OREANDA-NEWS. Medley Management Inc. (NYSE:MDLY) today reported its financial results for its second quarter ended June 30, 2016.

Highlights

  • Total assets under management were $5.0 billion as of June 30, 2016
  • Fee earning assets under management were $3.2 billion as of June 30, 2016
  • Declared $0.20 per share dividend for Q2 2016 payable on September 6, 2016
  • U.S. GAAP net income attributable to Medley Management Inc. was ($0.03) per share for Q2 2016 and ($0.04) per share for the six months ended June 30, 2016
  • Core Net Income per share was $0.14 for Q2 2016 and $0.26 for the six months ended June 30, 2016

“During the quarter we grew our assets under management and earnings. In addition, we made progress on our next retail offering and post quarter end completed the first closing of our next institutional fund. Last week we completed our first 10-year unsecured bond offering for the company. We believe the long term and flexible nature of this capital provides a benefit to Medley and our shareholders,” said Brook Taube, CEO of Medley.

Results of Operations for the Three Months Ended June 30, 2016

Total revenues increased by 4%, or $0.8 million, to $21.3 million for the three months ended June 30, 2016 compared to the same period in 2015. The increase was due primarily to an accrual of performance fee revenue of $0.9 million for the three months ended June 30, 2016 compared to a reversal in performance fee revenue of $2.4 million for the same period in 2015.  The increase was partly offset by a decrease in management fees due primarily to lower origination fees and a decrease in incentive fees.

Total expenses from operations increased by 75%, or $7.5 million, to $17.5 million for the three months ended June 30, 2016 compared to the same period in 2015. The increase was due primarily to an increase in general, administrative and other expenses as a result of higher expenses under our expense support agreement with Sierra Income Corporation (“SIC”). 

Total other expense, net increased by $0.8 million to $2.7 million for the three months ended June 30, 2016 compared to the same period in 2015.  The increase was due primarily to an increase in expense associated with our revenue share payable and an impairment charge on our investment in CK Pearl Fund.            

Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC decreased by $7.4 million to $0.6 million for the three months ended June 30, 2016 compared to the same period in 2015. Net income per share was ($0.03) for the three months ended June 30, 2016 compared to $0.14 for the same period in 2015.

Pre-Tax Core Net Income decreased by $4.2 million to $7.4 million for the three months ended June 30, 2016 compared to the same period in 2015.  Core Net Income Per Share was $0.14 for the three months ended June 30, 2016, compared to $0.22 for the same period in 2015. Core EBITDA decreased by $4.1 million to $9.8 million for the three months ended June 30, 2016 compared to the same period in 2015.

Results of Operations for the Six Months Ended June 30, 2016

Total revenues decreased by 15%, or $7.1 million to $38.9 million, for the six months ended June 30, 2016 compared to the same period in 2015. This decrease was due primarily to a decrease in performance fee revenue and management fees due to lower incentive fees.  

Total expenses from operations increased by 43%, or $9.5 million, to $31.3 million for the six months ended June 30, 2016 compared to the same period in 2015. The increase was due primarily to an increase in general, administrative and other expenses as a result of higher expenses under our expense support agreement with SIC. 

Total other expense, net increased by $1.4 million to $5.4 million for the six months ended June 30, 2016 compared to the same period in 2015.  The increase was due primarily to an increase in expense associated with our revenue share payable and an impairment charge on our investment in CK Pearl Fund.

Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC decreased by $15.7 million to $1.4 million for the six months ended June 30, 2016 compared to the same period in 2015. Net income per share was ($0.04) for the six months ended June 30, 2016 compared to $0.33 for the same period in 2015.

Pre-Tax Core Net Income decreased by $10.7 million to $14.2 million for the six months ended June 30, 2016 compared to the same period in 2015.  Core Net Income Per Share was $0.26 for the six months ended June 30, 2016 compared to $0.47 for the same period in 2015. Core EBITDA decreased by $10.5 million to $18.8 million for the six months ended June 30, 2016 compared to the same period in 2015. 

 

Key Performance Indicators:

                         
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    (unaudited)   (unaudited)
    2016   2015   2016   2015
    (Amounts in thousands, except AUM, share and per share amounts)
Consolidated Financial Data:                        
Pre-Tax Income   $   1,104     $   8,671     $   2,252     $   20,186  
Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC       597         8,027         1,370         17,104  
Net income (loss) per Class A common stock   $   (0.03 )   $   0.14     $   (0.04 )   $   0.33  
Net Income Margin (1)       2.8 %       39.1 %       3.5 %       37.2 %
Weighted Average Shares - Basic and Diluted       5,777,726         6,000,000         5,814,428         6,000,000  
                         
Non-GAAP Data:                        
Pre-Tax Core Net Income (2)   $   7,434     $   11,628     $   14,195     $   24,894  
Core Net Income (2)       6,563         10,409         12,528         22,176  
Core EBITDA (3)       9,753         13,858         18,820         29,320  
Core Net Income Per Share (4)   $   0.14     $   0.22     $   0.26     $   0.47  
Core Net Income Margin (5)       19.9 %       32.6 %       20.8 %       31.1 %
Pro-Forma Weighted Average Shares Outstanding (6)       30,771,830         30,437,467         30,587,862         30,456,596  
                         
Other Data (at period end, in millions):                        
AUM   $   5,025     $   4,017     $   5,025     $   4,017  
Fee Earning AUM       3,158         3,350         3,158         3,350  
                                         

(1) Net Income Margin equals Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC divided by total revenue. Please refer to the reconciliation of Core Net Income Margin to Net Income Margin in Exhibit D for additional details. 

(2) Pre-Tax Core Net Income is calculated as Core Net Income before income taxes. Core Net Income reflects net income attributable to Medley Management Inc. and net income attributable to non-controlling interests in Medley LLC adjusted to exclude reimbursable expenses associated with the launch of funds, stock-based compensation associated with restricted stock units that were granted in connection with our IPO, other non-core items and the income tax expense associated with the foregoing adjustments. Please refer to the reconciliation of Core Net Income to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC in Exhibit B for additional details. 

(3) Core EBITDA is calculated as Core Net Income before interest expense, income taxes, depreciation and amortization. Please refer to the reconciliation of Core EBITDA to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC in Exhibit B for additional details.

(4) Core Net Income Per Share is calculated as Core Net Income, adjusted for the income tax effect of assuming that all of our pre-tax earnings were subject to federal, state and local corporate income taxes, divided by Pro-Forma Weighted Average Shares Outstanding (as defined below).  We assumed an effective corporate tax rate of 43.0% for all periods presented. Please refer to the calculation of Core Net Income Per Share in Exhibit C for additional details.

(5) Core Net Income Margin equals Core Net Income Per Share divided by total revenue per share.

(6) The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the vesting of restricted stock units and the conversion by the pre-IPO holders of 23,333,333 Medley LLC units for 23,333,333 shares of Class A common stock at the beginning of each period presented. Please refer to Exhibit C for additional details.

Fee Earning AUM

The table below presents the quarter-to-date roll forward of our total fee earning AUM:

                         
                    % of AUM
  Permanent   Long-dated       Permanent   Long-dated
  Capital   Private Funds       Capital    Private Funds
  Vehicles    and SMAs   Total   Vehicles   and SMAs
  (Dollars in millions)        
Beginning balance, March 31, 2016 $   2,159     $   1,010     $   3,169       68 %     32 %
Commitments     34         2         36          
Capital reduction     -         -         -          
Distributions     (34 )       (51 )       (85 )        
Change in fund value     40         (2 )       38          
Ending balance, June 30, 2016 $   2,199     $   959     $   3,158       70 %     30 %
                                             

Total fee earning AUM remained consistent at $3.2 billion as of June 30, 2016 compared to total fee earning AUM as of March 31, 2016.  The permanent capital vehicles’ share of fee earning AUM increased to 70% as of June 30, 2016 compared to 68% as of March 31, 2016.

The table below presents the year-to-date roll forward of our total fee earning AUM:

                         
                    % of AUM
  Permanent   Long-dated       Permanent   Long-dated
  Capital   Private Funds       Capital    Private Funds
  Vehicles    and SMAs   Total   Vehicles   and SMAs
  (Dollars in millions)        
Ending balance, December 31, 2015 $   2,238     $   1,064     $   3,302       68 %     32 %
Commitments     (7 )       34         27          
Capital reduction     (10 )       -         (10 )        
Distributions     (68 )       (127 )       (195 )        
Change in fund value     46         (12 )       34          
Ending balance, June 30, 2016 $   2,199     $   959     $   3,158       70 %     30 %
                                             

Total fee earning AUM decreased by $144 million, or 4%, to $3.2 billion as of June 30, 2016 compared to total fee earning AUM as of December 31, 2015.  The permanent capital vehicles’ share of fee earning AUM increased to 70% as of June 30, 2016 compared to 68% as of December 31, 2015.

 

Forward-Looking Statements

Statements included herein may contain "forward-looking statements". Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission, including those described in the section “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Except as required by law, the Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements made herein speak only as of the date of this press release.

Non-GAAP Financial Measures

We make reference to certain non-GAAP financial measures in this press release. A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP is contained in the tables attached hereto.

Non-GAAP measures used by management include Pre-Tax Core Net Income, Core Net Income, Core EBITDA, Core Net Income Per Share and Core Net Income Margin.  Management uses these non-GAAP measures to assess the performance of our business and believes that these non-GAAP measures also provide investors with useful information to evaluate our performance.  These non-GAAP measures supplement and should be considered in addition to and not in lieu of our consolidated results of operations calculated and presented in accordance with U.S. GAAP.

This press release does not constitute an offer for any Medley fund.

 

Exhibit A. Condensed Consolidated Statements of Operations of Medley Management Inc.

       
  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
  (unaudited)   (unaudited)
  2016   2015   2016   2015
  (Amounts in thousands, except share and per share data)
Revenues                      
Management fees $   18,695     $   20,923     $   34,958     $   38,443  
Performance fees     851         (2,368 )       260         3,968  
Other revenues and fees     1,780         1,981         3,679         3,605  
Total revenues     21,326         20,536         38,897         46,016  
                       
Expenses                      
Compensation and benefits     8,564         6,397         14,432         13,618  
Performance fee compensation     45         (1,030 )       (26 )       (918 )
General, administrative and other expenses     8,899         4,623         16,878         9,130  
Total expenses     17,508         9,990         31,284         21,830  
                       
Other income (expense)                      
Dividend income     221         221         443         443  
Interest expense     (2,072 )       (2,109 )       (4,190 )       (4,194 )
Other income (expenses), net     (863 )       13         (1,614 )       (249 )
Total other expense, net     (2,714 )       (1,875 )       (5,361 )       (4,000 )
Income before income taxes     1,104         8,671         2,252         20,186  
Provision for (benefit from) income taxes     102         918         214         2,066  
Net income     1,002         7,753         2,038         18,120  
Net income (loss) attributable to non-controlling interests in consolidated subsidiaries     405         (274 )       668         1,016  
Net income attributable to non-controlling interests in Medley LLC     539         6,988         1,218         14,791  
Net income attributable to Medley Management Inc. $   58     $   1,039     $   152     $   2,313  
                       
Net income (loss) per Class A common stock:                      
Basic $   (0.03 )   $   0.14     $   (0.04 )   $   0.33  
Diluted $   (0.03 )   $   0.14     $   (0.04 )   $   0.33  
Weighted average shares - Basic and Diluted     5,777,726         6,000,000         5,814,428         6,000,000  
               

Exhibit B.  Reconciliation of Core Net Income and Core EBITDA to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC

       
  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
  (unaudited)   (unaudited)
  2016   2015   2016   2015
  (Amounts in thousands)
Net income attributable to Medley Management Inc. $   58     $   1,039     $   152     $   2,313  
Net income attributable to non-controlling interests in Medley LLC     539         6,988         1,218         14,791  
Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC $   597     $   8,027     $   1,370     $   17,104  
Reimbursable fund startup expenses     5,541         1,995         10,744         4,169  
IPO date award stock-based compensation     673         688         1,346         1,418  
Other non-core items (1)     521         -         521         137  
Income tax expense on adjustments     (769 )       (301 )       (1,453 )       (652 )
Core Net Income $   6,563     $   10,409     $   12,528     $   22,176  
Interest expense     2,072         2,109         4,190         4,194  
Income taxes     871         1,219         1,667         2,718  
Depreciation and amortization     247         121         435         232  
Core EBITDA $   9,753     $   13,858     $   18,820     $   29,320  
                                       

(1) For the three and six months ended June 30, 2016, other non-core items consists of a $0.5 million impairment loss on our investment in CK Pearl Fund. For the six months ended June 30, 2015, other non-core items consists of a one-time $0.1 million severance cost to former employees.

Exhibit C. Calculation of Core Net Income Per Share

               
  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
  (unaudited)   (unaudited)
  2016   2015   2016   2015
  (Amounts in thousands, except share and per share amounts)
Numerator                      
Core Net Income $   6,563     $   10,409     $   12,528     $   22,176  
Add: Income taxes     871         1,219         1,667         2,718  
Pre-Tax Core Net Income     7,434         11,628         14,195         24,894  
                       
Denominator                      
Class A common stock 5,777,726   6,000,000   5,814,428   6,000,000
Conversion of LLC Units to Class A common stock 23,333,333   23,333,333   23,333,333   23,333,333
Restricted stock units 1,660,771   1,104,134   1,440,101   1,123,263
Pro-Forma Weighted Average Shares Outstanding (1) 30,771,830   30,437,467   30,587,862   30,456,596
Pre-Tax Core Net Income Per Share $   0.24     $   0.38     $   0.46     $   0.82  
Less: corporate income taxes per share (2)     (0.10 )       (0.16 )       (0.20 )       (0.35 )
Core Net Income Per Share $   0.14     $   0.22     $   0.26     $   0.47  
                                       

(1) The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of 23,333,333 Medley LLC units for 23,333,333 shares of Class A common stock at the beginning of each period presented, as well as the vesting of the weighted average number of restricted stock units during each of the periods presented.

(2) Represents a per share adjustment for income taxes assuming that all of our pre-tax earnings were subject to federal, state and local income taxes. We assumed an effective corporate tax rate of 43.0% for all periods presented.

Exhibit D. Reconciliation of Core Net Income Margin to Net Income Margin

                       
  For the Three Months Ended   For the Six Months Ended
  June 30,   June 30,
  (unaudited)   (unaudited)
  2016   2015   2016   2015
                       
Net Income Margin     2.8 %       39.1 %       3.5 %       37.2 %
Reimbursable fund startup expenses (1)     26.0 %       9.8 %       27.6 %       9.2 %
IPO date award stock-based compensation (1)     3.2 %       3.5 %       3.5 %       3.2 %
Other non-core items (1)(2)     2.4 %       0.0 %       1.3 %       0.3 %
Provision for income taxes (3)     0.5 %       4.5 %       0.6 %       4.5 %
Corporate income taxes (4)     (15.0 %)       (24.3 %)       (15.7 %)       (23.3 %)
Core Net Income Margin     19.9 %       32.6 %       20.8 %       31.1 %
                       

(1) Adjustments to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC to calculate Core Net Income are presented as a percentage of total revenue.

(2) For the three and six months ended June 30, 2016, other non-core items consists of a $0.5 million impairment loss on our investment in CK Pearl Fund. For the six months ended June 30, 2015, other non-core items consists of a one-time $0.1 million severance cost to former employees.
       
(3) Provision for income taxes is presented as a percentage of total revenue.

(4) Assumes that all of our pre-tax earnings, including adjustments above, are subject to federal, state and local income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 43.0% and presented the calculation as a percentage of total revenue.

Exhibit E.  Condensed Consolidated Balance Sheets of Medley Management Inc.

           
  As of      
  June 30,   As of
  2016   December 31,
  (unaudited)   2015
  (Amounts in thousands)
Assets          
Cash and cash equivalents $   56,294     $   71,688  
Investments, at fair value     15,064         16,360  
Management fees receivable     16,244         16,172  
Performance fees receivable     2,799         2,518  
Other assets     17,166         13,015  
Total assets $   107,567     $   119,753  
           
Liabilities and Equity          
Loans payable $   101,163     $   100,871  
Accounts payable, accrued expenses and other liabilities     35,232         34,746  
Performance fee compensation payable     1,449         1,823  
Total liabilities     137,844         137,440  
           
Redeemable Non-controlling Interests     12,595         -  
           
Equity          
Class A Common Stock     58         60  
Class B Common Stock     -         -  
Additional paid in capital (capital deficit)     1,219         631  
Retained earnings (accumulated deficit)     (3,293 )       (730 )
Total stockholders' equity (deficit), Medley Management Inc.     (2,016 )       (39 )
Non-controlling interests in consolidated subsidiaries     (2,054 )       (459 )
Non-controlling interests in Medley LLC     (38,802 )       (17,189 )
Total equity (deficit)     (42,872 )       (17,687 )
Total liabilities, redeemable non-controlling interests and equity $   107,567     $   119,753