• Core Earnings Per Share: $0.50 for Q1 2025.
• Annualized Return on Equity: 10%.
• Gross Commitments: $3.5 billion in Q1 2025, a 54% increase from the same period last year.
• GAAP Net Income Per Share: $0.36 for Q1 2025, compared to $0.55 in the prior quarter and $0.76 in Q1 2024.
• Weighted Average Yield on Debt and Other Income-Producing Securities: 10% at March 31, 2025.
• Total Portfolio at Fair Value: $27.1 billion at the end of Q1 2025.
• Debt-to-Equity Ratio: 0.98 times net of available cash.
• Quarterly Dividend: $0.48 per share for Q2 2025.
• Taxable Income Spillover: Estimated at $883 million or $1.29 per share available for distribution in 2025.
• Nonaccruals at Cost: 1.5%, down 20 basis points from the prior quarter.
• Portfolio Companies: 566 at the end of Q1 2025.
• Weighted Average LTM EBITDA Growth of Portfolio Companies: 12%.
• Leverage of Portfolio Companies: 5.7 times debt-to-EBITDA.
• Available Liquidity: Nearly $6.8 billion.

• Warning! GuruFocus has detected 10 Warning Signs with ARCC.

Release Date: April 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ares Capital Corp (NASDAQ:ARCC) reported solid first quarter results with $0.50 in core earnings, equating to an annualized return on equity of 10%.
• The company maintained strong credit quality with nonaccrual loans and lower risk-rated credits at historically low levels.
• ARCC ended the quarter with conservative balance sheet leverage and significant dry powder, totaling nearly $6.8 billion, to make new investments.
• The company declared a $0.48 per share quarterly dividend for the second quarter of 2025, marking its 63rd consecutive quarter of stable or increasing regular quarterly dividends.
• ARCC's portfolio companies reported double-digit organic LTM EBITDA growth and are levered on a debt-to-EBITDA basis below the five-year average.

Negative Points

• GAAP net income per share decreased to $0.36 for the first quarter of 2025 from $0.55 in the prior quarter and $0.76 in the first quarter of 2024.
• Core earnings per share declined from $0.55 in the prior quarter to $0.50, largely driven by a decline in portfolio yields due to lower average market base rates.
• The weighted average yield on total investments at amortized cost decreased slightly, indicating potential pressure on future interest income.
• The company faces increased market volatility and tightening credit conditions, with banks transitioning into a risk-off position.
• There is uncertainty regarding the impact of tariffs on portfolio companies, with a mid-single-digit share of the portfolio potentially exposed to higher tariffs.

Q & A Highlights

Q: With the current market volatility, do you think private lending will offer similar or lower pricing than banks, and how does this impact your competitive position? A: Kort Schnabel, Co-President, noted that spreads have already started to widen in the last four weeks due to market volatility. Historically, private lending has adjusted to market conditions, and Ares Capital's diverse sourcing capabilities allow it to remain competitive despite these changes.

Q: Can you elaborate on the potential impact of tariffs on your portfolio companies? A: Scott Lem, CFO, explained that they conducted a thorough analysis to identify companies importing from high-tariff countries. Currently, there's a mid-single-digit exposure in the portfolio. However, this is an exposure analysis, not an impact analysis, as companies may mitigate these effects through pricing adjustments or supply chain changes.

Q: Given the slowdown in private equity and M&A deal volume, how do you plan to manage earnings against rising liability costs? A: Kipp deVeer, CEO, stated that while deal flow might slow, Ares Capital has multiple ways to source transactions, such as refinancing and non-sponsored deals. The company has historically maintained a consistent ROE and has levers like low leverage and spillover income to manage earnings.

Q: Are you seeing more attractive opportunities in larger-sized upper market segments due to current volatility? A: Scott Lem confirmed that they are seeing more opportunities in larger deals, similar to trends observed in 2022 and 2023. Ares Capital's broad sourcing network allows it to pivot and capitalize on attractive opportunities across different market segments.

Q: How does Ares Capital plan to respond quickly to potential tariff impacts on portfolio companies? A: Kipp deVeer explained that they proactively engage with potentially affected companies to assess liquidity and funding needs. If necessary, Ares Capital may offer to PIK interest temporarily in exchange for equity contributions from private equity partners, similar to strategies used during COVID.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.