New Mountain Finance Corporation Announces Financial Results for the Quarter Ended June 30, 2024

Rhea-AI Summary

New Mountain Finance (NASDAQ: NMFC) reported its financial results for Q2 2024. Key highlights include:

- Net investment income of $38.2 million, or $0.36 per share

- Net asset value of $12.74 per share

- $437.3 million in gross originations and $299.1 million in repayments

- 97.0% of portfolio rated green on internal risk rating system

- Declared regular Q3 2024 distribution of $0.32 per share and supplemental distribution of $0.02 per share

The company maintained a strong credit performance and improved its asset mix. NMFC's investment portfolio had a fair value of $3.23 billion across 123 companies, with a weighted average yield to maturity at cost of 11.1%. The company's statutory debt to equity ratio was 1.21x as of June 30, 2024.

Positive

• Net investment income of $38.2 million, or $0.36 per share
• 97.0% of portfolio rated green on internal risk rating system, up from 96.5% in Q1
• Increased portfolio velocity with $437.3 million of gross originations
• Successful repricing of Wells Fargo Credit Facility, reducing spread from S + 2.50% to S + 2.15%
• Declared regular Q3 2024 distribution of $0.32 per share and supplemental distribution of $0.02 per share

Negative

• Slight decrease in net asset value from $12.77 per share in Q1 to $12.74 per share in Q2
• Increase in statutory debt/equity ratio from 1.08x in Q1 to 1.21x in Q2

Financial Analyst

New Mountain Finance 's Q2 2024 results demonstrate solid performance in a challenging market environment. The company reported $38.2 million in net investment income, or $0.36 per share, which is slightly lower than the $0.39 per share in Q2 2023. However, this still comfortably covers the declared regular distribution of $0.32 per share.

The company's net asset value (NAV) remained relatively stable at $12.74 per share, compared to $12.77 at the end of Q1 2024. This stability in NAV is a positive sign, indicating the portfolio's resilience despite market volatility.

NMFC's investment activity was robust, with $437.3 million in gross originations and $299.1 million in repayments. The increased portfolio velocity suggests the company is actively managing its investments to optimize returns.

The company's focus on first lien loans (63% of the portfolio) and its strong internal risk rating system (with 97% of the portfolio rated 'green') indicate a conservative approach to credit risk management. This strategy should help protect the portfolio in case of economic headwinds.

The reduction in the base management fee to 1.25% is a positive move for shareholders, as it will help to improve the company's expense ratio and potentially boost returns.

Overall, while there are some signs of pressure on earnings, NMFC's conservative portfolio management and focus on defensive sectors position it well for the current economic environment.

Market Research Analyst

NMFC's Q2 results reflect the broader trends in the BDC sector, where rising interest rates are creating both opportunities and challenges. The company's yield-to-maturity at cost of 11.1% is attractive in the current market environment, potentially drawing more investor interest to the BDC sector.

The company's focus on defensive growth businesses is particularly noteworthy. Their target companies exhibit characteristics such as acyclicality, sustainable secular growth drivers and recurring revenue. This strategy could provide resilience in an uncertain economic environment.

The portfolio's industry composition shows a strong tilt towards software (32%) and business services (20.3%), sectors that have shown resilience in economic downturns. This concentration in technology and services aligns with broader market trends favoring digital transformation and business process optimization.

However, investors should note the increase in the company's statutory debt-to-equity ratio to 1.21x from 1.08x in the previous quarter. While still within acceptable ranges for a BDC, this increase in leverage could amplify risks in a downturn scenario.

The company's ability to reprice its Wells Fargo Credit Facility at more favorable terms (reducing spread from S + 2.50% to S + 2.15%) demonstrates its strong standing with lenders and could help mitigate the impact of rising interest rates on its cost of capital.

In summary, NMFC's results and strategy position it as a relatively stable player in the BDC market, potentially attractive to investors seeking yield in a higher interest rate environment, but with the caveat of increased leverage.

Reports Net Investment Income of $0.36 per Share

Declares a Regular Third Quarter Distribution of $0.32 per Share and a Supplemental Distribution of $0.02 per Share

NEW YORK--(BUSINESS WIRE)-- New Mountain Finance Corporation (NASDAQ: NMFC) (“New Mountain,” “New Mountain Finance” or the “Company”) today announced its financial results for the quarter ended June 30, 2024.

Second Quarter Highlights¹

• Net investment income of $38.2 million, or $0.36 per weighted average share
• Net asset value of $12.74 per share compared to $12.77 per share as of March 31, 2024
• Plan to permanently reduce base management fee to 1.25%
• Amending and extending the dividend protection program
• Continued strong credit performance with approximately 97.0% of the portfolio rated green on our internal risk rating system, up from 96.5% at March 31, 2024
• Increased portfolio velocity with $437.3 million of gross originations², $299.1 million of repayments² and $5.5 million of asset sales
• Significant first lien loan originations contributed to asset mix improvement
• Successful repricing of the Wells Fargo Credit Facility, reducing the spread from S + 2.50% to S + 2.15%
• Declared a regular third quarter 2024 distribution of $0.32 per share and a supplemental distribution related to second quarter earnings of $0.02 per share, each payable on September 30, 2024 to holders of record as of September 16, 2024

($ in millions, except per share data)	Q2 2024			Q2 2023
Net Investment Income per Weighted Average Share	$	0.36		$	0.39
Dividends Paid per Share4	$	0.34		$	0.35
Annualized Dividend Yield5		11.0	%		11.0	%

	June 30, 2024		March 31, 2024
Investment Portfolio6	$	3,227.3	$	3,086.5
NAV per Share	$	12.74	$	12.77
Statutory Debt/Equity3	1.21x		1.08x
Statutory Debt/Equity (Net of Available Cash)3	1.14x		1.03x

Management Comments on Second Quarter Performance

“Our second quarter results reflect another good quarter for NMFC,” said Steven B. Klinsky, NMFC Chairman. “NMFC’s consistent book value and dividend coverage reflect the benefit of our disciplined, defensive growth strategy focused on end markets that perform well across economic cycles.”

John R. Kline, CEO, commented: “We delivered solid performance with stable sequential NII and strong originations totaling more than $437 million in the second quarter. NMFC remains well positioned to capitalize on high-quality investment opportunities in our core defensive growth power alleys. Further, we have maintained strong credit performance, improved our asset mix and reduced the interest rate on our core credit facility.”

Portfolio and Investment Activity⁶

As of June 30, 2024, the Company’s NAV¹ was $1,374.1 million and its portfolio had a fair value of $3,227.3 million in 123 portfolio companies, with a weighted average YTM at Cost⁷ of approximately 11.1%. For the three months ended June 30, 2024, the Company generated $437.3 million of originations², cash repayments² of $299.1 million and had $5.5 million of asset sales.

Portfolio and Asset Quality

NMFC’s mandate is to primarily target businesses in the middle market that, consistent with New Mountain’s private equity platform, are high quality, defensive growth companies in industries that are well-researched by New Mountain. The Company’s focus is on defensive growth businesses that generally exhibit the following characteristics: (i) acyclicality, (ii) sustainable secular growth drivers, (iii) niche market dominance and high barriers to competitive entry, (iv) recurring revenue and strong free cash flow, (v) flexible cost structures and (vi) seasoned management teams.

Portfolio Industry Composition based on Fair Value¹⁰

Software				Business Services
	ERP	8.2 %			Engineering & Consulting Services	5.4 %
	IT Infrastructure & Security	6.9 %			Real Estate Services	4.5 %
	Human Capital Management	5.3 %			Misc Services	3.3 %
	Ecommerce & Logistics	4.0 %			Insurance & Benefits Services	3.0 %
	Finance & Accounting	3.2 %			Utility Services	2.3 %
	Governance, Risk & Compliance	3.0 %			Digital Transformation	1.6 %
	Integrated Payments	1.4 %			Data & Information Services	0.2 %
Total Software		32.0 %		Total Business Services		20.3 %
Healthcare				Other Industries
	Healthcare Services	9.6 %			Education	7.0 %
	Healthcare Software	6.0 %			Consumer Services	6.8 %
	Tech-Enabled Healthcare	1.0 %			Distribution & Logistics	4.3 %
	Pharma Services	0.9 %			Financial Services	4.1 %
	Healthcare Products	0.2 %			Packaging	2.4 %
					Other	5.6 %
Total Healthcare		17.7 %		Total Other Industries		30.2 %

The Company monitors the performance and financial trends of its portfolio companies on at least a quarterly basis. The Company attempts to identify any developments within the portfolio company, the industry, or the macroeconomic environment that may alter any material element of the Company’s original investment strategy. As described more fully in the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission, the portfolio monitoring procedures are designed to provide a simple, yet comprehensive analysis of the Company’s portfolio companies based on their operating performance and underlying business characteristics, which in turn forms the basis of its Risk Rating. The Risk Rating is expressed in categories of Green, Yellow, Orange and Red with Green reflecting an investment that is in-line with or above expectations and Red reflecting an investment performing materially below expectations.

The following table shows the Risk Rating of the Company’s portfolio companies as of June 30, 2024:

(in millions)	As of June 30, 2024
Risk Rating		Cost			Percent		Fair Value			Percent		Weighted Average Mark
Green9		$	3,078.3		95.1 %		$	3,130.3		97.0 %		98.1 %
Yellow6			87.0		2.7 %			58.2		1.8 %		66.8 %
Orange			59.4		1.8 %			35.8		1.1 %		74.3 %
Red			12.9		0.4 %			3.0		0.1 %		36.2 %
Total		$	3,237.6		100.0 %		$	3,227.3		100.0 %

As of June 30, 2024, all investments in the Company’s portfolio had a Green Risk Rating, with the exception of four portfolio companies that had a Yellow Risk Rating, five portfolio companies that had an Orange Risk Rating and one portfolio company that had a Red Risk Rating.

The following table shows the Company’s investment portfolio composition as of June 30, 2024:

(in millions)
Investment Portfolio Composition		June 30, 2024			Percent of Total
First Lien		$	2,017.6		63 %
Senior Loan Funds & NMNLC11			376.0		12 %
Second Lien6			290.5		9 %
Subordinated			106.8		3 %
Preferred Equity			224.4		6 %
Common Equity and Other			212.0		7 %
Total		$	3,227.3		100 %

Liquidity and Capital Resources

As of June 30, 2024, the Company had cash and cash equivalents of $119.6 million and total statutory debt outstanding of $1,659.5 million³. The Company's statutory debt to equity was 1.21x as of June 30, 2024. Additionally, the Company had $300.0 million of SBA-guaranteed debentures outstanding as of June 30, 2024. As of June 30, 2024, the Company had $498.1 million of available capacity on its Holdings Credit Facility, DB Credit Facility and NMFC Credit Facility.

For the three months ended June 30, 2024, the Company sold 1,562,122 shares of common stock under its equity distribution agreement. For the same period, the Company received total accumulated net proceeds of approximately $19.8 million, including $0.0 million of offering expenses, from these sales.

Second Quarter 2024 Conference Call

New Mountain Finance Corporation will host an earnings conference call and webcast at 10:00 am Eastern Time on Thursday, August 1, 2024. To participate in the live earning conference call, please use the following dial-in numbers or visit the audio webcast link. To avoid any delays, please join at least fifteen minutes prior to the start of the call.

• United States: +1 (877) 443-9109
• International: +1 (412) 317-1082
• Live Audio Webcast

A replay of the conference call can be accessed one hour after the end of the conference call through November 1, 2024. The full webcast replay will be available through August 1, 2025. To access the earnings webcast replay please visit the New Mountain Investor Relations website.

• United States: +1 (877) 344-7529
• International: +1 (412) 317-0088
• Access Code: 8717497

For additional details related to the quarter ended June 30, 2024, please refer to the New Mountain Finance Corporation Quarterly Report on Form 10-Q filed with the SEC and the supplemental investor presentation which can be found on the Company's website at http://www.newmountainfinance.com.

____________________________________________
(1)		Excludes non-controlling interest in New Mountain Net Lease Corporation (“NMNLC”). For the quarter ended June 30, 2024 and 2023, $0.3 million and $0.2 million, respectively, is excluded from investment income, $0.1 million and $0.0 million, respectively, of net direct and indirect professional, administrative, other general and administrative is excluded from net expenses and $0.2 million and $0.2 million, respectively, is excluded from net investment income.
(2)		Originations exclude payment-in-kind (“PIK”); originations, repayments, and sales excludes revolvers, unfunded commitments, bridges, return of capital, and realized gains / losses.
(3)		Excludes the Company’s United States Small Business Administration (“SBA”) guaranteed debentures.
(4)		Includes the regular quarter distribution and the supplemental distribution paid in the quarter.
(5)		Dividend yield calculation uses the closing stock price of $12.42 on July 29, 2024 and $12.75 on July 31, 2023 and includes regular and supplemental dividends.
(6)		Includes collateral for securities purchased under collateralized agreements to resell.
(7)		References to “YTM at Cost” assume the accruing investments, including secured collateralized agreements, in the Company's portfolio as of a certain date, the ‘‘Portfolio Date’’, are purchased at cost on that date and held until their respective maturities with no prepayments or losses and are exited at par at maturity. This calculation excludes the impact of existing leverage. YTM at Cost uses the Sterling Overnight Interbank Average Rate ("SONIA”), Euro Interbank Offered Rate ("EURIBOR") and Secured Overnight Financing Rate (“SOFR”) curves at each quarter’s respective end date. The actual yield to maturity may be higher or lower due to the future selection of SONIA, EURIBOR and SOFR contracts by the individual companies in the Company’s portfolio or other factors.
(8)		Includes investments in joint ventures.
(9)		Includes investments held in NMNLC.
(10)		Excludes NMFC Senior Loan Program III LLC ("SLP III"), NMFC Senior Loan Program IV LLC ("SLP IV") and NMNLC.
(11)		Senior Loan Funds includes SLP III and SLP IV.

New Mountain Finance Corporation
Consolidated Statements of Assets and Liabilities
(in thousands, except shares and per share data)
(unaudited)
	June 30, 2024				December 31, 2023
Assets
Investments at fair value
Non-controlled/non-affiliated investments (cost of $2,429,377 and $2,283,490, respectively)	$	2,411,396			$	2,209,867
Non-controlled/affiliated investments (cost of $119,130 and $107,895, respectively)		118,351				133,659
Controlled investments (cost of $659,042 and $646,823, respectively)		684,033				667,796
Total investments at fair value (cost of $3,207,549 and $3,038,208, respectively)		3,213,780				3,011,322
Securities purchased under collateralized agreements to resell (cost of $30,000 and $30,000, respectively)		13,500				16,500
Cash and cash equivalents		119,607				70,090
Interest and dividend receivable		48,071				44,107
Deferred tax asset		—				594
Receivable from affiliates		154				82
Other assets		28,506				16,519
Total assets	$	3,423,618			$	3,159,214
Liabilities
Borrowings
Unsecured Notes	$	685,974			$	506,500
Holdings Credit Facility		386,563				515,063
SBA-guaranteed debentures		300,000				300,000
Convertible Notes		260,150				260,207
DB Credit Facility		182,000				186,400
NMFC Credit Facility		141,840				36,813
NMNLC Credit Facility II		2,948				2,853
Deferred financing costs (net of accumulated amortization of $58,243 and $54,263, respectively)		(22,516	)			(22,387	)
Net borrowings		1,936,959				1,785,449
Payable for unsettled securities purchased		51,199				—
Interest payable		22,937				20,440
Management fee payable		10,490				10,116
Incentive fee payable		9,550				8,555
Payable to broker		1,650				—
Derivative liability at fair value		1,552				—
Deferred tax liability		63				—
Other liabilities		2,701				2,931
Total liabilities		2,037,101				1,827,491
Commitments and contingencies
Net assets
Preferred stock, par value $0.01 per share, 2,000,000 shares authorized, none issued		—				—
Common stock, par value $0.01 per share, 200,000,000 shares authorized, and 107,851,415 and 102,558,859 shares issued and outstanding, respectively		1,079				1,026
Paid in capital in excess of par		1,398,438				1,331,269
Accumulated undistributed earnings		(25,399	)			(12,344	)
Total net assets of New Mountain Finance Corporation	$	1,374,118			$	1,319,951
Non-controlling interest in New Mountain Net Lease Corporation		12,399				11,772
Total net assets	$	1,386,517			$	1,331,723
Total liabilities and net assets	$	3,423,618			$	3,159,214
Number of shares outstanding		107,851,415				102,558,859
Net asset value per share of New Mountain Finance Corporation	$	12.74			$	12.87

New Mountain Finance Corporation
Consolidated Statements of Operations
(in thousands, except shares and per share data)
(unaudited)
	Three Months Ended								Six Months Ended
	June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Investment income
From non-controlled/non-affiliated investments:
Interest income (excluding Payment-in-kind ("PIK") interest income)	$	57,583			$	64,649			$	113,820			$	125,407
PIK interest income		4,437				3,767				9,120				7,711
Dividend income		2,284				47				2,577				94
Non-cash dividend income		4,797				4,305				9,481				8,471
Other income		3,291				686				4,891				2,604
From non-controlled/affiliated investments:
Interest income (excluding PIK interest income)		376				683				744				692
PIK interest income		873				414				1,709				1,105
Non-cash dividend income		1,374				1,139				2,618				2,244
Other income		62				63				125				126
From controlled investments:
Interest income (excluding PIK interest income)		1,383				1,243				2,744				2,687
PIK interest income		3,721				3,686				7,856				8,074
Dividend income		12,340				12,143				25,023				23,138
Non-cash dividend income		1,570				1,292				3,066				2,522
Other income		497				1,375				1,370				2,570
Total investment income		94,588				95,492				185,144				187,445
Expenses
Interest and other financing expenses		33,113				31,700				64,129				62,496
Management fee		11,351				11,577				22,348				23,215
Incentive fee		9,550				9,982				18,939				19,579
Professional fees		1,127				1,003				2,194				1,968
Administrative expenses		1,108				953				2,076				2,001
Other general and administrative expenses		527				513				992				1,001
Total expenses		56,776				55,728				110,678				110,260
Less: management fee waived		(861	)			(1,096	)			(1,762	)			(2,159	)
Net expenses		55,915				54,632				108,916				108,101
Net investment income before income taxes		38,673				40,860				76,228				79,344
Income tax expense		234				932				235				1,028
Net investment income		38,439				39,928				75,993				78,316
Net realized (losses) gains:
Non-controlled/non-affiliated investments		(34,966	)			(7,314	)			(46,824	)			(8,622	)
Controlled investments		3,800				9,880				3,831				11,853
Foreign currency		—				1				—				13
Net change in unrealized appreciation (depreciation):
Non-controlled/non-affiliated investments		32,895				2,174				56,055				(755	)
Non-controlled/affiliated investments		(4,080	)			1				(26,543	)			(15	)
Controlled investments		1,697				(9,488	)			4,017				(691	)
Securities purchased under collateralized agreements to resell		(3,000	)			(39	)			(3,000	)			(39	)
Foreign currency		129				29				106				55
Provision for taxes		(130	)			(94	)			(767	)			(225	)
Net realized and unrealized (losses) gains		(3,655	)			(4,850	)			(13,125	)			1,574
Net increase in net assets resulting from operations		34,784				35,078				62,868				79,890
Less: Net increase in net assets resulting from operations related to non-controlling interest in New Mountain Net Lease Corporation		(313	)			(248	)			(989	)			(487	)
Net increase in net assets resulting from operations related to New Mountain Finance Corporation	$	34,471			$	34,830			$	61,879			$	79,403
Basic earnings per share	$	0.32			$	0.35			$	0.59			$	0.79
Weighted average shares of common stock outstanding - basic		106,891,784				100,937,026				105,276,077				100,937,026
Diluted earnings per share	$	0.31			$	0.32			$	0.56			$	0.71
Weighted average shares of common stock outstanding - diluted		125,759,769				127,016,910				124,101,624				125,313,634
Distributions declared and paid per share	$	0.34			$	0.35			$	0.70			$	0.67

ABOUT NEW MOUNTAIN FINANCE CORPORATION

New Mountain Finance Corporation (NASDAQ: NMFC) is a leading business development company (BDC) focused on providing direct lending solutions to U.S. middle market companies backed by top private equity sponsors. Our portfolio consists primarily of senior secured loans, and select junior capital positions, to growing businesses in defensive industries that offer attractive risk-adjusted returns. Our differentiated investment approach leverages the deep sector knowledge and operating resources of New Mountain Capital, a global investment firm with approximately $55 billion of assets under management.

ABOUT NEW MOUNTAIN CAPITAL

New Mountain Capital ("NMC") is a New York-based investment firm that emphasizes business building and growth, rather than debt, as it pursues long-term capital appreciation. The firm currently manages private equity, credit and net lease investment strategies with approximately $55 billion in assets under management. New Mountain seeks out what it believes to be the highest quality growth leaders in carefully selected industry sectors and then works intensively with management to build the value of these companies. For more information on New Mountain Capital, please visit http://www.newmountaincapital.com.

FORWARD-LOOKING STATEMENTS

Statements included herein may contain “forward-looking statements”, which relate to our future operations, future performance or our financial condition. Forward-looking statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties, including changes in base interest rates and significant volatility on our business, portfolio companies, our industry and the global economy. Actual results and outcomes may differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those described from time to time in our filings with the Securities and Exchange Commission or factors that are beyond our control. New Mountain Finance Corporation undertakes no obligation to publicly update or revise any forward-looking statements made herein, except as may be required by law. All forward-looking statements speak only as of the time of this press release.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240731979861/en/

New Mountain Finance Corporation

Investor Relations

Laura C. Holson, Authorized Representative

NMFCIR@newmountaincapital.com

(212) 220-3505

Source: New Mountain Finance Corporation

FAQ

What was NMFC's net investment income per share for Q2 2024?

NMFC reported net investment income of $0.36 per weighted average share for Q2 2024.

How much did NMFC declare in distributions for Q3 2024?

NMFC declared a regular Q3 2024 distribution of $0.32 per share and a supplemental distribution of $0.02 per share.

What was the fair value of NMFC's investment portfolio as of June 30, 2024?

The fair value of NMFC's investment portfolio was $3,227.3 million as of June 30, 2024.

What percentage of NMFC's portfolio was rated green on their internal risk rating system?

Approximately 97.0% of NMFC's portfolio was rated green on their internal risk rating system as of June 30, 2024.