% first lien floating rate assets and a combined core portfolio yield of 12.6%, up from 9.9% last year, as well as on the liability side with largely fixed rate, interest only, essentially covenant free and non-amortizing liabilities, with final maturities occurring well into the future, primarily two through ten years out,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment.

    “Saratoga’s strong and improving performance is reflected in our continued strong key performance indicators this past quarter, including: (i) sequential quarterly adjusted NII per share increases of 33% in Q3 (58c to 77c), 27% in Q4 (77c to 98c per share), 10% in Q1 (98c to $1.08 per share), and steady at $1.08 per share in Q2, (ii) current assets under management growing to $1.099 billion, and (iii) dividend increasing to 71c per share, up 31% from 54c per share in Q2 last year and over earned by 52% as compared to this quarter’s $1.08 per share adjusted NII. The rapid increase in our earnings, more than 85% year-over-year, has resulted in substantial overearning of our dividend and a 17.8% earnings yield, building NAV and further supporting growth.”

    “With regards to improving our balance sheet to further support the growth of our portfolio companies, Saratoga Investment raised $34 million in equity at net asset value since the end of Q1, with $24 million of equity raised in Q2 and another $10 million since quarter-end. This equity supports our strong originations, strengthens our capital structure and reduces our regulatory leverage.”

    “Most importantly, at the foundation of our performance is the high-quality nature, resilience and balance of our $1.099 billion portfolio, marked down just 1.4% overall as compared to our cost and with our core non-CLO portfolio’s fair value exceeding our cost by 0.2%, reflecting the strength of our underwriting in our solid, growing portfolio companies and sponsors in well-selected industry segments. This quarter’s unrealized depreciation of $5.7 million primarily reflects the markdown of our Pepper Palace investment by $15 million, significantly offset by broad appreciation across the rest of our core and broadly syndicated loan portfolios.”   

    “We continue to remain prudent and discerning in terms of new commitments in the current environment. This quarter demonstrates that, despite an overall robust pipeline, there are periods where many of the investments we review do not meet our high quality credit standards. We originated one new portfolio company investment this fiscal quarter and had seventeen smaller follow-on investments in existing portfolio companies we know well with strong business models and balance sheets. Originations this quarter totaled $27.5 million, with $6.0 million of repayments and amortization. Our credit quality for this quarter remained high at 98.2% of credits rated in our highest category, with a second credit added to non-accrual, being previously on our on yellow watchlist. With 85% of our investments at quarter-end in first lien debt and generally supported by strong enterprise values and balance sheets in industries that have historically performed well in stressed situations, we believe our portfolio and leverage is well structured for future economic conditions and uncertainty.”

    “As we navigate through this challenging and volatile environment, we remain confident in our experienced management team, high underwriting standards and ability to steadily grow portfolio size and maintain quality and investment performance over the long-term.”

    Discussion of Financial Results for the Quarter ended August 31, 2023:

    As of August 31, 2023, Saratoga Investment’s AUM was $1.099 billion, an increase of 15.1% from $954.7 million as of August 31, 2022, and an increase of 1.4% from $1.084 billion as of May 31, 2023. The quarterly increase consists of $27.5 million in originations, offset by $6.0 million of repayments and amortizations, continuing the consistent long-term growth of the portfolio driven by our strong deal flow pipeline. In addition, during the second quarter the fair value of the portfolio was offset by $5.7 million of net unrealized depreciation, driven by (i) the unrealized markdown of our Pepper Palace investment by $15.4 million due to company performance, and (ii) the impact of changes to market spreads, EBITDA multiples and/or revised portfolio company performance on the quarter-end valuations. This represented a 0.5% reduction in value of the overall portfolio, with the Pepper Palace markdown offset by $3.9 million unrealized appreciation across the core BDC portfolio and $5.8 million unrealized appreciation related to the CLO and JV. Saratoga Investment’s portfolio remains strong, with 84.6% of the portfolio in first liens, and a continued high level of investment quality in loan investments, with 98.2% of its loans this quarter at its highest internal rating. Saratoga Investment’s portfolio has an overall fair value that is 1.4% below its cost basis, with the fair value of its core non-CLO portfolio exceeding its cost basis by 0.2%. Since Saratoga Investment took over the management of the BDC, $907.7 million of repayments and sales of investments originated by Saratoga Investment have generated a gross unlevered IRR of 15.6%.

    For the three months ended August 31, 2023, total investment income of $35.5 million increased by $13.6 million, or 62.5%, from $21.9 million as compared to the three months ended August 31, 2022. As compared to the quarter ended May 31, 2023, total investment income grew by $0.9 million, or 2.5%, from $34.6 million. This quarter’s investment income was generated by (i) the impact of higher interest rates, both base rates and spreads, with the weighted average current coupon on non-CLO BDC investments increasing from 9.9% to 12.6% year-over-year, (ii) average non-CLO BDC assets increasing by 16.4% year-over-year, and by 2.2% since last quarter, and (iii) other income including a $1.6 million dividend received from the Saratoga Investment JV.

    For the three months ended August 31, 2023, adjusted net investment income of $13.2 million increased by $6.2 million, or 89.0%, from $7.0 million for the quarter ended August 31, 2022, and by $0.4 million, or 2.4%, from $12.8 million for the quarter ended May 31, 2023. The increases in investment income were offset by (i) increased interest expense resulting from the various new Notes Payable and SBA debentures issued during the past year and quarter and (ii) increased base and incentive management fees from higher AUM and earnings.

    Total expenses for the second fiscal quarter 2024, excluding interest and debt financing expenses, base management fees and incentive fees and income and excise taxes, decreased from $2.3 million to $2.1 million as compared to the first fiscal quarter 2024, and increased from $1.6 million from the last quarter ended August 31, 2022. This represented 0.7% of average total assets on an annualized basis, down from 0.8% at both Q2 last year and last quarter.

    Net investment income on a weighted average per share basis was $1.15 for the quarter ended August 31, 2023. Adjusted for the incentive fee accrual related to net capital gains, the net investment income on a weighted average per share basis was $1.08. This compares to adjusted net investment income per share of $0.58 and $1.08 for the quarters ended August 31, 2022, and May 31, 2023, respectively. The weighted average common shares outstanding of 12.2 million this quarter increased from 12.0 million and 11.9 million for the quarters ended August 31, 2022 and May 31, 2023, respectively.

    Net investment income yield as a percentage of average net asset value (“Net Investment Income Yield”) was 16.0% for the quarter ended August 31, 2023. Adjusted for the incentive fee accrual related to net capital gains, the Net Investment Income Yield was 15.0%. In comparison, adjusted Net Investment Income Yield was 8.2% and 15.0% for the quarters ended August 31, 2022 and May 31, 2023, respectively.

    Return on equity for the last twelve months ended August 31, 2023 was 9.6%, up from 7.2% last quarter and 4.8% for the comparable period last year.

    Net Asset Value (“NAV”) was $362.1 million as of August 31, 2023, an increase of $24.9 million from $337.2 million as of August 31, 2022, and an increase of $24.6 million from $337.5 million as of May 31, 2023. This includes $24.3 million of equity raised at NAV during the fiscal second quarter.

    NAV per share was $28.44 as of August 31, 2023, compared to $28.27 as of August 31, 2022, and $28.48 as of May 31, 2023.

    Investment portfolio activity for the quarter ended August 31, 2023:

    • Cost of investments made during the period: $27.5 million, including one investment in a new portfolio company and seventeen follow-ons.
    • Principal repayments during the period: $6.0 million, including two repayments of existing investments, plus amortization.

    Additional Financial Information

    For the fiscal quarter ended August 31, 2023, Saratoga Investment reported NII of $35.5 million, or $1.15 on a weighted average per share basis, net realized and unrealized losses on investments of $6.0 million, or $0.49 on a weighted average per share basis, and a $0.1 million realized loss on the extinguishment of debt, or $0.01 on a weighted average per share basis, resulting in a net increase in net assets from operations of $7.9 million, or $0.65 on a weighted average per share basis. The $6.0 million net realized and unrealized loss on investments was comprised of $5.7 million in net unrealized depreciation on investments, and $0.2 million in net change in provision for deferred taxes on unrealized appreciation on investments.

    This quarter we saw no net realized gains in the portfolio. The $5.7 million net unrealized depreciation primarily reflects the $15.4 million of unrealized depreciation on the Company’s Pepper Palace investment, offset by (i) approximately $3.9 million of net unrealized appreciation across the core BDC portfolio, driven relatively evenly by current company performance and market spreads, as well as (ii) $5.8 million unrealized appreciation on the Company’s CLO and JV equity investments, reflecting the volatility in the broadly syndicated loan market as of quarter-end.

    Portfolio and Investment Activity

    As of August 31, 2023, the fair value of Saratoga Investment’s portfolio was $1.1 billion, excluding $48.4 million in cash and cash equivalents, principally invested in 55 portfolio companies and one collateralized loan obligation fund (the “CLO”) and one joint venture fund (the “JV”). The overall portfolio composition consisted of 84.6% of first lien term loans, 1.4% of second lien term loans, 1.6% of unsecured term loans, 3.2% of subordinated notes in CLOs and 9.2% of common equity.

    For the fiscal quarter ended August 31, 2023, Saratoga Investment invested $27.5 million in one new portfolio company with seventeen follow-ons in existing portfolio companies and had $6.0 million in aggregate amount of two exit and repayments, including realized gains, resulting in net originations of $21.5 million for the quarter.

    As of August 31, 2023, the weighted average current yield on Saratoga Investment’s portfolio based on current fair values was 11.3%, which was comprised of a weighted average current yield of 12.8% on first lien term loans, 5.6% on second lien term loans, 10.0% on unsecured term loans, 8.9% on CLO subordinated notes and 0.0% on equity interests.

    Liquidity and Capital Resources

    As of August 31, 2023, Saratoga Investment had $35.0 million in outstanding borrowings under its $65.0 million senior secured revolving credit facility with Encina. At the same time, Saratoga Investment had $0.0 million SBA debentures in its SBIC I license outstanding, $175.0 million SBA debentures in its SBIC II license outstanding, $14.0 million SBA debentures in its SBIC III license outstanding, $269.4 million of listed baby bonds issued, $250.0 million of unsecured unlisted institutional bond issuances, five unlisted issuances of $52.0 million in total, and an aggregate of $48.4 million in cash and cash equivalents.

    With $30.0 million available under the credit facility and $48.4 million of cash and cash equivalents as of August 31, 2023, Saratoga Investment has a total of $78.4 million of undrawn borrowing capacity and cash and cash equivalents for new investments or to support its existing portfolio companies in the BDC. In addition, Saratoga Investment has $161.0 million in undrawn SBA debentures from its recently approved SBIC III license. Availability under the Encina credit facility can change depending on portfolio company performance and valuation. In addition, certain follow-on investments in SBIC I and the BDC will not qualify for SBIC II or III funding. Overall outstanding SBIC debentures is limited to $350.0 million across all three SBIC licenses. As of quarter-end, Saratoga Investment had $57.8 million of committed undrawn lending commitments and $82.8 million of discretionary funding commitments.

    On July 30, 2021, Saratoga Investment entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc. and Compass Point Research and Trading, LLC, through which Saratoga Investment may offer for sale, from time to time, up to $150.0 million of common stock through an ATM offering. On July 10, 2023, Saratoga Investment increased the maximum amount of shares of common stock to be sold through the ATM Program to $300.0 million from $150.0 million. As of August 31, 2023, Saratoga Investment sold 5,692,773 shares for gross proceeds of $148.3 million at an average price of $26.06 for aggregate net proceeds of $146.8 million (net of transaction costs). During the three and six months ended August 31, 2023, Saratoga Investment sold 852,412 shares for gross proceeds of $24.3 million at an average price of $28.56 for aggregate net proceeds of $24.3 million (net of transaction costs).

    Dividend

    On August 14, 2023, Saratoga Investment announced that its Board of Directors declared a quarterly dividend of $0.71 per share for the fiscal quarter ended August 31, 2023, paid on September 28, 2023, to all stockholders of record at the close of business on September 14, 2023. This is Saratoga Investment’s fourteenth quarterly dividend increase in a row.

    The Company previously declared in fiscal 2024 a quarterly dividend of $0.70 per share for the quarter ended May 31, 2023. During fiscal year 2023, the Company declared a quarterly dividend of $0.69 per share for the quarter ended February 28, 2023, $0.68 per share for the quarter ended November 30, 2022, $0.54 per share for the quarter ended August, 31, 2022 and $0.53 per share for the quarter ended May 31, 2022. During fiscal year 2022, the Company declared a quarterly dividend of $0.53 per share for the quarters ended February 28, 2022 and November 30, 2021, $0.52 per share for the quarter ended August 31, 2021, $0.44 per share for the quarter ended May 31, 2021 and $0.43 per share for the quarter ended February 28, 2021.

    Shareholders have the option to receive payment of dividends in cash or receive shares of common stock, pursuant to the Company’s DRIP.

    Share Repurchase Plan

    In fiscal year 2015, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. Since then, the Share Repurchase Plan has been extended annually, and the Company has periodically increased the amount of shares of common stock that may be purchased under the Share Repurchase Plan. Most recently, on January 9, 2023, our board of directors extended the Share Repurchase Plan for another year to January 15, 2024, increasing the number of shares that may be repurchased under the Share Repurchase Plan to 1.7 million shares of common stock.

    As of August 31, 2023, the Company had purchased 1,035,203 shares of common stock, at the average price of $22.05 for approximately $22.8 million pursuant to the Share Repurchase Plan. During the three months ended August 31, 2023, the Company did not purchase any shares of common stock pursuant to the Share Repurchase Plan. During the six months ended August 31, 2023, the Company purchased 88,576 shares of common stock, at the average price $24.36 for approximately $2.2 million pursuant to the Share Repurchase Plan.

    2024 Fiscal Second Quarter Conference Call/Webcast Information

    When: Tuesday, October 10, 2023
      10:00 a.m. Eastern Time (ET)
       
    How: Webcast: Interested parties may access a live webcast of the call and find the Q2 2024 presentation by going to the “Events & Presentations” section of Saratoga Investment Corp.’s investor relations website, Saratoga events and presentations. A replay of the webcast will also be available for a limited time at Saratoga events and presentations.
       
      Call: To access the call by phone, please go to this link (Registration Link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time.
       
    Information: Saratoga Investment Corp.’s Form 10-Q for the fiscal quarter ended August 31, 2023 will be filed around 7:00am on Tuesday, October 10, 2023 with the Securities and Exchange Commission (“SEC”), following the SEC’s federal holiday on Monday, October 9, 2023.
       

    About Saratoga Investment Corp.

    Saratoga Investment is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses. The Company invests primarily in senior and unitranche leveraged loans and mezzanine debt, and, to a lesser extent, equity to provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors. Saratoga Investment’s objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments. Saratoga Investment has elected to be regulated as a business development company under the Investment Company Act of 1940 and is externally managed by Saratoga Investment Advisors, LLC, an SEC-registered investment advisor focusing on credit-driven strategies. Saratoga Investment Corp. owns three SBIC-licensed subsidiaries, manages a $650 million collateralized loan obligation (“CLO”) fund and co-manages a joint venture (“JV”) fund that owns a $400 million collateralized loan obligation (“JV CLO”) fund.  It also owns 52% of the Class F and 100% of the subordinated notes of the CLO, 87.5% of both the unsecured loans and membership interests of the JV and 87.5% of the Class E notes of the JV CLO. The Company’s diverse funding sources, combined with a permanent capital base, enable Saratoga Investment to provide a broad range of financing solutions.

    Forward Looking Statements

    This press release contains historical information and forward-looking statements with respect to the business and investments of the Company, including, but not limited to, the statements about future events or our future performance or financial condition. Forward-looking statements can be identified by the use of forward looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or negative versions of those words, other comparable words or other statements that do not relate to historical or factual matters. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to: changes in the markets in which we invest; changes in the financial, capital, and lending markets; an economic downturn and its impact on the ability of our portfolio companies to operate and the investment opportunities available to us; the impact of interest rate volatility on our business and our portfolio companies; the impact of supply chain constraints and labor shortages on our portfolio companies; and the elevated levels of inflation and its impact on our portfolio companies and the industries in which we invests, as well as those described from time to time in our filings with the Securities and Exchange Commission.

    Any forward-looking statement speaks only as of the date on which it is made. The Company undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call, whether as a result of new information, future developments or otherwise, except as required by law. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023 and subsequent filings, including the “Risk Factors” sections therein, with the Securities and Exchange Commission for a more complete discussion of the risks and other factors that could affect any forward-looking statements. 

    PART I. FINANCIAL INFORMATION

    Item 1. Consolidated Financial Statements

     
    Saratoga Investment Corp.
    Consolidated Statements of Assets and Liabilities
         
      August 31, 2023 February 28, 2023
         
    ASSETS    
    Investments at fair value    
    Non-control/Non-affiliate investments (amortized cost of $953,247,363 and $819,966,208, respectively) $947,924,370  $828,028,800 
    Affiliate investments (amortized cost of $44,385,672 and $25,722,320, respectively)  46,763,587   28,305,871 
    Control investments (amortized cost of $117,270,707 and $120,800,829, respectively)  104,256,803   116,255,582 
    Total investments at fair value (amortized cost of $1,114,903,742 and $966,489,357, respectively)  1,098,944,760   972,590,253 
    Cash and cash equivalents  19,305,025   65,746,494 
    Cash and cash equivalents, reserve accounts  29,127,875   30,329,779 
    Interest receivable (net of reserve of $4,673,871 and $2,217,300, respectively)  8,032,228   8,159,951 
    Management fee receivable  364,717   363,809 
    Other assets  436,947   531,337 
    Current tax receivable  99,676   436,551 
    Total assets $1,156,311,228  $1,078,158,174 
         
    LIABILITIES    
    Revolving credit facility $35,000,000   32,500,000 
    Deferred debt financing costs, revolving credit facility  (1,111,801)  (1,344,005)
    SBA debentures payable  189,000,000   202,000,000 
    Deferred debt financing costs, SBA debentures payable  (5,640,013)  (4,923,488)
    8.75% Notes Payable 2024  20,000,000   - 
    Discount on 8.75% notes payable 2024  (435,518)  - 
    Deferred debt financing costs, 8.75% notes payable 2024  (18,465)  - 
    7.00% Notes Payable 2025  12,000,000   12,000,000 
    Discount on 7.00% notes payable 2025  (251,800)  (304,946)
    Deferred debt financing costs, 7.00% notes payable 2025  (32,121)  (40,118)
    7.75% Notes Payable 2025  5,000,000   5,000,000 
    Deferred debt financing costs, 7.75% notes payable 2025  (101,880)  (129,528)
    4.375% Notes Payable 2026  175,000,000   175,000,000 
    Premium on 4.375% notes payable 2026  718,718   830,824 
    Deferred debt financing costs, 4.375% notes payable 2026  (2,128,206)  (2,552,924)
    4.35% Notes Payable 2027  75,000,000   75,000,000 
    Discount on 4.35% notes payable 2027  (347,969)  (408,932)
    Deferred debt financing costs, 4.35% notes payable 2027  (1,204,903)  (1,378,515)
    6.25% Notes Payable 2027  15,000,000   15,000,000 
    Deferred debt financing costs, 6.25% notes payable 2027  (309,003)  (344,949)
    6.00% Notes Payable 2027  105,500,000   105,500,000 
    Discount on 6.00% notes payable 2027  (141,155)  (159,334)
    Deferred debt financing costs, 6.00% notes payable 2027  (2,573,601)  (2,926,637)
    8.00% Notes Payable 2027  46,000,000   46,000,000 
    Deferred debt financing costs, 8.00% notes payable 2027  (1,447,465)  (1,622,376)
    8.125% Notes Payable 2027  60,375,000   60,375,000 
    Deferred debt financing costs, 8.125% notes payable 2027  (1,766,716)  (1,944,536)
    8.50% Notes Payable 2028  57,500,000   - 
    Deferred debt financing costs, 8.50% notes payable 2028  (1,882,934)  - 
    Base management and incentive fees payable  9,169,859   12,114,878 
    Deferred tax liability  2,786,512   2,816,572 
    Accounts payable and accrued expenses  1,965,484   1,464,343 
    Interest and debt fees payable  3,231,853   3,652,936 
    Directors fees payable  -   14,932 
    Due to manager  378,598   10,935 
    Total liabilities  794,232,474   731,200,132 
         
    Commitments and contingencies    
         
    NET ASSETS    
    Common stock, par value $0.001, 100,000,000 common shares authorized, 12,729,781 and 11,890,500 common shares issued and outstanding, respectively  12,730   11,891 
    Capital in excess of par value  345,876,725   321,893,806 
    Total distributable earnings (deficit)  16,189,300   25,052,345 
    Total net assets  362,078,755   346,958,042 
    Total liabilities and net assets $1,156,311,229  $1,078,158,174 
    NET ASSET VALUE PER SHARE $28.44  $29.18 
    Asset Coverage Ratio  159.7%   165.9%


     
    Saratoga Investment Corp.
    Consolidated Statements of Operations
    (Unaudited)
       
      For the three months ended
      August 31, 2023 August 31, 2022
    INVESTMENT INCOME    
    Interest from investments    
    Interest income:    
    Non-control/Non-affiliate investments $28,489,719  $16,197,470 
    Affiliate investments  907,064   1,322,501 
    Control investments  2,085,448   1,513,666 
    Payment-in-kind interest income:    
    Non-control/Non-affiliate investments  493,338   85,746 
    Affiliate investments  215,547   29,167 
    Control investments  142,289   84,220 
    Total interest from investments  32,333,405   19,232,770 
    Interest from cash and cash equivalents  539,093   34,435 
    Management fee income  817,250   817,024 
    Dividend Income*  1,631,583   212,688 
    Structuring and advisory fee income  45,000   1,408,086 
    Other income*  147,814   147,843 
    Total investment income  35,514,145   21,852,846 
         
    OPERATING EXPENSES    
    Interest and debt financing expenses  12,413,462   7,922,025 
    Base management fees  4,840,899   4,104,105 
    Incentive management fees expense  2,481,473   589,840 
    Professional fees  486,673   368,165 
    Administrator expenses  904,167   772,917 
    Insurance  81,901   90,226 
    Directors fees and expenses  111,000   110,000 
    General & administrative  467,116   299,445 
    Income tax expense (benefit)  (237,330)  (101,891)
    Total operating expenses  21,549,361   14,154,832 
    NET INVESTMENT INCOME  13,964,784   7,698,014 
         
    REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS    
    Net realized gain (loss) from investments:    
    Non-control/Non-affiliate investments  -   7,943,838 
    Net realized gain (loss) from investments  -   7,943,838 
    Income tax (provision) benefit from realized gain on investments  -   - 
    Net change in unrealized appreciation (depreciation) on investments:    
    Non-control/Non-affiliate investments  (11,657,451)  (13,878,470)
    Affiliate investments  39,648   2,600,434 
    Control investments  5,880,232   (1,980,420)
    Net change in unrealized appreciation (depreciation) on investments  (5,737,571)  (13,258,456)
    Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments  (221,206)  (230,154)
    Net realized and unrealized gain (loss) on investments  (5,958,777)  (5,544,772)
    Realized losses on extinguishment of debt  (110,056)  (1,204,809)
    NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $7,895,951  $948,433 
         
    WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $0.65  $0.08 
    WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED  12,158,440   11,963,276 
             


     
    Saratoga Investment Corp.
    Consolidated Statements of Operations
    (Unaudited)
       
      For the six months ended
      August 31, 2023 August 31, 2022
    INVESTMENT INCOME    
    Interest from investments    
    Interest income:    
    Non-control/Non-affiliate investments $54,800,512  $30,048,616 
    Affiliate investments  1,634,150   2,372,649 
    Control investments  4,131,308   3,059,796 
    Payment-in-kind interest income:    
    Non-control/Non-affiliate investments  618,233   171,427 
    Affiliate investments  423,136   29,167 
    Control investments  283,852   157,441 
    Total interest from investments  61,891,191   35,839,096 
    Interest from cash and cash equivalents  1,343,382   35,152 
    Management fee income  1,634,038   1,632,988 
    Dividend Income*  3,472,513   512,817 
    Structuring and advisory fee income  1,474,222   2,259,814 
    Other income*  330,842   252,111 
    Total investment income  70,146,188   40,531,978 
         
    OPERATING EXPENSES    
    Interest and debt financing expenses  24,106,284   14,793,538 
    Base management fees  9,405,088   7,906,168 
    Incentive management fees expense  2,584,821   (1,314,145)
    Professional fees  972,723   785,490 
    Administrator expenses  1,722,917   1,522,917 
    Insurance  163,802   177,536 
    Directors fees and expenses  200,068   220,000 
    General & administrative  1,297,844   966,861 
    Income tax expense (benefit)  (231,093)  (200,623)
    Total operating expenses  40,222,454   24,857,742 
    NET INVESTMENT INCOME  29,923,734   15,674,236 
         
    REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS    
    Net realized gain (loss) from investments:    
    Non-control/Non-affiliate investments  90,691   8,106,347 
    Net realized gain (loss) from investments  90,691   8,106,347 
    Income tax (provision) benefit from realized gain on investments  -   69,250 
    Net change in unrealized appreciation (depreciation) on investments:    
    Non-control/Non-affiliate investments  (13,385,585)  (14,512,759)
    Affiliate investments  (205,636)  3,168,040 
    Control investments  (8,468,657)  (11,247,186)
    Net change in unrealized appreciation (depreciation) on investments  (22,059,878)  (22,591,905)
    Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments  (161,799)  (592,105)
    Net realized and unrealized gain (loss) on investments  (22,130,986)  (15,008,413)
    Realized losses on extinguishment of debt  (110,056)  (1,204,809)
    NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $7,682,692  $(538,986)
         
    WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $0.64  $(0.04)
    WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED  12,011,180   12,037,855 
             

    Supplemental Information Regarding Adjusted Net Investment Income, Adjusted Net Investment Income Yield and Adjusted Net Investment Income per share

    On a supplemental basis, Saratoga Investment provides information relating to adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income, net investment income yield and net investment income per share. Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or reversal attributable to realized and unrealized gains. The management agreement with the Company’s advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses for such year. In addition, Saratoga Investment accrues, but does not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. All capital gains incentive fees are presented within net investment income within the Consolidated Statements of Operations, but the associated realized and unrealized gains and losses that these incentive fees relate to, are excluded. As such, Saratoga Investment believes that adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share is a useful indicator of operations exclusive of any capital gains incentive fee expense or reversal attributable to gains. In addition, adjusted net investment income in fiscal 2023 also excludes the interest expense and amortization of deferred financing costs related to the 2025 SAK Notes during the period while the 2027 SAT Notes were already issued and outstanding. These expenses are directly attributable to the issuance of the 2027 SAT Notes and the subsequent repayment of the 2025 SAK Notes. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. The following table provides a reconciliation of net investment income to adjusted net investment income, net investment income yield to adjusted net investment income yield and net investment income per share to adjusted net investment income per share for the three and six months ended August 31, 2023 and August 31, 2022.

     For the Quarters Ended
     August 31, 2023
    		 August 31, 2022
       
    Net Investment Income$13,964,784  $7,698,014 
    Changes in accrued capital gains incentive fee expense/ reversal (808,452)  (1,068,406)
    Interest expense on SAK Notes during the period -   329,921 
    Adjusted net investment income 13,156,332  $6,959,529 
       
    Net investment income yield 16.0%  9.0%
    Changes in accrued capital gains incentive fee expense/ reversal (1.0)%  (0.9)%
    Interest expense on SAK Notes during the period -   0.1%
    Adjusted net investment income yield(1) 15.0%  8.2%
       
    Net investment income per share$1.15  $0.64 
    Changes in accrued capital gains incentive fee expense/ reversal (0.07)  (0.09)
    Interest expense on SAK Notes during the period -   0.03 
    Adjusted net investment income per share(2)$1.08  $0.58 
            

    (1) Adjusted net investment income yield is calculated as adjusted net investment income divided by average net asset value.

    (2) Adjusted net investment income per share is calculated as adjusted net investment income divided by weighted average common shares outstanding.

     For the Six Months Ended
     August 31, 2023
    		 August 31, 2022
       
    Net Investment Income$29,923,734  $15,674,236 
    Changes in accrued capital gains incentive fee expense/(reversal) (3,918,274)  (2,972,391)
    Interest expense on SAK Notes during the period -   655,305 
    Adjusted net investment income$26,005,460  $13,357,150 
       
    Net investment income yield 17.2%  9.1%
    Changes in accrued capital gains incentive fee expense/(reversal) (2.3%)  (1.6)%
    Interest expense on SAK Notes during the period -   0.2%
    Adjusted net investment income yield(1) 14.9%  7.7%
       
    Net investment income per share$2.49  $1.30 
    Changes in accrued capital gains incentive fee expense/(reversal) (0.32)  (0.24)
    Interest expense on SAK Notes during the period -   0.05 
    Adjusted net investment income per share(2)$2.17  $1.11 
            

    (1) Adjusted net investment income yield is calculated as adjusted net investment income divided by average net asset value.

    (2) Adjusted net investment income per share is calculated as adjusted net investment income divided by weighted average common shares outstanding.

    Contact: Henri Steenkamp
    Saratoga Investment Corp.
    212-906-7800

    Roland Tomforde
    Broadgate Consultants
    212-232-2222


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