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]

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 to $12.55, a decrease of $0.07 or 0.6% from the previous quarter [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 representing just 7% of the portfolio, down 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, with portfolio company leverage coming down slightly [43] 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 across political and regulatory headlines [35] Other Important Information - The company has never had a bankruptcy or missed an interest payment, managing over $55 billion of assets [12] - NMFC has experienced only 12 basis points of average annualized net realized losses since its IPO [12] Q&A Session Summary Question: How does the enterprise value of UniTek compare to the Q4 mark? - The enterprise value is modestly higher than the Q4 mark [62] Question: How comfortable is the company about UniTek and lowering PIK exposure? - The company feels good about UniTek and expects to show progress in reducing PIK positions [66] Question: Will the mix between senior loans, loan funds, and net lease remain the same? - The expectation is that the mix will stay the same [68] Question: Are market spreads expected to stabilize or recalibrate? - Spreads have stabilized, and the company expects them to pick up if M&A activity increases [71] Question: How much of the portfolio is vulnerable to repricing activity? - The majority of deals that could reprice have already gone through that exercise [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]

Financial Performance - Q3 2024 adjusted net investment income ("NII") was $0.34 per share, exceeding the regular dividend of $0.32 per share[11] - A supplemental dividend of $0.01 per share will be paid alongside the Q4 2024 regular dividend[11] - The company's net asset value ("NAV") as of September 30, 2024, was $12.62 per share, compared to $12.74 per share as of June 30, 2024[11] - The company has distributed over $1.3 billion in total dividends to shareholders since its IPO[18, 31] Portfolio Composition and Credit Quality - As of September 30, 2024, the fair value of investments was $3.2788 billion[13] - 97.3% of the portfolio is rated green on the company's heatmap, an increase from 97.0% in the previous quarter[11] - The average realized loss rate since the IPO is 13 bps[14, 18] - First lien debt constitutes 93% of the portfolio[38] Investment Activity and Originations - Gross originations for Q3 2024 totaled $146.2 million, while repayments amounted to $100.6 million, resulting in net originations of $45.6 million[13, 37] - Net originations less sales were $44.1 million[13, 37] Capital Structure and Leverage - The pro forma statutory debt to equity ratio is 1.23x[12, 45] - The company maintains 77% unsecured debt[49] - The company's liquidity stands at $1.07 billion against unfunded commitments of $277 million[63]

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]