Good day, and welcome to the New Mountain Finance Corporation's Fourth Quarter 2024 Earnings Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to John Kline, President and CEO of New Mountain Finance Corporation. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's fourth quarter 2024 earnings call. On the line with me here today are Steve Klinsky, Chairman of NMFC, and CEO, New Mountain Capital, Laura Holson, COO of NMFC, and Kris Corbett, CFO and Treasurer of NMFC. Steve is going to make some introductory remarks, but before he does, I would like to ask Kris to make some important statements regarding today's call.

Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our February 26 earnings press release. I would like to call your attention to the customary safe harbor disclosures in our press release and on page two and three of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake to update our forward-looking statements or projections unless required to by law. To obtain copies of our latest SEC filings and access the slide presentation that we will be referring to throughout this call, please visit our website at www.newmountainfinance.com. At this time, I would like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give us some highlights beginning on page five of the slide presentation. Steve?

Thanks, Kris. It's great to be able to address you all today both as NMFC's Chairman and as a major fellow shareholder. Adjusted net investment income for the quarter was $0.32 per share, covering our $0.32 per share regular dividend that was paid in cash on December 31. Our net asset value per share of $12.55 declined $0.07 or 0.6%, demonstrating relatively stable credit performance across our portfolio. Importantly, we had no new non-accruals during the quarter and no red names on our heat map. Looking forward to Q1, we would like to announce a $0.32 dividend payable on March 31 to shareholders of record on March 17. Our core dividend continues to be supported by our strong recurring earnings, and if necessary, dividend protection program that we renewed in 2024. So far, 2025 is off to a very good start for NMFC. I would like to announce an important transaction that aligns with our strategic priorities. On February 25, we sold a stake in UniTek Global Services to BTG Pactual Strategic Capital. BTG invested $90 million through a convertible preferred security valuing UniTek at approximately $370 million, which implies over a two times multiple on our original cost basis and is above our Q4 mark. This transaction returned $42 million to NMFC through full redemption of UniTek's PIK second lien tranche and PIK senior preferred two tranche. This partial exit aligns with our goal of monetizing accrued PIK income while we also retained a combined 31% ownership stake in the company through both NMFC and another New Mountain Credit Fund. Looking forward, we believe that UniTek has meaningfully improved its prospects under New Mountain's leadership, including major new wins in the data center space. We will offer more details on this transaction and other highlights on the Q1 call…

Thank you, Steve. I would like to begin by offering a broader review of our direct lending investment strategy and long-term track record. Starting on page eight, we highlight our exposure to a diversified list of defensive non-cyclical sectors. These sectors map to the industries where New Mountain has made successful private equity investments and where our firm's knowledge is the strongest. We seek to make investments in companies with durable growth drivers, predictable revenue streams, margin stability, and strong free cash flow conversion. As you can see from the industry pie chart on page eight, we have virtually no exposure to cyclical, volatile, and secularly challenged industries. Moreover, we believe that our portfolio has limited exposure to companies dependent on various forms of government spending and limited exposure to tariffs on foreign goods. Our strategy has been consistent over our nearly 14 years as a public company, and it allows us to operate with confidence in any economic environment. Page nine provides key performance statistics showing a long-term track record of delivering consistent enhanced yield to our shareholders by minimizing credit losses, distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned approximately $1.4 billion to shareholders through our dividend program, generating an annualized return of 10%. Our dividend yield is approximately 11% or nearly 700 basis points over short-term risk-free interest rates. NMFC's current portfolio invests in companies within high-quality industries that are performing well and where our last dollar of risk is approximately 40% of the purchase price paid for the business. We lend primarily to businesses owned by financial sponsors or sophisticated and supportive owners with significant capital that is junior to the loans that we make. Turning to page ten, we would like to give a bit more…

Thanks, John. 2024 concluded in similar fashion to the rest of the year, with episodic new deal activity. Spreads have tightened over the last twelve to eighteen months as we have been in a less active deal flow environment and the syndicated market has been aggressive. That said, we believe direct lending remains an attractive asset class in today's market. We have consistently found opportunities in our defensive growth verticals where we can make loans that attach at dollar one in the capital structure and 9% to 10% unlevered return. Deal structures remain compelling with significant sponsor equity contribution, representing the vast majority of the capital structures. We continue to expect an increase in volume of M&A activity in 2025 for the reasons we have previously discussed, including the magnitude of dry powder for private equity, the ongoing pressure to return capital to LPs, as well as attractive financing markets for borrowers. The bid-ask gap remains the question as many of the higher multiple deals from the 2021 timeframe age into maturity. However, there are also a fair amount of pre-2021 deals that we expect sponsors are focused on exiting. Counter to the expected pickup in M&A activity is a backdrop of volatility and uncertainty across political and regulatory headlines, and a continued high base rate environment which is a tailwind to returns but a headwind to deal activity. We believe we are as well-positioned as we can be. However, credit selection remains critical, particularly as there is minimal pricing and structural flexibility. Page seventeen presents an interest rate analysis that provides insight into the effective base rates on NMFC's earnings. The NMFC loan portfolio is 86% floating rate and 14% fixed rate, while our liabilities are 49% floating and 51% fixed rate. Pro forma for the 2022 convert and…

Thank you, Laura. For more details, please refer to our quarterly report on Form 10-K that was filed yesterday with the SEC. As shown on slide twenty-three, the portfolio had over $3 billion of investments at fair value on December 31 and total assets of $3.2 billion with total liabilities of $2 billion, of which total such debt outstanding was $1.6 billion. Net asset value of approximately $1.4 billion or $12.55 per share was down slightly compared to the prior quarter. At quarter-end, our statutory debt to equity ratio was 1.125 to 1 and 1.11 to 1 net available cash on the balance sheet, which is in the middle of our target range of 1 to 1.25 times. On slide twenty-four, we show our quarterly income statement results. For the quarter, we earned total investment income of $91 million or a 2% decrease over the prior year. Total net expenses of $57 million decreased 9% versus the prior year. This increase in expenses was a product of higher financing costs. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q4 regular dividend. As shown in slide twenty-five, we earned total investment income of $371 million for the year, which represented a decrease of 1% over the prior year. Total net expenses of $225 million increased 4% over the prior year. Slide twenty-six highlights that 96% of our total investment income is recurring in the fourth quarter. For Q4, PIK interest income represented only 10% of total investment income, whereas non-cash dividend from our preferred equity investments represented 9% of total investment income. This aligns with the asset mix strategy John mentioned earlier. Importantly, positions generating non-cash income during the fourth quarter are marked at a weighted average fair market value of 94%…

Thank you, Kris. We are pleased to have a strong start to 2025 with the UniTek sale as an important catalyst. Credit quality remains good. Our portfolio is more senior than ever before. We have made substantial positive changes to our liability structure with more opportunity ahead. In closing, we once again would like to thank all of our stakeholders for the ongoing partnership and support and look forward to speaking to you again on our next call in May. I would now like to turn things over to the operator to begin Q&A. Operator?

Thank you. If at any time your question has been addressed and you would like to withdraw your question, at this time, we will pause for just a moment to assemble our roster. And your first question today will come from Robert Dodd with Raymond James. Please go ahead.

Hello, everybody, and congrats on the quarter, particularly UniTek. So well, after quarter end. On UniTek, McKenna, I realize you said there'd be more, you know, more detail on the Q1 call, but at the exit valuation unit, not exit, but partial realization. How does that enterprise value stack up with the enterprise value used to inform the mark at Q4?

Sure. It is, as Steve mentioned, it's modestly higher. But overall, the big picture, it would be in line to modestly higher.

Got it. Got it. Thank you. And then on, you know, one of the other themes I think, you know, in the prepared remarks, I think it was said that there's, you know, some uncertainties in the market. Maybe it's going to slow activity a little bit in the near the early part of 2025, and that's kind of an overcurrent theme from your competitors this quarter. How in that light, potentially, how comfortable do you still feel about UniTek aside lowering your PIK exposure as we go through the year? So we set it as a target, but it's partly informed by the fact that you sort of be in an active market this year. So how do you think those things go together?

I think we, along with many of our competitors, think that this year will be active. But I think it is fair to say it's been a slower start than we would have expected. And so, but when we think about the opportunity to reduce some of the PIK positions, I think we will be able to show some progress based on what we're seeing on the Q1 call. So we feel like we feel good about it. And beyond Q1, we'd be opportunistic that we can continue to work down PIK positions. So I wouldn't say the market environment has changed our view or our outlook for that, you know, strategic goal.

Got it. Got it. Thank you. And then just, I mean, in terms of allocation, you talk you want to increase senior, which is obviously first lien, loan funds, net lease. Would you is the expectation you'd keep the mix between those three the same, or is there one of those areas in particular you'd like to increase more?

No. I think it's safe to say that we would within that category, the mix will stay the same.

Got it. Thank you. And then just, you know, overall, you know, any kind of the market spreads that do look like they may be leveled out but do you think that is that a temporary thing? All things kind of, you know, recalibrate? Or do you think we're at kind of the bottom on like for like, but it's obviously trends where you're at in the market. But you know, what are your thoughts on that going through? And then just tied to that, how much Yeah. You walked away from some repricing because you didn't think credit risk was appropriate. How much of the portfolio is left do you think that's potentially vulnerable to kind of repricing activity?

Yeah. On the first point around spreads, we do feel like they have stabilized. I mean, we're seeing Unitranche is now, you know, for high-quality companies in the 450, 475 to 500 area depending on, you know, all the circumstances. And to be honest, they've been hovering there for a while. So we haven't seen, you know, meaningful movement. I think to the extent that M&A picks up, we hope and expect spreads to pick back up alongside that. But we don't we have not seen, you know, material further pressure downward. And we feel reasonably confident that we will not, particularly as if M&A starts to pick back up again. To your second question about just repricing, we certainly have seen multiple waves of repricing in the syndicated market. I think within our portfolio specifically, the majority of deals that could reprice probably at this point have gone through that exercise. I mean, keep in mind, you know, a lot of our sponsor clients are pretty sophisticated. They have capital markets teams that are really, you know, mining the work their portfolios to make sure they're doing their best to capture all those opportunities. And so I think the vast majority is really kind of rolled through already. But so we feel reasonably good at least on that point.

Got it. Thank you.

Seeing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to John Kline for any closing remarks.

Great. Well, thank you everyone for joining our Q4 2024 earnings call, and we look forward to speaking to you very soon in May.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.