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- **Dividend Strength**: Core earnings of $0.50 per share exceed $0.48 dividend, supported by $1.26 per share taxable income spillover.
- **Realized Gains Surge**: $247 million in net realized gains, including 15% IRR on Potomac Energy restructuring and 3x+ returns on equity co-investments.
- **Portfolio Resilience**: Nonaccruals at 1.8%, below historical averages, with 10%+ EBITDA growth across borrowers.
- **Market Leadership**: $3.9 billion in Q3 originations at stable spreads, outpacing broadly syndicated market with tighter documentation.
- **Strategic Flexibility**: 1.02x debt-to-equity ratio and $6.2 billion liquidity enable opportunistic growth in 30% nonqualifying asset basket.

**【CEO Summary Section】**
- Reported core earnings of $0.50 per share, exceeding the quarterly dividend of $0.48, marking the 20th consecutive quarter of dividend coverage.
- Generated $247 million in net realized gains, driven by exits of equity co-investments and restructuring of Potomac Energy Center, achieving a 15% IRR on the investment.
- Portfolio at fair value grew to $28.7 billion, with nonaccruals at 1.8% (down 20 basis points quarter-over-quarter) and strong credit metrics (interest coverage >2x, LTV <40%).
- Highlighted market leadership in software lending, with borrowers demonstrating 10%+ EBITDA growth and conservative leverage (average LTV 36%).
- Emphasized strategic flexibility with $6.2 billion in liquidity and debt-to-equity ratio of 1.02x, below the 1.25x target range.

**【CFO Financial Commentary】**
- GAAP net income of $0.57 per share, up 10% sequentially, driven by realized gains and cost control.
- Total portfolio fair value increased 3% Q/Q, with 587 companies across 25 industries, reducing concentration risk (largest investment <2% of portfolio).
- Capital structure optimized with $500 million in new credit facility capacity and $650 million in unsecured notes issued at 5.1%, positioning for rate declines.
- Taxable income spillover of $1.26 per share provides a buffer for dividend stability.

**【Q&A Highlights】**
- **Dividend Sustainability**: CEO Kort Schnabel reaffirmed confidence in maintaining the $0.48 dividend, citing core earnings coverage, spillover income, and balance sheet flexibility.
- **Market Competition**: Despite narrow spreads, ARCC's selective origination (Q3 originations +50% YoY) and superior documentation (tight baskets, conservative LTVs) differentiate it from broadly syndicated lenders.
- **AI Impact**: Software portfolio focused on B2B, mission-critical platforms with high switching costs; AI complements rather than disrupts these systems, with borrowers backed by leading sponsors investing in AI integration.
- **Nonqualifying Assets**: Expansion of IHAM and SDLP joint ventures, with SDLP yield increased 100bps post-liability cost reduction, driving higher returns in the 30% nonqualifying basket.
- **Credit Quality**: No exposure to First Brands or Tricolor; rigorous due diligence on receivables financing ensures alignment with credit policy (e.g., capped at 5% of EBITDA).

Ares Capital (ARCC) Q3 2025 Earnings Call Transcript

Revenue

Sales and Services Revenue

Financing Services Revenue

Other Revenue

Cost of Revenue

Cost of Goods and Services

Cost of Financing Services

Other Cost

Gross Profit

Other Operating Income

Operating Expenses

Selling, General and Administrative Expenses

Selling and Marketing Expenses

General and Administrative Expenses

Research and Development Expenses

Loss on Bad Debts

Loss on Impairment of Other Assets

Loss on Disposal of Assets

Other Operating Expenses

Operating Income

Non-Operating Income (Loss)

Income (Loss) from Affiliates

Income (Loss) from Associates

Income (Loss) from Joint ventures

Gain (Loss) on Other Investment

Gain (Loss) on Change in Fair Value

Gain (Loss) on Foreign Currency Exchange

Other Non-Operating Income (Loss)

Net Interest Expense

Interest Expense

Interest Income

Pretax Income From Continuing Operations

Income Tax Expense

Current Income Tax

Deferred Income Tax

Income Tax Adjustments

Net Income from Continuing Operations

Income from Discontinued Operations

Other Items Before Net Income

Net Income

Net Income Attributable to Minority Interests

Net Income Attributable to Owners of the Company

Preferred Stock Dividends

Other Adjustments

Net Income Attributable to Common Stockholders

Other Comprehensive Income

Total Comprehensive Income

Total Comprehensive Income Attributable to Minority Interests

Total Comprehensive Income Attributable to Owners of the Company

Basic EPS

Basic EPS from Continuing Operations

Basic EPS from Discontinued Operations

Diluted EPS

Diluted EPS from Continuing Operations

Diluted EPS from Discontinued Operations

ARCC

ARCC fundamentals

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