Sign in
NM

New Mountain Finance Corp (NMFC)·Q3 2025 Earnings Summary

Executive Summary

  • Dividend coverage remained intact; declared Q4 distribution and highlighted multi-quarter dividend protection support; management also unveiled a larger buyback authorization and is evaluating a secondary portfolio sale to accelerate strategic priorities .
  • Credit quality stayed high with ~95% of the portfolio green, but one name was moved to non‑accrual and NAV declined sequentially on several marks; leverage moved up to the high end of the range .
  • Sequential investment income moderated amid tighter spreads and rotation to more senior assets; estimates context shows a modest EPS beat versus consensus and a revenue shortfall .
  • Near‑term catalysts include liability refinancing, buybacks at a discount to book, and a potential portfolio sale to reduce PIK exposure, diversify positions, and enhance flexibility .

What Went Well and What Went Wrong

What Went Well

  • Management covered the dividend again, supported by recurring portfolio income, the dividend protection program, and incremental fee waivers .
  • Portfolio mix continued shifting senior with ~80% senior-oriented assets and ~95% green-rated exposure; rotation out of second lien and PIK names progressed .
  • Shareholder-friendly actions: full utilization of the original buyback and authorization of a larger program; potential portfolio sale to reduce concentrations and PIK income while improving diversification and flexibility .

What Went Wrong

  • NAV per share declined sequentially due to unrealized marks (Edmentum, TriMark, Beauty Industry Group), partially offset by share repurchases .
  • Beauty Industry Group moved to non‑accrual; tariffs, demand softness, and go‑to‑market challenges weighed on performance and required proactive remediation .
  • Investment income and yields eased as originations priced lower than repayments and rotation toward senior assets continued; leverage ticked up and is at the high end of the target range .

Financial Results

Quarterly Trend

MetricQ1 2025Q2 2025Q3 2025
Total Investment Income ($USD Millions)$85.663 $83.490 $80.529
Net Investment Income ($USD Millions)$34.641 $34.585 $34.042
NII per Weighted Avg Share ($)$0.32 $0.32 $0.32
Basic EPS ($)$0.22 $0.07 $0.11
NAV per Share ($)$12.45 $12.21 $12.06
Investment Portfolio Fair Value ($USD Millions)$3,047.7 $3,014.2 $2,957.1
Statutory Debt/Equity (x)1.15x 1.17x 1.26x
Regular Dividend per Share ($)$0.32 $0.32 $0.32

YoY Snapshot (Q3)

MetricQ3 2024Q3 2025
NII per Weighted Avg Share ($)$0.33 $0.32
Total Investment Income ($USD Millions)$95.327 $80.529
Basic EPS ($)$0.22 $0.11
Regular & Supplemental Dividends Paid per Share ($)$0.34 $0.32
Annualized Dividend Yield (%)11.9% 13.2%
Senior-Oriented Assets (%)75% 80%

Estimates vs Actuals (Q3 2025)

MetricConsensus EstimateActual
Primary EPS$0.317*$0.32
Revenue (Total Investment Income, $USD Millions)$83.657*$80.529
# of EPS Estimates7*—
# of Revenue Estimates5*—

Values with an asterisk (*) retrieved from S&P Global.

Investment Portfolio Composition

Category ($USD Millions)Q2 2025Q3 2025
First Lien$1,967.3 (65.3%) $1,989.3 (67.3%)
Senior Loan Funds (SLP III & IV) & NMNLC$386.6 (12.8%) $387.3 (13.1%)
Second Lien$182.6 (6.1%) $111.6 (3.8%)
Subordinated$108.0 (3.6%) $111.0 (3.8%)
Preferred Equity$229.8 (7.6%) $229.0 (7.7%)
Common Equity & Other$139.8 (4.6%) $128.9 (4.3%)
Total$3,014.2 $2,957.1

KPIs

KPIQ1 2025Q2 2025Q3 2025
Assets Floating / Liabilities Floating (%)85% / 50% 86% / 49% 85% / 53% (pro‑forma liabilities trending to ~85%/15% float/fixed)
PIK Share of Investment Income (%)8% (PIK interest of total) 14% 15%
Non‑Accruals (Fair Value, $mm)$38 (1.2%) $38 (1.2%) $51 (1.7%)
Senior‑Oriented Assets (%)77% 78% 80%
Weighted Avg Portfolio Yield (YTM at Cost, %)10.7% 10.6% 10.4%
Weighted Avg EBITDA of Borrowers ($mm)$170 $176 $180

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per Share ($)Q4 2025Ongoing $0.32 protection through 2026 Declared $0.32 distribution (payable Dec 31, 2025) Maintained
Share Repurchase Authorization ($mm)2025$50 (fully utilized) New $100 authorization Raised
Secondary Portfolio Sale2025–2026NoneExploring up to $500mm sale to reduce PIK, diversify, enhance flexibility New
Liability Actions2025–2026Plan to refinance 7.5% converts & 8.25% notes 2022 converts repaid post‑quarter; unsecured refi opportunity ahead Progressing
Leverage TargetOngoingTarget 1.0–1.25xManagement reiterated commitment to range; currently high end Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Dividend protectionQ1: program covers dividend; up to ~$0.02 quarterly support • Q2: continued support amid tight spreads Dividend covered; program reiterated Stable/Supportive
PIK reductionQ1: PIK down; monetizations (UniTek, North Anglia, Casa) • Q2: continued opportunities; collected PIK on ARCOS Portfolio sale under evaluation to reduce PIK; mix trending senior Improving
Portfolio diversificationQ1: lower top positions (<2%) • Q2: top 10 at 25% FV Sale would right‑size large exposures Improving if sale executes
Tariffs/macroQ1: negligible exposure; one flagged position • Q2: downgrade to red due to tariffs Non‑accrual at Beauty Industry Group; plan to equitize/work out Mixed (idiosyncratic pressure)
Liability structureQ1: facility repriced; maturity extended • Q2: plan refi converts/notes Converts repaid; expect unsecured refi opportunity Improving
Market activityQ1/Q2: pipeline building; spreads tighter, dispersion limited Activity picking up; originations lighter than repayments; prioritizing buybacks at current levels Gradual improvement expected into 2026

Management Commentary

  • “NMFC once again covered its dividend… we remain committed to maintaining credit discipline and serving our fellow share owners.” — Steven B. Klinsky, Chairman .
  • “Approximately 95% of the portfolio [is] rated green… we remain confident in NMFC’s ability to deliver consistent enhanced yield with a strong margin of safety.” — John R. Kline, CEO .
  • “Our board… approved a new share buyback program totaling an additional $100 million… [and we are] exploring a portfolio sale of up to $500 million… to reduce PIK income, diversify the portfolio and enhance financial flexibility.” — Steven B. Klinsky .
  • “The average yield decreased slightly to 10.4% due to lower yields on originations compared to repayments, as we continue to rotate more senior.” — Laura Holson, COO .

Q&A Highlights

  • Portfolio sale scope/intent: Management emphasized partial sales of well‑performing positions to reduce concentrations and PIK income, diversify, and retain flexibility; timing and structure remain early-stage .
  • Buyback cadence vs leverage: Team will prioritize staying within leverage targets; repayments/free cash may fund further repurchases at current prices .
  • Credit/tariffs: Beauty Industry Group’s non‑accrual tied to tariff exposure, demand softness, and go‑to‑market; management plans to equitize and deploy platform resources to recover principal over time; broader portfolio seen insulated from tariffs .
  • Deployment selectivity: Given leverage and buyback priorities, underwriting bar is high; broader credit platform provides flexibility to allocate deals outside NMFC when appropriate .
  • Liability actions: Converts repaid after quarter; unsecured refi seen as near‑term opportunity to maintain/reduce cost of financing .

Estimates Context

  • EPS beat: Primary EPS of $0.32 modestly exceeded consensus $0.317*; coverage aided by recurring income, fee waivers, and the dividend protection program . Values with an asterisk (*) retrieved from S&P Global.
  • Revenue miss: Total investment income of $80.5M trailed consensus $83.7M*, reflecting lower yields on originations than repayments and continued rotation to senior assets . Values with an asterisk (*) retrieved from S&P Global.
  • Revisions watch: Given tight spreads and lower yields, revenue estimates may need trimming unless velocity and refi actions offset; dividend coverage commentary supports stability of EPS expectations through the protection period .

Key Takeaways for Investors

  • Dividend stability supported by recurring earnings, fee waivers, and the protection program through 2026; coverage reiterated this quarter .
  • Strategic actions (buyback expansion; potential $500M portfolio sale) aim to reduce PIK, lower concentration, and improve flexibility—key positive stock catalysts at a discount to book .
  • Credit remains resilient (~95% green), yet macro/tariff idiosyncrasies can surface (Beauty Industry Group non‑accrual); management intends an active, hands‑on remediation .
  • Liability management is progressing (2022 converts repaid; unsecured refi opportunity); improved asset/liability float matching should cushion earnings if base rates decline .
  • Senior mix rising and second lien shrinking; expect continued rotation and monetization of PIK/non‑yielding exposures, supporting quality and income character over time .
  • Near‑term investment income headwinds (tighter spreads, lower originations yields) persist; velocity and repayments may fund buybacks over deployment if shares remain discounted .
  • Monitor NAV trajectory and non‑accrual developments (Edmentum capital structure, Beauty Industry Group turnaround) for signs of unrealized depreciation reversal and recovery potential .