Ares Capital Corporation

Good morning. Welcome to Aries Capital Corporation's first quarter, March 31st, 2023 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on today, Tuesday, April 25th, 2023. I will now turn the call over to Mr. John Stillmore, Managing Director of Aries Investor Relations.

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. 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, which include core earnings per share or core EPS. The company believes that 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 basic and diluted net income per share, 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 press release filed with the SEC this morning on Form 8K. 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 representation or warranty with respect to this information. The company's first quarter March 31st, 2023 earnings presentation can be found on the company's website at www.ariescapitalcorp.com by clicking on the first quarter 2023 earnings presentation link on the homepage of its investor resources section. Aries Capital Corporation's earnings release and form 10-K are also available on the company's website. I'd like to now turn the call over to Mr. Kip DeVere, Aries Capital Corporation's Chief Executive Officer. Thanks a lot, 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 chief operating officer, Jana Markowitz, and other members of the management team. I'd like to start the call by highlighting our first quarter results and then provide some additional thoughts on the economic backdrop and the market. This morning, we reported strong first quarter results. our core earnings per share of 57 cents increased 36% year over year, primarily driven by the benefit of higher interest rates on new investments. On a gap basis, our earnings per share of 52 cents per share for the first quarter was driven by our strong core earnings and the relative stability in the value of our investments this quarter. Both our core and gap earnings were well in excess of our regular quarterly dividend of 48 cents per share which led to modest growth in NAV per share to $18.45. We're pleased with the results this quarter, especially when considering the relatively slow transaction environment. The first quarter saw a fair amount of market volatility driven by the uncertain direction of the economy that was certainly exacerbated by the recent turmoil in the banking system. We believe that the banks remain constrained on new activity due to concerns regarding both capital and liquidity, which we believe makes our broad range of flexible capital solutions even more valuable. We feel that the current environment is similar to a number of prior periods of market dislocation that have improved the opportunity set for direct lenders. The current illustration of these dynamics is highlighted by the fact that 95% of the first quarter LBO financing new issuance was completed by private capital providers. a market traditionally weighted towards the broadly syndicated channel. For Aries Capital, similar periods of disruption have historically led to increased market share, profitability, and NAV growth for the company. Our strong market position is in part driven by the breadth of our origination capabilities and the experience of our team. Since ARCC's IPO in 2004, Aries Management has continued to invest in the quality and growth of our direct lending platform focused on both sponsored and non-sponsored companies. And besides having what we believe is the largest U.S. direct lending team in the market with 170 professionals across the U.S., we've also built deep industry expertise in areas like software, specialty healthcare, financial services, consumer, sports media and entertainment, and power and project finance. We believe that the scale and experience of our team positions us to be even more meaningful to the more than 440 sponsors that we've transacted with and to further build upon the 250 non-sponsored borrowers that we've financed in our nearly 20 years as a public company. To this end, we've already seen a 14% quarter-over-quarter increase in the number of deals we evaluated during Q1, and this deal flow represents a broad set of industries. By seeing the largest set of investment opportunities, we are able to make what we believe are the best relative value decisions when committing capital. Our selectivity rate remains consistently low through cycles and is even lower as we take market share through volatile periods. In terms of the new deal flow, our selectivity rate on new transactions in the first quarter is one of the lowest in five years. The merits of our origination strategy and our rigorous focus on credit quality allows us to continue to invest in high free cash flow and recession resilient businesses, and this supports our strong overall credit performance. Despite the more challenging market backdrop, the overall growth and profitability of our borrowers continues to be healthy with a year-over-year weighted average EBITDA growth rate of 8%. This is in line with our portfolio company EBITDA growth rate experienced over the past decade. Additionally, the percentage of our portfolio that we believe is highly impacted by inflation remains consistent quarter-over-quarter and at manageable levels today. With respect to non-accruals, Despite increasing modestly this quarter, our non-accrual rate is meaningfully below our 15-year historical average and is substantially below the historical KBW BDC average for the same time through year-end 2022. Our portfolio quality is also reinforced by the substantial amount of equity invested in our companies, most often by large and well-established private equity firms. At the end of the first quarter, the weighted average loan-to-value in the portfolio, including that through our junior loan investments, was only 43%, which we believe gives a strong downside protection on our loans. And we do have an expectation that a slowing economy will create more stress in the portfolio, along with the rest of the credit markets broadly. Through our nearly two decades of operating ARCC, we have a time-tested playbook for successfully navigating periods of volatility and market cycles. In collaboration with our core investment teams, our portfolio management professionals focus on identifying problems early and developing strategies to maximize our outcomes. These capabilities are central to our ability to deliver our industry-leading track record for credit performance since inception, which includes generating a 1% annualized net realized gain rate in excess of losses on our investments since inception. This means that along with generating gains on many of our investments, we have also successfully minimized losses in the portfolio in more difficult times. Underpinning our ability to navigate these periods of volatility is the strength of our balance sheet. We deleveraged during the first quarter and we ended the quarter with a net debt to equity ratio below 1.1 times. We also bolstered our level of liquidity post-quarter end by increasing or proactively extending out the maturities on over $4.5 billion of committed bank funding at relatively attractive pricing and terms, which is a noteworthy accomplishment given the recent banking turmoil. This highlights our broad relationships with our banking partners, which we believe will become even more valuable as banks become incrementally more selective. And with that, let me turn the call over to Penny, who will provide some more details on our financial results and some further thoughts on the balance sheet.