Saratoga Investment’s (SAR) CEO Christian Oberbeck on Q1 2018 Results – Earnings Call Transcript

Q1: 07-09-17 Earnings Summary
EPS of $0.5 beats by $0.03
Revenue of $8.7M (+ 10.0% Y/Y) beats by $0.34M

Saratoga Investment Corp (NYSE:SAR)

Q1 2018 Earnings Conference Call

July 13, 2017 10:00 ET

Executives

Henri Steenkamp – Chief Financial and Compliance Officer

Christian Oberbeck – Chairman and Chief Executive Officer

Michael Grisius – President and Chief Investment Officer

Analysts

Casey Alexander – Compass Point Research

Mickey Schleien – Ladenburg

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp.’s Fiscal First Quarter 2018 Financial Results Conference Call. Please note that today’s call is being recorded. During today’s presentation, all parties will be in a listen-only mode. Following the management’s prepared remark, we will open the line for questions.

At this time, I would like to turn the call over to Saratoga Investment Corp.’s Chief Financial and Compliance Officer, Mr. Henri Steenkamp. Sir, please go ahead.

Henri Steenkamp

Thank you. I would like to welcome everyone to Saratoga Investment Corp.’s fiscal first quarter 2018 earnings conference call. Today’s conference call includes forward-looking statements and projections. We ask you to refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these forward-looking statements and projections. We do not undertake to update our forward-looking statements unless required to do so by law.

Today, we will be referencing a presentation during our call. You can find our fiscal first quarter 2018 shareholder presentation in the Events & Presentations section of our Investor Relations website. A link to our IR page is in the earnings press release distributed last night. A replay of this conference call will be available from 1 p.m. today through July 20. Please refer to our earnings press release for details.

I would now like to turn the call over to our Chairman and Chief Executive Officer, Christian Oberbeck, who will be making a few introductory remarks.

Christian Oberbeck

Thank you, Henri and welcome everyone. Most recent fiscal quarter reflects the continued success of our efforts and activities in pursuit of credit quality, growth and earnings. In addition, we have continued to strengthen our capital structure to further expand and enhance our capabilities. The completion of which will now benefit us for many years. Saratoga Investment is risen to and continues at the top of the industry in terms of key performance indicators and in many categories far outpaces our competitors. Importantly, we have accomplished this in a highly competitive and challenging market environment. We continue to progress towards our long-term objective of increasing the quality and size of our asset base with the ultimate purpose of building Saratoga Investment Corp. into a best-in-class BDC generating meaningful and consistent returns for our shareholders.

Slide 2 highlights our continued progress and achievements during the past quarter. To briefly recap, first, we continued the strengthening of our financial foundation this year by maintaining a high level of investment credit quality, with 96.3% of our loan investments having our highest rating, up from 94.1% last quarter generating return on equity of 7.1% on a trailing 12-month basis. Excluding our legacy investments in Targus Group International and Elyria Foundry Company LLC that predates Saratoga’s management of the BDC as well as the various impacts related to the extinguishment of our 2020 baby bonds.

Our return on equity for this last 12-month period ended May 31, 2017 was 7.9%. This LTM ROE is net of a $5.3 million unrealized loss on our My Alarm Center investment, which we will discuss later in the call. Total unrealized losses on the whole portfolio for Q1 was $2.6 million reflecting the fact that the remainder of the portfolio had a $2.7 million unrealized gain in Q1 and we maintained a gross unlevered IRR of 12.2% on our total unrealized portfolio, with gross unlevered IRR increasing to 16.2% on total realizations of $210 million.