Earnings Call Transcript - NMFC Q3 2025

Operator, Operator

Good morning, and welcome to the New Mountain Finance Corporation's Third Quarter 2025 Earnings Call. Please note this event is being recorded. I would now like to turn the conference over to John Kline, President and CEO of NMFC. Please go ahead.

John Kline, President and CEO

Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's Third Quarter 2025 Earnings Call. On the line with me here today are Steve Klinsky, Chairman of NMFC and CEO of 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'd like to ask Kris to make some important statements regarding today's call.

Kris Corbett, CFO and Treasurer

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 November 3 press release. I would also like to call your attention to the customary safe harbor disclosures in our press release and on Pages 2 and 3 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and 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 to access the slide presentation that we'll be referencing throughout this call, please visit our website at www.newmountainfinance.com. At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Chairman, who will give some highlights beginning on Page 5 of the slide presentation. Steve?

Steven Klinsky, Chairman and CEO of New Mountain Capital

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 dividend that was paid in cash on September 30. Our net investment income and dividend were supported by consistent recurring income from our loan portfolio, full utilization of the dividend protection program, which remains in place through the fourth quarter of 2026, and an incremental fee waiver. Looking forward to Q4, we would like to announce a $0.32 dividend payable on December 31 to shareholders of record on December 17. Our net asset value per share declined $0.15 compared to Q2 to $12.06 as NMFC experienced a modest decline across four investments, which John will address later in the call. Importantly, however, approximately 95% of our investments are green on our heat map. As a reminder, NMFC lends chiefly in defensive growth sectors such as healthcare, information technology software, insurance services, and infrastructure services, which New Mountain Capital knows well from its private equity ownership activities. Furthermore, NMFC's portfolio loan to value stands at just 45%. Our lending lines are being refinanced at lower rates and our percentage of first lien assets is growing. Since our IPO of NMFC in 2011, our stock has generally been a strong performer with consistent earnings and just a 1 basis point total net realized loss rate. I and my fellow managers at New Mountain are the largest shareholders of NMFC and have steadily increased our ownership level over time. Despite these strengths, NMFC's current stock price implies a 20% discount to book value and the dividend of $0.32 quarterly or $1.28 annually represents more than a 13% yield. Therefore, over the course of the past 7 months, NMFC has fully utilized the $50 million 10b5-1 stock repurchase program with total shares repurchased this year of approximately $47 million at an average price of approximately $10. Our Board recently has approved a new share buyback program totaling an additional $100 million. Additionally, we are also now exploring a portfolio sale of up to $500 million of NMFC assets to a third party, which would accelerate our progress on our strategic initiatives meaningfully. For example, we could potentially sell assets of well-performing names in order to reduce concentrations in our portfolio and to reduce PIK income. This would enhance our financial flexibility in what could be a better deal environment in 2026, as well as provide us with an opportunity to evaluate debt paydowns and/or increase the size of our stock buyback program. While it is early in the process and the outcome is uncertain, we expect to be able to provide a fulsome update on our next call in February, if not before. As a reminder, New Mountain Capital overall now manages about $60 billion in assets. We have generated an estimated $100 billion of enterprise value gains for all shareholders at our private equity company since the firm's inception, and we currently employ over 90,000 people at our PE companies in the field, which is roughly equivalent to #78 on the Fortune 1000. New Mountain's own team has now grown to nearly 300 employees and senior advisers, plus approximately 70 more members on our Executive Advisory Council. Our goal is to apply the same PE business building skill and knowledge to benefit NMFC and our credit platform as a whole. We thank you for your ownership and partnership and we are working diligently to serve your interests in the months and years ahead. With that, let me turn the call to John.

John Kline, President and CEO

Thank you, Steve. I would like to begin on Page 8, which offers an overview of our differentiated approach to direct lending. First and foremost, we focus only on sectors of the economy that we believe are defensive and have sustainable tailwinds that will benefit companies within these chosen sectors. We do not invest in industries that are volatile, cyclical, or secularly challenged. Secondly, we believe that we have a better model for research as New Mountain uses in-house industry executives and private equity personnel to underwrite direct lending deals within our chosen sectors. If an investment underperforms and we are compelled to take an ownership stake, New Mountain is well positioned to improve the business as an equity owner, utilizing our private equity expertise and in-house operating talent. Finally, we continue to have very strong shareholder alignment with 14% of our outstanding shares owned by NMC employees and senior advisers, and we actively support shareholder returns through the dividend protection program, additional fee waivers, and the incremental share repurchase program Steve just announced. Page 9 provides key performance statistics showing a long-term track record of delivering consistent, enhanced yield by minimizing credit losses and distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned approximately $1.5 billion to shareholders through our dividend program, generating an annualized return of 10%. Today, our dividend yield is over 13% annualized based on the $0.32 quarterly payout, which is fully covered by net investment income. We have been a good steward of capital with negligible net realized losses over 14-plus years, and we maintain investment-grade ratings at Moody's and Fitch. Turning to Page 10. NMFC continues to make progress on its strategic priorities which focus on improving the quality and diversity of our asset base, optimizing our liabilities, and enhancing the quality and character of our income. To that end, in Q3, we increased our senior oriented assets to 80% of the overall portfolio, up from 78% in the prior quarter. As Steve mentioned earlier, if successful, the potential secondary sale is designed to improve portfolio diversity by reducing exposure to certain more concentrated positions and to decrease our exposure to PIK assets. On the liability side, subsequent to quarter end, we repaid the 7.5% convertible notes at maturity and see an opportunity to refinance the 8.25% unsecured notes in the coming quarters. Finally, we continue to focus on reducing non-yielding assets in 2026. Notably, many of our non-yielding assets are associated with companies with improving performance including Benevis, UniTek, and Applied Cleveland. As shown on Pages 11 and 12, the internal risk ratings of our portfolio decreased slightly during the quarter with approximately 95% of the portfolio green-rated. At the margin, we did see a few select names migrate down our rating scale, representing $49 million or less than 2% of the portfolio. These migrations, including two healthcare services names that continue to experience lower growth and higher operating costs as well as a commercial restoration services company that has been impacted by a lack of severe weather activity. Despite the modest negative move in overall risk ratings, our most challenged names, marked orange and red represent only 3.6% of NMFC's fair value, making them a small portion of the portfolio. Turning to Page 13. We provide a graphical analysis of NAV changes during the quarter, resulting in a book value of $12.06, a $0.15 decline compared to last quarter. The main drivers of the decline this quarter were Edmentum, TriMark, and Beauty Industry Group, partially offset by a handful of unrealized gains and accretive share repurchases. The biggest negative mover Edmentum is performing well, but our mark continues to be pressured by the expensive PIK securities that sit senior to our common equity exposure. We are in the process of exploring a capital structure refinancing to reduce the overall cost of capital and limit future dilution from these securities. Additionally, Edmentum continues to be active on the M&A front and recently completed a tuck-in acquisition that will accelerate its career learning product portfolio, a growth area of the business. We are excited about the acquisition and believe Edmentum is well positioned in this area. Page 14 addresses NMFC's non-accrual performance. During the quarter, we moved our first lien debt position in Beauty Industry Group to non-accrual status and expect to equitize a portion of this debt position in the coming months. The company has experienced persistent earnings headwinds due to weaker consumer demand, specific go-to-market challenges, and tariffs on its China-oriented supply chain. In coordination with the other lender, we have built a large New Mountain team that will be focused on improving this investment. The team includes members of the core credit team, the PE Consumer Group, NMC operating partners, and additional industry executives that we work with. Our goal is to, over time, recover at least our full principal value on this investment. Overall, non-accruals continue to be very low with only $51 million or 1.7% of the portfolio on non-accrual at fair value. On the right side of the page, we show our cumulative credit performance since IPO. During that time, NMFC has made over $10.3 billion of investments while realizing losses net of realized gains of just $16 million over the course of our history as a public company. On Page 15, we present NMFC's consistent returns over the last 14-plus years. Cumulatively, NMFC has earned approximately $1.5 billion in net investment income while generating only $16 million of cumulative net realized losses and $159 million of cumulative net realized depreciation, resulting in $1.3 billion of value created for shareholders. While the realized loss rate remains very strong, we, as a management team, are focused on reversing the unrealized depreciation within the existing portfolio. I will now turn the call over to our Chief Operating Officer, Laura Holson, to discuss the current market environment and provide more details on NMFC's quarterly performance.

Laura Holson, COO

Thanks, John. As previewed on last quarter's call, we have seen deal activity pick up modestly over the last few months. The pipeline of potential PE exits remains exceptionally full given the extended hold times for many PE-owned assets. The pressure to both deploy dry powder and return capital to LPs are key drivers of sponsor activity. As confidence builds, we think 2026 could be a productive period for LBO activity and have already started seeing signs of that. We believe direct lending remains an attractive asset class in today's market and continues to provide good risk-adjusted returns relative to other asset classes, including the syndicated loan market, which continues to experience meaningful repricing waves. Direct lending spreads, while tighter than 12 months ago, have been reasonably stable despite the lack of significant M&A. That said, one result of the supply/demand imbalance is a notable lack of dispersion in pricing. Most unitranche loans are pricing at the SOFR plus 450 to 500 range even for lower quality or smaller companies. While we continue to find opportunities in our defensive growth verticals where we can make loans that attach $1.01 in the capital structure at 8.5% plus unlevered returns, our underwriting bar remains higher than ever, and our pass rate on deals has increased. The more challenging environment underscores the importance of our differentiated underwriting strategy, which allows us to go deeper on diligence and identify the best credit opportunities. Deal structures generally remain attractive with significant sponsor equity contribution, representing the majority of the capital structures. Page 17 presents an interest rate analysis that provides insight into the effective base rates on NMFC's earnings. The NMFC loan portfolio is 85% floating rate and 15% fixed rate, while our liabilities are 53% floating rate and 47% fixed rate. Pro forma for the expected upcoming refinancing activity over the next several months, we expect our mix will shift meaningfully to approximately 85% floating and 15% fixed. This will align us with our target of matching our percent of liabilities that float with the percent of our assets that float. As shown in the bottom tables, while we would expect to see earnings pressure in the scenarios where base rates decrease, the ongoing evolution of our liability structure helps to alleviate some of that pressure. Moving on to Page 18. The third quarter was a modest origination quarter. We originated $127 million of assets, offset by $177 million of repayments. Our originations consisted of investments in our core defensive growth power alleys including ERP and IT software, data and information services, and financial services. Notable repayments in the quarter included three second lien positions, which we've rotated into predominantly first lien securities. Repayment velocity remains strong, and we have line of sight into some additional expected repayments in the coming quarters. While we remain reasonably fully invested, as we receive repayments, we'll likely continue to prioritize share repurchases over new investments if our stock remains at current levels. Turning to Page 19. Approximately 80% of our investments, inclusive of first lien SLPs and net lease are senior in nature, up from 75% in the prior year period and up from 78% in Q2. Second lien positions now represent just 4% of our portfolio given the continued repayment activity we've seen in our second lien names. Approximately 5% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. We continue to dedicate meaningful time and resources to business building at these companies and are pleased with the progress we are seeing. Page 20 shows that the average yield of NMFC's portfolio decreased slightly to 10.4% due to lower yields on our originations compared to our repayments as we continue to rotate more senior. Despite this, we believe total yields remain attractive for the risk. Page 21 highlights the scale and positive credit trends of our underlying borrowers, which remain largely consistent with prior quarters. The weighted average EBITDA of our portfolio companies increased slightly in the third quarter to $180 million due to growth at the individual companies we lend to and realization of some smaller companies during the quarter. We also show the relevant leverage and interest coverage stats across the portfolio. Loan-to-value continues to be quite compelling, and the current portfolio has an average loan-to-value of 45%. Finally, as illustrated on Page 22, we have a diversified portfolio across 127 portfolio companies. Excluding our investments in the SLPs and net lease funds, the top 10 single name issuers account for 26% of total fair value. I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.

Kris Corbett, CFO and Treasurer

Thank you, Laura. For more details, please refer to our quarterly report on Form 10-Q that was filed yesterday with the SEC. As shown on Slide 23, the portfolio had $3 billion in investments at fair value on September 30 and total assets of $3.1 billion. Total liabilities were $1.8 billion, of which total statutory debt outstanding was $1.6 billion. Net asset value of $1.3 billion or $12.06 per share was down slightly compared to the prior quarter. At quarter end, our net debt-to-equity ratio was 1.23:1, within our target range of 1:1.25. We remain committed to maintaining leverage within this range. On Slide 24, we show our quarterly income statement results. For the current quarter, we earned total investment income of $80 million, a 4% decrease compared to prior quarter. Total net expenses of $47 million decreased 5% versus the prior quarter, inclusive of the fee waiver previously mentioned. Our adjusted net investment income for the quarter was $0.32 per weighted average share, which covered our Q3 dividend. Our earnings were driven by our strong core income and effective incentive fee rate of 7.6% and the share repurchase program. Slide 25 represents that 97% of our total investment income is recurring in the third quarter. On the following page, you can see that 80% of our investment income was paid in cash and 15% was PIK income from positions that included PIK from inception to best enable these borrowers to execute on their strategic growth plans. Only 3% of investment income is driven by modified PIK from an amendment or restructuring. Importantly, investments generating non-cash income during the third quarter are marked at a weighted average fair market value of 95% of par and over 92% of this income is generated from our green-rated names. Turning to Slide 27. The red line shows the coverage of our dividend. For Q4 2025, our Board of Directors has again declared a dividend of $0.32 per share. On Slide 29, we highlight our various financing sources and diversified leverage profile. Taking into account SBA guaranteed debentures, we have $2.5 billion of total borrowing capacity with over $700 million available on our revolving lines subject to borrowing base limitations pro forma for the convertible note that was repaid in October. This more than covers our unfunded commitments of $256 million as well as our near-term bond maturity. As John noted, subsequent to quarter end, we repaid the 7.5% convertible notes utilizing our lower-cost revolver. Looking forward to the next few months, the facilities outlined in red and the recently repaid convertible notes provide us with an opportunity to refinance and either maintain or potentially reduce our cost of financing in the near term. We believe this contrasts with the industry, which faces an increased cost of financing as debt issued in 2020 and 2021 matures. Finally, on Slide 30, we show our leverage maturity schedule. We continue to ladder our maturities and have sufficient liquidity to manage upcoming maturities in early 2026. Notably, approximately 60% of our outstanding debt matures in or after 2028, with near-term maturities representing an opportunity to continue to access the investment-grade bond market.

John Kline, President and CEO

With that, I'd like to turn the call back over to John. In closing, we would like to thank all of our stakeholders for the ongoing partnership and look forward to speaking to you again on our fourth quarter 2025 earnings call in February. I will now turn things back to the operator to begin Q&A.

Operator, Operator

The first question comes from Finian O'Shea with Wells Fargo.

Finian O'Shea, Analyst

I have a question regarding the potential portfolio sale. The $500 million figure seems to suggest it might involve some of the affiliate or control book. If I'm not mistaken, would that primarily relate to the legacy equity names? Or should we expect it to be more about standard participation or typical debt deals related to the portfolio sale?

John Kline, President and CEO

Sure, Fin, thanks for the question. We're focused on our largest positions for the sale as part of our strategy to diversify our portfolio. If you examine the top 10 or 20 positions, you'll find names from that group along with others from the overall portfolio. The portfolio sale will include both PIK names and cash-yielding names that represent our larger exposures for NMFC. Our primary objective is to diversify and reduce PIK income. The portfolio consists of a collection of high-quality, well-performing names with a variety of interest characteristics, both PIK and cash.

Finian O'Shea, Analyst

Okay. That's helpful. And then a follow-up on the buyback. You were more aggressive this quarter at lower prices, which is great and then announced a larger program. Should we expect you to continue to be aggressive? Or maybe has that sort of run its course for now at your leverage levels and then overall and in consideration for a potential portfolio sale?

John Kline, President and CEO

Certainly. The most important aspect we consider in managing the portfolio and the company is maintaining our leverage levels, which we find very crucial. By the end of the quarter, we were at the upper boundary of our range but still within acceptable limits. We are committed to maintaining that range moving forward. Additionally, we are seeing an improving deal environment in the fourth quarter, which we anticipate will lead to significant repayments across the portfolio in both Q4 and into 2026. As Laura mentioned, this allows us the flexibility to potentially use some of the repayment proceeds for stock buybacks, while still prioritizing our commitment to our leverage range.

Operator, Operator

The next question comes from Ethan Kaye with Lucid Capital Markets.

Ethan Kaye, Analyst

I wanted to ask about kind of deployment capacity or strategy, kind of following up on the last question here. And Laura, you may have touched on this a bit in your prepared remarks, but given that leverage is at the high end of the range and you're repurchasing shares. I guess my question is like, are you still allocating to kind of all the deals that you maybe would have in the absence of these constraints? Or are you kind of shifting the goalpost a bit and becoming more selective on kind of the deals you're pursuing?

Laura Holson, COO

Yes. I mean, I think when we look at NMFC specifically, we do remain focused, as John said, on staying within our leverage range, and we are prioritizing share repurchases assuming our stock price remains kind of at this level. That said, that's not a black or white thing, right? We're evaluating each deal opportunity that comes in. We have a broader credit platform, as you know. So we're definitely active in the market regardless even when NMFC is not as active. We do see spreads, as I talked about. While they're reasonably stable, they're definitely a bit on the tighter end of where they have been over the course of the history of unitranche loans. But we still think, in general, still attractive risk-adjusted return. But given the desire around leverage, given the desire around our share repurchase program, those are some of the factors that we're thinking about when allocating.

Ethan Kaye, Analyst

Okay. Great. I appreciate that. And then just kind of switching gears a little on the potential secondary sale. So hit on it briefly, but I guess can you talk a little bit more maybe about how you would kind of prioritize the use of the proceeds from that sale? Would the idea be to kind of redeploy those into new investments or pay down debt or something else? Yes, I'll leave it there.

John Kline, President and CEO

Sure. I think it could be any of three things. It could be paying down debt. It could be stock repurchases, depending on where our stock is trading, if and when we consummate the sale, and we could also use the proceeds to buy new loans. And those new loans would be a diversifier compared to where we are today. So we're excited about all three options.

Operator, Operator

The next question comes from Paul Johnson with KBW.

Paul Johnson, Analyst

I'm curious about the portfolio sale. When you proceed with it, will it be a partial sale of existing investments or will it involve selling entire positions of those debt investments to a third party?

John Kline, President and CEO

Sure. Thanks, Paul. So I just want to clarify, the sale is still in very early stages, so it may or may not happen. As you may be aware, some of the trade press picked up on the fact that we were doing it. So we thought it was appropriate to tell our shareholders about it, but it is still pretty early stages. So I just wanted to make that note. And if I were to characterize the way we're thinking about it, I would think about it more as a partial sale of existing quality, well-performing positions that focus on more diversifying our portfolio as well as reducing PIK. So we're not blowing out of names, so to speak. Instead, we're focused on rightsizing a well-performing group of positions to add more diversity to the portfolio with less PIK income, just to be super clear.

Paul Johnson, Analyst

Got it. Appreciate that. And then on the diversification, I guess, how would you kind of focus on that going forward? Would it be smaller? Would you be looking to hold smaller position sizes on new deployment going forward?

John Kline, President and CEO

Yes. We have a strong direct lending business, both through NMFC and the institutional funds we manage. Over the past 5 to 7 years, we've seen significant growth, which has enabled us to take on larger holdings. However, we are not solely dependent on NMFC for these larger positions. In managing our institutional funds, which has been our focus for the last 4 to 5 years, we generally aim to keep our position sizes at 2% or lower, with an average position size across all our funds, including NMFC, targeted at 1% or less. We've been moving in this direction for a long time and want to accelerate that transition to a maximum of 2% and an average of 1% or less. This sale will not completely achieve that goal, but it will bring us very close, marking an important milestone for NMFC. Our objective in managing the portfolio is to deliver a New Mountain Best Ideas fund without allowing any positions to exceed 2.5%, 3%, or 4%. Currently, we have some positions of that size in NMFC, and we aim to change that.

Operator, Operator

The next question comes from Robert Dodd with Raymond James.

Robert Dodd, Analyst

Focusing on credit, if I can, for a moment. Obviously, notorious or Beauty Supply was put on nonaccrual this quarter. You put it on the red list last quarter, so you kind of flagged it. You do have some other portfolio positions like Lash OpCo that are in kind of the same business that also import from China, et cetera. I mean, should we be concerned about the same themes that hit Beauty Supply applying to other portfolio positions that are in kind of the same niche industry?

Laura Holson, COO

Yes. I mean, I think we've talked about in the past that we think our portfolio is quite well positioned when we think about an issue like tariffs. And we've talked, I think, on prior calls that Beauty Industry Group really is our one material name that has exposure to tariffs because of its China-oriented supply chain. So I don't see any kind of look through to other subsectors in our portfolio in that regard. We think the rest of the portfolio is quite insulated from a primary impact perspective, and we think that's reflected in the 95% green.

Robert Dodd, Analyst

Got it. In response to the other comment, I believe John mentioned that your goal over time is to fully recover the principal. It seems you're planning to equitize some of the debt, which indicates that you are actually quite optimistic about the business in the long term, despite the current nonaccrual status.

John Kline, President and CEO

I think it's a little too soon for us to have all the details that an owner of a business would have. We'll have that over the course of the next months and quarters. But I think it's more of a reflection of our mindset around problem positions. This is a problem position. It's a first lien unitranche loan, we and one other lender are going to take control of the asset. And whenever we do that, we bring the full power of the New Mountain platform to bear on managing the asset. And our mindset is that we are going to get all of our investors' money back. So I think it's more of a mindset than having all the facts, our ducks in a row as it relates to managing the business. We just feel very confident that we have the ability to do it in a differentiated way. And we already have a full, I think, 8-person team, as I mentioned on the call, that's ready to go in and take a very active hand in helping the management team at Beauty Industry to improve their business.

Robert Dodd, Analyst

Got it. And one more question regarding the potential portfolio sale. If that were to happen, you would likely see a significant influx of cash all at once, depending on how it's structured. As you mentioned, this could provide an opportunity to reduce debt or buy back stock. Would your approach to the buyback change? Currently, you purchase shares in the market, but with an additional couple of hundred million dollars in cash, would you consider a Dutch tender or another method to buy back a larger quantity at once? Or is that not how you would approach using that capital?

John Kline, President and CEO

I think we will consider a wide range of options, but it's a bit early to provide any details about those options or our thought process. However, we will be exploring various possibilities.

Operator, Operator

And we have a follow-up from Paul Johnson from KBW.

Paul Johnson, Analyst

Yes. One more question from me. I was wondering if you could provide more detail on the Edmentum investment and the markdown this quarter. Is this a situation where the valuation of the company remains stable, and while you mentioned it's performing well, the preferred shares are increasingly taking priority? Is the common stock being diluted in value? Overall, how would you describe the company's performance at this stage? Is this more about the capital structure being established post-restructuring, and could it be seen as inadvertently becoming a victim of its own success? Any insights on this would be appreciated.

Laura Holson, COO

I believe your description of the situation is mostly accurate regarding the capital structure. The positive aspect is that the company's performance remains stable. We have often discussed how the business saw significant peaks during COVID due to the nature of its products and the markets it serves, but that has now stabilized. Overall, the business is growing and performing well. They offer high-quality products and a solid value proposition, which are all encouraging signs. The challenge, as you've pointed out, lies in the capital structure. As John mentioned, we are in the early stages of collaborating with the company and other sponsors to address this issue. More updates will follow.

John Kline, President and CEO

To provide a quick overview of Edmentum, it has been a success for us since we took over the business years ago and subsequently sold a significant portion to another private equity firm, resulting in notable gains in the past. However, over the last couple of years, Edmentum saw its valuation increase during COVID and has since experienced a slight decline in earnings. Currently, we are collaborating with the company to identify its base earnings and are focused on pursuing strategic acquisitions to build on what we believe is a solid foundation. While we are facing a more challenging period now, we remain committed to working with the management team to drive business growth.

Operator, Operator

And we have a follow-up from Finian O'Shea with Wells Fargo.

Finian O'Shea, Analyst

Just jumping in on the follow-ups. A question on the ATM distribution agreement. I think you haven't used this in a few quarters at least, but upsized it not too long ago. Can you give us any color on the sort of ongoing or maintenance fees that the BDC incurs here? What line item that hits? And further if BDCs, if the space remains below book, if that's something you could let roll off or contain?

Kris Corbett, CFO and Treasurer

Overall, the ongoing maintenance fees to keep that program active are minimal. As you know, we haven't been above book value for a few quarters, so we haven't actually utilized that. However, we want to keep that option available. When the share price exceeds book value, we can start using it again and begin growing the fund by issuing shares.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to John Kline, President and CEO of NMFC for any closing remarks.

John Kline, President and CEO

Great. Thanks, everyone, for joining our call today, and we look forward to speaking to you again on our next call in February. Thanks.

Operator, Operator

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