Ares Capital Corporation

Thank you and good afternoon, everybody. 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. ARIES 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 certain non-GAAP measures as defined by SEC Regulation G, such as core earnings per share, 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 operations. A reconciliation of core EPS to basic and diluted net income per share, the most directly comparable financial measure, can be found in the accompanying slide presentation for this call. In addition, the reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8K. Certain information discussed in this conference call and the accompanying slide 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. The company's fourth quarter and year-end December 31, 2022 earnings presentation can be found on the company's website at www.areascapitalcorp.com by clicking on the fourth quarter 2022 earnings presentation link on the homepage of the investor resources section. Areas Capital Corporation's earnings release and Form 10-K are also available on the company's website. I'll now turn the call over to Kip DeVere, Area's Capital Corporation's Chief Executive Officer.

Thanks, John. Hello, everyone, and thanks for joining our earnings call today. I'm here with our co-presidents, Mitch Goldstein and Court Schnabel, our Chief Financial Officer, Penny Roll, our newly appointed Chief Operating Officer, Jana Markowitz, and other members of the management team. For those who don't already know, Janet has been an important member of the ARIES Direct Lending team for over 18 years, and we're delighted to have her join the executive team at ARIES Capital. Janet currently serves as the Chief Operating Officer, Head of Product Management and Investor Relations for our U.S. Direct Lending Strategy. Our newly appointed president, Court Schnabel, will speak later in the call, but I'd like to formally welcome him as well. Kurt's been instrumental in helping us grow and manage the U.S. direct lending business over the last 19 years, and we're thrilled to have him on board. A warm welcome to both of them. This morning, we reported strong results for the fourth quarter and the full year. We generated record quarterly core earnings per share, 63 cents. This 26% quarterly increase in core earnings was largely driven by the benefit of rising market interest rates and our net interest income. but also from strong capital structuring fee income on the fourth quarter transactions. For the year, our core EPS of $2.02 matched our prior record in 2021. On a gap basis, our fourth quarter and full year earnings of $0.34 per share and $1.21 per share, respectively, were below our core earnings as we recognized $0.40 per share and $1.08 per share respectively of net unrealized depreciation due largely to widening market yields. Despite these markdowns, if we take in stride with the transitioning market, we generated net realized gains through the full year of 2022 as we continue to deliver positive realized gains in excess of our losses. We view realized gains and losses as the more important metric in grading our performance than the unrealized gains and losses, which have substantially less impact on our long-term results. In our view, our track record of strong credit performance compared with other BDCs demonstrates the merits of our long-tenured proven investment process as we work to deliver differentiated results to our shareholders. I'd now like to shift and provide some thoughts on the market and the economic environment. 2022 is a year of transition for the U.S. economy. and one that brought significant volatility to the capital markets. As overall capital formation slowed in both the liquid and private credit markets, we believe the competitive dynamics and the risk-reward environment for ARIES Capital shifted positively to be as attractive as we've seen in quite some time. Market spreads on new deals are at least 100 to 150 basis points higher than at year-end 2021. And we believe that the total return opportunity afforded by the higher base rate in addition to this spread expansion is very compelling. These enhanced economics are being achieved in transactions that also have reduced leverage and meaningfully better documentation. We think this is an exciting development for our new investment business and we remain active in the market. To dig in a bit deeper, the senior loans that we originated in the fourth quarter had a weighted average yield of more than 10.5%, with weighted average leverage less than five times debt to EBITDA. Many of these investments focused on larger businesses. We provided loans to companies with a weighted average EBITDA of more than $500 million in the fourth quarter. We believe the volatility of 2022 also continues to widen the fairway for us and to expand the market in direct lending generally. larger companies continue to shift their focus to private capital alternatives as a preferred and more reliable source of financing for their businesses. And with challenges faced by the banks due to risk capital constraints and the lack of liquidity in the syndicated markets, we believe private lenders have steadily gained share throughout 2022. This has led to our involvement with larger companies. A year in 2022, the weighted average EBITDA of our portfolio companies reached $275 million, an increase from $162 million at the end of 2021, and meaningfully above the weighted average from five years ago of $62 million. We believe this offers significant benefits to Aerie's capital as we grow, as larger companies generally have stronger credit profiles as a result of more diverse revenue streams, broader customer bases, and more experienced management teams. As demand for our capital solutions has grown, we've responded by continuing to augment our direct origination capabilities through continued hiring and the addition of new capabilities. Today, we believe we employ the largest direct lending team in the United States with approximately 170 dedicated investment professionals. We believe that the scale of our team enables us to have complete market coverage by industry and by geography and to drive compelling opportunities in every channel that we target. For example, despite a 22% drop in US M&A volumes and a 45% decline in broadly syndicated transaction volumes in 2022, we reviewed more than $500 billion of transactions. This volume is comparable with or even slightly higher than the amount we reviewed in 2021, which was the busiest year in the company's history. Despite this, during periods of volatility, our inclination is to become incrementally more selective on new deals and utilize the experience of our large and tenured portfolio management team to focus on risk management efforts. We do have an expectation that a slower US economy and the higher rate environment will create more stress in the portfolio. And we're focused on getting ahead of it as we have in past economic and market cycles. Led by partners with an average of over 15 years tenure at Aries, we believe we have the largest and most experienced portfolio management team when compared with other direct lenders. And this team works in collaboration with our core investment teams to actively monitor and engage with our borrowers and sponsors. Our goal is to identify problems early and develop strategies to maximize our outcomes in companies that are underperforming the plan or having more difficulty in the higher interest rate environment. The economic benefits from our credit and portfolio management process have led to a strong culture focused on downside protection and risk mitigation in our lending activities. Since inception, ARIES Capital has generated a cumulative 1% net realized gain rate on our investments. This means that along with generating gains on many investments, we have also successfully minimized losses in the portfolio in more difficult times. One statistic to call out here, we've actually achieved about a 0.9 times multiple on invested capital on all the loans that have been placed on non-accrual over the years. Despite the more challenging backdrop and the higher prevailing interest rates, we feel the portfolio is defensively positioned today due to our longstanding underwriting strategy of focusing on market leading companies with high free cash flows in what we believe to be resilient industries. Using market interest rate levels at year end, our overall interest coverage for the total portfolio was 1.8 times. These strong coverage metrics allowed us to receive 99% of contractual interest in our portfolio during the fourth quarter. The health of the portfolio is also demonstrated by stable weighted average portfolio grades and non-accrual rates that remain quite low relative to historical averages. Finally, the strength of our portfolio continues to benefit from the substantial amount of equity invested in our companies, most often from large and well-established private equity firms. At year end 2022, we calculated the weighted average loan-to-value in the portfolio to be approximately 45%, which we believe gives us strong cushion to the downside in these loans. These metrics, along with our positive view of the company's earnings power, supported our decision to increase our regular quarterly dividend three times during 2022, moving from $0.41 per share in the fourth quarter of 2021 to $0.48 per share in the fourth quarter of 2022. This builds on our long-term track record of delivering consistent dividend growth. 2022 represents our 13th consecutive year of stable or increasing regular dividends to our shareholders. Supplementing this growing regular dividend, we paid $0.12 per share of additional dividends in 2022, resulting in $1.87 per share of dividends for the year, which represented a 15% increase in total dividends versus 2021. With that, let me turn the call over to Penny to provide more details on our financial results and some further thoughts on our balance sheet.

Thanks, Kip. For the fourth quarter of 2022, we had a record level of core earnings of 63 cents per share compared to 50 cents per share in the prior quarter and 58 cents per share in the fourth quarter of 2021. For the full year 2022, our core earnings per share was $2.02, matching the core earnings per share for 2021. Our 2022 earnings significantly benefited from the increase in market interest rates, driving a 17% increase in net interest and dividend income per share as compared to 2021. The growth in these recurring earnings roughly offset the decline in capital structuring fees in 2022 relative to the higher fees earned during the more active 2021. On a GAAP basis, we reported GAAP net income per share of $0.34 for the fourth quarter of 2022 compared to $0.21 in the prior quarter and $0.83 in the fourth quarter of 2021. For the year, we reported GAAP net income per share of $1.21 compared to $3.51 per share for 2021. Our core earnings for 2022 as compared to 2021 was stable year over year where our GAAP net income for 2022 was reduced by the net unrealized depreciation taken on the portfolio throughout the year driven primarily by market volatility. Conversely, our GAAP net income for 2021 benefited from the net unrealized appreciation seen on the portfolio throughout that year as we saw a rebound from valuation declines incurred in 2020 as a result of COVID. While we have seen volatility in asset values over the past few years, our underlying portfolio continues to perform well through this volatility as Kip mentioned earlier. Our stockholders' equity ended the year at $9.6 billion or $18.40 per share compared to $9.4 billion or $18.56 per share at the end of the third quarter 2022 and $8.9 billion or $18.96 per share at the end of 2021. Our portfolio at fair value at the end of the year grew to $21.8 billion, up modestly from $21.3 billion at the end of the third quarter and more meaningfully from $20 billion at the end of 2021. The weighted average yield on our debt and other income-producing securities at amortized cost was 11.6% at December 31, 2022, as compared to 10.7% at September 30, 2022, and 8.7% at December 31, 2021. The weighted average yield on total investments at amortized cost was 10.5%, which increased from 9.6% at September 30, 2022, and 7.9% at December 31, 2021. The yields on our portfolio reflected the significant increases in base rates given our predominantly floating rate loan portfolio. Shifting to our capitalization and liquidity, we ended the fourth quarter with a debt-to-equity ratio, net of available cash, of 1.26 times, Pro forma for the $223 million equity offering that we closed in January of 2023, our debt-to-equity ratio, net of the available cash, declined to 1.21 times. Our liquidity position remained strong with approximately $3.9 billion of total available liquidity, including available cash, pro forma for our financing activities in the beginning of this year. After accounting for the $750 million of unsecured notes that come due this month, our next nearest debt maturity is not until March of next year. With this level of dry powder, we believe that we remain well positioned to take advantage of the current investing environment. As Kip stated earlier, we declared a first quarter 2023 dividend of 48 cents per share. This dividend is payable on March 31, 2023 to stockholders of record on March 15, 2023, and is consistent with our fourth quarter 2022 dividend. We continue to consider our taxable income and the amount of spillover when setting our overall dividend. We recognize that we had a strong level of core earnings for the year, which far outpaced the total dividends we paid. When looking at our taxable income for the year, Our current estimate of undistributed taxable income, sometimes referred to as our spillover, at year end 2022 is $675 million, or approximately $1.27 per share after considering the shares issued in our January equity raise. This spillover reflects the realization of a tax deduction related to a legacy allied capital investment which reduced our total taxable income for the year and thus reduced our spillover. After considering this deduction, our estimated spillover for 2022 is generally in line with the $678 million that we carried over last year. Importantly, this 2022 spillover level is more than two and a half times greater than our current regular quarterly dividend rate. We continue to believe that having a healthy level of spillover income is beneficial to the stability of our dividend. We will continue to monitor our undistributed earnings and balance these levels against prudent capital management considerations. With that, I would like to welcome Cort to his first earnings call, and we'll now turn it over to him to walk through our investment activities.