Ares Capital Corporation Announces December 31, 2023 Financial Results and Declares First Quarter 2024 Dividend of $0.48 Per Share
- Ares Capital declared a first quarter 2024 dividend of $0.48 per share, reflecting stability for shareholders.
- The Q4-23 financial results show an increase in GAAP net income per share to $0.72, with a total amount of $413 million, indicating positive financial performance.
- The company strengthened liquidity by raising $1.3 billion of unsecured notes on favorable terms, which enhances its financial position.
- None.
Insights
The declaration of a dividend of $0.48 per share by Ares Capital Corporation is a positive signal for investors, indicating the company's ability to generate sufficient cash flow to return value to shareholders. The consistency in dividend payments, as highlighted by the company's 14-year track record, suggests a stable financial position and a commitment to shareholder returns. This can be attractive to income-focused investors and could potentially support the stock's price.
However, the slight decrease in the dividend amount compared to the previous year's additional dividend should be noted. While this may not significantly impact investor sentiment, it is essential to monitor future dividend trends for any signs of financial stress or changes in the company's capital allocation strategy.
Examining Ares Capital's financial results, the increase in GAAP net income per share from $1.21 in FY-22 to $2.75 in FY-23 is noteworthy, signaling robust year-over-year growth. This substantial growth could be attributed to successful investment strategies and efficient portfolio management. The company's focus on first lien senior secured loans, which comprise 44% of the portfolio at fair value, indicates a risk-aware approach, as these instruments typically offer a higher claim on assets in the event of default.
Another significant aspect is the debt/equity ratio improvement from 1.29x in 2022 to 1.07x in 2023, reflecting a stronger balance sheet and potentially lower financial risk. This improvement may increase investor confidence in the company's financial health and its ability to sustain or grow dividends in the future.
From a regulatory and compliance perspective, the filing of Ares Capital's Annual Report on Form 10-K with the SEC is a critical disclosure that provides transparency into the company's operations and financial status. Investors and analysts rely on these documents for due diligence and making informed decisions. The detailed breakdown of investment activities and the portfolio's performance, including information on investment grades and non-accrual status loans, is crucial for assessing the company's credit risk and investment strategy effectiveness.
Furthermore, the amendments to credit facilities and the issuance of unsecured notes on market-leading terms demonstrate the company's proactive management of its capital structure. These actions can enhance liquidity and may provide the company with the flexibility to capitalize on investment opportunities, which could positively influence its market position and future earnings potential.
DIVIDEND DECLARATIONS
DECEMBER 31, 2023 FINANCIAL RESULTS
Ares Capital also announced financial results for its fourth quarter and year ended December 31, 2023.
OPERATING RESULTS
|
|
Q4-23(1) |
|
Q4-22(1) |
|
FY-23 |
|
FY-22 |
|
||||||||||||||||
(dollar amounts in millions, except per share data) |
|
Total Amount |
|
Per Share |
|
Total Amount |
|
Per Share |
|
Total Amount |
|
Per Share |
|
Total Amount |
|
Per Share |
|
||||||||
GAAP net income per share(2)(3) |
|
|
|
$ |
0.72 |
|
|
|
$ |
0.34 |
|
|
|
$ |
2.75 |
|
|
|
$ |
1.21 |
|
||||
Core EPS(4) |
|
|
|
$ |
0.63 |
|
|
|
$ |
0.63 |
|
|
|
$ |
2.37 |
|
|
|
$ |
2.02 |
|
||||
Dividends declared and payable |
|
|
|
$ |
0.48 |
|
|
|
$ |
0.51 |
(5) |
|
|
$ |
1.92 |
|
|
|
$ |
1.87 |
(6) |
||||
Net investment income(2) |
|
$ |
345 |
|
$ |
0.60 |
|
$ |
349 |
|
$ |
0.68 |
|
$ |
1,266 |
|
$ |
2.28 |
|
$ |
1,092 |
|
$ |
2.19 |
|
Net realized gains (losses)(2) |
|
$ |
28 |
|
$ |
0.05 |
|
$ |
26 |
|
$ |
0.05 |
|
$ |
(179) |
|
$ |
(0.32) |
|
$ |
33 |
|
$ |
0.07 |
|
Net unrealized gains (losses)(2) |
|
$ |
40 |
|
$ |
0.07 |
|
$ |
(201) |
|
$ |
(0.39) |
|
$ |
435 |
|
$ |
0.79 |
|
$ |
(525) |
|
$ |
(1.05) |
|
GAAP net income(2)(3) |
|
$ |
413 |
|
$ |
0.72 |
|
$ |
174 |
|
$ |
0.34 |
|
$ |
1,522 |
|
$ |
2.75 |
|
$ |
600 |
|
$ |
1.21 |
|
|
As of |
|||||
(dollar amounts in millions, except per share data) |
December 31, 2023 |
December 31, 2022 |
||||
Portfolio investments at fair value |
$ |
22,874 |
$ |
21,780 |
||
Total assets |
$ |
23,800 |
$ |
22,398 |
||
Stockholders’ equity |
$ |
11,201 |
$ |
9,555 |
||
Net assets per share |
$ |
19.24 |
$ |
18.40 |
||
Debt/equity ratio |
1.07x |
1.29x |
||||
Debt/equity ratio, net of available cash(7) |
1.02x |
1.26x |
||||
| ____________________________________________ | |
(1) |
Net income can vary substantially from period to period due to various factors, including the level of new investment commitments, the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful. |
(2) |
All per share amounts and weighted average shares outstanding are basic. The basic weighted average shares outstanding for the three months and year ended December 31, 2023 were approximately 572 million and 554 million, respectively, and approximately 514 million and 498 million, respectively, for the comparable periods in 2022. |
(3) |
Ares Capital’s diluted GAAP net income per share for the three months and year ended December 31, 2023 was |
(4) |
Core EPS is a non-GAAP financial measure. Core EPS is the net increase (decrease) in stockholders’ equity resulting from operations, and excludes net realized and unrealized gains and losses, any capital gains incentive fees attributable to such net realized and unrealized gains and losses and any income taxes related to such net realized gains and losses, divided by the basic weighted average shares outstanding for the relevant period. GAAP net income (loss) per share is the most directly comparable GAAP financial measure. Ares Capital believes that Core EPS provides useful information to investors regarding financial performance because it is one method Ares Capital uses to measure its financial condition and results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Reconciliations of GAAP net income, the most directly comparable GAAP financial measure, to Core EPS are set forth in Schedule 1 hereto. |
(5) |
Includes an additional dividend of |
(6) |
Includes additional dividends of |
(7) |
Computed as total principal debt outstanding less available cash divided by stockholders’ equity. Available cash excludes restricted cash as well as cash held for uses specifically designated for paying interest and expenses on certain debt. |
“Our record fourth quarter Core EPS and net asset value per share concluded another successful year for our company,” said Kipp deVeer, Chief Executive Officer of Ares Capital. “We continue to drive strong credit and financial results using our extensive sourcing, underwriting and portfolio management capabilities. We believe we are heading into 2024 from a position of strength and will seek to build upon our 14-year track record of paying a stable regular quarterly dividend for our shareholders.”
“During the fourth quarter and so far this year, we further strengthened our liquidity by raising
PORTFOLIO AND INVESTMENT ACTIVITY
(dollar amounts in millions) |
|
Q4-23 |
|
Q4-22 |
|
FY-23 |
|
FY-22 |
||||
Portfolio Activity During the Period: |
|
|
|
|
|
|
|
|
||||
Gross commitments |
|
$ |
2,384 |
|
$ |
2,519 |
|
$ |
5,966 |
|
$ |
9,870 |
Exits of commitments |
|
$ |
1,427 |
|
$ |
2,333 |
|
$ |
5,729 |
|
$ |
7,953 |
|
|
|
|
|
|
|
|
|
||||
Portfolio Information: |
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
As of December 31, |
||||||
|
|
|
|
|
|
|
2023 |
|
|
2022 |
||
Portfolio investments at fair value |
|
|
|
|
|
$ |
22,874 |
|
$ |
21,780 |
||
Fair value of accruing debt and other income producing securities(8) |
|
|
|
|
|
$ |
20,375 |
|
$ |
19,493 |
||
Number of portfolio company investments |
|
|
|
|
|
|
505 |
|
|
466 |
||
Percentage of floating rate securities at fair value(9) |
|
|
|
|
|
|
69 % |
|
|
71 % |
||
Weighted average yields on debt and other income producing securities(10): |
|
|
|
|
|
|
|
|
||||
At amortized cost |
|
|
|
|
|
|
12.5 % |
|
|
11.6 % |
||
At fair value |
|
|
|
|
|
|
12.5 % |
|
|
11.9 % |
||
Weighted average yields on total investments(11): |
|
|
|
|
|
|
|
|
||||
At amortized cost |
|
|
|
|
|
|
11.3 % |
|
|
10.5 % |
||
At fair value |
|
|
|
|
|
|
11.2 % |
|
|
10.6 % |
||
|
|
|
|
|
|
|
|
|
||||
Asset class percentage at fair value: |
|
|
|
|
|
|
|
|
||||
First lien senior secured loans |
|
|
|
|
|
|
44 % |
|
|
43 % |
||
Second lien senior secured loans |
|
|
|
|
|
|
16 % |
|
|
18 % |
||
Subordinated certificates of the SDLP |
|
|
|
|
|
|
6 % |
|
|
6 % |
||
Senior subordinated loans |
|
|
|
|
|
|
5 % |
|
|
5 % |
||
Preferred equity |
|
|
|
|
|
|
11 % |
|
|
9 % |
||
Ivy Hill Asset Management, L.P.(12) |
|
|
|
|
|
|
9 % |
|
|
10 % |
||
Other equity |
|
|
|
|
|
|
9 % |
|
|
9 % |
||
| ____________________________________________ | |
| (8) | Includes the fair value of Ares Capital’s equity investment in Ivy Hill Asset Management, L.P. (“IHAM”). |
| (9) | Includes Ares Capital's investment in the subordinated certificates of the SDLP (as defined below). |
| (10) | Weighted average yields on debt and other income producing securities are computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities (including the annualized amount of the dividend received by Ares Capital related to its equity investment in IHAM during the most recent quarter end), divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value (including the amortized cost or fair value of Ares Capital’s equity investment in IHAM as applicable), as applicable. |
| (11) | Weighted average yields on total investments are computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on accruing debt and other income producing securities (including the annualized amount of the dividend received by Ares Capital related to its equity investment in IHAM during the most recent quarter end), divided by (b) total investments at amortized cost or at fair value, as applicable. |
| (12) | Includes Ares Capital’s subordinated loan and equity investments in IHAM, as applicable. |
In the fourth quarter of 2023, Ares Capital made new investment commitments of approximately
Also in the fourth quarter of 2023, Ares Capital exited approximately
As of December 31, 2023 and 2022, the weighted average grade of the portfolio at fair value was 3.1 and 3.2, respectively, and loans on non-accrual status represented
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2023, Ares Capital had
In November 2023, Ares Capital issued an additional
In December 2023, Ares Capital and ARCC FB Funding LLC (“AFB”), a consolidated subsidiary of Ares Capital, entered into an agreement to amend AFB’s revolving funding facility (the “BNP Funding Facility”) that among other things, increased the commitments under the facility from
During the three months ended December 31, 2023, Ares Capital issued and sold approximately 12.0 million shares of common stock under its equity distribution agreements, with net proceeds totaling approximately
FOURTH QUARTER 2023 DIVIDENDS PAID
On October 24, 2023, Ares Capital announced that its Board of Directors declared a fourth quarter 2023 dividend of
RECENT DEVELOPMENTS
In January 2024, Ares Capital’s board of directors appointed Paul Cho as Chief Accounting Officer of Ares Capital, effective as of February 15, 2024. As previously announced, Ares Capital’s Chief Accounting Officer, Vice President and Treasurer, Scott Lem, has been appointed as its new Chief Financial Officer, also effective February 15, 2024. Scott Lem will succeed Penni Roll, Ares Capital’s current Chief Financial Officer, effective the same date. Penni Roll will remain at Ares Management Corporation in a senior leadership capacity as well as an officer of Ares Capital.
In January 2024, Ares Capital issued
In January 2024, Ares Capital’s board of directors authorized an amendment to its existing stock repurchase program to extend the expiration date of the program from February 15, 2024 to February 15, 2025. Under the program, Ares Capital may repurchase up to
In February 2024, Ares Capital and its consolidated subsidiary, AFB entered into an agreement to amend the BNP Funding Facility. The amendment, among other things, adjusted the interest rate charged on the BNP Funding Facility from an applicable SOFR or a “base rate” (as defined in the BNP Funding Facility) plus a margin of (i)
From January 1, 2024 through February 1, 2024, Ares Capital made new investment commitments of approximately
From January 1, 2024 through February 1, 2024, Ares Capital exited approximately
In addition, as of February 1, 2024, Ares Capital had an investment backlog and pipeline of approximately
WEBCAST / CONFERENCE CALL
Ares Capital will host a webcast/conference call on Wednesday, February 7, 2024 at 11:00 a.m. (Eastern Time) to discuss its quarter and year ended December 31, 2023 financial results. PLEASE VISIT ARES CAPITAL’S WEBCAST LINK LOCATED ON THE HOME PAGE OF THE INVESTOR RESOURCES SECTION OF ARES CAPITAL’S WEBSITE FOR A SLIDE PRESENTATION THAT COMPLEMENTS THE EARNINGS CONFERENCE CALL.
All interested parties are invited to participate via telephone or the live webcast, which will be hosted on a webcast link located on the Home page of the Investor Resources section of Ares Capital’s website at www.arescapitalcorp.com. Please visit the website to test your connection before the webcast. Domestic callers can access the conference call toll free by dialing +1 (800) 579-2543. International callers can access the conference call by dialing +1 (785) 424-1789. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected and to reference the conference ID ARCCQ124. For interested parties, an archived replay of the call will be available approximately one hour after the end of the call through March 6, 2024 at 5:00 p.m. (Eastern Time) to domestic callers by dialing toll free +1 (800) 753-6121 and to international callers by dialing +1 (402) 220-2676. An archived replay will also be available through March 6, 2024 on a webcast link located on the Home page of the Investor Resources section of Ares Capital’s website.
ABOUT ARES CAPITAL CORPORATION
Founded in 2004, Ares Capital is a leading specialty finance company focused on providing direct loans and other investments in private middle market companies in
FORWARD-LOOKING STATEMENTS
Statements included herein or on the webcast/conference call may constitute “forward-looking statements,” which relate to future events or Ares Capital’s future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results and conditions may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Ares Capital’s filings with the SEC. Ares Capital undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call.
ARES CAPITAL CORPORATION AND SUBSIDIARIES |
|||||
CONSOLIDATED BALANCE SHEET |
|||||
(in millions, except per share data) |
|||||
|
As of December 31, |
||||
|
|
2023 |
|
|
2022 |
ASSETS |
|
|
|
||
Total investments at fair value (amortized cost of |
$ |
22,874 |
|
$ |
21,780 |
Cash and cash equivalents |
|
535 |
|
|
303 |
Restricted cash |
|
29 |
|
|
34 |
Interest receivable |
|
245 |
|
|
176 |
Receivable for open trades |
|
16 |
|
|
4 |
Other assets |
|
91 |
|
|
81 |
Operating lease right-of-use asset |
|
10 |
|
|
20 |
Total assets |
$ |
23,800 |
|
$ |
22,398 |
LIABILITIES |
|
|
|
||
Debt |
$ |
11,884 |
|
$ |
12,210 |
Base management fees payable |
|
84 |
|
|
79 |
Income based fees payable |
|
90 |
|
|
81 |
Capital gains incentive fees payable |
|
88 |
|
|
35 |
Interest and facility fees payable |
|
132 |
|
|
105 |
Payable to participants |
|
29 |
|
|
34 |
Payable for open trades |
|
7 |
|
|
22 |
Accounts payable and other liabilities |
|
234 |
|
|
167 |
Secured borrowings |
|
34 |
|
|
79 |
Operating lease liabilities |
|
17 |
|
|
31 |
Total liabilities |
|
12,599 |
|
|
12,843 |
STOCKHOLDERS’ EQUITY |
|
|
|
||
Common stock, par value |
|
1 |
|
|
1 |
Capital in excess of par value |
|
10,738 |
|
|
9,556 |
Accumulated undistributed (overdistributed) earnings |
|
462 |
|
|
(2) |
Total stockholders’ equity |
|
11,201 |
|
|
9,555 |
Total liabilities and stockholders’ equity |
$ |
23,800 |
|
$ |
22,398 |
NET ASSETS PER SHARE |
$ |
19.24 |
|
$ |
18.40 |
ARES CAPITAL CORPORATION AND SUBSIDIARIES |
|||||||||||
CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||||||
(in millions, except per share data) |
|||||||||||
|
For the Three Months Ended December 31, |
|
For the Year Ended December 31, |
||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
(unaudited) |
|
(unaudited) |
|
|
|
|
||||
INVESTMENT INCOME |
|
|
|
|
|
|
|
||||
Interest income from investments |
$ |
521 |
|
$ |
456 |
|
$ |
1,962 |
|
$ |
1,470 |
Capital structuring service fees |
|
41 |
|
|
59 |
|
|
92 |
|
|
153 |
Dividend income |
|
129 |
|
|
110 |
|
|
501 |
|
|
424 |
Other income |
|
16 |
|
|
15 |
|
|
59 |
|
|
49 |
Total investment income |
|
707 |
|
|
640 |
|
|
2,614 |
|
|
2,096 |
|
|
|
|
|
|
|
|
||||
EXPENSES |
|
|
|
|
|
|
|
||||
Interest and credit facility fees |
|
157 |
|
|
141 |
|
|
582 |
|
|
455 |
Base management fees |
|
84 |
|
|
79 |
|
|
323 |
|
|
305 |
Income based fees |
|
90 |
|
|
81 |
|
|
328 |
|
|
252 |
Capital gains incentive fees |
|
13 |
|
|
(37) |
|
|
53 |
|
|
(101) |
Administrative fees |
|
3 |
|
|
2 |
|
|
13 |
|
|
11 |
Other general and administrative |
|
6 |
|
|
7 |
|
|
29 |
|
|
27 |
Total expenses |
|
353 |
|
|
273 |
|
|
1,328 |
|
|
949 |
NET INVESTMENT INCOME BEFORE INCOME TAXES |
|
354 |
|
|
367 |
|
|
1,286 |
|
|
1,147 |
Income tax expense, including excise tax |
|
9 |
|
|
18 |
|
|
20 |
|
|
55 |
NET INVESTMENT INCOME |
|
345 |
|
|
349 |
|
|
1,266 |
|
|
1,092 |
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, FOREIGN CURRENCY AND OTHER TRANSACTIONS: |
|
|
|
|
|
|
|
||||
Net realized gains (losses) |
|
28 |
|
|
26 |
|
|
(179) |
|
|
81 |
Net unrealized gains (losses) |
|
40 |
|
|
(201) |
|
|
435 |
|
|
(525) |
Net realized and unrealized gains (losses) on investments, foreign currency and other transactions |
|
68 |
|
|
(175) |
|
|
256 |
|
|
(444) |
REALIZED LOSS ON EXTINGUISHMENT OF DEBT |
|
— |
|
|
— |
|
|
— |
|
|
(48) |
NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS |
$ |
413 |
|
$ |
174 |
|
$ |
1,522 |
|
$ |
600 |
NET INCOME PER COMMON SHARE: |
|
|
|
|
|
|
|
||||
Basic |
$ |
0.72 |
|
$ |
0.34 |
|
$ |
2.75 |
|
$ |
1.21 |
Diluted |
$ |
0.70 |
|
$ |
0.34 |
|
$ |
2.68 |
|
$ |
1.19 |
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: |
|
|
|
|
|
|
|
||||
Basic |
|
572 |
|
|
514 |
|
|
554 |
|
|
498 |
Diluted |
|
593 |
|
|
534 |
|
|
575 |
|
|
518 |
SCHEDULE 1
Reconciliations of GAAP net income per share to Core EPS
Reconciliations of GAAP net income per share, the most directly comparable GAAP financial measure, to Core EPS for the three months and years ended December 31, 2023 and 2022 are provided below.
|
For the Three Months Ended December 31, |
|
For the Year Ended December 31, |
||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
(unaudited) |
|
(unaudited) |
|
|
|
|
||||
GAAP net income per share(1)(2) |
$ |
0.72 |
|
$ |
0.34 |
|
$ |
2.75 |
|
$ |
1.21 |
Adjustments: |
|
|
|
|
|
|
|
||||
Net realized and unrealized (gains) losses(1) |
|
(0.12) |
|
|
0.34 |
|
|
(0.47) |
|
|
0.98 |
Capital gains incentive fees attributable to net realized and unrealized gains and losses(1) |
|
0.03 |
|
|
(0.07) |
|
|
0.10 |
|
|
(0.20) |
Income tax expense (benefit) related to net realized gains and losses(1) |
|
— |
|
|
0.02 |
|
|
(0.01) |
|
|
0.03 |
Core EPS(3) |
$ |
0.63 |
|
$ |
0.63 |
|
$ |
2.37 |
|
$ |
2.02 |
| __________________________________________________ | |
| (1) | All per share amounts and weighted average shares outstanding are basic. The basic weighted average shares outstanding for the three months and year ended December 31, 2023 were approximately 572 million and 554 million, respectively, and approximately 514 million and 498 million, respectively, for the comparable periods in 2022. |
| (2) |
Ares Capital’s diluted GAAP net income per share for the three months and year ended December 31, 2023 was |
| (3) | Core EPS is a non-GAAP financial measure. Core EPS is the net increase (decrease) in stockholders’ equity resulting from operations, and excludes net realized and unrealized gains and losses, any capital gains incentive fees attributable to such net realized and unrealized gains and losses and any income taxes related to such net realized gains and losses, divided by the basic weighted average shares outstanding for the relevant period. GAAP net income (loss) per share is the most directly comparable GAAP financial measure. Ares Capital believes that Core EPS provides useful information to investors regarding financial performance because it is one method Ares Capital uses to measure its financial condition and results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240206045813/en/
INVESTOR RELATIONS
Ares Capital Corporation
Carl Drake or John Stilmar
(888) 818-5298
irarcc@aresmgmt.com
Source: Ares Capital Corporation
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