Saratoga Investment Corp reported a robust financial performance for Q1 2025, revealing a significant increase in net investment income (NII) per share of $1.05, a 12% improvement quarter-over-quarter (QoQ). This strong performance was underpinned by stable interest rates contributing to elevated recurring net interest margins, which increased by 19% due to a 9% rise in average assets under management. Notably, the dividend of $0.74 was comfortably covered, with NII exceeding dividend commitments by 42%. Management expressed a cautious but optimistic outlook, focusing on future economic challenges and opportunities, particularly in the context of a competitive market for private equity investments, where they continue to seek high-quality credit opportunities despite currently low deal volumes.
**Earnings Per Share (EPS):** $0.48 with a **YoY Increase:** 2,766.67%, **QoQ Increase:** 23.08%
**Adjusted Net Investment Income:** $14.3 million, **YoY Increase:** 12%.
**Dividends Paid:** $0.74 per share, yielding 13.1%.
**Balance Sheet Ratios:**
Financial Highlights
Performance Overview:
- Revenue: $22.85 million, YoY Increase: 66.37%, QoQ Increase: 4.21%
- Net Income: $6.61 million, YoY Increase: 3,199.72%, QoQ Increase: 24.57%
- Earnings Per Share (EPS): $0.48 with a YoY Increase: 2,766.67%, QoQ Increase: 23.08%
- Adjusted Net Investment Income: $14.3 million, YoY Increase: 12%.
- Dividends Paid: $0.74 per share, yielding 13.1%.
Balance Sheet Ratios:
- Total Assets: $1.20 billion
- Total Debt: $814.59 million
- Debt-to-Equity Ratio: 2.21
- Cash at End of Period: $93.30 million with $299 million of total liquidity available.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
22.85M
66.37%
4.21%
Gross Profit
9.89M
384.56%
5.46%
Operating Income
7.01M
2 735.71%
-6.59%
Net Income
6.61M
3 199.72%
24.57%
EPS
0.48
2 766.67%
23.08%
Key Financial Ratios
currentRatio
0.07
grossProfitMargin
43.3%
operatingProfitMargin
30.7%
netProfitMargin
28.9%
returnOnAssets
0.55%
returnOnEquity
1.8%
debtEquityRatio
2.21
operatingCashFlowPerShare
$3.81
freeCashFlowPerShare
$3.81
dividendPayoutRatio
135.8%
priceToBookRatio
0.88
priceEarningsRatio
12.29
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Management on NII Performance: "This quarter's earnings reflects elevated earnings power... with a 19% increase in recurring net interest margin..." (Christian Oberbeck)
- On Investment Opportunities: "Our originations this quarter demonstrate...many investments we review do not meet our high-quality credit standards." (Christian Oberbeck)
- Future Outlook: "We believe Saratoga continues to be favorably situated...for potential future economic opportunities..." (Christian Oberbeck)
"Our high quality nature, resilience, and balance of our approximately $1.096 billion portfolio..."
— Christian Oberbeck
"We continue to approach the market with prudence and discernment in terms of new commitments in the current environment."
— Christian Oberbeck
Forward Guidance
Saratoga's management provided optimism for future growth, driven by a strong balance sheet and liquidity. With an investment capacity of approximately $299 million, as highlighted during the earnings call, the firm is positioned to pursue opportunities in a challenging market, with the existing credit facilities providing essential support. Management indicated they are maintaining a cautious approach to new investments, seeking only high-quality commitments amidst a competitive market. This strategy reduces risks associated with credit defaults and provides robustness against economic downturns. Key factors to monitor include interest rate fluctuations which could impact net margins, and the performance of existing investments post-restructuring.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SAR Focus
43.27%
30.70%
1.80%
12.29%
NMFC
74.00%
75.90%
2.02%
11.89%
TCPC
41.70%
24.30%
0.53%
31.23%
CGBD
69.00%
1.10%
3.19%
6.99%
TSLX
73.80%
445.33%
3.00%
9.91%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Saratoga Investment Corp presents a compelling investment opportunity characterized by its solid earnings performance, strong portfolio structure, and robust future liquidity. While facing short-term challenges associated with non-accruals and market competition, the company’s long-standing management team remains focused on searching for quality investments to enhance NAV. SAR’s elevated dividend coverage positions it as a resilient player in the asset management industry, especially if it leverages its cash reserves judiciously to capitalize on emerging credit opportunities. Investors should keep an eye on interest rate trends and overall economic stability as key indicators affecting future performance.
Key Investment Factors
Growth Potential
Saratoga's portfolio includes significant equity interests and first-lien debt, with a structured focus on generating recurring revenue from stable sectors, providing a cushion for growth even in fluctuating market conditions.
Profitability Risk
The company faces risks from potential defaults in certain portfolio investments, particularly those identified in non-accrual statuses. Economic volatility and tightening credit markets also present risks.
Financial Position
Solid cash position at $93.30 million against total debt of $814.59 million indicates a reasonable liquidity situation, but a high debt-to-equity ratio suggests reliance on leverage.
SWOT Analysis
Strengths
Strong net investment income growth (+12%) and robust earnings power
High-quality portfolio with a focus on first-lien debt
Significant liquidity position with $299 million investment capacity
Weaknesses
Dependence on leverage evidenced by a debt-to-equity ratio of 2.21
Continued uncertainties with three investments on non-accrual
Opportunities
Ability to leverage a diverse capital structure to tap into new private equity relationships
Potential improvement in portfolio values post-restructuring initiatives
Threats
Weakening economic conditions could adversely affect portfolio performance
Increased competition in the lower middle market may suppress returns