[Management View]
Ares Capital Corporation (ARCC) reported stable core earnings of $0.50 per share for Q2 2025, representing an annualized return on equity of 10%. Net asset value per share increased sequentially and year-over-year, supported by earnings exceeding dividends and robust net investment gains. Management emphasized the company's ability to transact in volatile markets, leveraging its broad portfolio of 566 borrowers and strong balance sheet to secure enhanced terms and premium economics.

[Outlook]
Management anticipates increased transaction activity in the second half of 2025, supported by a growing pipeline and momentum from June's commitments. The company remains focused on maintaining its diversified portfolio and leveraging its presence across lower core and upper middle markets. ARCC expects to continue generating attractive risk-adjusted returns and enhancing its taxable income spillover, which provides long-term dividend stability.

[Financial Performance]
- GAAP net income per share: $0.52, up from $0.36 QoQ and flat YoY.
- Core earnings per share: $0.50, flat QoQ and down from $0.61 YoY.
- Total portfolio at fair value: $27.9 billion, up 3% QoQ and 12% YoY.
- Net realized gains on investments: $117 million in Q2, cumulative gains nearing $900 million.
- Dividend declared: $0.48 per share for Q3 2025, marking 64 consecutive quarters of stable or rising dividends.

[Q&A Highlights]
Question 1: Can you elaborate on the improvement in spreads and upfront fees, and how this might drive NOI improvement going forward?
Answer: Spreads remained stable throughout Q2, with no significant changes compared to prior quarters. Management noted that volatility could lead to improved terms in the future. June saw strong momentum in commitments, indicating potential for increased activity post-quarter.

Question 2: What is the likelihood of expanding off-balance sheet vehicles like STLP and Ivy Hill back to historical averages?
Answer: Both vehicles are strategically important, and management anticipates potential growth from current levels.

Question 3: How does ARCC balance leverage versus issuing new equity via the ATM program?
Answer: Management views equity issuance as strategic, particularly when done at a premium to book value. Leverage remains at the lower end of the stated range, providing flexibility for future opportunities.

Question 4: Regarding non-accruals, is there a trend in restructured assets becoming problematic again?
Answer: Non-accrual increases were idiosyncratic and not indicative of broader economic weakness. Levels remain below historical averages and industry benchmarks.

Question 5: Are you seeing activity broaden across core and lower middle markets?
Answer: Yes, pipeline activity is broadening across all market segments, suggesting momentum for the second half of the year.

Question 6: How do spreads and returns compare between smaller and larger companies?
Answer: Smaller companies generally offer wider spreads and lower leverage levels, providing attractive risk-adjusted returns.

Question 7: What is the outlook for equity co-investment exits?
Answer: Exits are primarily sponsor-driven and sporadic, with limited visibility into future realizations.

Question 8: Has tariff exposure in the portfolio changed?
Answer: High-risk names now represent a low single-digit percentage of the portfolio, down from mid-single digits last quarter. Companies are implementing mitigating actions, including price increases and manufacturing adjustments.

Question 9: Will Ivy Hill's asset class strategy shift in the long term?
Answer: Ivy Hill will continue its first lien investment strategy with no anticipated changes.

[Sentiment Analysis]
Management maintained a confident and optimistic tone, emphasizing stability and resilience amid market volatility. Analysts expressed interest in ARCC's ability to navigate economic uncertainties and maintain strong dividend performance.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Q2 2024 |
|---------------------------------|---------------|---------------|---------------|
| GAAP Net Income per Share | $0.52 | $0.36 | $0.52 |
| Core Earnings per Share | $0.50 | $0.50 | $0.61 |
| Total Portfolio at Fair Value | $27.9 billion | $27.1 billion | $25 billion |
| Net Realized Gains on Investments| $117 million | N/A | N/A |
| Dividend Declared | $0.48 | $0.48 | $0.48 |

[Risks and Concerns]
- Modest uptick in non-accrual rates, though still below historical averages.
- Tariff-related risks remain, though exposure has declined to low single digits.
- Uncertainty in equity co-investment exits due to sponsor-driven dynamics.

[Final Takeaway]
Ares Capital Corporation demonstrated resilience and stability in Q2 2025, maintaining strong core earnings and dividend performance despite market volatility. The company's diversified portfolio and strategic positioning across market segments provide a solid foundation for future growth. Management's proactive approach to mitigating risks, including tariff exposure and non-accruals, underscores its commitment to delivering attractive risk-adjusted returns. Investors can expect continued momentum in transaction activity and dividend stability supported by robust taxable income spillover.