New Mountain Finance (NMFC) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for New Mountain Finance Corporation, detailing financial position, operations, cash flows, and investment portfolio as of March 31, 2022 Consolidated Statements of Assets and Liabilities Total assets increased to $3.36 billion as of March 31, 2022, driven by investment fair value, leading to a rise in total net assets to $1.37 billion and NAV per share to $13.56 Consolidated Assets and Liabilities (in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Investments at Fair Value | $3,256,965 | $3,174,364 | | Total Assets | $3,361,843 | $3,295,812 | | Net Borrowings | $1,942,518 | $1,907,188 | | Total Liabilities | $1,994,003 | $1,953,200 | | Total Net Assets | $1,367,840 | $1,342,612 | | Net Asset Value Per Share | $13.56 | $13.49 | Consolidated Statements of Operations Total investment income slightly increased to $69.0 million for Q1 2022, resulting in a net increase in net assets from operations of $37.0 million, or $0.37 per basic share, primarily due to lower net realized and unrealized gains Three Months Ended March 31 (in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Investment Income | $68,963 | $67,708 | | Net Expenses | $38,960 | $38,713 | | Net Investment Income | $29,908 | $28,994 | | Net Realized and Unrealized Gains | $7,139 | $22,861 | | Net Increase in Net Assets from Operations | $37,047 | $51,855 | | Basic Earnings Per Share | $0.37 | $0.53 | | Diluted Earnings Per Share | $0.34 | $0.49 | Consolidated Statements of Changes in Net Assets Net assets increased by $28.1 million for the three months ended March 31, 2022, driven by operations and partially offset by capital transactions including distributions and share sales - Net assets increased by $28.1 million in Q1 2022, compared to a $22.4 million increase in Q1 2021[13] - Capital transactions resulted in a net decrease of $8.1 million, primarily due to distributions of $29.6 million, partially offset by $20.5 million in net proceeds from shares sold and $1.1 million from distribution reinvestments[13] Consolidated Statements of Cash Flows Net cash used in operating activities was $45.2 million for Q1 2022, a shift from prior year, partially offset by $22.5 million provided by financing activities, resulting in a $22.6 million net decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(45,170) | $44,289 | | Net Cash Provided by (Used in) Financing Activities | $22,547 | $(75,956) | | Net Decrease in Cash and Cash Equivalents | $(22,623) | $(31,667) | | Cash and Cash Equivalents at End of Period | $35,376 | $47,299 | Consolidated Schedule of Investments The investment portfolio, valued at $3.26 billion across 107 companies, is primarily composed of first and second lien debt, with significant concentrations in Software, Business Services, and Healthcare Services Portfolio Composition by Investment Type (March 31, 2022) | Investment Type | Percent of Total Investments at Fair Value | | :--- | :--- | | First lien | 54.10% | | Second lien | 18.62% | | Subordinated | 1.68% | | Equity and other | 25.60% | | Total | 100.00% | Portfolio Composition by Industry (March 31, 2022) | Industry Type | Percent of Total Investments at Fair Value | | :--- | :--- | | Software | 25.14% | | Business Services | 16.28% | | Healthcare Services | 15.78% | | Education | 8.12% | | Investment Funds | 7.75% | | Total | 100.00% | - The total fair value of investments was $3.257 billion as of March 31, 2022, up from $3.174 billion as of December 31, 2021[9][70] Notes to the Consolidated Financial Statements The notes detail accounting policies, investment portfolio, fair value measurements, debt facilities, and related-party agreements, including valuation methodology for Level III assets and investment management fee waivers - The company has elected to be regulated as a Business Development Company (BDC) and treated as a Regulated Investment Company (RIC) for tax purposes[152] - As of March 31, 2022, investments with a fair value of $3.05 billion (out of $3.26 billion total) were classified as Level III, indicating reliance on unobservable inputs for valuation[254] - The Investment Adviser has agreed to waive a portion of its base management fee to target a reduced rate of 1.25% on gross assets through the end of 2023, amounting to approximately $1.1 million for Q1 2022[271] - The company's asset coverage ratio was 181.3% as of March 31, 2022, above the regulatory minimum of 150%[290] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results, highlighting increased investment income, portfolio composition focused on defensive growth, joint venture performance, liquidity, and capital resources - As of March 31, 2022, the portfolio had a fair value of approximately $3.26 billion in 107 portfolio companies, with a weighted average yield to maturity at cost for income-producing investments of 9.8%[373] - As of March 31, 2022, 90.6% of the portfolio by fair value was rated 'Green', indicating performance in-line with or above expectations[425] - Total investment income increased by 2% year-over-year, driven by higher LIBOR rates on larger invested balances and increased dividend income from joint ventures[433] - The company's asset coverage ratio was 181.3% as of March 31, 2022, compliant with the 150% regulatory requirement[438] Quantitative and Qualitative Disclosures About Market Risk The company is subject to interest rate risk, with 86.2% of investments being floating-rate, and a 100 basis point interest rate increase estimated to raise net interest income by 4.89% Interest Rate Sensitivity Analysis | Change in Interest Rates | Estimated Percentage Change in Net Interest Income | | :--- | :--- | | -25 Basis Points | 0.38% | | +100 Basis Points | 4.89% | | +200 Basis Points | 14.70% | | +300 Basis Points | 24.50% | - As of March 31, 2022, approximately 86.21% of the company's income-producing investments at fair value were floating-rate, while its credit facilities also have floating rates[499] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls over financial reporting identified during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2022[503] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[504] PART II. OTHER INFORMATION Legal Proceedings As of March 31, 2022, the company was not subject to any material pending legal proceedings outside the normal course of business - The company is not currently subject to any material pending legal proceedings[508] Risk Factors No material changes to the previously disclosed risk factors were reported for the three months ended March 31, 2022 - No material changes to risk factors were reported for the three months ended March 31, 2022[509] Unregistered Sales of Equity Securities and Use of Proceeds The company did not engage in any unregistered sales of equity securities or repurchase any common stock under its $50 million program during Q1 2022 - No unregistered sales of equity securities occurred in Q1 2022[511] - The company did not repurchase any of its common stock under its $50 million Repurchase Program during Q1 2022, which is effective until December 31, 2022[513] Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None[514]