Core Insights - The article emphasizes the importance of innovation and disruption in the financial sector, particularly focusing on high-tech and early growth companies [1] Group 1: Company Insights - The financial researcher highlights a beneficial long position in NMFC shares, indicating confidence in the company's future performance [2] - The article discusses the potential for growth buyouts and value stocks, suggesting that these areas may present significant investment opportunities [1] Group 2: Industry Trends - There is a strong focus on the pace of technological advancements and their impact on investment strategies within the industry [1] - The article suggests that current events and major news in the industry are crucial for identifying potential investment opportunities [1]

Financial Data and Key Metrics Changes - Adjusted net investment income for Q4 was $0.32 per share, covering the regular dividend of $0.32 per share paid on December 31 [8] - Net asset value per share declined by $0.07 or 0.6% to $12.55, indicating stable credit performance across the portfolio [8][26] - Total investment income for Q4 was $91 million, a 2% decrease year-over-year, while total net expenses decreased by 9% to $57 million [49] Business Line Data and Key Metrics Changes - The portfolio had over $3 billion of investments at fair value, with total assets of $3.2 billion and total liabilities of $2 billion [47] - Approximately 75% of investments are senior in nature, with second lien positions down to 7% from 8% last quarter [40] - The average yield of NMFC's portfolio increased to 11% for Q4, primarily due to the higher for longer shift in the forward SOFR curve [42] Market Data and Key Metrics Changes - The NMFC loan portfolio is 86% floating rate and 14% fixed rate, while liabilities are 49% floating and 51% fixed rate [36] - The weighted average EBITDA of borrowers decreased slightly to $184 million, reflecting the realization of larger companies during the quarter [43] - The current portfolio has an average loan to value of 41%, with weighted average interest coverage increasing to 1.8 times [44] Company Strategy and Development Direction - The company aims to maintain or increase its heavily senior-oriented asset mix, focusing on first lien and unitranche loans [20] - NMFC seeks to optimize the cost, duration, and quality of its liabilities, targeting a floating rate liability mix of approximately 75% over the next twelve months [23][56] - The company continues to focus on defensive growth sectors, avoiding cyclical and volatile industries [16] Management's Comments on Operating Environment and Future Outlook - Management believes that direct lending remains an attractive asset class despite a slower start to 2025 [32] - There is an expectation of increased M&A activity in 2025, driven by private equity dry powder and attractive financing markets [34] - Credit selection remains critical in a backdrop of volatility and uncertainty, with minimal pricing and structural flexibility [35] Other Important Information - The company has never experienced a bankruptcy or missed an interest payment in its private equity funds, managing over $55 billion in assets [12] - The internal risk rating of the portfolio remains consistent at approximately 97% green rated, with only $38 million or 1.2% of the portfolio on non-accrual [24][28] - The company has a diversified portfolio across 121 companies, with the top ten single name issuers accounting for 27% of total fair value [45] Q&A Session Summary Question: Inquiry about UniTek's exit valuation - Management indicated that the enterprise value for UniTek is modestly higher than the Q4 mark [62] Question: Concerns about market uncertainties affecting activity - Management feels that while the start of 2025 has been slower than expected, they remain optimistic about reducing PIK positions [65][66] Question: Allocation strategy among senior loans, loan funds, and net lease - Management stated that the mix within the senior category will remain the same [68] Question: Thoughts on market spreads and potential for repricing - Management noted that spreads have stabilized and do not expect further downward pressure, especially if M&A activity picks up [71][72] Question: Repricing activity within the portfolio - Management believes that most deals that could reprice have already gone through that exercise, indicating confidence in the current portfolio [73]

Earnings Performance - New Mountain Finance (NMFC) reported quarterly earnings of $0.32 per share, missing the Zacks Consensus Estimate of $0.33 per share, and down from $0.40 per share a year ago, representing an earnings surprise of -3.03% [1] - The company posted revenues of $91.2 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 2.36%, compared to year-ago revenues of $92.8 million [2] Stock Performance - New Mountain shares have increased approximately 6.2% since the beginning of the year, outperforming the S&P 500's gain of 1.3% [3] - The current consensus EPS estimate for the upcoming quarter is $0.33 on revenues of $91.56 million, and for the current fiscal year, it is $1.31 on revenues of $362.11 million [7] Industry Outlook - The Financial - SBIC & Commercial Industry, to which New Mountain belongs, is currently in the top 20% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that industry performance can significantly impact stock performance [5][8]

Investment Valuation and Performance - The fair value of the company's investments was approximately $3,091.0 million in 120 portfolio companies as of December 31, 2024, compared to approximately $3,011.3 million in 110 portfolio companies as of December 31, 2023, reflecting an increase of 2.65%[27]. - The weighted average yield to maturity at cost for income-producing investments was approximately 11.0% as of December 31, 2024, up from 10.9% as of December 31, 2023[29]. - The weighted average yield to maturity at cost for all investments was approximately 9.2% as of December 31, 2024, down from 9.7% as of December 31, 2023[29]. - The company's ten largest portfolio investments accounted for 31.8% of total assets as of December 31, 2024, with the largest investment being NMFC Senior Loan Program III LLC at 4.9%[30]. - The software industry represented 26.1% of total assets, while healthcare and business services accounted for 15.5% and 15.3%, respectively, as of December 31, 2024[30]. - The company values its assets on a quarterly basis, with the board of directors responsible for determining the fair value of portfolio investments[42]. - As of December 31, 2024, 14.6% of total assets are represented by investments at fair value that are considered non-qualifying assets[110]. - The company reported a net change in unrealized appreciation of investments of $15,069 in 2024, compared to $10,416 in 2023[519]. - The total fair value of investments as of December 31, 2024, is $81,319,000, representing 5.98% of net assets[526]. - The total fair value of investments as of December 31, 2024, is presented in thousands, indicating a comprehensive financial overview[548]. Investment Strategy and Focus - The company targets debt investments that yield current income and may provide opportunities for capital appreciation through equity securities[36]. - The company’s investment strategy focuses primarily on privately held companies, presenting challenges due to the lack of available information[78]. - The overall investment strategy focuses on first lien and subordinated debt across various sectors, including software and financial services[531]. - The company continues to focus on expanding its portfolio in the software and healthcare sectors, indicating a strategic emphasis on high-growth industries[530]. - The company maintains a diversified portfolio across various sectors, including software and healthcare, enhancing its investment strategy[547]. - The company’s investment strategy includes a mix of first lien and preferred shares across various industries, including healthcare and education[557]. - The company is actively managing its investment portfolio with a focus on undrawn commitments, suggesting a strategy for future capital deployment[571]. Financial Performance and Metrics - Total investment income for the year ended December 31, 2024, was $371,666,000, slightly down from $374,836,000 in 2023, representing a decrease of 0.58%[515]. - Net investment income before income taxes decreased to $146,222,000 in 2024 from $160,316,000 in 2023, a decline of 8.77%[515]. - Basic earnings per share for 2024 were $1.06, down from $1.34 in 2023, indicating a decrease of 20.88%[515]. - Total liabilities increased to $1,887,410,000 in 2024 from $1,827,491,000 in 2023, marking an increase of 3.29%[513]. - The net asset value per share of New Mountain Finance Corporation decreased to $12.55 in 2024 from $12.87 in 2023, a decline of 2.48%[513]. - Total expenses increased to $229,183,000 in 2024 from $218,637,000 in 2023, reflecting an increase of 4.99%[515]. - Distributions declared and paid per share decreased to $1.37 in 2024 from $1.49 in 2023, a reduction of 8.05%[515]. - The net increase in net assets resulting from operations for 2024 was $114,503, down 15.9% from $136,090 in 2023[522]. - Total net decrease in net assets resulting from capital transactions was $80,055 in 2024, compared to a decrease of $129,865 in 2023[519]. - Cash flows provided by operating activities were $41,999 in 2024, a decrease from $332,729 in 2023[522]. Regulatory and Compliance - The company is required to maintain a coverage ratio of at least 150.0%, allowing it to borrow $2 for every $1 of equity[50]. - The company may issue additional equity or debt capital, but cannot sell common stock below net asset value without shareholder approval[51]. - The SEC issued an exemptive order allowing the company to co-invest with affiliates under certain conditions, enhancing investment flexibility[52]. - To qualify as a Regulated Investment Company (RIC), the company must distribute at least 90.0% of its investment company taxable income annually[57]. - The company is subject to a 4.0% nondeductible U.S. federal excise tax on certain undistributed income unless it meets specific distribution requirements[58]. - The company is subject to SBA regulations as it operates SBIC I and SBIC II, which may impact its business operations[78]. - The company has received licenses from the SBA for its subsidiaries to operate as Small Business Investment Companies (SBICs), allowing them to incur leverage[63]. Management and Fees - The base management fee is calculated at an annual rate of 1.25% of gross assets, following a fee waiver agreement that resulted in approximately $3.7 million in waived management fees for the year ended December 31, 2024[87]. - The incentive fee consists of two parts, with 20.0% of Pre-Incentive Fee Net Investment Income payable quarterly, subject to a hurdle rate of 2.0% per quarter (8.0% annualized)[88]. - For the year ended December 31, 2024, no incentive fees were waived, and the Investment Adviser cannot recoup previously waived fees[91]. - The board of directors approved the Investment Management Agreement for a period of 12 months commencing on March 1, 2025, after reviewing the fee structure and performance[107]. - The base management fee is set to be reduced as per Amendment No. 2 of the Investment Management Agreement effective January 29, 2025[103]. Market Conditions and Risks - The company operates in a highly competitive market for investment opportunities, which may affect its ability to compete effectively[74]. - The company may face credit losses and adverse developments in credit markets that could impair its ability to secure debt financing[74]. - The valuation of portfolio investments is determined by the board of directors, which may create uncertainty regarding their fair value[74]. - The company’s performance may differ from historical performance due to a shift towards more primary originations in its investment strategy[82]. - The estimated percentage change in interest income net of interest expense could be a decrease of 15.51% if interest rates drop by 200 basis points[497]. - In September 2024, the Federal Reserve decreased interest rates by 0.50%, followed by an additional 0.25% decrease in December 2024[494]. Future Outlook - Future outlook includes potential market expansions and new product developments to drive growth and enhance shareholder value[547]. - The company’s overall strategy includes market expansion and potential acquisitions to enhance its investment portfolio and improve financial performance[579].

Financial Performance - Fourth Quarter Net Investment Income was $0.32 per share, down from $0.40 per share in Q4 2023[3] - Total investment income for 2024 was $371,666, a slight decrease of 0.45% from $374,836 in 2023[27] - Net investment income before income taxes decreased to $146,222, down 8.75% from $160,316 in 2023[27] - Basic earnings per share for 2024 were $1.06, down from $1.34 in 2023, reflecting a decrease of 20.9%[28] - Net increase in net assets resulting from operations was $114,503, down from $136,090 in 2023, a decline of 15.87%[27] Dividends and Distributions - Regular and Supplemental Dividends paid per share in the quarter were $0.33, compared to $0.36 in Q4 2023, resulting in an annualized dividend yield of 10.7%[3] - A first quarter 2025 distribution of $0.32 per share has been declared, payable on March 31, 2025[5] - Distributions declared and paid per share decreased to $1.37 from $1.49, a reduction of 8.05%[28] Assets and Liabilities - As of December 31, 2024, the Company's NAV was $1,353.3 million, with a portfolio fair value of $3,104.5 million across 121 portfolio companies[5] - Total assets increased to $3,246,701, up from $3,159,214, representing a growth of 2.75% year-over-year[24] - Total liabilities increased to $1,887,410, compared to $1,827,491 in 2023, marking a rise of 3.28%[24] - The Company had cash and cash equivalents of $80.3 million and total statutory debt outstanding of $1,560.9 million as of December 31, 2024[14] - Cash and cash equivalents increased to $80,320 from $70,090, a growth of 14.06%[24] Investment Portfolio - The investment portfolio composition includes 62.9% in First Lien investments and 12.5% in Senior Loan Funds[13] - Approximately 97% of the portfolio is rated green, indicating strong credit performance[5] - The partial sale of UniTek valued the company at $370 million, with NMFC retaining a 31% ownership stake[4] - The Company generated $33.1 million in originations and realized $58.9 million from asset sales during the quarter[5] Debt and Equity - The statutory debt/equity ratio decreased to 1.15x, down from 1.26x as of September 30, 2024[3] - The number of shares outstanding increased to 107,851,415 from 102,558,859, an increase of 5.1%[24] - Non-controlled/non-affiliated investments saw a net realized loss of $45,365, compared to a loss of $49,267 in 2023[27]

Group 1 - The golden era for Business Development Companies (BDCs) is coming to an end as elevated interest rates impact portfolio quality, leading to challenges for borrowers [3] - Some BDCs are experiencing a decline in the quality of their portfolios due to the prolonged high-interest rate environment [3] Group 2 - The article highlights the importance of analyzing market conditions and their effects on investment vehicles like BDCs, emphasizing the need for investors to stay informed [3]

Core Insights - New Mountain Finance Corporation (Nasdaq: NMFC) managed to cover its dividend with net investment income in the third quarter [1] - The company lowered its supplemental dividend to $0.01 per share and paused its supplemental dividend program [1] Financial Performance - NMFC's net investment income was sufficient to cover its regular dividend obligations [1] - The decision to lower the supplemental dividend indicates a shift in the company's financial strategy [1] Dividend Policy - The supplemental dividend program has been paused, reflecting potential changes in the company's capital allocation priorities [1]

NEW MOUNTAIN FINANCE | --- | --- | |-------|-------| | | | | | | Important Notices and Safe Harbor Statement This presentation contains forward looking statements, which are not guarantees of future performance, conditions or results, and involve substantial risks and uncertainties, including the current conflict between Russia and Ukraine, conflict in the Middle East, and related changes in base interest rates and significant volatility on our business, portfolio companies, our industry, and the global eco ...

Financial Data and Key Metrics Changes - Adjusted net investment income for Q3 2024 was $0.34 per share, exceeding the regular dividend of $0.32 per share [5][45] - Net asset value per share declined to $12.62, a decrease of $0.12 or 0.9% from the previous quarter [6][20] - Total investment income for the quarter was $96 million, a 2% increase year-over-year [45] Business Line Data and Key Metrics Changes - The internal risk ratings of the portfolio improved, with 97.3% rated green, the highest level since 2020 [17] - Approximately 75% of investments are senior in nature, with second-lien positions down to 8% of the portfolio [37] - The average yield of the portfolio decreased to 10.5% due to a downward shift in the forward SOFR curve [39] Market Data and Key Metrics Changes - Sponsor-backed M&A activity remained below normal levels, but opportunities were found in defensive growth verticals [26] - The direct lending market continues to be the financing market of choice for sponsors, with expectations for increased activity in early 2025 [29][27] - The weighted average EBITDA of borrowers increased to $189 million, indicating growth among the companies financed [40] Company Strategy and Development Direction - The company focuses on defensive growth sectors such as life science supplies, healthcare IT, and software [10] - The strategy emphasizes minimizing credit losses and distributing excess income to shareholders, with a long-term track record of consistent returns [16] - Management aims to reduce PIK exposure and replace it with cash-oriented assets, targeting a PIK ratio below 10% to 12% [64] Management Comments on Operating Environment and Future Outlook - Management remains optimistic about the prospects for non-green names in the portfolio, with expectations for M&A activity to increase in 2025 [19][27] - The company has successfully improved its liability structure and anticipates further opportunities to refinance and reduce financing costs [50][52] - Management acknowledges the current weakness in stock price is related to PIK levels but sees potential for improvement in 2025 [77] Other Important Information - The company has paid $0.20 per share in supplemental dividends since the program began in Q2 2023 [8] - The company has a diversified portfolio across 128 companies, with the top 10 issuers accounting for 25% of total fair value [43] - The company has $3 billion in total borrowing capacity, highlighting a strong liquidity position [48] Q&A Session Summary Question: Changes in portfolio leverage - Management indicated that the decrease in leverage from 6.7 times to 6.3 times is due to a combination of factors, including the performance of existing businesses and the types of new assets being originated [55][56] Question: PIK assets and refinancing - Management expects to reduce PIK exposure through refinancing as older PIK-preferred investments mature and perform well, aiming for a long-term target of under 10% to 12% [60][64] Question: SLP performance and dividends - Management clarified that the decrease in dividends from SLPs was timing-related and not indicative of any underlying issues, as the SLPs continue to perform well [65] Question: Cash pay assets versus PIK - Management plans to focus on reducing chunky PIK exposures while still offering PIK options on predominantly cash pay loans, aiming for a balanced portfolio [69][70] Question: Direct lending market spreads - Management noted that current spreads are indicative of a tighter market but expect normalization as deal flow increases post-election and into 2025 [72][73] Question: Stock buyback and valuation - Management is open to utilizing the stock buyback program to defend stock value, particularly as the stock trades below historical NAV levels [78][79]

Group 1 - New Mountain Finance (NMFC) reported quarterly earnings of $0.34 per share, missing the Zacks Consensus Estimate of $0.35 per share, and down from $0.40 per share a year ago, representing an earnings surprise of -2.86% [1] - The company posted revenues of $95.33 million for the quarter ended September 2024, surpassing the Zacks Consensus Estimate by 0.71%, compared to year-ago revenues of $94.35 million [2] - New Mountain shares have underperformed the market, losing about 10.5% since the beginning of the year, while the S&P 500 gained 22.3% [3] Group 2 - The current consensus EPS estimate for the coming quarter is $0.34 on revenues of $93.27 million, and for the current fiscal year, it is $1.41 on revenues of $372.07 million [7] - The Zacks Industry Rank for Financial - SBIC & Commercial Industry is currently in the bottom 20% of over 250 Zacks industries, indicating potential underperformance compared to the top 50% of ranked industries [8]