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PI

PENNANTPARK INVESTMENT CORP (PNNT)·Q2 2025 Earnings Summary

Executive Summary

  • PNNT’s Q2 FY25 NII per share of $0.18 missed S&P Global consensus EPS of $0.189 and investment income of $30.7M missed the $33.1M consensus; management reaffirmed the $0.08/month dividend, to be supported by $58M ($0.88/share) of spillover income until equity rotation resumes. Bolded: significant miss on both EPS and revenue estimates. (Estimates: S&P Global)*
  • NAV/share declined 1.2% q/q to $7.48 (from $7.57), reflecting realized losses of $(27.8)M offset by $25.8M in net unrealized gains; regulatory D/E fell to 1.29x as the firm de‑levered and increased undrawn capacity to $185.5M (from $10.5M).
  • Portfolio credit quality remained resilient: non‑accruals were 1.6% of cost (0.4% of FV) with one name returning to accrual post‑quarter; weighted debt yield held at 12.0% as management cited limited tariff exposure and widening spreads since April.
  • PSLF JV scaled to $1.39B and delivered an 18.3% NII return on invested capital over 12 months; management expects capacity up to ~$1.6B to bolster earnings momentum.

What Went Well and What Went Wrong

What Went Well

  • PSLF JV growth and returns: JV reached $1.39B with 18.3% NII ROIC over the last 12 months; management sees capacity to ~$1.6B and continued earnings contribution. “Our JV has the capacity to increase its portfolio to $1.6 billion... enhance PNNT’s earnings momentum.”
  • Credit defense: Non-accruals remained low at 1.6% of cost (0.4% FV) with one subsequent re‑accrual; portfolio leverage 4.7x and interest coverage 2.1x underscore conservative underwriting.
  • Spreads improving: Since April 1, spreads widened ~25–50 bps, partially offsetting base rate headwinds. “Spread reduction has gone away… spread increase, call it, 25 to 50 basis points on average.”

What Went Wrong

  • Earnings under the dividend: Core/GAAP NII/share was $0.18 vs $0.24 dividends; management will use $58M ($0.88/share) spillover to bridge while equity monetizations are delayed by the current environment.
  • Top-line pressure and NAV decline: Investment income fell to $30.7M (from $36.0M YoY), and NAV/share fell 1.2% q/q to $7.48 driven by $(27.8)M realized losses despite net unrealized gains.
  • Slower origination mix/new platforms: M&A activity and tariff uncertainty pushed new‑platform deals; ~80% of originations came from incumbents; deal pipeline improved late in the quarter but was choppy.

Financial Results

Core results vs prior periods and estimates

MetricQ2 2024Q4 2024Q1 2025Q2 2025Q2 2025 ConsensusBeat/Miss
Investment Income (“Revenue”) ($M)$36.0 $36.5 $34.2 $30.7 $33.11*Miss
Net Investment Income ($M)$14.3 $14.4 $13.0 $11.4 ——
NII per Share (“EPS”) ($)$0.22 $0.22 $0.20 $0.18 $0.189*Miss
Net Inc. in Net Assets from Ops/Share ($)$0.25 $0.28 $0.25 $0.14 ——
Dividends Declared/Share ($)$0.21 $0.24 $0.24 $0.24 ——
NAV/Share ($)—$7.56 $7.57 $7.48 ——
Regulatory Debt/Equity (x)—1.58x 1.58x 1.29x ——

Note: Consensus columns from S&P Global. Values retrieved from S&P Global.*

Investment income breakdown (by asset type)

Investment Income ($M)Q2 2024Q2 2025
First lien secured debt$27.8 $22.1
Second lien secured debt$2.8 $1.0
Subordinated debt$0.1 $1.1
Other investments (incl. equity/dividends)$5.3 $6.5
Total Investment Income$36.0 $30.7

Portfolio composition (fair value, as of date)

CategorySep 30, 2024Mar 31, 2025
First lien secured debt$667.9M (50%) $503.0M (41%)
U.S. Government securities$99.6M (8%) $124.6M (10%)
Second lien secured debt$67.2M (5%) $17.9M (2%)
Subordinated debt (incl. PSLF notes)$181.7M (14%) $216.8M (18%)
Preferred & common equity (incl. PSLF equity)$311.7M (23%) $351.3M (29%)
Total Portfolio$1,328.1M $1,213.6M

KPIs and balance sheet

KPISep 30, 2024Dec 31, 2024Mar 31, 2025
Weighted avg yield on interest-bearing debt12.3% 12.0% 12.0%
Non‑accruals (#; % cost / % FV)2; 4.1% / 2.3% 2; 4.3% / 1.5% 3; 1.6% / 0.4%
Portfolio companies (count)152 158 158
Floating‑rate debt mix94% 92% 91%
PSLF JV portfolio size$1,031.2M $1,275.1M $1,392.9M
Credit Facility outstanding$461.5M $464.5M $314.5M
Undrawn capacity (Truist facility)$13.5M $10.5M $185.5M
NAV per share$7.56 $7.57 $7.48

Guidance Changes

MetricPeriodPrevious Guidance/ContextCurrent Guidance/ContextChange
Monthly dividendApr–May 2025$0.08 declared for April (paid May 1) $0.08 declared for May (paid Jun 2) Maintained
Core NII vs dividendQ1 2025 vs Q2 2025$0.20 NII/share vs $0.24 dividends $0.18 NII/share vs $0.24 dividends; cover with $58M spillover Lower coverage; using spillover
Leverage targetOngoingManagement aims for ~1.25x–1.30x over time Actual 1.29x q/q with de‑levering Maintained trajectory
PSLF JV capacity2024–2025Scaled commitments; capacity target ~>$1.5–$1.6B Reiterated ~$1.6B capacity and earnings contribution Reiterated

Note: PNNT does not provide formal revenue/EPS/OpEx guidance; focus is on dividend, balance sheet/leverage and strategic equity rotation.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Equity rotation to debtExpect more M&A to monetize equities in 2025; cleanup before considering structural options Market delays program; maintain dividend via $58M spillover until rotation improves Delayed near term
PSLF JV growth/returnsUpsized, 19.2% return; capacity to >$1.5B 18.3% ROIC; capacity to ~$1.6B; continued earnings boost Strong and scaling
Spreads/base rates2024 saw 50–75 bps spread tightening Spreads widened 25–50 bps since Apr 1; base rates uncertain Improving spreads
Tariffs/macroLimited tariff exposure; focus on resilient sectors Limited exposure confirmed; M&A temporarily delayed but improving late-quarter Exposure limited; pipeline stabilizing
Credit quality2 non‑accruals; low loss history 3 non‑accruals at Q2 with one re‑accrual post‑quarter Stable/Improving
Sector stance (HC, Gov/Defense)Favor HC & Gov services at lower leverage HC performing well; aligned to $~1T defense priorities (cyber, satellites, IT) Steady focus

Management Commentary

  • “Core net investment income was $0.18 per share compared to total distributions of $0.24 per share… we are comfortable maintaining our current dividend level as the company has a significant balance of spillover income… $58 million or $0.88 per share.” — Arthur Penn, CEO
  • “Over the last 12 months, PNNT's average NII return on invested capital in the JV was 18.3%… JV has the capacity to increase its portfolio to $1.6 billion.”
  • “As of March 31… 3 non‑accruals… 1.6% of the portfolio at cost and 0.4% at market value. Subsequent to quarter end, 1 non‑accrual… put back on accrual.” — CFO
  • “Since [April 1] spread reduction has gone away… we’ve seen spread increase 25–50 basis points.” — CEO
  • “Government contracting and defense… priorities like cybersecurity, satellites, information technology upgrades… we are very well aligned to those areas of increased focus.” — CEO

Non‑GAAP: Core NII excluded $0.3M credit facility amendment cost and $0.1M incentive fee offset in Q2 FY25; Adjusted NAV = GAAP NAV in the quarter.

Q&A Highlights

  • Pipeline/M&A: Tariff uncertainty paused some deals (“if it was tariff related, it probably got put on ice”), but activity improved late in the quarter; ~80% of originations remain with incumbents.
  • Run‑rate earnings drivers: Spreads have widened since April; base rates uncertain; M&A recovery is key to equity rotation and NII uplift.
  • Gov/Defense and Healthcare exposure: Portfolio aligned to defense priorities; healthcare remains solid given lower leverage vs peers and focus on cost‑containment segments.
  • Risk posture: Underwrite with recession case in year 1; leverage typically ~4x with 40–50% LTV to weather downturns.

Estimates Context

  • Q2 FY25 results vs S&P Global consensus: EPS $0.18 vs $0.189 (miss by ~$0.009); revenue (investment income) $30.7M vs $33.1M (miss). Q1 FY25 also modest misses on both EPS and revenue; trend suggests near‑term estimate risk until equity rotation/M&A accelerates. (Values retrieved from S&P Global).*
  • Street may adjust near‑term NII modestly lower given investment income deceleration, slower new‑platform activity, and dividend gap bridged by spillover until rotations occur.

S&P Global Consensus vs Actuals

MetricQ2 2025 EstimateQ2 2025 ActualQ1 2025 EstimateQ1 2025 ActualQ2 2024 EstimateQ2 2024 Actual
EPS (Primary / NII per share)0.1886*0.18 0.2076*0.20 0.2391*0.22
Revenue (Investment Income, $)33,107,430*30,663,000 35,489,500*34,207,000 36,518,730*35,979,000

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Earnings under the dividend likely persists near term; coverage supported by $58M spillover while equity rotation is delayed—watch for M&A‑driven exits as a key catalyst.
  • Positive spread momentum since April may cushion lower base rates; if sustained, could support future NII stabilization.
  • Credit remains disciplined with low non‑accruals and conservative leverage/coverage, underpinning NAV durability despite realized loss volatility.
  • PSLF JV remains a core earnings lever (18%+ ROIC) with capacity to ~$1.6B—continued scaling is supportive for medium‑term NII.
  • De‑levering and expanded undrawn capacity ($185.5M) provide flexibility to deploy into attractive vintages as pipelines normalize.
  • Sector positioning (healthcare, gov/defense, business services) and limited tariff exposure should keep credit outcomes resilient versus more cyclical peers.
  • Near‑term trading: stock likely responds to signs of equity monetizations, sustained spread tailwinds, and any improvement in coverage trajectory; medium‑term thesis rests on JV scaling and rotation from equity to interest‑earning loans.

References

  • Q2 FY25 press release (Exhibit 99.1 to 8‑K) and 8‑K Items
  • Q2 FY25 press release (GlobeNewswire)
  • Q2 FY25 earnings call transcripts (parallel versions -, - consistent)
  • Q1 FY25 press release and call
  • Q4 FY24 press release and call
  • Dividend press releases