Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Saratoga Investment Corp's Fiscal Third Quarter 2026 Financial Results Conference Call. Please note that today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Saratoga Investment Corp's Chief Financial and Chief Compliance Officer, Mr. Henri Steenkamp. Please go ahead, sir.

Thank you. I would like to welcome everyone to Saratoga Investment Corp's Fiscal Third Quarter 2026 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 third quarter 2026 shareholder presentation in the Events and Presentations section of our Investor Relations website. A link to our IR page is in the earnings press release distributed last night. For everyone new to our story, please note that our fiscal year-end is February 28. So any reference to Q3 results reflects our November 30 quarter end period. A replay of this conference call will also be available. 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.

Thank you, Henri, and welcome, everyone. Saratoga Investment Corp highlights this quarter include continued NAV growth from the previous quarter and year with stable NAV per share, an increase in NII of $0.03 per share from the previous quarter, a strong 13.5% return on equity, beating the industry, net originations of $17.2 million, including 3 new portfolio companies, and importantly, continued solid performance from the core BDC portfolio in a volatile macro environment. Continuing our historical strong dividend distribution history, we announced a monthly base dividend of $0.25 per share or $0.75 per share in aggregate for the fourth quarter of fiscal 2026, which when annualized, represents a 12.9% yield based on the stock price of $23.19 as of January 6, 2026, offering strong current income from an investment value standpoint. Though we did see an increase in adjusted NII of $0.03 per share from the previous quarter, our third quarter NII of $0.61 per share continues to reflect the impact of the last 12 months trend in decreasing levels of short-term interest rates and spreads on Saratoga investments largely floating rate assets as well as continued high levels of repayments. Strong originations outpaced repayments during the third quarter, which when coupled with the repayment of a $12 million baby bond resulted in our cash position at quarter end decreasing to $169.6 million, though we still have significant cash available to be deployed accretively in investments or to repay existing debt. During the quarter, we began to see an increase in M&A activity despite continued competitive market dynamics. While our portfolio again saw multiple debt repayments in Q3, we had strong new originations, resulting in net originations of $17.2 million for the quarter. Specifically, we originated $72.1 million in 3 new investments and 9 follow-ons as well as closing on…

Thank you, Chris. Slide 5 highlights our key performance metrics for the fiscal third quarter ended November 30, 2025, most of which Chris already highlighted. Of note, the weighted average common shares outstanding in Q3 was 16.1 million, increasing from 15.8 million and 13.8 million shares for last quarter and last year's third quarter, respectively. Adjusted NII was $9.8 million this quarter, down 21.3% from last year and up 7.8% from last quarter. This quarter's increase in adjusted NII as compared to the prior quarter was largely due to the net interest margin changes that Chris mentioned earlier. The decrease from the prior year reflects lower AUM and base interest rates, along with the recent repayment of certain well-performing investments. The weighted average interest rate on the core BDC portfolio of 10.6% this quarter, compares to 11.8% as of last year and 11.3% as of last quarter. The yield reduction from last year primarily reflects the SOFR base rate decreases over the past year, but is also indicative of recent tighter spreads experienced on new originations versus historically higher spreads on repaid assets. Total expenses for Q3, excluding interest and debt financing expenses, base management and incentive fees and income and excise taxes increased by $0.5 million to $3.3 million as compared to $2.8 million last year, and increased by $0.8 million from $2.5 million last quarter. This represented 0.8% of average total assets on an annualized basis, unchanged from last quarter and down from 0.9% last year. Also, for investors interested in digging deeper into the income statement and balance sheet metrics for the past 2 years, we have again added the KPI Slides 26 through 29 in the appendix at the end of the presentation. Slide 50 is a new slide that we recently added comparing our nonaccruals…

Thank you, Henri. I'll give an update on the market since we last spoke in October and then comment on our current portfolio performance and investment strategy. We are starting to see a pickup in M&A activity in the market we participate in. But the biggest driver of our increased production is the success we are seeing in our own business development efforts. As seen by the fact that 5 of the 7 most recent new platform companies we have closed or are in process of closing are with new relationships. The combination of historically low M&A volume in the lower middle market for an extended time and an abundant supply of capital has kept spreads tight and leverage full as lenders compete to win deals, especially premium ones. Market dynamics remain at their most competitive level since the pandemic. We've also experienced repayment activity from some of our lower leveraged loans being refinanced on more favorable terms. Although we are seeing some signs of a pickup in M&A volume, historically low deal volumes have made it more difficult to find quality new platform investments than in prior periods. Since we can't control M&A activity, we focus on the things that we can control. In summary, to first stay disciplined on asset selection; second, invest in and generally expand our business development efforts in a market that is still largely underpenetrated by us; and third, continue to support our existing healthy portfolio companies as they pursue growth. The relationships and overall presence we've built in the marketplace, combined with our ramped up business development initiatives, give us confidence in our ability to achieve healthy portfolio growth in a manner that we expect to be accretive to our shareholders in the long run. Now before leaving this topic, I'd like to…

Thank you, Mike. As outlined on Slide 18, our latest dividend of $0.75 per share in aggregate for the quarter ended November 30, 2025 was paid in 3 monthly increments of $0.25. Recently, we declared that same level of $0.75 for the quarter ended February 28, 2025, marking the fourth quarter of our new dividend payment structure. We also distributed a $0.25 per share special dividend, which was paid in December. Board of Directors will continue to evaluate the dividend level on at least a quarterly basis, considering both the company and general economic factors, including the current interest rate and macro environment's impact on our earnings. Moving to Slide 19. Our total return for the last 12 months, which includes both capital appreciation and dividends, has generated total returns of 11%, vastly beating out the BDC indexes negative 4%. This places us in the top 6 of all BDCs for calendar 2025. Our longer-term performance is outlined on the next slide, Slide 20, which shows that our 5-year total return places us above the BDC index, and our 3-year return is in line with the industry. Additionally, since Saratoga took over management of the BDC in 2010, our total return of 851%, has been almost 3x the industry's 283%. On Slide 21, you can further see our last 12 months performance placed in the context of the broader industry and specific to certain key performance metrics. We continue to focus on our long-term metrics such as return on equity, NAV per share, NII yield and dividend growth and coverage, all of which reflect the value our shareholders are receiving. While NAV per share growth has lagged this past year, this is largely due to last year's 2 discrete nonaccrual investments previously discussed. With regards to NII yield and dividend…

[Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets.

I wanted to start first, Chris, in your prepared comments, you mentioned that you saw an increase in M&A activity in the most recent quarter. And I'm curious if maybe you could just provide a little more color there in terms of whether that was fairly broad-based or has it been concentrated in a few industries. And do you expect that to continue into '26 here?

Well, I guess we're not really equipped to talk about the entire M&A marketplace. But I think, clearly, just take the large end of some mega, mega deals done last year, and that are fairly new to the market recently. So large M&A has picked up substantially. And then in the world that we're focused on, we're just seeing more deals, more -- more people are getting ready to transact on both sides, sellers and buyers. And I think as Mike mentioned in his remarks, and I'll turn it over to Mike to talk more -- more specifically, I think we're also seeing, even though the M&A is up, we're seeing a lot more competition. So there's just a lot of interest in all these M&A transactions. So we are hopeful that this is the beginning of a -- sort of back to more of a normalization of the level of M&A that we've seen in general that has been missing over the last couple of years. Mike?

Yes. Let me expound on that. So when we look at the deal flow that we're getting from our relationships that we've had for years, we view that as kind of more of an indicator of the M&A market moving because we're already seeing deal flow from that group. And if their deal flow is picking up, we view that as a good sign and probably reflective of M&A activity growing. It's a little too early to say with certainty, but certainly, we do see a pickup there, and we're seeing more change of control transactions there and getting involved in more processes, which is great. One of the things that we like so much about being at our end of the market is that, we're not just beholden to the M&A market and having to just kind of wait for the tide to come in, if you will. At the lower end of the middle market, there's just thousands upon thousands of companies. And so if you put effort into getting deep into the various markets throughout the country and getting to know the different deal dealers and investors in these small end of the market, you can drive a lot more deal flow. And that deal flow doesn't necessarily move 1 to 1 with the larger M&A activity. Some of these businesses get -- involved in a change of control transaction because there's somebody is retiring and moving on and deciding to sell their business. It might be baby boomer activity, things of that nature. And so we're in a position where certainly we're affected by M&A activity, and we are seeing a pickup there. But we also feel like our destinies in our own hands, which you see in the origination activity that we've been successful with. Recently, a lot of that's just based on us, doubling down on our outreach in the marketplace.

That's great color. And then moving to Slide 13, where you've outlaid kind of the historical trends for realized gains. It's nice to see over the past 3 quarters, you've returned to your longer-term trend of positive gains there. And I know it's hard to have too much of a forward-looking view there. But anything expected in the near term, either in the current quarter or maybe a quarter out where you might see some more realizations there?

As you can appreciate, we're not in control of that. And so it's hard for us to make a prediction. I mean there are some processes underway in some of our portfolio companies, but how they wind up is not something we're in a position to predict at this moment.

Yes, Erik, I would say just timing is hard to say, but what we are really happy about is that on the noncore -- sorry, our core non-CLO BDC business, our fair value is about 2% above our costs. So that's just from an overall perspective, which obviously we're happy to see.

Got it. And last one for me. Just thinking about the impact of lower short-term interest rates. You noted that several times during your comments, you've got a slide addressing that. I think that November cut probably has not been fully realized in the portfolio and not the December cut as well, and the futures market is looking at another 50 as well as spreads remaining tight. Henri, you mentioned the opportunity on the liability side to maybe bring out some cost savings there. So just trying to think about the earnings power from kind of the current level that you just reported, is holding the line there, would you consider that success kind of given the headwinds there? Or is the opportunity to put some of that liquidity to work that you've mentioned provides you the opportunity to potentially grow NII dollars over the next few quarters?

Well, I think you laid out pretty much a number of our considerations. One thing to add perhaps is capital deployment. I mean we've got a lot of capital that hasn't been deployed yet. We have a growing pipeline. And so I think the mix of all those things you've described, including incremental deployment, those are all the factors that we're looking at and working on them. I think our quarterly progression this year, we think this is very positive and sort of on all fronts. And so we're hopeful that, that will continue. We obviously can't predict it. We do have those headwinds, but we've had those headwinds all year and we're still to continue to make progress. And we hope to -- again, I think that capital deployment is probably the place to look for. And I think also as the M&A market expands, we're hopeful that maybe the spread compression will go in other direction. I mean there's lots of -- there's AI, there's mega deals. There's all sorts of things happening in the M&A marketplace that hopefully are going to result in. And then maybe the private credit, the bloom is off the rose a little bit. There's a bad press out there. So maybe the flow of money into it that isn't quite the magnitude that was before. So hopefully, the whole thing settles out to a much more normalized place. I mean we personally -- I think in our opinion, we think spreads are tighter than they should be relative to all the factors out there. And we think that's more of a temporary thing. And so -- as interest rates go down, spreads may widen as they have generally historically. So I think putting all that mix together, we feel are well equipped and well positioned to make the best of the opportunities ahead.

Our next question comes from the line of Casey Alexander with Compass Point Research & Trading.

Mike, this is for you. I probably heard 5 or 6 times during the prepared remarks about tighter spreads on new investments. And I'm interested, what's the trade-off to make sure that you're receiving an adequate risk-adjusted rate of return, right? Are you -- is the spreads allowing you to still capture the covenants? Is that a competitive aspect? Is it being the spread allowing you to capture a new relationship? Or is the spread allowing you to capture a little additional equity on the deal? How do we get comfortable with that you're still earning an adequate risk-adjusted rate of return when spreads get tight like this as they have been?

Well, I think the way I'd answer that question is that we don't necessarily look at it as a trade-off. The spreads are tightening. And the way we look at every deal is do we feel like the fundamental risks of the investment that we're making are level set. That is, are we getting a return where we feel like it's appropriate from a risk-adjusted standpoint. Do we feel like under almost all reasonable circumstances, we're going to get our capital back and we're going to earn a good return over time. And is that going to be accretive to our shareholders relative to our cost of capital. So we enjoy the benefit of the SBIC license, which gives us very favorable cost of capital. We certainly evaluate which deals fit in the SBIC and price those accordingly. But all the deals that we're doing, we're looking at as being from a standpoint of being accretive to our shareholders, for sure. I would also point out one of the things that's really nice about being in our end of the market, which you don't see in the middle market so much is we referenced the 7 deals that we closed or have in closing right now, 6 of the 7 of those deals, we have an equity co-investment. And you also heard us reference the return that we've got on some of the exits this quarter, which were about 15%. Most of that delta between the current rate and that ultimate IRR are achieved through the equity co-investments, which is pretty core to our strategy and not something that the middle market or upper middle market enjoys.

Okay. My last question is, it seems like over the last 2 or 3 years that the majority of the new portfolio companies have come from new relationships. And while I understand that you want to broaden the platform, at the same point in time, there's value to the deals that you have from the existing relationships because you tend to know how they act when things get sideways. And so I just want to hear how you're balancing that risk because new relationships sometimes can surprise you when things go wrong, and so I want to get a feel for how you feel about that effort?

Yes. And that's a very fair question and something that we spend a lot of time thinking about as well. I would remind you that for us, what's so neat about our business model and our investment approach is that most quarters our follow-on activity exceeds our new origination new platform activity. So most of the investments that we're making, we're sort of coming in with a relatively small bite-size, and then we're watching the performance of the asset and then we're supporting their growth over time, and it gives us sort of option value, if you will. And most of that historically has really been candidly with existing relationships. This progress that we've been making with new relationships is relatively new thing, and it's been a result of a lot of the business development efforts that the whole team has embarked upon, I'll call it, in the last year to 18 months. That -- the gestation period of getting a deal done with a new relationship is quite long. In a lot of ways, we wish it were shorter. But ultimately, it's quite long, and it's one of the reasons you have some pretty healthy barriers to entry in developing new relationships. But typically, when we're cultivating a new relationship, we have a really good sense of the sponsorship's reputation in the marketplace. We have a really good sense of the portfolio that they've constructed, how it's performed. We have a really good sense of the key team members. We generally have been in the market for a long time. We do a lot of work trying to get comfortable that the ownership group is the right one for the asset that they're investing in and that we're supporting. So it is something that we take a lot of take into account. And I would tell you, the bar is a bit higher as you correctly pointed out, when you know a group and you know exactly how they behave and what -- where they're really good, and maybe where they don't have as strong an investment perspective, it can make it easier to make investment decisions. When you don't have that history, you've got to do a lot more work, which is something that we have done and we'll continue to do.

The other thing I would add, Casey, is that is the opportunity side of this, which is these are -- these are new relationships for doing a deal. We've been courting these people for a long time. And so in many instances, we've been tracking them. So it's not like they're brand new parties. And if you look at how we grow and our market opportunity across the smaller middle market, each one of these new relationships can all of a sudden lead to, as Mike was describing, a series of investments with follow-ons and sort of a compounding growth effect in terms of the opportunity flow. And relatively, I'm not going to say proprietary because that might be too strong a word, but certainly preferred flow in our direction with us having a lot more control over our participation in the follow-ons and the new deals.

Our next question comes from the line of Heli Sheth with Raymond James.

So obviously, in the same tune as Erik and Casey, originations and repayments were elevated this quarter, and there seems to be a pickup in the M&A market. Any sort of shift in the mix of the kind of deals you're seeing in the pipeline in terms of sponsor versus nonsponsor, incumbent versus new borrowers or LTVs?

Really, really good question. Not a significant difference in that respect. We have developed a really strong expertise in SaaS lending. We continue to see, therefore, a lot of deals in that space and think that it's still a rich market for us to lend to and invest in. But I would say that we've also grown our relationships outside of that space, and we are seeing probably more deals outside of the software space than we have historically. So the majority of the deals that we've done or have been closing are non-software deals that are kind of core lower middle-market businesses generally. Outside of that, I think the flavor is what it typically is, a mix of mostly sponsored deals, but also some deals where they're an independent sponsor or we're backing a management team directly. And that's been a core part of our business as well and has been an area where we've invested very successfully.

Alright. That's helpful. And you mentioned kind of also investing outside SaaS and tech. I know AI has been a concern when it comes to lending. So any ideas of what industries you would say are vulnerable to AI outside of tech?

That could be a much, much longer answer than I could give on this call. But I would say when we're looking at any business, we're always evaluating it from a perspective of what is it that AI brings to the table. And could AI change the business in a very significant way where it could get disrupted. And if the conclusion is that it's hard to say how the impact is going to be, we're going to steer away from those deals. So it's -- I think the AI development is relatively new, but it's something that we're highly attuned to and evaluating for every single deal that we look at. I would say there's also some portfolio companies that we have, where they're incorporating AI and they're using it to improve their business in a way that is improving the credit profile of some of our portfolio companies as well. So it's -- it's a double-edged sword, but it's something that we're very much focused on.

And we're definitely staying away from taxi medallions.

Perfect. And then 1 last quick one. Could I get the spillover balance as of the end of the quarter?

Yes. And per share, Heli, it's probably around approximately $2 per share at the moment.

And I'm showing no further questions at this time, and I would like to hand the conference back over to Christian Oberbeck for closing remarks.

Well, I would like to thank everyone for their time and interest and support of our Saratoga Investment Corp., and we look forward to speaking with you next quarter.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.