Ares Capital Corporation

Good afternoon. Welcome to the Aries Capital Corporation second quarter and June 30, 2021 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, July 28, 2021. I will now turn the call over to Mr. John Stilmar, Managing Director of Aries Investor Relations.

Thank you and good afternoon. 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 filing. Aries Capital Corporation assumes no obligation to update any such forward-looking statement. Please also note that 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 or core EPS. 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 operation. A reconciliation of core EPS to the net per share increase or decrease in stockholders' equity resulting from 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 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 representation or warranty with respect to this information. The company's second quarter ended June 30th, 2021 earnings presentation can be found on the company's website at www.AriesCapitalCorp.com by clicking on the second 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 our company's website. I'll now turn the call over to Mr. Kip DeVere, Aries Capital Corporation's chief executive officer.

Thanks, John. Hello, everyone, and thank you for joining the call today. I'm here with our co-presidents, Michael Smith and Mitch Goldstein, our chief financial officer, Penny Roll, and several other members of the management team. I want to start by highlighting our strong second quarter results, and then I'll provide some thoughts on the current market and the company's positioning. This morning, we reported second quarter core earnings of 53 cents per share, up from 43 cents per share last quarter and 39 cents per share a year ago. This was the second highest core earnings result in the company's history. Our leading market position drove record new commitments of $4.9 billion for the quarter, which in turn led to robust interest and fee income. Our second quarter gap earnings per share of $1.09 increased from $0.87 last quarter and $0.65 a year ago. Very good portfolio company performance and favorable market conditions drove our investment valuations higher and we witnessed both realized and unrealized gains. As a result of these positive factors, our net asset value grew to a new record of $18.16 per share. Given the higher level of earnings we've been generating consistently and our positive outlook for the business, we increased our quarterly dividend from $0.40 per share to $0.41 per share. Let me now provide a high-level overview of current market conditions and how it's influencing our investment activity. As we have all witnessed, the economy is in the midst of a strong recovery and this is driving higher levels of transaction activity in our market. Announced private equity deal activity in the U.S. is on track for the highest level in over a decade and corporate M&A activity remains robust as companies are focusing on expanding or adding new verticals to complement their existing business models. Greater than 70% of our new commitments in the second quarter were driven by corporate or sponsored M&A. Today, Aries Capital is the largest BDC, and our company, as you know, is managed by one of the largest global direct lending platforms in the market today. We are witnessing more and more companies increasingly seeking the flexibility of our capital. The other trend that's supporting our growth is the widening of our market opportunity as the private markets continue to scale. We are seeing larger companies increasingly seek direct lenders with scale, particularly those like ARCC that can commit to meaningful hold sizes and transactions. While these larger borrowers are valuing the speed, benefits, and certainty of close that we can provide compared to a bank or syndicate-led solution, 2020 showed that having a consistent, well-capitalized capital provider like us as a financing partner is of great value. We believe that many of our competitors were not open for business during the pandemic and market participants took notice that we were very active throughout this period. This has enabled us to gain share as the private markets continue to grow on the upper end as an alternative to traditional market providers. As a result, we're continuing to source attractive relative value investments in both the middle and upper ends of our market. as we commit larger amounts to larger companies in our book, the weighted average EBITDA of our originations for the quarter was 30% higher than the prior two-year average and our overall portfolio weighted average EBITDA doubled over the past three years to an average of $146 million. While larger companies have a greater impact on the dollar value of our portfolio, we continue to maintain our interest in the core middle market where we have focused most of our investing activities over the years. By number of companies, our portfolio is well distributed in terms of size of borrower, with the majority of our loans going to companies with EBITDA below $100 million. Remaining active within the core middle market allows us to form relationships with a broad spectrum of companies and create significant positions of incumbency. This incumbency in smaller companies allows future origination opportunities with these portfolio companies as they grow. We believe these advantages are delivering further market share gains for us as new commitments for the past three quarters are 30% higher than Aries Capital's historical record for annual deployment. We believe this increasing activity is not only driven by the scale of the capital solutions that we provide, but also by our differentiated sourcing opportunities that come from 17 years of cultivating relationships with borrowers and sponsors. In the second quarter, incumbency positions in existing portfolio companies accounted for 63% of the number of commitments made during the quarter and repeat sponsors accounted for 95% of our sponsor-backed investments that we made. As these advantages continue, we are able to increase both the quantity and the size of our investment opportunities. In the second quarter, we saw a 31% increase in our number of transaction opportunities and a 47% increase in the estimated aggregate dollar amount of deal activity when compared to the quarterly 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 only approximately 5% of the new deals we review. Ultimately, we believe our competitive advantages and careful credit selection result in a highly diversified and attractively positioned portfolio. As Michael will discuss later in more detail, Our portfolio continues to perform well with weighted average EBITDA growth of 12% over the last 12 months, lower non-accruals at cost, reduced watch list names, and continued valuation improvements. Let me now turn the call over to Penny to provide more details on second quarter results and some other updates on our financing activities.