[Management View]
New Mountain Finance Corporation (NMFC) reported adjusted net investment income of $0.32 per share for Q2 2025, fully covering its quarterly dividend. Management emphasized the stability provided by the dividend protection program, supported by recurring portfolio income and incremental fee waivers. Strategic priorities include increasing senior-oriented assets, optimizing liabilities with floating-rate debt, and monetizing equity positions to enhance portfolio quality.

[Outlook]
Management reaffirmed its $0.32 dividend for Q3 2025, supported by strong recurring earnings and the dividend protection program, which remains in place through 2026. Plans include refinancing higher-cost debt, increasing portfolio activity, and monetizing PIK income. Management anticipates improving credit performance and asset rotation in the coming quarters, with a focus on defensive growth sectors such as healthcare, IT, and infrastructure.

[Financial Performance]
- Adjusted Net Investment Income: $0.32 per share, covering the dividend.
- Net Asset Value: $12.21 per share, down $0.24 from Q1 2025 due to markdowns in dental healthcare and consumer products investments.
- Origination Volume: $122 million in new investments versus $155 million in repayments and sales.
- Portfolio Yield: Declined to 10.6%, partly due to lower yields on new originations and a downward shift in the forward SOFR curve.

[Q&A Highlights]
Question 1: Are there broader industry headwinds in healthcare, particularly in dental and veterinary sectors?
Answer: Dental businesses face operational challenges, including limited pricing levers and labor inflation, making them management-sensitive. NMFC has deprioritized this sector for new deals. Veterinary businesses, such as Alliance Animal Health, benefit from secular tailwinds like increased pet ownership and longer lifespans. While COVID-related volume spikes have normalized, the sector remains attractive due to cash-pay dynamics and less operational intensity.

Question 2: How does NMFC approach the dividend protection program amid current headwinds?
Answer: The program provides shareholder visibility and stability during periods of compressed spreads and lighter deal flow. Management is focused on optimizing leverage, refinancing higher-cost debt, and increasing portfolio velocity to support earnings. Incremental fee waivers were utilized this quarter to maintain the dividend, with positive catalysts expected in Q3 and Q4.

Question 3: What led to the downgrade of the consumer products business, and are similar risks present in the portfolio?
Answer: The downgrade was driven by tariff exposure and pre-existing operational underperformance. The business faces challenges due to its reliance on an Asian-centric supply chain. Management remains optimistic about long-term recovery but acknowledges liquidity needs. Tariff risks across the broader portfolio are minimal, with this case being an isolated issue.

Question 4: Can NMFC complete its strategic initiatives by the end of 2026 to eliminate reliance on the dividend protection program?
Answer: Management is optimistic about improving asset quality, liability mix, and monetizing equity positions over the next six quarters. While direct lending spreads are harder to predict, NMFC is focused on controllable factors and expects progress in optimizing its portfolio and liabilities.

Question 5: What is the outlook for Edmentum, given recent write-downs?
Answer: Edmentum, an ed-tech business serving the K-12 market, has stabilized post-COVID. While virtual learning demand has normalized, the company is expanding into career learning offerings. Its equity valuation is impacted by securities accreting senior to NMFC’s position, but the platform remains well-positioned in its market.

[Sentiment Analysis]
Analysts expressed cautious optimism, focusing on NMFC’s ability to navigate portfolio challenges and maintain dividend stability. Management maintained a confident tone, emphasizing strategic initiatives and long-term recovery potential for underperforming assets.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Change |
|----------------------------|-----------------|-----------------|-----------------|
| Adjusted Net Investment Income | $0.32 per share | $0.32 per share | No change |
| Net Asset Value | $12.21 per share | $12.45 per share | -$0.24 |
| Portfolio Yield | 10.6% | 10.8% | -0.2% |
| Origination Volume | $122 million | $155 million | -$33 million |

[Risks and Concerns]
1. Tariff exposure in the consumer products business, requiring liquidity support.
2. Operational challenges in dental healthcare investments, including labor inflation and limited pricing flexibility.
3. Compressed spreads and lighter origination activity impacting portfolio yields.
4. Dependency on the dividend protection program amid current market conditions.

[Final Takeaway]
New Mountain Finance Corporation demonstrated resilience in Q2 2025, maintaining its dividend through strategic use of the dividend protection program and incremental fee waivers. While portfolio challenges, including tariff exposure and sector-specific headwinds, led to modest NAV declines, management remains focused on optimizing asset quality, liability structure, and income mix. With strong shareholder alignment and proactive measures, NMFC is positioned to navigate near-term pressures and deliver consistent returns over the long term.