Ares Capital Corporation · NASDAQ:ARCC
Ares Capital — Q4 2018 Earnings Presentation
29 slides from Ares Capital's earnings presentation, Feb 12, 2019
Slide 1: Fourth Quarter 2018 Earnings Presentation
Fourth Quarter 2018 Earnings Presentation 1
Slide 2: Important Notice
Important Notice This presentation contains “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. Actual outcomes and results could differ materially from those suggested by this presentation du
Slide 3: Financial and Portfolio Highlights
Financial and Portfolio Highlights Financial Highlights Q4-18 Q3-18 Q4-17 FY-18 FY-17 (all per share amounts, excluding net asset value per share, are basic and diluted) Core EPS*(1) $ 0.45 $ 0.45 $ 0.38 $ 1.68 $ 1.39 Net Investment Income Per Share $ 0.48 $ 0.44 $ 0.33 $ 1.63 $ 1.20 Net Realized Ga
Slide 4: Selected Historical Financial Information
Selected Historical Financial Information (dollar amounts in millions, except per share data and stock prices) As of and for the Three Months Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Core EPS – Basic and Diluted*(1) $ 0.45 $ 0.45 $ 0.39 $ 0.39 $ 0.38 Net Investment Income Per Share – Basic an
Slide 5: Selected Historical Financial Information (cont’d)
Selected Historical Financial Information (cont’d) (dollar amounts in millions) As of 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Investments at Fair Value $ 12,417 $ 11,220 $ 11,527 $ 12,199 $ 11,841 Number of Portfolio Companies(9) 344 342 346 360 314 Asset Class (at fair value): First Lien Senior S
Slide 6: Selected Historical Financial Information (cont’d)
Selected Historical Financial Information (cont’d) (dollar amounts in millions) For the Three Months Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Commitments: Gross Commitments $ 2,709 $ 1,924 $ 1,620 $ 1,792 $ 1,506 (2) Exits of Commitments (1,021) (1,914) (2,200) (1,342) (1,321) Net Commitments
Slide 7: Quarterly Operating Results
Quarterly Operating Results (amounts in millions, except per share data) For the Three Months Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Investment income $ 345 $ 342 $ 333 $ 317 $ 307 Expenses, net of waiver of income based fees (13) 140 151 165 168 162 Net investment income before income taxe
Slide 8: Quarterly Operating Results Detail
Quarterly Operating Results Detail (amounts in millions) For the Three Months Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Net Investment Income Before Income Taxes: Investment Income: Interest income from investments $ 263 $ 262 $ 262 $ 254 $ 251 Capital structuring service fees 47 42 25 29 32 D
Slide 9: Quarterly Gain/Loss Detail
Quarterly Gain/Loss Detail (amounts in millions) For the Three Months Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Net Realized and Unrealized Gains (Losses): Realized gains (losses) on investments: Gains $ 37 $ 387 $ 31 $ 11 $ 44 Losses (16) (24) (9) (11) (167) Net realized gains (losses) on inv
Slide 10: Quarterly Balance Sheets
Quarterly Balance Sheets (amounts in millions, except per share data) As of 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 ASSETS Investments at fair value $ 12,417 $ 11,220 $ 11,527 $ 12,199 $ 11,841 Cash and cash equivalents 296 799 509 302 316 Interest receivable 91 93 89 89 93 Receivable for open tra
Slide 11: Investment Portfolio by Issuer Concentration as of December 31, 2018
Investment Portfolio by Issuer Concentration as of December 31, 2018* 5.2% 4.2% (10) Senior Direct Lending Program, LLC Top 15 3.5% Investments Ivy Hill Asset Management, L.P. 34.1% 2.3% Pathway Vet Alliance LLC 2.2% Mac Lean-Fogg Company 2.1% PDI TA Holdings, Inc. 1.9% American Academy Holdings, LL
Slide 12: Investment Portfolio as of December 31, 2018
Investment Portfolio as of December 31, 2018* Asset Class Industry 9% 5% 1% 2% 4% 2% 3% 22% 3% 6% 3% 5% 4% 47% 5% 5% 18% 6% 29% 6% 8% 7% First Lien Senior Secured Loans Healthcare Services Restaurants and Food Services Second Lien Senior Secured Loans Business Services Oil and Gas Senior Direct Lend
Slide 13: Investment Portfolio by Asset Class as of December 31, 2018
Investment Portfolio by Asset Class as of December 31, 2018* $11.7 billion $0.7 billion $12.4 billion 100% 8% 9% 90% 4% 4% 24% 5% 6% 80% 6% 5% 2% 70% 7% First Lien Senior Secured Loans Second Lien Senior Secured Loans 29% 29% 60% 15% (10) Senior Direct Lending Program 50% Senior Subordinated Loans C
Slide 14: Debt Summary
Debt Summary As of 9/30/18 As of 12/31/18 Aggregate Aggregate Weighted Principal Principal Average Amount Principal Carrying Value Amount Principal Carrying Value Stated Committed/ Amount of Outstanding Committed/ Amount of Outstanding Interest (dollar amounts in millions) Outstanding(17) Outstandin
Slide 15: Debt Summary
Debt Summary (Amounts in 000s) Debt Maturities* ($ in millions) ($ in millions) $3,000 $3,000 (21)(22)(23) $2,500 $2,500 $1,792 $845 $2,000 $2,000 (21) $414 $1,500 $1,500 $19(21) $1,000 $1,000 $1,580 $1,580 $600 $17(21) $600 $750 $500 $500 $600 $600 $300 $388 $300 $388 $0 $0 2018 2019 2020 2021 2022
Slide 16: Quarterly Dividends
Quarterly Dividends $0.50 $0.05 $0.02 $0.40 $0.40 $0.39 $0.39 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.38 $0.30 $0.20 $0.10 $0.00 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-1
Slide 17: Portfolio Activity
Portfolio Activity Gross Commitments by Asset Class Exits of Commitments by Asset Class 1% 12% 1% 3% 2% 1% 1% 1% 2% 1% 100% 1% 100% 1% 6% 3% 3% 1% 2% 2% 3% 6% 1% 11% 12% 7% 3% 3% 12% 4% 4% 14% 22% 2% 1% 80% 18% 25% 23% 80% 2% 20% 24% 20% 3% 30% 28% 60% 60% 48% 18% 40% 40% 72% 68% 72% 67% 66% 63% 53%
Slide 18: Portfolio Company EBITDA and Credit Statistics
Portfolio Company EBITDA and Credit Statistics $99.0 8.0x $100.0 $92.9 $90.0 $82.4 $76.5 $80.0 6.0x $62.2 $70.0 5.4x 5.4x 5.4x 5.4x 5.4x 5.4x $60.0 PortfolioWeighted Portfolio WeightedAverage EBITDA(26)(27)(28) AverageEBITDA(25)** ($ Millions) Portfolio PortfolioWeighted WeightedAverage AverageTotal
Slide 19: Investments on Non-Accrual Status
Investments on Non-Accrual Status Amortized Cost Fair Value 5.0% $800 5.0% $800 4.5% 4.5% $700 $700 4.0% 4.0% $600 $600 3.5% 3.5% 3.1% $500 $500 3.0% 3.0% ($ Millions) ($ Millions) 2.7% 2.7% 2.7% 2.5% 2.5% $400 2.5% $400 2.0% $364 2.0% $332 $324 $300 $300 $304 $312 1.5% 1.4% 1.5% $200 1.0% $200 1.0%
Slide 20: Portfolio By Grade
Portfolio By Grade(32) % By Fair Value % By Number of Companies 100% 100% 5% 4% 4% 6% 4% 11% 11% 9% 14% 16% 90% 90% 80% 80% 70% 70% 60% 60% 85% 87% 87% 85% 87% 50% 50% 85% 84% 86% 81% 79% 40% 40% 30% 30% 20% 20% 10% 10% 5% 4% 3% 3% 4% 3% 1% 4% 1% 4% 1% 4% 1% 4% 1% 5% 5% 6% 6% 5% 0% 0% Q4-17 Q1-18 Q2
Slide 21: Investment Activity Since Quarter End
Investment Activity Since Quarter End Ø From January 1, 2019 through February 7, 2019, Ares Capital made $623 million of new investment commitments • 45% were in first lien senior secured loans, 40% were in second lien senior secured loans, 13% were in the subordinated certificates of the SDLP and 2
Slide 22: Backlog and Pipeline
Backlog and Pipeline Ø As of February 7, 2019, Ares Capital had a backlog and pipeline of approximately $1,435 million and $150 million, respectively(33) Ø The following is a breakdown of the backlog and pipeline by asset class and by industry Asset Class Industry 3% 8% 10% 10% 1% 37% 38% 11% 48% 34
Slide 23: Corporate Data
Corporate Data Board of Directors Investment Committee Corporate Officers Research Coverage Corporate Counsel MICHAEL AROUGHETI MARK AFFOLTER MICHAEL AROUGHETI BANK OF AMERICA MERRILL LYNCH PROSKAUER ROSE LLP Co-Chairman and Executive Vice President of Partner of the Ares Credit Group Executive Vice
Slide 24: Reconciliations of Core EPS
Reconciliations of Core EPS The following are reconciliations of basic and diluted earnings per share computed in accordance with GAAP to basic and diluted core earnings per share: For the Three Months Ended 12/31/18 9/30/18 6/30/18 3/31/18 12/31/17 Basic and Diluted Core EPS(1) $ 0.45 $ 0.45 $ 0.39
Slide 25: Investments Acquired in the American Capital Acquisition
Investments Acquired in the American Capital Acquisition (Dollar amounts in millions) Net Investments at Fair Value as of Investments at Fair Value as of Change in January 3, 2017 December 31, 2018 Fair Value Yield at Yield at Fair Fair Value % of Total Fair Value Fair Value % of Total Value By Asse
Slide 26: Endnotes
Endnotes 1) Basic and diluted Core EPS is a non-GAAP financial measure. Core EPS is the net per share increase (decrease) in stockholders’ equity resulting from operations less professional fees and other costs related to the acquisition of American Capital, Ltd. (the "American Capital Acquisition")
Slide 27: Endnotes (cont’d)
Endnotes (cont’d) 13) In connection with the American Capital Acquisition, Ares Capital Management LLC agreed to waive, for each of the first ten calendar quarters beginning with the second quarter of 2017 and ending with the third quarter of 2019, the lesser of (x) $10 million of income based fees
Slide 28: Endnotes (cont’d)
Endnotes (cont’d) 24) Declared. In addition to the first quarter 2019 regular dividend of $0.40 per share to be paid on March 29, 2019 to stockholders of record on March 15, 2019, the Company declared additional dividends totaling $0.08 per share for 2019, to be distributed in four consecutive quart
Slide 29: Endnotes (cont’d)
Endnotes (cont’d) 32) Based on our investment adviser’s internal investment rating system scale from 1 to 4. Investments with a grade of 4 involve the least amount of risk to our initial cost basis and the trends and risk factors for these investments since origination or acquisition are generally f