- Pro Forma Adjusted Net Income increased 22.3% year-over-year to
$0.24 per share
- Fee-earning AUM increased 60.6% year-over-year to $4.8
billion
- Board of Directors expects to declare a $0.30 per share
dividend for Q4 2014 in January 2015
- Successful IPO sets stage for future growth and
diversification
Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we")
announces its financial results for the quarter ended September 30,
2014. Since FSAM was not a public company for the reporting period,
the financial results herein reflect the full period results of
FSAM's predecessor, Fifth Street Management Group, and its combined
funds. On November 4, 2014, we completed our initial public
offering, pursuant to which we issued 6,000,000 shares of Class A
common stock at a price of $17.00 per share. Total proceeds from
the offering, net of underwriting discount, were $95.9 million.
Third Quarter 2014 Financial Highlights
- Pro Forma Adjusted Net Income for the quarter ended September
30, 2014 was $11.8 million or $0.24 per share, as compared to $9.7
million or $0.19 per share for the quarter ended September 30,
2013;
- Fee-earning Assets Under Management increased to $4.8 billion
as of September 30, 2014, which represented a 60.6% increase over
September 30, 2013;
- Management Fees and total revenues for the quarter ended
September 30, 2014 increased 36.7% and 44.1%, respectively, as
compared to the quarter ended September 30, 2013; and
- Management Fees represented 90.8% of total revenue for the
quarter ended September 30, 2014.
"FSAM's IPO marked a significant milestone in our firm's
evolution. We are excited to provide our new shareholders
with the opportunity to participate in the long-term growth of the
Fifth Street platform," commented Leonard M. Tannenbaum, Chief
Executive Officer, adding, "Operating as a public asset manager,
with increased transparency and improved capitalization, has
already allowed us to accomplish several goals that were not
previously possible as a private company. We are excited to
continue expanding our existing business lines while also working
on diversifying the asset management platform through new
products."
Results of Operations
Total revenues increased by 44.1%, or $7.8 million, to $25.4
million for the quarter ended September 30, 2014, as compared
to $17.6 million for the quarter ended September 30, 2013. The
growth in total revenues was driven by a 60.6% increase in
year-over-year fee-earning AUM. Management Fees (which include base
management fees and Part I fees) for the quarter ended September
30, 2014 were $23.1 million, or 90.8% of total revenues.
After adjusting for non-recurring items, total expenses
increased by 31.1%, or $2.2 million, to $9.4 million for the
quarter ended September 30, 2014, as compared to $7.2 million
for the quarter ended September 30, 2013. The increase in expenses
was due primarily to increases in occupancy costs and other general
and administrative expenses.
Pro Forma Adjusted Net Income increased by 22.3%, or $2.1
million, to $11.8 million for the quarter ended September 30,
2014, as compared to $9.7 million for quarter ended September 30,
2013. Pro Forma Adjusted Net Income per share was $0.24 for the
quarter ended September 30, 2014, versus $0.19 per share for the
quarter ended September 30, 2013. Pro Forma Adjusted Net Income
reflects changes related to our IPO, including an adjustment for
federal, state and local corporate income taxes, net of tax
benefits related to basis adjustments.
Dividend Declaration
Our Board of Directors continues to expect that it will declare
a dividend of $0.30 per share for the quarter ending December 31,
2014. Management expects to communicate this dividend, as declared
by the Board, during the week of January 19, 2015. Based on
current market conditions, including our two publicly-traded BDCs
trading below net asset value, we believe that the $0.30 per share
dividend would represent a dividend payout ratio greater than 100%
of adjusted net income per share for the fourth quarter of 2014.
Furthermore, we believe that a $0.30 quarterly dividend per share
on an annualized basis would exceed 90% of our 2015 estimated
adjusted net income per share.
Credit Facility
On November 4, 2014, one of our subsidiaries entered into a $176
million, five-year syndicated unsecured revolving credit facility.
The credit facility was undrawn at close and has a $100 million
accordion feature for total capacity of up to $276 million.
Borrowings under the facility will initially accrue interest at
LIBOR plus 200 basis points. We expect to utilize the facility to,
among other things, facilitate the growth of our existing business
lines, provide seed capital to expand into complementary businesses
and funds, pay operating expenses and cover working capital
needs.
Key Performance Metrics:
|
Three Months
Ended September 30, |
Nine Months
Ended September 30, |
|
(unaudited) |
(unaudited) |
|
2014 |
2013 |
2014 |
2013 |
|
(dollars in thousands, except
per share amounts) |
Total revenues |
$ 25,419 |
$ 17,645 |
$ 72,490 |
$ 50,239 |
Net income attributable to
controlling interests in Fifth Street Management Group |
$ 14,555 |
$ 4,421 |
$ 38,104 |
$ 24,781 |
Pro Forma Adjusted Net Income(1) |
$ 11,842 |
$ 9,680 |
$ 33,292 |
$ 24,819 |
Pro Forma Adjusted Net Income Per Share |
$ 0.24 |
$ 0.19 |
$ 0.67 |
$ 0.50 |
|
|
|
|
|
Management Fees as % of total revenues |
90.8% |
95.7% |
94.0% |
93.7% |
|
|
|
|
|
AUM at end of period(2) |
$ 6,016,637 |
$ 3,871,556 |
$ 6,016,637 |
$ 3,871,556 |
Fee-earning AUM at end of period(3) |
$ 4,782,834 |
$ 2,978,921 |
$ 4,782,834 |
$ 2,978,921 |
|
(1) Adjusted Net Income
represents net income attributable to controlling interests in
Fifth Street Management Group as adjusted for (i) one-time
compensation-related charges, including the amortization of
equity-based awards, (ii) non-recurring underwriting costs relating
to public offerings of our funds, (iii) non-recurring professional
fees incurred in connection with our initial public offering and
(iv) other non-recurring items. Pro Forma Adjusted Net Income
reflects an adjustment for federal, state and local corporate
income taxes, net of tax benefits related to basis adjustments due
to our IPO. Net income attributable to controlling interests
in Fifth Street Management Group is the GAAP financial measure most
comparable to Adjusted Net Income and Pro Forma Adjusted Net
Income. Please refer to Exhibit A for a reconciliation of net
income attributable to controlling interests in Fifth Street
Management Group to Adjusted Net Income and Pro Forma Adjusted Net
Income. |
(2) AUM refers to assets
under management of our funds and material control investments of
these funds and represents the sum of the net asset value of such
funds and investments, the drawn debt and unfunded debt and equity
commitments at the fund or investment level (including amounts
subject to restrictions) and uncalled committed debt and equity
capital (including commitments to funds that have yet to commence
their investment periods). |
(3) Fee-earning AUM refers
to the AUM on which we directly or indirectly earn management fees
and represents the sum of the net asset value of our funds and
their material control investments and the drawn debt and unfunded
debt and equity commitments at the fund or investment level
(including amounts subject to restrictions). |
Fee-earning AUM
The following tables provide a roll-forward of fee-earning AUM
for the three and nine months ended September 30, 2014 (shown
in thousands):
|
Three Months Ended September
30, |
Nine Months Ended September
30, |
|
2014 |
2014 |
Beginning balance |
$ 4,301,759 |
$ 3,929,066 |
Commitments and equity raises |
488,921 |
510,578 |
Subscriptions, deployments and changes in
leverage |
5,041 |
373,158 |
Redemptions and distributions |
(48,365) |
(121,239) |
Change in fund value |
35,478 |
91,271 |
Ending balance |
$ 4,782,834 |
$ 4,782,834 |
Average fee-earning AUM |
$ 4,542,297 |
$ 4,355,951 |
Effective annualized management fee rate |
2.07% |
2.10% |
The following tables provide a roll-forward of fee-earning AUM
by fund strategy for the three months ended September 30, 2014
(shown in thousands):
|
Structured
Equity |
FSC |
FSFR |
FSOF |
Senior Loan
Funds |
Total |
Beginning balance |
$ 4,452 |
$ 3,937,586 |
$ 214,751 |
$ 18,430 |
$ 126,540 |
$ 4,301,759 |
Commitments and equity raises |
— |
138,139 |
276,182 |
28,100 |
46,500 |
488,921 |
Subscriptions, deployments and changes in
leverage |
— |
23,860 |
(164,074) |
(11,359) |
156,614 |
5,041 |
Redemptions and distributions |
— |
(39,458) |
(8,840) |
— |
(67) |
(48,365) |
Change in fund value |
— |
28,439 |
4,507 |
520 |
2,012 |
35,478 |
Ending balance |
$ 4,452 |
$ 4,088,566 |
$ 322,526 |
$ 35,691 |
$ 331,599 |
$ 4,782,834 |
Average fee-earning AUM |
$ 4,452 |
$ 4,013,076 |
$ 268,639 |
$ 27,060 |
$ 229,070 |
$ 4,542,297 |
Fee-earning AUM increased to $4.8 billion as of September 30,
2014, which represented a $481.1 million, or 11.2%, increase from
$4.3 billion as of June 30, 2014. The net increase in fee-earning
AUM was primarily due to:
- $276.2 million and $138.1 million of equity capital raises in
connection with follow-on equity offerings at FSFR and FSC,
respectively;
- The closing of our second senior loan fund, which produced
$140.3 million of fee-earning AUM at period end; and
- $64.8 million of incremental investment activity at our first
senior loan fund; which were all partially offset by a
- $164.1 million decrease in net leverage at FSFR due to the
receipt of follow-on equity proceeds.
Non-GAAP Financial Measures and Operating Metrics
Certain of the terms used in this press release, including AUM,
fee-earning AUM, Adjusted Net Income and Pro Forma Adjusted Net
Income, may not be comparable to similarly titled measures used by
other companies. In addition, our definitions of AUM and
fee-earning AUM are not based on any definition of AUM or
fee-earning AUM that is set forth in the agreements governing the
investment funds that we manage and may differ from definitions of
AUM set forth in other agreements to which we are a party from time
to time. Further, Adjusted Net Income and Pro Forma Adjusted Net
Income are not performance measures calculated in accordance with
U.S. Generally Accepted Accounting Principles ("GAAP"). We use
Adjusted Net Income and Pro Forma Adjusted Net Income as measures
of our operating performance, not as measures of liquidity. We
believe that Adjusted Net Income provides investors with a
meaningful indication of our core operating performance and
Adjusted Net Income is evaluated regularly by our management as a
decision tool for deployment of resources. We believe that
reporting Adjusted Net Income is helpful in understanding our
business and that investors should review the same supplemental
non-GAAP financial measures that our management uses to analyze our
performance. In addition, Pro Forma Net Adjusted Net Income has
been included in this press release to reflect certain tax
adjustments in connection with our IPO. Adjusted Net Income and Pro
Forma Adjusted Net Income have limitations as analytical tools and
should not be considered in isolation or as a substitute for
analyzing our results prepared in accordance with GAAP. The use of
Adjusted Net Income or Pro Forma Adjusted Net Income without
consideration of related GAAP measures is not adequate due to the
adjustments described herein. Net income attributable to
controlling interests in Fifth Street Management Group is the GAAP
financial measure most comparable to Adjusted Net Income and Pro
Forma Adjusted Net Income. Please refer to Exhibit A for a
reconciliation of net income attributable to controlling interests
in Fifth Street Management Group to Adjusted Net Income and Pro
Forma Adjusted Net Income.
Conference Call Information
We will host a conference call at 11:00 a.m. (Eastern Time) on
Tuesday, December 16, 2014 to discuss our third quarter 2014
financial results.
All interested parties are welcome to participate. Domestic
callers can access the conference call by dialing (866)
515-2913. International callers can access the conference call
by dialing +1 (617) 399-5127. All callers will need to enter
the Participant Passcode Number 21590992 and reference "Fifth
Street Asset Management Inc." after being connected with the
operator. All callers are asked to dial in 10-15 minutes prior
to the call so that name and company information can be
collected. An archived replay of the call will be available
shortly after the end of the conference call through December 23,
2014, to domestic callers by dialing (888) 286-8010 and to
international callers by dialing +1 (617) 801-6888. For all
replays, please reference Passcode Number 21467474. An
archived replay will also be available online in the "Investor
Relations" section of FSAM's website under the "News & Events -
Calendar of Events" section. FSAM's website can be accessed at
fsam.fifthstreetfinance.com.
About Fifth Street Asset Management Inc.
Fifth Street Asset Management Inc. (NASDAQ:FSAM) is a rapidly
growing credit-focused asset manager. The firm has over $6
billion of assets under management across two publicly-traded
business development companies, Fifth Street Finance Corp.
(NASDAQ:FSC) and Fifth Street Senior Floating Rate Corp.
(NASDAQ:FSFR), as well as multiple private investment
vehicles. The Fifth Street platform provides innovative and
customized financing solutions to small and mid-sized businesses
across the capital structure through complementary investment
vehicles and co-investment capabilities. With a 16-year track
record focused on disciplined credit investing across multiple
economic cycles, Fifth Street is led by a seasoned management team
that has issued billions of dollars in public equity, private
capital and public debt securities. Fifth Street's national
origination strategy, proven track record and established platform
are supported by over 90 professionals across locations in
Greenwich, Chicago, Palo Alto and Dallas. For more
information, please visit fsam.fifthstreetfinance.com.
Forward-Looking Statements
This release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
that reflect the company's current views with respect to, among
other things, future events and financial performance. Words
such as "believes," "expects," "will," "estimates," "projects,"
"anticipates," and "future" or similar expressions are intended to
identify forward-looking statements. These forward-looking
statements are subject to the inherent uncertainties in predicting
future results and conditions. Certain factors could cause
actual results to differ materially from those projected in these
forward-looking statements. New risks and uncertainties arise
over time, and it is not possible for the company to predict those
events or how they may affect it. Therefore, you should not
place undue reliance on these forward-looking statements. The
company does not undertake any obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
Exhibit A. Calculation of Adjusted Net Income and Pro
Forma Adjusted Net Income
Net income attributable to controlling interests in Fifth Street
Management Group is the GAAP financial measure most comparable to
Adjusted Net Income and Pro Forma Adjusted Net Income. The
following table provides a reconciliation of net income
attributable to controlling interests in Fifth Street Management
Group to Adjusted Net Income and Pro Forma Adjusted Net Income
(shown in thousands, except per share amounts):
|
|
|
|
Three months
ended September 30, |
Nine months ended
September 30, |
|
2014 |
2013 |
2014 |
2013 |
Net income attributable to controlling
interests in Fifth Street Management Group |
$ 14,555 |
$ 4,421 |
$ 38,104 |
$ 24,781 |
Adjustments: |
|
|
|
|
Compensation-related
charges(1)(2) |
450 |
468 |
6,415 |
1,255 |
FSFR initial public offering
underwriting costs(3) |
— |
5,567 |
— |
5,659 |
FSC follow-on equity offering
underwriting costs(3) |
822 |
— |
822 |
— |
Lease termination
charges(4) |
606 |
— |
606 |
— |
Professional fees in connection
with our IPO |
231 |
— |
894 |
— |
Adjusted Net Income |
$ 16,664 |
$ 10,456 |
$ 46,841 |
$ 31,695 |
|
|
|
|
|
Pro Forma income tax provision(5) |
(4,822) |
(776) |
(13,549) |
(6,876) |
Pro Forma Adjusted Net Income |
$ 11,842 |
$ 9,680 |
$ 33,292 |
$ 24,819 |
Pro Forma weighted average shares
outstanding(6) |
50,000 |
50,000 |
50,000 |
50,000 |
Pro Forma Adjusted Net Income per Class A
common share(6) |
$ 0.24 |
$ 0.19 |
$ 0.67 |
$ 0.50 |
|
(1) For the three months
ended September 30, 2014 and 2013 and for the nine months
ended September 30, 2014 and 2013, represents $0.5 million,
$0.5 million, $1.5 million and $1.3 million, respectively, of
amortization expense relating to certain equity-classified
compensation awards. The fair value of these awards at their
respective grant dates in the amount of $20.1 million, net of cash
paid for the awards, as determined by an independent third party
appraisal, is being amortized on a straight-line basis over the
period to retirement eligibility. As of September 30, 2014,
unrecognized compensation cost in the amount of $16.8 million
related to these equity-classified awards is expected to be
recognized over a period of approximately 12 to 14 years. |
(2) For the nine months
ended September 30, 2014, this amount includes (1) $3.1
million of noncash compensation expense relating to the separation
of a former equity member in May 2014 and (2) a $1.8 million cash
payment to purchase the equity interest from the former
member. |
(3) These amounts represent
the costs borne by us relating to equity underwriting commissions
attributable to equity offerings of our BDCs. |
(4) Includes non-recurring
charges for termination payments and related exit costs accrued at
present value relating to our office leases. |
(5) Based on our estimated
effective tax rate and includes an adjustment for pro forma tax
benefits related to basis adjustments due to our IPO. |
(6) Presented with the
assumption that 100% of the LP interests in Fifth Street Holdings
LP were converted on a one-for-one basis into shares of our Class A
common stock as of January 1, 2013. |
Exhibit B. Combined Statements of Financial Condition as
of September 30, 2014 (unaudited) and December 31,
2013
|
As
of |
|
September 30,
2014 |
December 31,
2013 |
|
(unaudited) |
|
Assets |
|
|
Cash and cash equivalents |
$ 344,499 |
$ 4,015,728 |
Management fees receivable (includes Part I
Fees of $10,244,392 and $9,054,422 at
September 30, 2014 and December 31, 2013, respectively) |
23,091,676 |
21,409,763 |
Performance fees receivable |
54,826 |
— |
Prepaid expenses |
400,970 |
142,033 |
Due from affiliates |
1,955,882 |
3,848,491 |
Fixed assets, net |
10,307,333 |
1,436,681 |
Other assets |
6,274,707 |
2,652,975 |
Assets of Combined Funds: |
|
|
Cash and cash equivalents |
35,139,719 |
— |
Investments at fair value |
376,072,358 |
— |
Derivative assets at fair
value |
155,240 |
— |
Interest and dividends
receivable |
626,772 |
— |
Unsettled trades
receivable |
36,392,084 |
— |
Collateral receivable |
4,570,487 |
— |
Deferred financing costs |
2,540,792 |
— |
Total
assets |
$
497,927,345 |
$
33,505,671 |
Liabilities and Equity |
|
|
Liabilities |
|
|
Accounts payable and accrued expenses |
$ 5,323,209 |
$ 1,198,205 |
Accrued compensation and benefits |
7,422,583 |
538,035 |
Due to former member |
1,379,214 |
2,093,437 |
Loan payable |
4,000,000 |
4,000,000 |
Due to affiliates |
143,130 |
2,671,334 |
Deferred rent liability |
3,220,032 |
1,980,146 |
Liabilities of Combined Funds: |
|
|
Accounts payable and accrued
expenses |
474,345 |
— |
Payments in advance from
portfolio companies |
4,826,501 |
— |
Securities sold short at fair
value |
3,138,808 |
— |
Unsettled trades payable |
110,464,323 |
— |
Interest payable |
1,421,607 |
— |
Notes payable |
213,488,434 |
— |
Total
liabilities |
355,302,186 |
12,481,157 |
Commitments and
contingencies |
|
|
Redeemable non-controlling interests
in Combined Fund |
50,248,636 |
— |
Non-controlling interests in Combined
Funds |
67,222,460 |
— |
Members' equity |
25,154,063 |
21,024,514 |
Total
equity |
92,376,523 |
21,024,514 |
Total liabilities,
redeemable non-controlling interests and equity |
$
497,927,345 |
$
33,505,671 |
|
|
|
Exhibit C. Combined Statements of Income for the Three
and Nine Months Ended September 30, 2014 and 2013
|
For the
Three Months Ended September
30, |
For the
Nine Months Ended September
30, |
|
2014 |
2013 |
2014 |
2013 |
Revenues |
|
|
|
|
Management fees (includes Part
I Fees of $10,244,392 and $7,174,961 and $27,983,472 and
$21,518,635 for the three and nine months ended September 30,
2014 and 2013, respectively) |
$ 23,091,676 |
$ 16,891,382 |
$ 68,144,517 |
$ 47,049,812 |
Performance fees (includes Part
II fees of $54,826 for the three and nine months ended September
30, 2014) |
139,049 |
— |
139,049 |
— |
Other fees |
2,187,933 |
753,768 |
4,205,987 |
3,188,954 |
Total
revenues |
25,418,658 |
17,645,150 |
72,489,553 |
50,238,766 |
Expenses |
|
|
|
|
Compensation and benefits |
6,529,830 |
6,377,780 |
25,711,012 |
16,077,114 |
Fund offering and start-up
expenses |
909,681 |
5,570,735 |
1,200,434 |
5,663,002 |
Expenses of Combined Funds |
256,273 |
— |
298,530 |
— |
General, administrative and
other expenses |
3,432,949 |
1,226,437 |
7,491,543 |
3,575,267 |
Depreciation and
amortization |
408,541 |
51,664 |
641,449 |
153,592 |
Total
expenses |
11,537,274 |
13,226,616 |
35,342,968 |
25,468,975 |
Other income
(expense) |
|
|
|
|
Interest and other income
(expense), net |
42,685 |
2,648 |
68,735 |
11,378 |
Interest and other income of
Combined Funds |
3,325,341 |
— |
5,045,949 |
— |
Interest expense of Combined
Funds |
(1,591,675) |
— |
(2,578,659) |
— |
Net realized gain on
investments of Combined Funds |
686,671 |
— |
1,402,501 |
— |
Net change in unrealized
appreciation (depreciation) on investments of Combined
Funds |
974,134 |
— |
2,061,861 |
— |
Net realized gain on
derivatives of Combined Funds |
63,089 |
|
63,089 |
|
Net change in unrealized
appreciation on derivatives of Combined Funds |
155,240 |
— |
155,240 |
— |
Total other income,
net |
3,655,485 |
2,648 |
6,218,716 |
11,378 |
Net
income |
17,536,869 |
4,421,182 |
43,365,301 |
24,781,169 |
Net income attributable to
redeemable non-controlling interests in Combined Fund |
(1,072,218) |
— |
(2,336,539) |
— |
Net income attributable to
non-controlling interests in Combined Funds |
(1,909,540) |
— |
(2,924,678) |
— |
Net income attributable
to controlling interests in Fifth Street Management
Group |
$
14,555,111 |
$
4,421,182 |
$
38,104,084 |
$
24,781,169 |
CONTACT: Investor Contact:
Robyn Friedman, Vice President, Investor Relations
(203) 681-3720
IR-FSAM@fifthstreetfinance.com
Media Contact:
Nick Rust
Prosek Partners
(212) 279-3115 ext. 252
pro-fifthstreet@prosek.com
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