New Mountain Finance Q1 2025 slides: Stable dividend maintained amid portfolio repositioning

New Mountain Finance Corporation (NASDAQ:NMFC) presented its first quarter 2025 earnings results on May 6, 2025, highlighting stable dividend coverage despite a slight decline in net asset value (NAV) and continued focus on defensive growth strategies.

Quarterly Performance Highlights

NMFC reported adjusted net investment income (NII) of $0.32 per share for Q1 2025, precisely covering its quarterly dividend of $0.32 per share. The company’s net asset value decreased slightly to $12.45 per share as of March 31, 2025, compared to $12.55 per share at the end of December 2024, representing a modest 0.8% decline.

As shown in the following overview of key performance metrics:

The company permanently waived $1.5 million of incentive fees during the quarter in connection with its dividend protection program, demonstrating management’s commitment to maintaining the dividend. NMFC’s board also authorized a $47 million share repurchase program through December 31, 2025, providing additional potential support for shareholder value.

A year-over-year comparison reveals some moderation in financial performance, as illustrated in this comprehensive data table:

Notably, adjusted NII per share decreased from $0.36 to $0.32 between March 31, 2024, and March 31, 2025, while NAV per share declined from $12.77 to $12.45 over the same period. The current yield at cost also decreased from 12.4% to 11.3%, though the yield to maturity at cost remained relatively stable around 11%.

Portfolio Composition and Credit Quality

NMFC maintained strong credit quality across its $3.0 billion portfolio, with 96.5% of investments rated green on the company’s risk rating heatmap, and no names rated red. This represents a slight improvement from the previous quarter.

The company’s portfolio risk ratings are visually represented in the following breakdown:

The portfolio remains well-diversified across 119 companies, with first lien debt comprising 64% of investments, followed by second lien (6%), net lease (4%), SLPs (9%), and common equity (8%).

As shown in the following portfolio composition chart:

NMFC also highlighted its diversification strategy, with the top 10 portfolio companies representing 25.7% of consolidated investments, while the remaining 106 portfolio companies account for 61.6% of the portfolio.

Strategic Initiatives and Positioning

During the quarter, NMFC made progress on several strategic priorities, including increasing senior assets to 77% of the portfolio (up from 75% in Q4), reducing the size of two top 10 positions, and decreasing PIK income from 19% in Q4 to 17% in Q1.

The company also completed a significant transaction, as NMFC and affiliates sold their stake in UniTek Global Services, with NMFC being repaid approximately $42 million.

NMFC emphasized its "defensive growth" strategy, focusing on acyclical sectors where New Mountain Capital has deep expertise, particularly in healthcare (11%), business services (8%), and enterprise resource planning (6%).

A key competitive advantage highlighted in the presentation is the company’s minimal exposure to global tariffs:

With only 1% of NMFC’s portfolio exposed to potential tariff impacts, the company positions itself as more insulated from trade tensions compared to broader market indices.

The company also provided this snapshot of key metrics that define its investment approach:

Forward-Looking Statements

Looking ahead, NMFC declared a Q2 2025 dividend of $0.32 per share, payable on June 30, 2025, to shareholders of record as of June 16, 2025. The company’s dividend history and coverage are illustrated in the following chart:

Management noted that the investment adviser has pledged to reduce its incentive fee if needed through 2026 to support the $0.32 per share quarterly dividend, providing additional assurance to income-focused investors.

NMFC continues to benefit from elevated base rates, with 3-month SOFR at 4.29%, though the company is preparing for potential rate changes by optimizing its liability structure. The company repriced its Wells Fargo (NYSE:WFC) Facility during the quarter as part of this strategy.

New Mountain employees remain the largest shareholders with approximately 13% ownership, aligning management interests with those of external investors. With a track record of approximately $1.4 billion in total dividends paid to shareholders since its IPO and an annualized dividend yield of 13%, NMFC continues to position itself as an attractive option for income-seeking investors in the business development company (BDC) sector.

Full presentation:

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