Ares Capital Corporation

Good morning. Welcome to Aries Capital Corporation's first quarter ended March 31st, 2021 earning conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, April 28th, 2021. I will now turn the call over to Mr. John Stilmar, Managing Director of Aries Investor Relations. Please go ahead.

Thank you. Let me start with some important reminders. Comments made during the course of this conference call and webcast, as well as the accompanying documents, contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Barry's Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that the past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as core earnings per share or core EPS. The company believes the core EPS provides useful information to investors regarding financial performance because it's one method the company uses to measure its financial condition and results of operation. A reconciliation of core EPS to the net per share increase or decrease in shareholders' equity resulting from the operations The most directly comparable GAAP financial measure can be found in the accompanying slide presentation for this call. In addition, reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8-K. Certain information discussed in this conference call and the accompanying slide presentation, including information related to portfolio companies, was derived from third-party sources and has not been independently verified, and accordingly, The company makes no representations or warranties with respect to this information. The company's first quarter ended March 31, 2021 earnings presentation can be found on the company's website at www.AriesCapitalCorp.com by clicking on the first quarter 2021 earnings presentation link on the homepage of the investor resources section of the website. Aries Capital Corporation's earnings release and 10Q are also available on the company's website. I will now turn the call over to Mr. Kip DeVere, Area's Capital Corporation's Chief Executive Officer.

Thanks, John. Hello, everyone, and thank you for joining us. I'm here with our co-presidents, Mitch Goldstein and Michael Smith, our Chief Financial Officer, Penny Roll, and several other members of the management team. I want to start by highlighting our strong first quarter results and then provide some thoughts on the current market and our positioning. This morning we reported strong first quarter core earnings of 43 cents per share, up from 41 cents per share a year ago. Our first quarter gap earnings of 87 cents per share reflect significant net unrealized gains as higher portfolio valuations drove our net asset value to a new record of $17.45 per share. We also had an active investing quarter, and the second quarter is set up for even more activity. The U.S. government delivered a powerful combination of significant fiscal and monetary stimulus coupled with ambitious vaccine rollouts across the U.S. to provide a favorable backdrop for Aries Capital and our portfolio companies. We believe the economy is rebounding and this rebound is driving higher levels of transaction activity in our markets. We're seeing more traditional corporate M&A activity, which is a key driver for the financing solutions that we provide to companies. Aries Capital today is the largest BDC, and as you know, we are externally managed by one of the largest global direct lending platforms in the market today, with approximately $100 billion of direct lending assets under management as of December 31st, 2020. We believe that this platform and our position offers a unique view into market trends. I'd like to highlight a few favorable trends that are occurring and that provide expansion opportunities for the company. First, private equity sponsors are focused on buying and building portfolio companies through M&A transactions over longer time horizons through their focused core funds or in continuation funds. This trend is leading to an increasing number of sponsors seeking add-on acquisitions to support the growth of their existing investments and a heavier reliance on incumbent debt providers. With our permanent capital, significant scale, flexible capital solutions and large portfolio of incumbent relationships, we believe this market trend favors ARIES Capital for future growth and plays well to our strengths. Another important growth driver is the continued expansion of the direct lending market itself. We've been investing in middle market companies for the better part of two decades, and we continue to see a growing desire for companies to choose direct lenders with scale and flexibility, often at the expense of banks, the capital markets, and other more traditional sources from years past. Many companies are frustrated by the lack of flexibility and visibility that a liquid market or bank-led solution can provide, and these companies are increasingly turning to the flexibility of capital and many more. We saw a 14% increase in the number of transaction opportunities, a 25% increase in the average EBITDA of the companies that we reviewed, and a 40% increase in the estimated aggregate dollar amount of deal activity when compared to the first quarter average for the past five years. The growing breadth of our pipeline allows us to see a larger and more diverse set of investment opportunities which ultimately allows us to be highly selective. We continue to finance less than 5% of the deals that we review. This selectivity and our focus on high free cash flow businesses with market leadership positions ultimately result in a differentiated and attractively positioned portfolio. As Mitch will discuss later in more detail, our portfolio continues to perform well with 99% of contractual interest collected and no new portfolio companies on non-accrual for the quarter. Furthermore, supporting my earlier comments about the rebounding economy, our portfolio companies experienced weighted average EBITDA growth of 7% over the last 12-month period. This is a continued improvement from about 5% in the fourth quarter and 2% in the third quarter of last year. It's also worth noting that the weighted average EBITDA growth for our top three largest industries, software and services, healthcare services, and commercial and professional services was 30% higher than the portfolio weighted average growth rate in aggregate. This underscores that our approach of overweighting the most attractively positioned industries and sectors of the economy is paying off. Our portfolio performance also continues to benefit from our upmarket focus. In the first quarter, our larger portfolio companies with greater than $100 million of EBITDA had growth rates that were more than two times those of companies with EBITDA below $50 million. We are not ignoring smaller transactions. We simply believe that in the current environment, they offer less relative value than they have in the past relative to some of the larger financings that we've completed. Let me now turn the call over to Penny to provide some more details on first quarter results and some other thoughts on our financing activities.