Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we")
today announced its financial results for the first quarter ended
March 31, 2017.
First Quarter 2017 Highlights
- GAAP net income attributable to FSAM for the quarter ended
March 31, 2017 of $1.6 million, or $0.10 per share;
- Adjusted Net Income after tax for the quarter ended
March 31, 2017 of $5.2 million, or $0.10 per share;
- Fee-earning Assets Under Management ("AUM") of $3.5 billion as
of March 31, 2017;
- Total revenues for the quarter ended March 31, 2017 of
$15.6 million; and
- Management fees represented 86.6% of total revenues for the
quarter ended March 31, 2017.
“As we described last quarter, we took actions at
both of our business development companies, FSC and FSFR, to
stabilize net asset values and drive long-term value for
shareholders of FSAM, as well as FSC and FSFR. We are pleased
that during the March quarter, at both FSC and FSFR, we began to
stabilize net asset values, we reduced the amount of investments on
non-accrual and we operated within our targeted leverage
ranges. We look forward to providing further updates on how
we are improving the fundamentals of our business to drive
stockholder value,” stated Leonard M. Tannenbaum, Chief Executive
Officer of FSAM.
Results of Operations
Total revenues for the quarter ended March 31,
2017 were $15.6 million, representing a $3.4 million, or 17.9%,
decrease from $19.0 million for the quarter ended March 31,
2016. Management fees (which include base management fees and
Part I fees) for the quarter ended March 31, 2017 were $13.5
million, representing 86.6% of total revenues. The decrease in
revenues was primarily due to lower levels of fee-earning assets
and pre-incentive fee net investment income at FSC.
Total expenses for the quarter ended March 31,
2017 were $12.0 million, and include amounts reimbursed by our
funds of $2.1 million and IPO-related compensation charges of $0.5
million. After adjusting for these items, net expenses were
$9.4 million for the quarter ended March 31, 2017, which
included litigation and other non-recurring legal costs of $1.8
million and severance and other one-time compensation costs of $0.8
million. 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 for the quarter ended March 31,
2017 were $9.4 million, representing a decrease of $3.0 million
from $12.4 million for the quarter ended March 31, 2016. This
decrease was primarily due to reduced headcount and a lower level
of litigation-related costs in the current period. Excluding
the non-recurring litigation and compensation costs, net expenses
decreased by $2.3 million as compared to the quarter ended March
31, 2016, primarily driven by lower employee-related expenses in
the current period.
GAAP net income (loss) attributable to FSAM for the
quarters ended March 31, 2017 and March 31, 2016 was $1.6
million or $0.10 per share, and $(1.2) million, or $(0.21) per
share, respectively. Adjusted Net Income after tax was $5.2
million, or $0.10 per share, for the quarter ended March 31,
2017, which represented a $0.9 million, or 15.0%, decrease as
compared to Adjusted Net Income after tax of $6.1 million, or $0.12
per share, for the quarter ended March 31, 2016. The decrease
in Adjusted Net Income after tax was primarily due to the revenue
and net expense variances described above.
Key Performance Metrics
|
|
Three months ended March 31, |
|
|
2017 |
|
2016 |
|
|
(dollars in thousands, except per share amounts) |
Total
revenues |
|
$ |
15,639 |
|
|
$ |
19,048 |
|
Net
income (loss) attributable to FSAM |
|
$ |
1,595 |
|
|
$ |
(1,232 |
) |
Net
income (loss) per share attributable to FSAM |
|
$ |
0.10 |
|
|
$ |
(0.21 |
) |
Adjusted
Net Income after tax (1) |
|
$ |
5,224 |
|
|
$ |
6,149 |
|
Adjusted
Net Income after tax per share |
|
$ |
0.10 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
Management Fees as % of total revenues |
|
86.6 |
% |
|
89.7 |
% |
|
|
|
|
|
AUM at
end of period(2) |
|
$ |
4,535,568 |
|
|
$ |
5,222,209 |
|
Fee-earning AUM at end of period(3) |
|
$ |
3,520,167 |
|
|
$ |
4,302,560 |
|
__________________
(1) Adjusted Net Income after tax is calculated as
Adjusted Net Income as adjusted for an assumed tax provision and
for tax benefits related to basis adjustments due to our IPO,
assuming conversion of all Fifth Street Holdings limited
partnership interests into FSAM Class A common stock.
Adjusted Net Income is a non-GAAP measure that represents income
before income tax benefit (provision) as adjusted for (i) certain
compensation-related charges, (ii) unrealized gains (losses) on
beneficial interests in CLOs, MMKT Notes and derivative
liabilities, (iii) certain litigation costs and related insurance
recoveries, (iv) the difference between cash dividends received
from our investments in FSC and FSFR and the related income
recognized under the equity method of accounting and (v) other
non-recurring items. Please refer to Exhibit A for a
reconciliation of net income (loss) and income (loss) before
provision for income taxes to Adjusted Net Income and Adjusted Net
Income after tax.
(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).
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 Adjusted
Net Income after tax, 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 Adjusted Net Income after
tax 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. Adjusted Net Income after tax has been
included in this press release to reflect certain tax adjustments
in connection with our IPO and exclude the financial results of
MMKT. We use Adjusted Net Income and Adjusted Net Income
after tax as measures of our operating performance, not as measures
of liquidity. We believe that Adjusted Net Income and Adjusted Net
Income after tax provide investors with a meaningful indication of
our core operating performance and Adjusted Net Income and Adjusted
Net Income after tax are evaluated regularly by our management as
decision tools for deployment of resources. We believe that
reporting Adjusted Net Income and Adjusted Net Income after tax 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
Adjusted Net Income after tax 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 Adjusted Net Income after tax without
consideration of related GAAP measures is not adequate due to the
adjustments described herein. Income (loss) before provision for
income taxes is the GAAP financial measure most comparable to
Adjusted Net Income and net income (loss) is the GAAP financial
measure most comparable to Adjusted Net Income after tax. Please
refer to Exhibit A for a reconciliation of net income and income
before income tax benefit (provision) to Adjusted Net Income and
Adjusted Net Income after tax.
Conference Call Information
We will host a conference call at 10:00 a.m.
(Eastern Time) on Tuesday, May 16, 2017 to discuss our first
quarter 2017 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 Conference ID Number 10322983 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 23, 2017 to domestic callers by
dialing (855) 859-2056 and to international callers by dialing +1
(404) 537-3406. For all replays, please reference Conference ID
Number 10322983. An archived replay will also be available online
in the "Investor Relations" section of FSAM's website under the
"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 nationally recognized credit-focused asset manager. The firm has
approximately $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 a nearly 20-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 have allowed the firm to surpass $10 billion of loan
commitments since inception. For more information, please visit
fsam.fifthstreetfinance.com.
Forward-Looking Statements
This press release may contain, and certain oral
statements made by our representatives from time to time may
contain, forward-looking statements, because they relate to future
events or our future performance or financial condition.
Forward-looking statements may include statements as to the fees
charged by FSAM to FSC and FSFR, FSAM’s future operating results,
dividends by FSAM and business prospects of FSAM. Words such
as “believes,” “expects,” “seeks,” “plans,” “should,” “estimates,”
“project,” and “intend” indicate forward-looking statements,
although not all forward-looking statements include these words.
These forward-looking statements involve assumptions, risks and
uncertainties, all of which can change over time. Actual results
could differ materially from those implied or expressed in these
forward-looking statements for any reason. Such factors are
identified from time to time in FSAM’s filings with
the Securities and Exchange Commission and include
changes in the economy and the financial markets and future changes
in laws or regulations, competitive conditions in the asset
management industry and conditions in FSAM’s operating areas.
FSAM undertakes no obligation to 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 Adjusted Net Income after tax
Income before income tax benefit (provision) is the
GAAP financial measure most comparable to Adjusted Net Income and
net income (loss) is the GAAP financial measure most comparable to
Adjusted Net Income after tax. The following table provides a
reconciliation of net income (loss) and income before income tax
benefit (provision) to Adjusted Net Income and Adjusted Net Income
after tax (shown in thousands, except per share amounts):
|
|
Three months ended March 31, |
|
|
2017 |
|
2016 |
Net income (loss) |
|
$ |
8,772 |
|
|
$ |
(11,016 |
) |
Provision (benefit) for
income taxes |
|
1,311 |
|
|
(263 |
) |
Income (loss) before
provision (benefit) for income taxes |
|
10,083 |
|
|
(11,279 |
) |
Adjustments: |
|
|
|
|
Compensation-related charges (a)(b)(c) |
|
1,252 |
|
|
1,618 |
|
Gain on
extinguishment of MMKT Notes (d) |
|
— |
|
|
(2,582 |
) |
Unrealized (gain) loss on beneficial interests in CLOs (e) |
|
(194 |
) |
|
848 |
|
Lease
termination/abandonment charges (benefits) (f) |
|
(142 |
) |
|
— |
|
Adjustment of tax receivable agreement ("TRA") liability for tax
rate change (g) |
|
92 |
|
|
— |
|
Litigation and other non-recurring legal costs (h) |
|
1,782 |
|
|
3,229 |
|
Loss on
investor settlement (i) |
|
— |
|
|
10,419 |
|
Insurance
recoveries (j) |
|
(4,332 |
) |
|
— |
|
Unrealized loss on derivatives (k) |
|
— |
|
|
4,676 |
|
Distributions from equity method investments (l) |
|
(1,256 |
) |
|
(86 |
) |
Adjusted Net Income
(m) |
|
7,285 |
|
|
6,843 |
|
|
|
|
|
|
Net loss attributable
to MMKT (n) |
|
— |
|
|
1,393 |
|
Income tax provision -
fully converted (o) |
|
(2,704 |
) |
|
(3,225 |
) |
TRA benefit - fully
converted (o) |
|
643 |
|
|
1,138 |
|
Adjusted Net Income
after tax |
|
$ |
5,224 |
|
|
$ |
6,149 |
|
Weighted average shares
outstanding - fully converted (p) |
|
50,747 |
|
|
49,798 |
|
Adjusted Net Income
after tax per Class A common share - fully converted (p) |
|
$ |
0.10 |
|
|
$ |
0.12 |
|
_________________
(a) For the three months ended March 31, 2017 and
2016, this amount includes $0.1 million and $0.3 million
respectively, of amortization expense relating to the conversion
and vesting of member interests in connection with the
reorganization that occurred immediately prior to our IPO.(b)
For the three months ended March 31, 2017 and 2016, this
amount includes $0.4 million and $1.4 million, respectively, of
amortization expense relating to stock-based compensation that was
awarded to certain of our employees in connection with our IPO.(c)
For the three months ended March 31, 2017, this amount
includes $0.8 million of severance payments and retention
bonuses.(d) Represents the gain that resulted from the
settlement and cancellation of MMKT Notes.(e) Represents the
change in fair value on our beneficial interests in CLOs on which
we have elected the fair value option.(f) Represents
non-recurring charges (benefits) related to the abandonment of a
portion of our office space at our corporate headquarters in
Greenwich, CT.(g) Represents the increase in payables to TRA
recipients as a result of certain changes to state tax law.(h)
Represents the expenses incurred in connection with
litigation and other non-recurring matters.(i) 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 settlement with RiverNorth Capital Management
("RiverNorth").(j) These amounts relate to insurance
recoveries related to professional fees incurred in connection with
various non-recurring legal matters.(k) Represents gains or
losses on a warrant and swap agreement issued by us to RiverNorth
in connection with the settlement.(l) Represents the excess
of income recognized under the equity method of accounting over the
cash dividends received from our investments in FSC and FSFR.(m)
Adjusted Net Income is presented on a pre-tax basis.(n)
Represents the 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, which was
dissolved on December 30, 2016.(o) Based on our estimated
statutory tax rate and includes an adjustment for tax benefits
related to basis adjustments due to our IPO assuming conversion of
all Fifth Street Holdings L.P. limited partnership interests into
FSAM Class A common stock.(p) Assumes 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, 2017 and December 31,
2016
|
|
As of |
|
|
March 31, 2017 |
|
December 31, 2016 |
Assets |
|
|
|
|
Cash |
|
$ |
865,752 |
|
|
$ |
6,727,085 |
|
Management fees
receivable (includes Part I Fees of $3,213,667 and $4,837,944 as of
March 31, 2017 and December 31, 2016, respectively) |
|
13,107,090 |
|
|
15,346,566 |
|
Performance fees
receivable |
|
34,587 |
|
|
123,300 |
|
Insurance recovery
receivable |
|
— |
|
|
9,250,000 |
|
Prepaid expenses
(includes $418,300 and $620,794 related to income taxes as of March
31, 2017 and December 31, 2016, respectively) |
|
2,275,311 |
|
|
2,073,393 |
|
Investments in equity
method investees |
|
67,574,280 |
|
|
66,176,884 |
|
Beneficial interests in
CLOs at fair value: (cost March 31, 2017: $24,049,823; cost
December 31, 2016: $24,138,496) |
|
23,260,659 |
|
|
23,155,062 |
|
Due from
affiliates |
|
2,556,202 |
|
|
3,405,921 |
|
Fixed assets, net |
|
5,151,743 |
|
|
5,344,332 |
|
Deferred tax
assets |
|
71,703,827 |
|
|
42,415,143 |
|
Deferred financing
costs |
|
1,300,271 |
|
|
1,426,103 |
|
Other assets |
|
3,365,910 |
|
|
3,355,072 |
|
Total assets |
|
$ |
191,195,632 |
|
|
$ |
178,798,861 |
|
Liabilities and
Equity |
|
|
|
|
Liabilities |
|
|
|
|
Accounts payable and
accrued expenses |
|
$ |
5,253,690 |
|
|
$ |
5,260,511 |
|
Accrued compensation
and benefits |
|
5,225,343 |
|
|
12,516,497 |
|
Income taxes
payable |
|
223,694 |
|
|
223,694 |
|
Loans payable |
|
14,972,565 |
|
|
14,972,565 |
|
Legal settlement
payable |
|
— |
|
|
9,250,000 |
|
Credit facility
payable |
|
100,000,000 |
|
|
102,000,000 |
|
Dividends payable |
|
3,022,611 |
|
|
1,961,863 |
|
Due to affiliates |
|
32,241 |
|
|
30,412 |
|
Deferred rent
liability |
|
2,054,038 |
|
|
2,079,354 |
|
Payable to related
parties pursuant to tax receivable agreements |
|
62,091,926 |
|
|
35,990,255 |
|
Total liabilities |
|
192,876,108 |
|
|
184,285,151 |
|
Commitments and
contingencies |
|
|
|
|
Equity
(deficit) |
|
|
|
|
Preferred
stock, $0.01 par value; 5,000,000 shares authorized; none issued
and outstanding as of March 31, 2017 and December 31, 2016 |
|
— |
|
|
— |
|
Class A
common stock, $0.01 par value; 500,000,000 shares authorized;
15,576,620 and 6,602,374 shares issued and outstanding as of March
31, 2017 and December 31, 2016, respectively |
|
155,766 |
|
|
66,024 |
|
Class B
common stock, $0.01 par value; 50,000,000 shares
authorized; 34,285,484 and 42,856,854 shares issued and
outstanding as of March 31, 2017 and December 31, 2016,
respectively |
|
342,855 |
|
|
428,569 |
|
Additional paid-in capital |
|
5,348,702 |
|
|
6,354,291 |
|
Accumulated deficit |
|
(130,932 |
) |
|
(1,726,061 |
) |
Total stockholders' equity, Fifth Street Asset Management
Inc. |
|
5,716,391 |
|
|
5,122,823 |
|
Non-controlling interests |
|
(7,396,867 |
) |
|
(10,609,113 |
) |
Total deficit |
|
(1,680,476 |
) |
|
(5,486,290 |
) |
Total liabilities and equity (deficit) |
|
$ |
191,195,632 |
|
|
$ |
178,798,861 |
|
Exhibit C. Consolidated Statements of Income for the
Three Months Ended March 31, 2017 and 2016
|
|
For the Three Months Ended March
31, |
|
|
2017 |
|
2016 |
Revenues |
|
|
|
|
Management fees (includes Part I Fees of $3,455,605 and $4,938,068
for the three months ended March 31, 2017 and 2016,
respectively) |
|
$ |
13,540,646 |
|
|
$ |
17,087,545 |
|
Performance fees |
|
34,587 |
|
|
25,764 |
|
Other
fees |
|
2,063,277 |
|
|
1,934,422 |
|
Total revenues |
|
15,638,510 |
|
|
19,047,731 |
|
Expenses |
|
|
|
|
Compensation and benefits |
|
6,523,085 |
|
|
8,768,625 |
|
General,
administrative and other expenses |
|
5,115,418 |
|
|
7,301,492 |
|
Depreciation and amortization |
|
315,867 |
|
|
417,722 |
|
Total expenses |
|
11,954,370 |
|
|
16,487,839 |
|
Other income
(expense) |
|
|
|
|
Interest
income |
|
329,852 |
|
|
339,602 |
|
Interest
expense |
|
(1,323,693 |
) |
|
(1,114,999 |
) |
Income
from equity method investments |
|
2,958,759 |
|
|
868,109 |
|
Unrealized gain on MMKT Notes |
|
— |
|
|
2,582,405 |
|
Unrealized gain (loss) on beneficial interests in CLOs |
|
194,270 |
|
|
(848,264 |
) |
Adjustment of TRA liability due to tax rate change |
|
(92,348 |
) |
|
— |
|
Insurance
recoveries |
|
4,332,024 |
|
|
— |
|
Unrealized loss on derivatives |
|
— |
|
|
(4,676,019 |
) |
Loss on
investor settlement |
|
— |
|
|
(10,419,274 |
) |
Other
income (expense), net |
|
— |
|
|
(569,960 |
) |
Total other income (expense), net |
|
6,398,864 |
|
|
(13,838,400 |
) |
Income (loss)
before provision (benefit) for income taxes |
|
10,083,004 |
|
|
(11,278,508 |
) |
Provision
(benefit) for income taxes |
|
1,310,519 |
|
|
(262,773 |
) |
Net income
(loss) |
|
8,772,485 |
|
|
(11,015,735 |
) |
Net
(income) loss attributable to non-controlling interests |
|
(7,177,356 |
) |
|
9,783,790 |
|
Net income
(loss) attributable to Fifth Street Asset Management
Inc. |
|
$ |
1,595,129 |
|
|
$ |
(1,231,945 |
) |
|
|
|
|
|
Net income
(loss) per share attributable to Fifth Street Asset Management Inc.
Class A common stock - Basic |
|
$ |
0.10 |
|
|
$ |
(0.21 |
) |
Net income
(loss) per share attributable to Fifth Street Asset Management Inc.
Class A common stock - Diluted |
|
$ |
0.10 |
|
|
$ |
(0.23 |
) |
Weighted
average shares of Class A common stock outstanding -
Basic |
|
15,224,235 |
|
|
5,798,614 |
|
Weighted
average shares of Class A common stock outstanding -
Diluted |
|
15,270,787 |
|
|
5,798,614 |
|
CONTACT:
Investor Contact:
Robyn Friedman, Executive Director, Head of Investor Relations
(203) 681-3720
IR-FSAM@fifthstreetfinance.com
Media Contact:
James Golden / Aura Reinhard / Andrew Squire
Joele Frank Wilkinson Brimmer Katcher
(212) 355-4449
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