Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we")
today announced its financial results for the first quarter ended
March 31, 2016.
First Quarter 2016 Highlights
- Pro Forma Adjusted Net Income of $6.1 million, or $0.12 per
share, versus Net Loss of $(11.1) million, or $(0.22) per
share;
- Fee-earning Assets Under Management ("AUM") of $4.3 billion;
and
- Total revenues of $19.0 million, 89.7% of which were
represented by management fees.
“Despite some volatility in the broader credit markets, we
remain encouraged by and expect to benefit from the diversified
positioning of the portfolios of our two BDCs, which have limited
energy and no CLO exposure,” stated Leonard M. Tannenbaum, Chairman
and Chief Executive Officer, adding, “As we have previously
discussed, during the March quarter we continued to incur costs at
FSAM, FSC and FSFR related to activist investors and
litigation. In part due to these costs, we generated pro
forma adjusted net income of $0.12 per share, substantially below
our normalized level. Going forward, we expect FSAM's
profitability to improve, as the costs related to activist
investors roll off.”
Results of Operations
Total revenues for the quarter ended March 31, 2016 were
$19.0 million, representing a $5.9 million, or 23.7%, decrease from
$25.0 million for the quarter ended March 31, 2015.
Management fees (which include base management fees and Part I
fees) for the quarter ended March 31, 2016 were $17.1 million,
or 89.7% of total revenues. The decrease in revenues was
primarily due to elevated litigation-related costs at our funds,
which resulted in lower management fees earned.
Total expenses for the quarter ended March 31, 2016 were
$16.5 million, and include amounts reimbursed by our funds of $1.9
million, IPO-related compensation charges of $1.6 million, and
operating expenses attributable to MMKT of $0.6 million.
After adjusting for these items, net expenses were $12.4 million
for the quarter ended March 31, 2016, which included
litigation-related costs of $3.2 million. Net expenses
increased by $2.6 million, or 27.2%, as compared to $9.7 million
for the quarter ended March 31, 2015, due to the litigation-related
costs in the current period. Excluding these
litigation-related costs, net expenses decreased by $0.6 million,
or 6.0%, as compared to the quarter ended March 31, 2015.
Pro Forma Adjusted Net Income was $6.1 million, or $0.12 per
share, for the quarter ended March 31, 2016, which represented
a $2.9 million, or 32.2%, decrease as compared to $9.1 million, or
$0.18 per share, for the quarter ended March 31, 2015. The
decrease in Pro Forma Adjusted Net Income was primarily due to the
revenue decline described above. Net Income (Loss) for the
quarters ended March 31, 2016 and March 31, 2015 was $(11.1)
million, or $(0.22) per share, and $10.5 million, or $0.21 per
share, respectively. The decline in Net Income (Loss) was
primarily driven by the items described above, as well as $13.4
million of net unrealized and other charges in the current
period.
Dividend Declaration
On May 11, 2016, our Board of Directors declared a quarterly
dividend of $0.10 per share of our Class A common stock. The
declared dividend is payable on July 15, 2016 to stockholders of
record at the close of business on June 30, 2016.
Key Performance Metrics
|
|
Three months ended March 31, |
|
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts) |
Total revenues |
|
$ |
19,048 |
|
|
$ |
24,959 |
|
Net income (loss) |
|
$ |
(11,100 |
) |
|
$ |
10,479 |
|
Net income (loss) per share |
|
$ |
(0.22 |
) |
|
$ |
0.21 |
|
Pro Forma Adjusted Net
Income(1) |
|
$ |
6,149 |
|
|
$ |
9,065 |
|
Pro Forma Adjusted Net Income Per
Share |
|
$ |
0.12 |
|
|
$ |
0.18 |
|
|
|
|
|
|
Management Fees as % of total
revenues |
|
89.7 |
% |
|
92.6 |
% |
|
|
|
|
|
AUM at end of period(2) |
|
$ |
5,222,209 |
|
|
$ |
6,275,209 |
|
Fee-earning AUM at end of
period(3) |
|
$ |
4,302,560 |
|
|
$ |
5,323,341 |
|
__________________ |
|
|
|
|
|
|
|
|
(1) Please refer to Exhibit A for a reconciliation of net
income and income before provision for income taxes 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). |
|
Recent Developments
On May 11, 2016, our Board of Directors re-authorized a share
repurchase program for the repurchase of up to $20 million of our
Class A common stock. Under the repurchase program, we are
authorized to repurchase shares through open market purchases or
block trades, as conditions permit and in accordance with Rule
10b-18 of the Securities Exchange Act of 1934, as amended. The
repurchase program will terminate on May 11, 2017, unless earlier
terminated or extended by our Board of Directors, and may be
suspended for periods or discontinued at any time.
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
GAAP. Adjusted Net Income has been included in this press
release to adjust for certain one-time, non-recurring or
non-operating items. Pro Forma Net Adjusted Net Income has been
included in this press release to reflect certain tax adjustments
in connection with our IPO and excludes the financial results of
MMKT. 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 and Pro Forma
Adjusted Net Income provide investors with a meaningful indication
of our core operating performance and Adjusted Net Income and Pro
Forma Adjusted Net Income are evaluated regularly by our management
as decision tools for deployment of resources. We believe that
reporting Adjusted Net Income and Pro Forma 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. 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. Income before income tax benefit
(provision) is the GAAP financial measure most comparable to
Adjusted Net Income and net income is the GAAP financial measure
most comparable to Pro Forma Adjusted Net Income. Please refer to
Exhibit A for a reconciliation of net income and income before
income tax benefit (provision) to Adjusted Net Income and Pro Forma
Adjusted Net Income.
Conference Call Information
We will host a conference call at 10:00 a.m. (Eastern Time) on
Tuesday, May 17, 2016 to discuss our first quarter 2016 financial
results. All interested parties are welcome to participate.
Domestic callers can access the conference call by dialing (855)
791-2033. International callers can access the conference call by
dialing +1 (631) 485-4910. All callers will need to enter the
Participant Passcode Number 92643237 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 May 24, 2016, to domestic callers by
dialing (855) 859-2056 and to international callers by dialing +1
(404) 537-3406. For all replays, please reference Passcode Number
92643237. 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.
About Fifth Street Asset Management Inc.
Fifth Street Asset Management Inc. (NASDAQ:FSAM) is a nationally
recognized credit-focused asset manager. The firm has over $5
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 over an 18-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 approximately 65
professionals across locations in Greenwich and Chicago. 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 (Loss) and
Pro Forma Adjusted Net Income
Income before income tax benefit (provision) is the GAAP
financial measure most comparable to Adjusted Net Income and net
income is the GAAP financial measure most comparable to Pro Forma
Adjusted Net Income. The following table provides a
reconciliation of net income (loss) and income before income tax
benefit (provision) to Adjusted Net Income and Pro Forma Adjusted
Net Income (shown in thousands, except per share amounts):
|
|
Three months ended March 31, |
|
|
2016 |
|
2015 |
Net income (loss) |
|
$ |
(11,100 |
) |
|
$ |
10,479 |
|
Provision (benefit) for
income taxes |
|
(265 |
) |
|
1,188 |
|
Income before provision
for income taxes |
|
(11,365 |
) |
|
11,667 |
|
Adjustments: |
|
|
|
|
Compensation-related charges
(a)(b) |
|
1,618 |
|
|
1,485 |
|
Unrealized gain on MMKT Notes
(c) |
|
(2,582 |
) |
|
— |
|
Unrealized loss on beneficial
interests in CLOs (d) |
|
848 |
|
|
— |
|
Lease termination charges (e) |
|
— |
|
|
(71 |
) |
Loss on settlement (f) |
|
10,419 |
|
|
— |
|
Unrealized loss on derivatives
(g) |
|
4,676 |
|
|
— |
|
Adjusted Net Income
before adjustment for litigation-related costs (h) |
|
3,614 |
|
|
13,081 |
|
Litigation-related costs |
|
3,229 |
|
|
— |
|
Adjusted Net Income
(h) |
|
$ |
6,843 |
|
|
$ |
13,081 |
|
|
|
|
|
|
Net loss attributable
to MMKT (i) |
|
1,393 |
|
|
— |
|
Pro Forma income tax
provision (j) |
|
(3,225 |
) |
|
(5,177 |
) |
Pro Forma tax
receivable agreement benefit (j) |
|
1,138 |
|
|
1,161 |
|
Pro Forma Adjusted Net
Income |
|
$ |
6,149 |
|
|
$ |
9,065 |
|
|
|
|
|
|
Pro Forma weighted
average shares outstanding (k) |
|
49,798 |
|
|
50,000 |
|
Pro Forma Adjusted Net
Income, before adjustment for litigation-related costs, per Class A
common share (k) |
|
$ |
0.08 |
|
|
$ |
0.18 |
|
Pro Forma Adjusted Net
Income per Class A common share (k) |
|
$ |
0.12 |
|
|
$ |
0.18 |
|
_________________ |
|
|
|
|
|
|
|
|
(a) For the quarters ended
March 31, 2016 and 2015, this amount includes $0.3 million of
amortization expense relating to the conversion and vesting of
member interests in connection with our 2014 reorganization. |
(b) For the quarters ended
March 31, 2016 and 2015, this amount includes $1.4 million and
$1.2 million, respectively, of amortization expense relating to
stock-based compensation that was awarded to certain of our
employees in connection with our IPO. |
(c) Represents the change in
fair value of MMKT Notes. |
(d) Represents the change in
fair value on our beneficial interests in CLOs on which we have
elected the fair value option. |
(e) Includes non-recurring
charges and refunds for termination payments and related exit costs
accrued at present value relating to our office leases. |
(f) Represents the loss
recognized by us in connection with the premium paid on our and our
principal shareholder's purchase of FSC shares in connection with
the RiverNorth settlement. |
(g) Represents unrealized losses on a
warrant and swap agreement issued by us to RiverNorth in connection
with the settlement. |
(h) Adjusted Net Income is
presented on a pre-tax basis. |
(i) Represents net loss
attributable to the operations of MMKT, a consolidated subsidiary
of FSAM that was formed to develop technology related to the
financial services industry. |
(j) Based on our estimated
statutory tax rate and includes an adjustment for pro forma tax
benefits related to basis adjustments due to our IPO. |
(k) Presented with the
assumption that 100% of the limited partnership interests in Fifth
Street Holdings L.P. were converted on a one-for-one basis into
shares of our Class A common stock. |
|
Exhibit B. Consolidated Statements of Financial
Condition as of March 31, 2016 and December 31,
2015
|
|
As of |
|
|
March 31, 2016 |
|
December 31, 2015 |
Assets |
|
|
|
|
Cash and cash
equivalents |
|
$ |
5,409,314 |
|
|
$ |
17,185,204 |
|
Management fees
receivable (includes Part I Fees of $4,938,068 and
$(555,663) at March 31, 2016 and December 31, 2015,
respectively) |
|
17,369,944 |
|
|
4,879,785 |
|
Performance fees
receivable |
|
104,484 |
|
|
224,618 |
|
Prepaid expenses
(includes $676,789 related to income taxes at March 31, 2016
and December 31, 2015) |
|
2,486,596 |
|
|
1,284,759 |
|
Investments in equity
method investees |
|
427,824 |
|
|
6,427,272 |
|
Investments in
available-for-sale securities (cost March 31, 2016: $48,706,292;
cost December 31, 2015: $26,389,015) |
|
43,392,583 |
|
|
26,771,258 |
|
Beneficial interests in
CLOs at fair value: (cost March 31, 2016: $24,770,260;
cost December 31, 2015: $24,617,568) |
|
22,842,057 |
|
|
23,537,629 |
|
Due from
affiliates |
|
2,675,657 |
|
|
3,943,384 |
|
Fixed assets, net |
|
8,936,040 |
|
|
9,893,521 |
|
Deferred tax
assets |
|
51,690,338 |
|
|
51,180,237 |
|
Deferred financing
costs |
|
1,806,726 |
|
|
1,929,433 |
|
Other assets |
|
3,889,952 |
|
|
3,976,420 |
|
Total assets |
|
$ |
161,031,515 |
|
|
$ |
151,233,520 |
|
Liabilities and
Equity |
|
|
|
|
Liabilities |
|
|
|
|
Accounts payable and
accrued expenses |
|
$ |
5,434,432 |
|
|
$ |
5,324,842 |
|
Accrued compensation
and benefits |
|
3,047,600 |
|
|
10,448,260 |
|
Income taxes
payable |
|
28,559 |
|
|
28,559 |
|
Loans payable
(including $2,247,740 and $4,738,026 at March 31, 2016 and December
31, 2015, respectively, of MMKT Notes at fair value) |
|
19,220,354 |
|
|
21,710,640 |
|
Credit facility
payable |
|
90,000,000 |
|
|
65,000,000 |
|
Dividend payable |
|
1,651,149 |
|
|
1,748,062 |
|
Derivative
liabilities |
|
4,676,019 |
|
|
— |
|
Due to affiliates |
|
26,296 |
|
|
24,257 |
|
Deferred rent
liability |
|
3,099,150 |
|
|
3,146,210 |
|
Payable to related
parties pursuant to tax receivable agreements |
|
45,486,114 |
|
|
45,486,114 |
|
Total
liabilities |
|
172,669,673 |
|
|
152,916,944 |
|
Commitments and
contingencies |
|
|
|
|
Equity
(deficit) |
|
|
|
|
Preferred stock, $0.01 par value;
5,000,000 shares authorized; none issued and outstanding as of
March 31, 2016 and December 31, 2015 |
|
— |
|
|
— |
|
Class A common stock, $0.01 par
value 500,000,000 shares authorized; 5,822,672 shares issued
and 5,798,614 shares outstanding as of March 31, 2016 and
December 31, 2015, respectively |
|
58,227 |
|
|
58,227 |
|
Class B common stock, $0.01 par
value 50,000,000 shares authorized; 42,856,854 shares issued
and outstanding as of March 31, 2016 and December 31,
2015 |
|
428,569 |
|
|
428,569 |
|
Additional paid-in capital |
|
3,050,844 |
|
|
2,661,253 |
|
Accumulated other comprehensive
income (loss) |
|
(372,262 |
) |
|
27,276 |
|
Accumulated deficit |
|
(1,403,466 |
) |
|
— |
|
|
|
1,761,912 |
|
|
3,175,325 |
|
Less: Treasury stock, at cost:
24,058 shares as of March 31, 2016 and December 31, 2015 |
|
(180,064 |
) |
|
(180,064 |
) |
Total stockholders' equity,
Fifth Street Asset Management Inc. |
|
1,581,848 |
|
|
2,995,261 |
|
Non-controlling interests |
|
(13,220,006 |
) |
|
(4,678,685 |
) |
Total deficit |
|
(11,638,158 |
) |
|
(1,683,424 |
) |
Total liabilities and
deficit |
|
$ |
161,031,515 |
|
|
$ |
151,233,520 |
|
|
|
|
|
|
|
|
|
|
Exhibit C. Consolidated Statements of Income for the
Three Months Ended March 31, 2016 and 2015
|
|
For the Three Months Ended March
31, |
|
|
2016 |
|
2015 |
Revenues |
|
|
|
|
Management fees (includes Part I
Fees of $4,938,068 and $8,021,134 for the three months
ended March 31, 2016 and 2015, respectively) |
|
$ |
17,087,545 |
|
|
$ |
23,099,278 |
|
Performance fees |
|
25,764 |
|
|
89,602 |
|
Other fees |
|
1,934,422 |
|
|
1,769,735 |
|
Total
revenues |
|
19,047,731 |
|
|
24,958,615 |
|
Expenses |
|
|
|
|
Compensation and benefits |
|
8,768,625 |
|
|
9,307,686 |
|
General, administrative and other
expenses |
|
7,301,492 |
|
|
3,272,820 |
|
Depreciation and amortization |
|
417,722 |
|
|
402,706 |
|
Total
expenses |
|
16,487,839 |
|
|
12,983,212 |
|
Other income
(expense) |
|
|
|
|
Interest income |
|
339,602 |
|
|
12,108 |
|
Interest expense |
|
(1,114,999 |
) |
|
(371,181 |
) |
Unrealized gain on MMKT Notes |
|
2,582,405 |
|
|
— |
|
Unrealized loss on beneficial
interests in CLOs |
|
(848,264 |
) |
|
— |
|
Unrealized loss on derivatives |
|
(4,676,019 |
) |
|
— |
|
Loss on settlement |
|
(10,419,274 |
) |
|
— |
|
Other income (expense), net |
|
211,587 |
|
|
51,048 |
|
Total other income
(expense), net |
|
(13,924,962 |
) |
|
(308,025 |
) |
Income (loss)
before provision (benefit) for income taxes |
|
(11,365,070 |
) |
|
11,667,378 |
|
Provision (benefit) for income
taxes |
|
(265,412 |
) |
|
1,188,832 |
|
Net income
(loss) |
|
(11,099,658 |
) |
|
10,478,546 |
|
Net (income) loss attributable to
non-controlling interests |
|
9,860,273 |
|
|
(9,181,944 |
) |
Net income
(loss) attributable to Fifth Street Asset Management
Inc. |
|
$ |
(1,239,385 |
) |
|
$ |
1,296,602 |
|
|
|
|
|
|
Net income
(loss) per share attributable to Fifth Street Asset Management
Inc. Class A common stock - Basic |
|
$ |
(0.21 |
) |
|
$ |
0.22 |
|
Net income
(loss) per share attributable to Fifth Street Asset Management
Inc. Class A common stock - Diluted |
|
$ |
(0.24 |
) |
|
$ |
0.21 |
|
Weighted
average shares of Class A common stock outstanding -
Basic |
|
5,798,614 |
|
|
6,000,033 |
|
Weighted
average shares of Class A common stock outstanding -
Diluted |
|
5,798,614 |
|
|
6,042,777 |
|
|
|
|
|
|
|
|
CONTACT:
Investor Contact:
Robyn Friedman, Executive Director, Head of Investor Relations
(203) 681-3720
IR-FSAM@fifthstreetfinance.com
Media Contact:
James Golden / Andrew Squire
Joele Frank Wilkinson Brimmer Katcher
(212) 355-4449
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