New Mountain Finance Corporation Q3 FY2025 earnings call

• Adjusted net investment income of $0.32 per share covered the Q3 dividend. Net asset value per share declined $0.15, but ~95% of investments are green. - NMFC lends in defensive growth sectors like healthcare, IT software, etc. Portfolio loan to value is 45%, senior oriented assets at 80% of portfolio. - Differentiated direct lending approach: focuses on defensive sectors, uses in-house research, and has strong shareholder alignment. - Strategic priorities: improve asset quality/diversity, optimize liabilities, enhance income quality. - Origination: $127 million originated in Q3, with repayments of $177 million. Second lien positions now 4% of portfolio. - Nonaccrual performance: $51 million or 1.7% of portfolio on nonaccrual; goal to recover full principal on challenged names.

Adjusted net investment income for the quarter was $0.32 per share, which covered the $0.32 per share dividend paid. Net asset value per share declined $0.15 compared to Q2, to $12.06. Total investment income for the current quarter was $80 million, a 4% decrease from the prior quarter. Total net expenses were $47 million, a 5% decrease from the prior quarter. Adjusted net investment income was $0.32 per weighted average share, covering the Q3 dividend. The portfolio had $3 billion in investments at fair value on September 30, with total assets of $3.1 billion. Net asset value was $1.3 billion or $12.06 per share, down slightly from the prior quarter. The net debt-to-equity ratio was 1.23:1, within the target range of 1:1.25.

• Board declared $0.32 dividend per share payable on December 31. - Board approved $100 million share buyback program. - Exploring portfolio sale of up to $500 million to enhance financial flexibility. - Expect 2026 to be productive for LBO activity, with direct lending remaining an attractive asset class.

• Potential impact of tariffs on certain portfolio positions like Beauty Industry Group. - Lack of dispersion in pricing in direct lending market leading to tighter spreads for lower quality companies. - Uncertainty around the outcome of the potential $500 million portfolio sale.

Q: Question on the potential portfolio sale, specifically if it's centered around legacy equity names or regular debt deals.

A: John Kline said the sale is focused on biggest positions, aiming to diversify portfolio and reduce PIK income, including well-performing quality names with mix of interest characteristics.

Q: Follow-up on the buyback, asking if they'll continue to be aggressive.

A: John Kline said they need to stay within leverage range, expect repayments in Q4 and 2026, and may focus on using repayment proceeds for buybacks but remain committed to leverage range.

Q: Question on deployment capacity strategy, given leverage and share repurchase program.

A: Laura Holson said they're evaluating each deal opportunity, still see attractive risk-adjusted returns in direct lending, but factors like leverage and share repurchase program influence allocation.

Q: Question on use of proceeds from the potential portfolio sale.

A: John Kline said proceeds could be used for paying down debt, stock repurchases, or buying new loans for diversification.

Q: Credit concerns on Beauty Supply and similar portfolio positions.

A: Laura Holson said Beauty Industry Group is the only material name with tariff exposure, and the rest of the portfolio is insulated from primary impact, reflected in 95% green ratings.

Q: Question on Edmentum investment markdown.

A: Laura Holson said the company's performance is stable, but the capital structure is a challenge; John Kline added Edmentum has been a success story, working to address capital structure issues.

Q: Question on ATM distribution agreement.

A: Kris Corbett said ongoing maintenance fees are minimal, and the program is kept open in case the share price gets above book value to issue shares.