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PI

PENNANTPARK INVESTMENT CORP (PNNT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 net investment income was $11.8M ($0.18 per share), down year-over-year from $15.7M ($0.24) and flat sequentially; investment income was $29.6M, down both YoY and QoQ . EPS printed in line with consensus ($0.18 vs $0.182*) and revenue slightly missed ($29.6M vs $29.86M*) .
  • NAV per share fell 1.6% sequentially to $7.36 (from $7.48) as unrealized losses on the Truist credit facility more than offset modest investment marks .
  • Management reiterated its plan to rotate out of equity into first-lien debt to lift core NII, while using $55M ($0.84/share) of spillover income to support the dividend near-term .
  • PSLF’s CLO VII partially refinanced in July, reducing WACC by 68 bps to SOFR+2.63% from SOFR+3.31%, a constructive catalyst for JV earnings momentum .

What Went Well and What Went Wrong

What Went Well

  • CLO VII refinancing reduced spreads (B: SOFR+1.95%, C: +2.30%, D: +3.35%), lowering JV cost of capital and supporting future NII contribution .
  • Dividend coverage supported by spillover: “PNNT has $55,000,000 or $0.84 per share of undistributed spillover income…we will use [it] to cover any shortfall…while we position ourselves for equity rotation” .
  • Credit quality steady: four non-accruals at quarter-end, just 2.8% of cost and 0.7% of fair value; one subsequently returned to accrual, pro forma non-accruals 2.6% cost / 0.6% fair value .

What Went Wrong

  • Top line and NII down YoY: investment income fell to $29.6M from $37.0M; NII to $11.8M from $15.7M, driven by smaller portfolio and lower yields .
  • NAV declined 1.6% QoQ to $7.36, pressured by unrealized depreciation on the credit facility (-$2.9M) despite modest investment marks .
  • Equity-heavy balance sheet continues to weigh on dividend coverage without spillover; management again emphasized the need to rotate equity over 12–18 months .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Investment Income ($USD Millions)$37.0 $30.7 $29.6
Net Investment Income ($USD Millions)$15.7 $11.4 $11.8
Net Investment Income per Share ($)$0.24 $0.18 $0.18
NAV per Share ($)Q2 2025Q3 2025
Reported NAV$7.48 $7.36
Estimates vs Actual (Quarter)Q3 2025
Primary EPS (Actual vs Consensus) ($)$0.18 vs $0.18209*
Revenue (Investment Income) (Actual vs Consensus) ($)$29,555,000 vs $29,859,710*
# of EPS Estimates8*
# of Revenue Estimates7*

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

Segment / Portfolio Mix

Portfolio CompositionQ2 2025 (Mar 31)Q3 2025 (Jun 30)
First Lien Secured Debt$503.0M (41%) $476.4M (41%)
U.S. Government Securities$124.6M (10%) $124.7M (11%)
Second Lien Secured Debt$17.9M (2%) $18.0M (1%)
Subordinated Debt (incl. PSLF)$216.8M (18%) $194.2M (16%)
Preferred & Common Equity (incl. PSLF)$351.3M (29%) $358.3M (31%)
Total Portfolio$1,213.6M $1,171.6M
Debt Portfolio Variable Rate91% 90%
Companies / Avg. Investment Size158 / $6.9M 158 / $6.6M
Weighted Avg Yield on Debt12.0% 11.5%

KPIs and Balance Sheet

KPIQ2 2025Q3 2025
Regulatory Debt-to-Equity1.29x 1.31x
Non-Accruals (% of Cost / FV)1.6% / 0.4% 2.8% / 0.7%
Credit Facility Outstanding$311.4M $316.5M
Cash & Cash Equivalents$32.6M $70.5M
Net Unrealized Appreciation (Investments)$40.7M $40.4M
PSLF Portfolio Size$1,392.9M $1,339.1M
CLO VII WACC (Post-Refi)—SOFR+2.63% (from +3.31%)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Distributions per Common ShareQ3 2025$0.24 in Q2 2025 $0.24 declared in Q3 2025 Maintained
Monthly Dividend Run-RateAug–Sep 2025—$0.08 (Aug 15 record, Sep 2 pay); $0.08 (Sep 15 record, Sep 30 pay) Affirmed cadence
Debt-to-Equity TargetMedium Term~1.25–1.30x (after JV ramp) First-lien heavy mix can support “a little bit more leverage” post rotation Potentially raised (conditional)
Equity Exposure Target (ex-JV)Long Term~10% (PFLT-like) Reinforced target; aim to reduce ~27% (ex-Gov’t securities) to ~10% Lowered target reiterated
JV Optimization Timeline20252–3 quarters to ramp capacity Fully optimize in 6–9 months Accelerated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Previous Mentions (Q2 2025)Current Period (Q3 2025)Trend
Equity RotationTarget cutting non-JV equity roughly in half over time; spillover $0.99/share supports dividend Rotation delayed by macro; targeting resumption with M&A; spillover $0.88/share 12–18 month horizon; singles/doubles progressing; bigger positions pending Improving pipeline
Dividend Coverage / Spillover$65M spillover; core NII $0.20; distribution plan over time Core NII $0.18; continued reliance on spillover $55M spillover; maintain dividend near term Stable support
JV Growth / WACCJV NII ROIC ~18.4%; capacity to $1.6B JV ROIC ~18.3%; capacity intact Clo VII refi -68 bps; optimize fully in 6–9 months Positive
Leverage / Liability StackAim ~1.25–1.3x; temporary higher while seeding JV 1.28x; diversified funding 1.31x; first-lien mix could support slightly higher leverage Slightly higher post-rotation
Market Pricing / SpreadsSOFR+500–550 first lien Spreads widened 25–50 bps since April First lien SOFR+475–525; selective underwriting Stable to modestly wider
Non-Accruals2 names; 4.3% cost; 1.5% FV 3 names; 1.6% cost; 0.4% FV; one back on accrual post-Q 4 names; 2.8% cost; 0.7% FV; one back on accrual post-Q Slight uptick, improving post-Q
Sector ExposuresHealth care & Gov’t services aligned to cost containment; lower leverage approach Limited tariff exposure; focus on resilient sectors Exposure consistent; continued emphasis on resilient sectors Stable

Management Commentary

  • “We remain focused on the plan to rotate out of our equity positions and redeploy that capital into debt investments which will drive growth in our core net investment income…utilize the significant balance of spillover income to cover any shortfall” — Art Penn, CEO .
  • “PNNT has $55,000,000 or $0.84 per share of undistributed spillover income…” — Art Penn .
  • “The JV…partially refinanced its $300 million debt securitization…weighted average spread decreased by 68 basis points to 2.63% from 3.31%” — Art Penn .
  • “As of June 30, our NAV was $7.36 per share, down 1.6% from $7.48 per share in the prior quarter…debt to equity ratio was 1.3x” — CFO Richard Allorto .

Q&A Highlights

  • Equity rotation timeline: 12–18 months to monetize meaningful equity positions; initial progress via smaller co-invest realizations; proceeds to be redeployed into yield .
  • Leverage outlook: With a heavier first-lien portfolio, “could judiciously handle a little bit more leverage” than current levels .
  • JV optimization: Expect full optimization in 6–9 months; continue to be a significant contributor to NII .
  • Competitive environment: Core middle market remains rational; covenants intact; incumbency drives deal flow despite competition .
  • Portfolio specifics: JF Intermediate equity performing well; debt refinanced by a club of direct lenders; equity upside path remains .

Estimates Context

  • EPS printed in line: $0.18 vs consensus $0.18209* (difference ~$0.002) .
  • Revenue slightly missed: $29.555M vs $29.8597M* (difference ~$0.305M), consistent with lower portfolio size and yield .
  • Near-term estimates imply stable EPS into Q4 2025/Q1 2026 ($0.173* / $0.177*), with revenue ~$29.3–$29.9M*; equity rotation and JV optimization are key variables for revisions.
    Values with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Core earnings power remains near $0.18/share while portfolio yields softened; sustained dividend relies on $55M spillover until equity rotation improves NII .
  • CLO VII refinancing is a tangible tailwind to JV returns and consolidated economics; expect incremental margin support as WACC falls 68 bps .
  • Sequential NAV decline (to $7.36) was modest; watch unrealized marks on the credit facility and equity positions as catalysts for NAV trajectory .
  • Equity monetizations plus redeployment into first-lien debt are the top stock narrative drivers over the next 12–18 months; management’s pipeline and M&A activity are improving .
  • Leverage policy may flex modestly higher post-rotation given a safer asset mix, but management remains focused on capital preservation and covenants—monitor debt-to-equity around ~1.3x .
  • Non-accruals are low and improving post-quarter; continued diversification (158 companies) and variable-rate exposure (90%) support resilient cash flows .
  • Estimate resets are likely minor near-term; upside to consensus will hinge on the timing/magnitude of equity realizations and JV scaling .