American Capital's CEO Discusses Q2 2012 Results - Earnings Call Transcript

American Capital, Ltd. (ACAS)

Q2 2012 Earnings Call

August 1, 2012 11:00 AM ET

Executives

Pete Deoudes – Director, Equity Capital Markets

Malon Wilkus – Chairman and CEO

Rich Konzmann – SVP, Accounting and Reporting

John Erickson – President, Structured Finance and CFO

Analysts

Rick Shane – JP Morgan

Troy Ward – Stifel Nicolaus

Andrew Brady – Marathon Asset Management

Michael Tanzer – DG Capital Management

Angelo Guarino – DTI

Ken Bruce – Bank of America/Merrill Lynch

Robert Alpert – Atlas Capital

Jonathan Bock – Wells Fargo

Presentation

Operator

Good morning, and welcome to the American Capital’s Second Quarter 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

At this time, I would like to turn the conference over to Peter Deoudes, Director of Investor Relations. Please go ahead, sir.

Pete Deoudes

Thank you, Laura, and thank you, everyone, for joining American Capital’s second quarter 2012 earnings call.

Before we begin the call, I’d like to review the Safe Harbor statement. This conference call and corresponding slide presentation contains statements that to the extent they are not recitations of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by their format. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of American Capital. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice.

Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in our periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC’s website, at www.sec.gov. We disclaim any obligation to update our forward-looking statements, unless required to by law.

An archive of this presentation will be available on our website, and the telephone recording can be accessed through August 16th by dialing 877-344-7529. The replay pass-code is 10015824.

To view the Q2 slide presentation that corresponds with this call, turn to our website, at www.americancapital.com, and click on the “Q2 2012 Earnings Presentation” link in the upper right-hand corner of the homepage. Select the webcast option for both slides and audio or click on the link in the “Conference Calls” section to view the streaming slide presentation during the call.

Participating on today’s call are Malon Wilkus, Chairman and Chief Executive Officer; John Erickson, President, Structured Finance and Chief Financial Officer; Gordon O’Brien, President, Specialty Finance and Operations; Sam Flax, Executive Vice President and General Counsel; Rich Konzmann, Senior Vice President, Accounting and Reporting; Tom McHale, Senior Vice President, Finance.

With that, I’ll turn the call over to Malon.

Malon Wilkus

Thanks, Pete. Welcome, everyone, to our second quarter earnings conference call. And before I take you through our slides, I’d like to comment on the overall performance of our various business lines and capital management.

The performance of our portfolio companies and the diversity of our business lines and our focus on after-tax shareholder returns continued to increase shareholder value. We, like the market, were worried that we would underperform this quarter, because European Capital would be impacted by the volatility and stresses of the European markets and economy.

However, I am pleased to report that despite these pressures, which caused depreciation of our investment in European Capital, the overall performance of our aggregate business lines was quite good in the second quarter. This coupled with our capital management strategies leaves us well positioned for the second half of 2012.

American Capital LLC, our asset management company, at 806 million of fair market value, is now our largest portfolio company investment. After successfully serving the shareholders of American Capital Agency, and American Capital Mortgage by generating some of the highest returns in their industry, we helped raise a combined 644 million of equity for these two funds in the second quarter. We are pleased that we were able to grow our existing funds under management and look forward to increase the number of her funds under management overtime.

In addition, our portfolio companies, both in the U.S. and Europe experienced moderate revenue and EBITDA growth year-over-year. Our U.S. portfolio experienced unrealized appreciation and notably, European Capital’s euro denominated NAV held steady.

Our investment in European Capital was mostly impacted by a decline in the stock price to NAV of comparable public companies and negative foreign currency movements. So overall, we are pleased with portfolio company performance despite Europe’s troubles.

Our capital management strategies are also driving shareholder value. Over the past year we have repurchased 9% of our shares which has contributed $0.65 of accretion to our NAV per share. We remain committed to stock repurchase and dividend program and closing the discount to our NAV per share.

Additionally, our strategies have contributed – our tax strategies have contributed $1.70 to our NAV per share, $0.46 per share in the last quarter alone. Lastly, our cash management and debt reduction efforts have allowed us to continue to delever and derisk our balance sheet, improving the potential to refinance and lower our cost of debt and improve on its terms.

Many of you are aware of our recent 8-K filing concerning two potential new debt facilities and unfortunately, securities laws prevent us from commenting further on that announcement. Hopefully, these comments give a more wholesome picture of the American Capital’s performance in the second quarter.

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