ARES — Ares Management Corporation Dilution Risk Tracker

Understanding ARES's Dilution Risk Factors

Primary Risk Drivers

The highest-scoring factors for ARES are Offering Ability, Warrant Exposure, and Convertible Note Risk. These factors indicate the company's capacity to issue new shares or convert existing instruments into shares, which can increase the total number of outstanding shares. A higher number of shares can dilute the ownership percentage of existing shareholders. Offering Ability reflects the company's ability to raise capital through new share offerings, which can lead to dilution if executed frequently. Warrant Exposure relates to the potential for warrants to be exercised, turning them into additional shares. Convertible Note Risk highlights the possibility that convertible notes may be converted into equity, increasing the share count.

Factors Currently Not a Concern

The factors currently not a concern for ARES are Cash Runway and Float Risk. Cash Runway is at 0/100, indicating the company has ample cash with no near-term concerns. Float Risk is at 2/100, suggesting minimal risk related to the number of shares available for trading. If the company experiences a significant cash shortfall or if the float increases due to a large number of shares becoming available for trading, these factors could become more significant.

SEC Filings to Watch

Key SEC filings to monitor for ARES include S-3, 424B5, 8-K Item 1.01, and 10-Q. An S-3 filing signals the company is registering securities for future offerings, which could increase the potential for dilution. A 424B5 filing is related to a specific offering and may indicate an upcoming share issuance. An 8-K Item 1.01 filing is used to report significant events, such as the exercise of warrants or conversion of notes, which can increase share count. A 10-Q filing provides quarterly financial updates and may reveal changes in the company's capital structure or dilution risk.

How Dilution Happens

Dilution occurs when new shares are issued or existing instruments are converted into shares. If ARES issues new shares through an offering, existing shareholders' ownership percentage decreases. If warrants are exercised, additional shares are created, further diluting ownership. Similarly, if convertible notes are converted into equity, the number of shares increases, reducing the ownership stake of existing shareholders. These events can happen through various SEC filings and are influenced by the company's capital-raising activities and the exercise or conversion of financial instruments.

What Would Make This Worse

A significant deterioration in ARES's risk profile would involve a sequence of events such as frequent or large-scale offerings, widespread exercise of warrants, or the conversion of a substantial number of convertible notes. These actions would increase the share count significantly, leading to greater dilution for existing shareholders. Additionally, if the company's cash position deteriorates and it becomes reliant on issuing new shares to maintain operations, the dilution risk would escalate substantially.

How to Monitor ARES for Dilution Risk

What This Risk Level Means

A DilutionScore of 9/100 indicates that Ares Management Corporation (ARES), as a large-cap operating company, faces minimal dilution risk. This score suggests that the company’s capital structure is currently stable, with limited dilutive events on the horizon. Given ARES’s size and scale, the low score implies that it has sufficient financial flexibility to manage its capital needs without significant equity dilution. This is a favorable position for long-term shareholders, as it reduces the risk of value erosion from new share issuances.

What Typically Happens Next

Companies with low dilution risk often maintain a steady capital structure and avoid frequent equity raises. However, ARES may still engage in routine capital management activities, such as issuing shares under shelf registration programs or through ATM programs. These activities are typically well-managed and do not significantly impact the company’s overall dilution risk profile. Warrant exercises may also occur, but they are generally predictable and accounted for in the company’s financial planning.

Monitoring Playbook

Use DilutionWatch to track ARES’s dilution risk in real time. Set up alerts for any changes in the DilutionScore above 20/100. Check the score weekly, or more frequently if there are upcoming events such as warrant expirations or ATM program activations. When the score rises above 20/100, investigate the underlying factors using Shelf & ATM Monitor to determine if new dilutive activity is occurring.

Early Warning Signals

• A sudden increase in the DilutionScore above 20/100, indicating increased dilutive activity or risk.
• SEC filings showing the activation of new shelf registration programs or ATM programs.
• Significant changes in the company’s capital structure, such as large-scale warrant exercises or new share issuances.

What a Positive Resolution Looks Like

A positive resolution would involve ARES reducing its reliance on equity financing, such as through debt paydown, the expiry of warrants, or the completion of a capital raise that stabilizes its capital structure. These actions would likely lead to a decrease in the DilutionScore, reinforcing the company’s strong financial position and reducing dilution risk for shareholders.