New Mountain Finance Corp (NMFC)·Q2 2025 Earnings Summary

Executive Summary

• NMFC delivered adjusted NII of $0.32 per share, covering the $0.32 dividend; GAAP diluted EPS was $0.07 as unrealized marks weighed on results. Total investment income (TII) was $83.49M. EPS matched consensus (in line), while revenue came in modestly below consensus ($83.49M vs $84.57M). NAV/share fell to $12.21 from $12.45 in Q1 and $12.55 in Q4.
• Mix and credit quality remained solid: ~78% senior-oriented assets, ~95% of the portfolio rated green; non‑accruals at 1.2% of FV. Weighted average YTM at cost ~10.6%.
• Management reaffirmed the dividend protection program through 2026 and again declared a $0.32 distribution for Q3 2025; the firm repurchased $9.6M in shares in Q2 and cites a ~15% discount to book as attractive, positioning buybacks and liability refinancings as catalysts.
• Macro/micro puts and takes: tight spreads and softer fee income persist, while deal activity shows signs of “unfreezing.” A tariff-exposed consumer products borrower moved to red (still current on interest) and select valuation pressures (e.g., Edmentum equity) drove NAV down q/q.

What Went Well and What Went Wrong

• What Went Well

  • Dividend covered by adjusted NII; Q3 2025 dividend declared at $0.32 with protection program support through 2026. “Adjusted net investment income for the quarter was $0.32 per share covering our $0.32 per share dividend.”
  • Portfolio quality and mix: ~95% of assets rated green; senior-oriented assets increased to ~78%; YTM at cost ~10.6%.
  • Capital allocation and alignment: $9.6M of buybacks in Q2; management cites ~15% discount to book as compelling; continued focus on refinancing higher-cost debt and optimizing floating-rate liability mix.
  • Quote: “We continued to advance our strategic priorities... increasing the percentage of senior-oriented assets to nearly 80% and building more position diversification.” (CEO John Kline)

• What Went Wrong

  • NAV declined to $12.21 from $12.45 driven by marks on select positions (Edmentum equity accretion ahead of NMFC position; dental practice headwinds; tariff-impacted consumer product name).
  • Slight revenue shortfall vs consensus; tight spreads and lower fee income pressure earnings power absent protection.
  • Tariffs: one consumer products borrower moved from yellow to red; liquidity support may be required (sponsor/lenders).

Financial Results

Income statement trends (oldest → newest)

Year-over-year (Q2 to Q2)

Margins

*Values retrieved from S&P Global.

Estimates vs Actuals (Q2 2025)

KPIs and balance sheet (oldest → newest)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Adjusted net investment income for the quarter was $0.32 per share covering our $0.32 per share dividend… Our net asset value per share of $12.21 declined $0.24 compared to Q1.” — Steven Klinsky
• “We continued to advance our strategic priorities… increasing the percentage of senior-oriented assets to nearly 80% and building more position diversification across the portfolio.” — John Kline
• “The dividend protection program is meant to be a form of shareholder support… we’re committed to keeping the program in place through 2026.” — John Kline
• “Perhaps the most notable movement was the migration from yellow to red of a consumer products company… impacted by tariffs… [it] will need liquidity support before year end.” — John Kline
• “Pro forma for the expected upcoming refinancing activity… we expect our [liability] mix will shift meaningfully to 81% floating and 19% fixed.” — Laura Holson

Q&A Highlights

• Healthcare lens: Dental business pressures are largely idiosyncratic and execution‑sensitive; veterinary remains attractive (cash pay, secular tailwinds). NMFC is de‑emphasizing some physician services lending on a go‑forward basis.
• Dividend protection mechanics: Management will use the protection program and incremental fee waivers “as needed” to maintain the $0.32 dividend amid tight spreads/fee headwinds, while pursuing core earnings catalysts (liability refi, new SBIC, buybacks).
• Tariff‑exposed borrower: The red‑rated consumer products name was previously flagged; tariffs compounded prior operational underperformance. Management remains optimistic on long‑term recovery but expects near‑term liquidity needs (sponsor or lender support).
• Outlook on spreads and activity: Spreads largely stable; signs of increasing deal activity should support originations and fee income into 2H25.

Estimates Context

• Q2 2025 EPS matched consensus ($0.32 vs $0.32), supported by recurring income and fee waivers; revenue was a modest miss ($83.49M actual vs $84.57M consensus). Primary EPS estimates: 7 contributors; revenue estimates: 6 contributors. Management continues to position capital structure and mix to offset tight spreads and potential base rate headwinds.
  Sources: S&P Global consensus; actuals from company materials.

Key Takeaways for Investors

• Dividend intact; coverage supported by recurring income plus the protection program through 2026. The newly declared $0.32 Q3 dividend and >12% yield remain core to the story.
• Slight top‑line miss but EPS in line: TII softness reflects tight spreads/fees, while adjusted EPS stability highlights cost actions and fee waivers. Watch for revenue re‑acceleration as deal activity improves.
• NAV drift reflects idiosyncratic valuation pressures (tariff‑exposed consumer products, Edmentum capital structure), not broad credit deterioration; non‑accruals remain low at 1.2% of FV.
• Mix and liability catalysts: rising senior orientation (~78%), new SBIC license, and planned refinancing of 7.5% converts/8.25% notes should support net interest earnings and reduce funding costs.
• Capital allocation adds upside: active buybacks at a ~15% discount to NAV and portfolio rotations from equity/PIK into cash‑yielding first‑liens can compound total return.
• Risk monitor: tariffs on China‑centric supply chains; healthcare execution (dental) pockets; base‑rate decline scenario could pressure earnings—management is aligning floating liabilities to mitigate.
• Trading lens: The narrative centers on durable income, visible dividend support, and liability/mix optimization amid improving activity. Stock reaction catalysts include announced refinancings, further PIK monetizations, and additional repurchase activity.

Supporting detail and source documents:

• Q2 2025 press release and 8‑K Item 2.02 (Ex. 99.1): adjusted NII/share, TII, NAV/share, mix, SBIC license, dividend declaration, financial statements.
• Q2 2025 earnings call: portfolio quality, tariff‑exposed borrower, sector updates, liability plans, PIK monetization, buybacks, dividend protection program.
• Prior quarters (trend): Q1 2025 and Q4 2024 press releases and calls for mix, spreads, PIK, NAV, and TII trajectory.