EPS of $-0.07 decreased by 118% from previous year
Gross margin of 26.0%
Net income of -677.00K
""Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges." - Christian Oberbeck, CEO" - Christian Oberbeck
Saratoga Investment Corp (SAR) Q4 2025 Financial Results Report: Challenges and Opportunities in a Volatile Environment
Executive Summary
Saratoga Investment Corporation (SAR), a business development company focused on middle market investment opportunities, reported a challenging Q4 2025 marked by declining revenues and net income. The company's total revenue for the quarter stood at $17.5 million, a significant decrease of 20.3% year-over-year and 29.8% quarter-over-quarter. This decline was influenced by lower interest rates impacting revenue generated from floating rate assets, coupled with substantial repayments. The firm's net income registered at -$677,000, reflecting a marked erosion compared to previous periods. Despite these challenges, management affirmed the resilience of the portfolio and highlighted a transition to a monthly dividend structure, increasing the yield potential amid ongoing macroeconomic uncertainties. Management expressed confidence in their strategic positioning, indicating an optimistic outlook for capital deployment as M&A activity in the lower middle market appears to be gaining momentum, with the firm maintaining a robust investment pipeline.
Key Performance Indicators
Revenue
17.47M
QoQ: -29.80% | YoY:-20.33%
Gross Profit
4.54M
26.01% margin
QoQ: -61.63% | YoY:-51.53%
Operating Income
2.36M
QoQ: -73.81% | YoY:-68.60%
Net Income
-677.00K
QoQ: -107.66% | YoY:-112.76%
EPS
-0.07
QoQ: -110.94% | YoY:-117.95%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $17.5 million (YoY -20.3%, QoQ -29.8%)
**Net Income:** -$677,000 (Net Income Ratio of -3.9%)
**EPS:** -$0.07
**EBITDA:** $2.36 million (EBITDA margin at 13.5%)
**NAV:** $392.7 million, an increase of 6.1% YoY
Financial Highlights
Financial Metrics:
- Revenue: $17.5 million (YoY -20.3%, QoQ -29.8%)
- Net Income: -$677,000 (Net Income Ratio of -3.9%)
- EPS: -$0.07
- EBITDA: $2.36 million (EBITDA margin at 13.5%)
- NAV: $392.7 million, an increase of 6.1% YoY
- Adjusted NII: $8 million, adjusted NII per share at $0.56
- Dividend Yield: 12.1% based on monthly payout of $0.25 per share
- Cash at End of Period: $21 million, with significant available liquidity of $428 million for future investments. Management Commentary:
CEO Christian Oberbeck noted, "The overall financial performance and solid earnings power of our current portfolio reflect strong underwriting in our growing portfolio of companies and sponsors in well-selected industry segments."
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
17.47M
-20.33%
-29.80%
Gross Profit
4.54M
-51.53%
-61.63%
Operating Income
2.36M
-68.60%
-73.81%
Net Income
-677.00K
-112.76%
-107.66%
EPS
-0.07
-117.95%
-110.94%
Key Financial Ratios
currentRatio
0.28
grossProfitMargin
26%
operatingProfitMargin
13.5%
netProfitMargin
-3.88%
returnOnAssets
-0%
returnOnEquity
-0%
debtEquityRatio
1.86
operatingCashFlowPerShare
$6922.99
freeCashFlowPerShare
$6922.99
dividendPayoutRatio
-2650%
priceToBookRatio
0
priceEarningsRatio
-133.57
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key Insights from Management:
1. Strategic Positioning and Market Conditions:
Christian Oberbeck emphasized the company's favorable positioning to capitalize on future economic opportunities despite challenges, stating, "Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges."
2. Dividend Strategy Adjustment:
Management announced the transition to a monthly dividend structure to enhance shareholder returns, indicating an annualized yield of 12.1%.
3. Cash Reserves for Opportunities:
Henri Steenkamp noted the firm has "$205 million of cash available at year-end to be deployed accretively in investments."
4. Equity Realizations and M&A Outlook:
The portfolio generated $7.2 million in realized gains from equity, showing a hopeful sign for further realizations and highlighting an increase in M&A activity.
5. Credit Quality Concerns Mitigated:
Despite challenges with two companies on non-accrual, Oberbeck stated, "Our overall credit quality for this quarter remains steady, at 99.7% of credits rated in our highest category."
"Saratoga continues to be favorably situated for potential future economic opportunities as well as challenges." - Christian Oberbeck, CEO
â Christian Oberbeck
"We are proud to move towards a monthly dividend structure to enhance our investor returns and remain resilient amid current market conditions." - Christian Oberbeck, CEO},
â Christian Oberbeck
Forward Guidance
Saratoga's management reiterated a cautious yet optimistic approach toward future investments. They indicated that the transition to a monthly dividend enhances their readiness to adapt to potential market changes. The company anticipates shifts in the M&A landscape within the lower middle market, boosted by favorable economic conditions. However, they will remain discerning in their investment commitments given the current economic volatility, emphasizing a proactive stance in managing portfolio risks. Key metrics to monitor include NAV growth, adjusted NII, and ongoing developments in portfolio company performance, particularly regarding the two companies currently facing challenges.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SAR Focus
26.01%
13.50%
0.00%
-133.57%
NMFC
1.00%
0.00%
2.04%
10.97%
TCPC
1.96%
2.23%
-4.91%
-4.82%
CGBD
58.00%
52.80%
2.36%
10.67%
TSLX
53.30%
43.60%
3.17%
9.78%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Saratoga Investment Corp's short-to-mid-term outlook is cautiously optimistic, supported by solid cash reserves and ongoing strategic initiatives. Management plans to leverage their robust liquidity to capitalize on favorable middle market opportunities as they arise. However, investors should remain vigilant regarding ongoing economic pressures, particularly those affecting interest rates and market liquidity, which could impact portfolio performance and distribution capacity. Overall, Saratoga's long-term performance trajectory continues to reflect their commitment to disciplined investing, reflected in both historical and projected returns against sector benchmarks.
Key Investment Factors
Growth Potential
Saratoga Investment Corp is positioned to benefit from a gradual improvement in the M&A environment, particularly in the lower middle market. The firm's strong pipeline and high asset quality suggest a potential increase in AUM and overall portfolio growth over the next quarters.
Profitability Risk
The primary risks include interest rate volatility, potential defaults in the portfolio (notably the two companies on non-accrual), and macroeconomic uncertainties that could impact future M&A activity.
Financial Position
The company retains a strong financial position with a significant cash balance ($21 million) and additional liquidity reserves ($428 million) to support future investments and manage potential economic turbulence.
SWOT Analysis
Strengths
Strong portfolio management and high-quality assets
Experienced management team with a track record of prudent lending
Strong liquidity position ($205 million cash available for investments)
Weaknesses
Recent declines in revenue and net income impact performance metrics
Dependence on interest rate environment, affecting floating rate assets
Two portfolio companies on non-accrual may pose risks
Opportunities
Increasing M&A activity in lower middle market could present investment opportunities
Transition to monthly dividend structure could enhance investor sentiment and attract new capital
Potential for positive NAV growth and realized gains from successful equity exits
Threats
Macroeconomic volatility may disrupt investment opportunities
Rising interest rates could pressure net income further
Competitors may exploit economic conditions to garner higher deal flow