Ares Capital Management Discusses Q2 2012 Results - Earnings Call Transcript

Ares Capital Corporation (ARCC)

Q2 2012 Earnings Call

August 7, 2012 11:00 AM ET


Mike Arougheti – President

Penni Roll – CFO


Troy Ward – Stifel, Nicolaus

Richard Shane – JPMorgan

Jasper Burch – Macquarie

Arren Cyganovich – Evercore

John Hecht – Stephens

Jonathan Bock – Wells Fargo

Jason Freuchtel – SunTrust

Vernon Plack – BB&T Capital Markets



Good morning and welcome to Ares Capital Corporation’s Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Tuesday, August 7, 2012.

Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of the words such as anticipates, believes, expects, intends, will, should, may, and similar expressions. The company’s actual results could differ materially from those expressed in the forward-looking statements for any reason, including those listed in its SEC filings.

Ares Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results.

During this conference call, the company may discuss core earnings per share or core EPS, which is a non-GAAP financial measure as defined by SEC Regulation G. Core EPS is the net per share increase or decrease in stockholders’ equity, resulting from operations, less realized and unrealized gains and losses, any incentive/management fees attributable to such realized and unrealized gains and losses and any income taxes related to such realized gains.

A reconciliation of core EPS to the net per share increase/decrease in stockholders’ equity resulting from operations to the most directly comparable GAAP financial measure can be found on the company’s website at The company believes that core EPS provides useful information to investors regarding financial performance because it is one method the company uses to measure its financial condition and results of operations.

Certain information discussed in this presentation, including information relating to portfolio companies, was derived from third-party sources and has not been independently verified and, accordingly, the company makes no representation or warranty in respect of this information.

At this time, we would like to invite participants to access the accompanying slide presentation by going to the company’s website at and clicking on the Q2 2012 Earnings Presentation link on the homepage of the Investor Relations section of the website. The company will refer to this presentation later in the call. Ares Capital Corporation’s earnings release and Form 10-Q are also available on the company’s website.

I will now turn the conference over to Mr. Michael Arougheti, Ares Capital Corporation’s President.

Mike Arougheti

Great. Thank you, operator. Good morning to everyone and thanks for joining us today. This morning we reported strong second quarter results, which were highlighted by growth in our core earnings per share, solid net investment growth and continued strong credit performance.

Over the past year, our core earnings per share have benefited from meaningfully higher recurring net interest income, primarily reflecting a higher level of yielding debt securities in our portfolio and slightly lower funding costs. Second quarter core earnings per share were $0.40, a 21% increase compared to the same period a year ago and 5% increase compared to the first quarter. In addition, our second quarter core earnings per share were $0.03 per share higher than our second quarter dividend of $0.37 a share.

In light of this performance, we’re pleased to announce that we declared $0.01 per share increase in our quarterly dividend, from $0.37 per share to $0.38 per share, and it continues to be our goal to distribute a consistent quarterly dividend covered by core earnings.

Today we also announced this $0.05 per share additional dividend. You may recall that we carried over approximately $160 million or $0.72 per share of undistributed taxable earnings into 2012. This additional dividend reflects our current view that a portion of this excess can now be distributed to shareholders while still providing future support and stability to our regular dividend.

We may consider paying another additional dividend after evaluating a number of factors, including our liquidity position, general market conditions, portfolio performance, our core earnings and the level of our undistributed taxable earnings relative to our current level. With this framework in mind, although there can be no assurances, we may be in a position to declare another additional dividend as early as next quarter.

Let me now provide a little more color on our second quarter results and try to put them into context with current market conditions before turning the call over to Penni Roll, our CFO, for further details on the quarter. We had a productive second quarter with $728 million in new investment commitments, the majority of which were issued to existing portfolio companies that we view as being among our strongest credits. In total, we funded $704 million of investments on a gross basis and $248 million on a net basis.

Although second quarter gross originations were materially higher compared to our first quarter levels, they were slower than our gross originations for the same period a year ago, mirroring the slowdown in the overall middle market during this period. Our investment portfolio also continued to perform well. We had no new non-accrual investments this quarter and our non-accrual ratio declined. Our weighted average portfolio grade was stable at 3.0 and the performance of the underlying portfolio companies continues to be strong.

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