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ARES CAPITAL CORP (ARCC)·Q2 2025 Earnings Summary

Executive Summary

  • Core EPS was $0.50, essentially in line with consensus ($0.5056), while GAAP EPS was $0.52; total investment income (“revenue”) was $745M vs consensus $750.4M, a modest miss [*Values retrieved from S&P Global].
  • Net investment income of $342M covered the $0.48 dividend; ARCC declared a Q3 2025 dividend of $0.48 per share, marking 64 consecutive quarters of stable or rising regular dividends .
  • Balance sheet and liquidity remain strong: total assets $29.1B, equity $14.0B, net assets per share $19.90, and pro forma liquidity of ~$6.5B; debt-to-equity (net of cash) was 0.98x .
  • Strategic positioning and realized gains were notable: $117M net realized gains (gross IRR mid‑20% on certain equity co-investments), with management highlighting improving transaction activity and lead-left role in a large private credit LBO expected in 3Q .

What Went Well and What Went Wrong

What Went Well

  • “We reported another solid quarter with strong levels of core earnings and growth in our net asset value,” underscoring consistent dividend coverage and NAV per share uptick to $19.90 .
  • Robust realized gains and equity exits: $117M net realized gains; exited several equity co-investments at ~3x MOIC, mid‑20% gross IRR .
  • Liquidity and funding actions strengthened: $750M notes at 5.5%, upsized revolver and reduced drawn spreads >20 bps, with nearly $6.5B pro forma liquidity post quarter .

What Went Wrong

  • Revenue and EPS slightly below consensus: $745M vs $750.4M revenue estimate and $0.50 vs $0.5056 EPS estimate; y/y core EPS declined from $0.61 to $0.50 [*Values retrieved from S&P Global].
  • Net investment income fell y/y to $342M (vs $386M in Q2 2024), reflecting lower capital structuring fees and slight yield normalization .
  • Non-accruals ticked up modestly; management noted a handful of idiosyncratic adds but still below historical and industry averages .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Investment Income (Revenue) ($USD Millions)$755 $732 $745
GAAP EPS ($)$0.52 $0.36 $0.52
Core EPS ($)$0.61 $0.50 $0.50
Net Investment Income ($USD Millions)$386 $365 $342
Net Realized Gains (Losses) ($USD Millions)$(16) $(61) $34
Net Unrealized Gains (Losses) ($USD Millions)$(48) $(63) $(15)
Net Assets per Share ($)$19.89 (12/31/24) $19.82 (3/31/25) $19.90 (6/30/25)
Net Income Margin (%)42.6%*32.9%*48.5%*
*Values retrieved from S&P Global.

Segment/Asset Class Mix (Fair Value)

Asset Class (% of FV)Dec 31, 2024Jun 30, 2025
First Lien Senior Secured Loans57% 59%
Second Lien Senior Secured Loans7% 5%
Subordinated Certificates (SDLP)5% 4%
Senior Subordinated Loans5% 5%
Preferred Equity10% 10%
Ivy Hill Asset Management (IHAM)7% 7%
Other Equity9% 10%

KPIs

KPIQ1 2025Q2 2025
Portfolio Investments at Fair Value ($USD Billions)$27.13 $27.89
Number of Portfolio Company Investments566 566
Floating Rate Securities (% FV)69% 69%
Weighted Avg Yield on Debt & Other Income-Producing (Amortized Cost)11.0% 10.9%
Weighted Avg Yield on Total Investments (Amortized Cost)9.9% 9.8%
Non‑Accruals (% of Total Investments at Cost)1.5% 2.0%
Non‑Accruals (% of Total Investments at Fair Value)0.9% 1.2%
Debt/Equity (Reported)1.02x 1.01x
Debt/Equity (Net of Available Cash)0.98x 0.98x
Cash & Equivalents ($USD Millions)$647 $447
Available Liquidity (Pro Forma) ($USD Billions)~$6.8 ~$6.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per Share ($)Q3 2025$0.48 (Q2 2025 declared) $0.48 (Q3 declared) Maintained
Taxable Income SpilloverFY 2025$883M / $1.29 per share $878M / $1.29 per share Maintained per-share; modest decrease in dollars
Net Debt-to-Equity Target RangeOngoing0.9x–1.25x (stated framework) 0.9x–1.25x (operating near low end) Maintained
Revolving Facility Drawn Spread2025 (YTD)Prior termsReduced >20 bps on largest facility; additional upsizes Lower funding cost

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroPortfolio underweighted to product businesses; exposure mid‑single‑digit; monitoring mitigants Exposure down to low single‑digit; early pass‑through pricing discussions underway Improving risk view
Spreads/PricingSpreads plateaued after 100–150 bps decline in 2024; stability into Q1 Stability this quarter; potential widening if volume rises; fees stable to modestly higher post‑volatility Stable
Origination/BacklogHealthy backlog ($1.8B at Jan 28); focus across market sizes Activity normalized; $2.6B backlog as of July 24; quarter skewed to incumbents and upper market Reaccelerating
Non‑Accruals1.7% cost / 0.9% FV at YE; below historical averages 2.0% cost / 1.2% FV; idiosyncratic; still below averages Slight uptick, manageable
Equity RealizationsIndicated potential for realizations to boost spillover 3x MOIC exits; $117M net realized gains; $44M tax on gains Executed
Dividend CoverageCore EPS covered dividend; spillover provides cushion Core EPS $0.50 covers $0.48 dividend; spillover $878M Stable

Management Commentary

  • “We reported another solid quarter with strong levels of core earnings and growth in our net asset value… well positioned to benefit due to our deep relationships and extensive market coverage.” — CEO Kort Schnabel .
  • “Pro‑forma for our post‑quarter financing activities, our liquidity remains very strong, totaling nearly $6.5 billion… no debt maturing for the remainder of this year.” — CFO Scott Lem .
  • “We more than doubled our previous lending commitments [across 10 largest incumbent transactions]… increased our wallet share… some of our highest quality opportunities.” — CEO Kort Schnabel .
  • “Non‑accruals ticked up modestly… idiosyncratic factors… still at a pretty low level and below historical and industry averages.” — CEO Kort Schnabel .

Q&A Highlights

  • Spreads and fees: Stability this quarter; potential for modest widening if deal flow increases; total yields remain attractive in historical context .
  • Capital strategy: Balanced use of ATM equity issuance and leverage; operating near low end of 0.9–1.25x range to preserve flexibility .
  • Non‑accruals: Recent additions largely idiosyncratic; no systemic pockets of weakness identified; still below historical/industry levels .
  • Ivy Hill (IHAM): Strategic, first‑lien focus unchanged; subordinated loan serves as working capital line; capital flows recycled post‑quarter .
  • Tariff exposure: Reassessed to low single‑digit; companies discussing price pass-through; limited exposure to steel/materials; domestic services tilt .

Estimates Context

MetricQ2 2024 ActualQ1 2025 ActualQ2 2025 ActualQ2 2025 Consensus
EPS (Primary/Core) ($)0.61 0.50 0.50 0.5056*
Revenue ($USD Millions)755 732 745 750.4*
Target Price (Street, $)22.64*22.64*—22.64*
  • Q2 2025 result: EPS essentially in line (−0.006 below consensus); revenue modest miss (−$5.4M). Prior quarter Q1 2025 missed both EPS and revenue; Q2 2024 beat EPS and revenue vs consensus [*Values retrieved from S&P Global].

Key Takeaways for Investors

  • Dividend coverage remains firm: Core EPS $0.50 vs dividend $0.48; taxable income spillover ~$878M/$1.29 per share provides cushion .
  • Liquidity and funding position are differentiators: ~$6.5B pro forma liquidity with tightened facility spreads and staggered maturities; no 2025 maturities remaining .
  • Credit quality stable despite modest non‑accrual uptick; management emphasizes idiosyncratic nature and diversification across 566 companies .
  • Realization potential/alpha: Equity co-investment exits delivered $117M net realized gains; ongoing sponsor-driven opportunities could supplement earnings/spillover .
  • Origination normalizing with incumbency advantage: 74% of commitments to incumbents; lead-left position in large private credit LBO underscores platform scale .
  • Rate/spread dynamics: Current yields attractive; spreads stable; potential modest widening if activity accelerates—neutral-to-positive for NII trajectory .
  • Tactical flexibility: Operating near low end of leverage range and opportunistic ATM usage enables rapid deployment if market activity accelerates in 2H25 .

Notes: All document-based figures are cited to ARCC’s Q2 2025 Form 8‑K and earnings call. Estimate values marked with an asterisk were retrieved from S&P Global.