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Fifth Street Asset Management Inc. Announces Fourth Quarter and Full Year 2014 Results

  • Pro Forma Adjusted Net Income increased 22.9% year-over-year to $0.26 per share for the quarter ended December 31, 2014
  • Fee-earning AUM increased 41.4% year-over-year to $5.6 billion at December 31, 2014
  • Total revenues were $103.2 million for the year ended December 31, 2014, a 40.2% year-over-year increase
  • Management fees represented 92.5% of total revenues for the year ended December 31, 2014

GREENWICH, CT, March 30, 2015 (GLOBE NEWSWIRE) -- Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we") announces its financial results for the fourth quarter and year ended December 31, 2014. On November 4, 2014, we completed our initial public offering ("IPO") and realized net proceeds of $95.9 million. In addition, the previous members of Fifth Street Management agreed to allocate to the post-IPO owners, including FSAM, our earnings (excluding IPO-related charges) from October 1, 2014 through the date of the IPO. Therefore, our financial results prior to October 1, 2014 reflect those of FSAM's predecessor, Fifth Street Management Group.

Fourth Quarter and Full Year 2014 Financial Highlights

  • Pro Forma Adjusted Net Income for the quarter ended December 31, 2014 was $12.9 million or $0.26 per share, as compared to $10.5 million or $0.21 per share for the quarter ended December 31, 2013;
  • Pro Forma Adjusted Net Income for the year ended December 31, 2014 was $46.2 million or $0.92 per share, as compared to $35.3 million or $0.71 per share for the year ended December 31, 2013;
  • Fee-earning Assets Under Management ("AUM") increased to $5.6 billion as of December 31, 2014, which represented a 41.4% increase from $3.9 billion at December 31, 2013;
  • Total revenues for the quarter and year ended December 31, 2014 increased 29.8% and 40.2% to $30.3 million and $103.2 million, respectively, as compared to the quarter and year ended December 31, 2013; and
  • Management fees represented 88.7% of total revenues for the quarter ended December 31, 2014 and 92.5% of total revenues for the year ended December 31, 2014.

"While we anticipate slower growth at FSAM in 2015, we remain very excited about our long-term growth prospects and are preparing for 2016 by leveraging our scalable platform to launch new products and execute on new initiatives," stated our Chief Executive Officer, Leonard M. Tannenbaum, adding, "We continue to believe that FSAM's direct origination platform is well-positioned to take advantage of positive business trends, including banks pulling out of middle market leveraged lending."

Results of Operations

Total revenues increased by 29.8%, or $7.0 million, to $30.3 million for the quarter ended December 31, 2014, as compared to $23.4 million for the quarter ended December 31, 2013. Total revenues increased by 40.2%, or $29.6 million, to $103.2 million for the year ended December 31, 2014, as compared to $73.6 million for the year ended December 31, 2013. The growth in total revenues was driven by a 41.4% increase in year-over-year fee-earning AUM. Management fees (which include base management fees and Part I fees) for the quarter ended December 31, 2014 were $26.9 million, or 88.7% of total revenues, and for the year ended December 31, 2014 were $95.4 million, or 92.5% of total revenues.

After adjusting for non-recurring and reimbursed items, net expenses increased by 51.4%, or $3.0 million, to $8.8 million for the quarter ended December 31, 2014, as compared to $5.8 million for the quarter ended December 31, 2013. After adjusting for non-recurring and reimbursed items, net expenses increased by 45.9%, or $9.7 million, to $31.0 million for the year ended December 31, 2014, as compared to $21.2 million for the year ended December 31, 2013. The increase in net expenses was due primarily to increases in employee costs due to additions in headcount of 28 employees, or 41.2%, and related occupancy costs during the year-over-year period.

Pro Forma Adjusted Net Income increased by 22.9%, or $2.4 million, to $12.9 million for the quarter ended December 31, 2014, as compared to $10.5 million for quarter ended December 31, 2013 and Pro Forma Adjusted Net Income per share increased to $0.26 for the quarter ended December 31, 2014 versus $0.21 per share for the quarter ended December 31, 2013. Pro Forma Adjusted Net Income increased by 30.8%, or $10.9 million, to $46.2 million for the year ended December 31, 2014, as compared to $35.3 million for year ended December 31, 2013 and Pro Forma Adjusted Net Income per share increased to $0.92 for the year ended December 31, 2014 versus $0.71 per share for the year ended December 31, 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

On January 15, 2015, our Board of Directors declared an initial quarterly dividend of $0.30 per share of our Class A common stock. The declared dividend will be payable on April 15, 2015 to stockholders of record at the close of business on March 31, 2015.

Key Performance Metrics:

Three Months Ended Years Ended
December 31, December 31,
2014 2013 2014 2013
(dollars in thousands, except per share amounts)
Total revenues $30,343 $23,383 $103,206 $73,622
Net income(1) $709 $14,991 $38,813 $39,772
Pro Forma Adjusted Net Income(2) $12,908 $10,505 $46,201 $35,325
Pro Forma Adjusted Net Income Per Share $0.26 $0.21 $0.92 $0.71
Management Fees as % of total revenues 88.7% 91.4% 92.5% 92.9%
AUM at end of period(3) $6,301,260 $4,377,364 $6,301,260 $4,377,364
Fee-earning AUM at end of period(4) $5,554,013 $3,929,066 $5,554,013 $3,929,066

(1) Net income for the three months and year ended December 31, 2014 reflects $18.5 million and $19.4 million, respectively, of expenses related to our reorganization and IPO.

(2) Adjusted Net Income represents income before income tax benefit (provision) as adjusted for (i) certain compensation-related charges, including the amortization of equity-based awards related to our reorganization and IPO, (ii) non-recurring underwriting costs relating to public offerings of our funds, (iii) non-recurring professional fees incurred in connection with our IPO 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. 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 income before income tax benefit (provision) to Adjusted Net Income and Pro Forma Adjusted Net Income.

(3) 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).

(4) 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 table provides a roll-forward of fee-earning AUM for the three months and year ended December 31, 2014 (shown in thousands):

Three Months Ended Year Ended
December 31, December 31,
2014 2014
Beginning balance $4,782,834 $3,929,066
Commitments and equity raises 23,401 533,980
Subscriptions, deployments and changes in leverage 826,622 1,199,780
Redemptions and distributions (56,369) (177,608)
Change in fund value (22,475) 68,795
Ending balance $5,554,013 $5,554,013
Average fee-earning AUM $5,168,423 $4,747,540
Effective annualized management fee rate 2.08% 2.01%

The following tables provide roll-forwards of fee-earning AUM by fund strategy for the three months and year ended December 31, 2014 (shown in thousands):

Three months ended December 31, 2014
Structured Senior Loan
Equity FSC FSFR FSOF Funds Total
Beginning balance $4,452 $4,088,566 $322,526 $35,691 $331,599 $4,782,834
Commitments and equity raises 2,000 21,401 23,401
Subscriptions, deployments and changes in leverage 35 350,899 343,492 1,409 130,787 826,622
Redemptions and distributions (4,542) (42,184) (8,840) (803) (56,369)
Change in fund value 55 (30,660) 5,476 201 2,453 (22,475)
Ending balance $— $4,366,621 $662,654 $39,301 $485,437 $5,554,013
Average fee-earning AUM $2,226 $4,227,593 $492,590 $37,496 $408,518 $5,168,423

Fee-earning AUM increased to $5.6 billion as of December 31, 2014, which represented a $771.2 million, or 16.1%, increase from $4.8 billion as of September 30, 2014. The net increase in fee-earning AUM was primarily due to:

  • $694.4 million of utilization of leverage and joint venture investment activity at our BDCs; and
  • $152.2 million of capital contributions and incremental investment activity at our senior loan funds.

Year ended December 31, 2014
Structured Senior Loan
Equity FSC FSFR FSOF Funds Total
Beginning balance $4,001 $3,776,195 $148,870 $— $— $3,929,066
Commitments and equity raises 138,139 276,182 30,100 89,559 533,980
Subscriptions, deployments and changes in leverage 35 555,305 245,135 8,151 391,154 1,199,780
Redemptions and distributions (4,542) (151,183) (21,013) (870) (177,608)
Change in fund value 506 48,165 13,480 1,050 5,594 68,795
Ending balance $— $4,366,621 $662,654 $39,301 $485,437 $5,554,013
Average fee-earning AUM $2,001 $4,071,408 $405,762 $19,651 $242,718 $4,741,540

Fee-earning AUM increased to $5.6 billion as of December 31, 2014, which represented an $1.6 billion, or 41.4%, increase from $3.9 billion as of December 31, 2013. 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;
  • $800.4 million of utilization of leverage and joint venture investment activity at our BDCs; and
  • the closing of SLF I and SLF II which produced $485.4 million of fee-earning AUM at period end.

Recent Developments

On February 19, 2015, we announced the closing of Fifth Street Senior Loan Fund I, LLC ("SLF I"), a $309.5 million CLO. SLF I is primarily invested in middle market senior secured loans sourced and originated through the Fifth Street platform. The vehicle has a four-year reinvestment period. FSAM sold securities rated from Aaa through Ba3 and retained some of the equity interests and Class F notes. Wells Fargo Securities, LLC served as the Placement Agent.

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. 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. 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 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 Monday, March 30, 2015 to discuss our fourth quarter and full year 2014 financial results. All interested parties are welcome to participate. Domestic callers can access the conference call by dialing (800) 706-7749. International callers can access the conference call by dialing +1 (617) 614-3474. All callers will need to enter the Participant Passcode Number 37488726 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 April 13, 2015, 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 65703273. 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 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 17-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 100 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

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 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 Year ended
December 31, December 31,
2014 2013 2014 2013
Income (loss) before income tax benefit (provision) $(1,169) $14,991 $36,935 $39,772
Adjustments:
Compensation-related charges(1)(2) 18,610 484 25,025 1,739
FSFR initial public offering underwriting costs(3) 41 5,700
FSC follow-on equity offering underwriting costs(3) 822
Lease termination charges(4) 101 707
Professional fees and other expenses in connection with our IPO 224 1,118
Adjusted Net Income(5) $17,766 $15,516 $64,607 $47,211
Pro Forma income tax provision(6) (4,858) (5,011) (18,406) (11,886)
Pro Forma Adjusted Net Income $12,908 $10,505 $46,201 $35,325
Pro Forma weighted average shares outstanding(7) 50,000 50,000 50,000 50,000
Pro Forma Adjusted Net Income per Class A common share(7) $0.26 $0.21 $0.92 $0.71

(1) For the years ended December 31, 2014 and 2013, this amount includes $1.8 million and $1.7 million, respectively, of amortization expense relating to certain equity-classified compensation awards. The $8.2 million remaining unamortized portion of these awards at our IPO date represents the fair value at their respective grant dates as determined by an independent third party appraisal net of cash paid for the awards and is being amortized on a straight-line basis over an eight-year vesting period.

(2) For the year ended December 31, 2014, this amount includes: (1) $3.1 million of noncash compensation expense relating to the separation of a former equity member in May 2014, (2) $3.1 million of cash payments to purchase the equity interest from a former member, (3) $15.1 million of noncash compensation expense relating to our reorganization and IPO, (4) $1.1 million of cash bonus awards paid to certain of our employees in connection with our IPO and (5) $0.8 million of amortization expense relating to stock-based compensation that was awarded to certain of our employees in connection with our IPO.

(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) Adjusted Net Income is presented on a pre-tax basis.

(6) Based on our estimated effective tax rate and includes an adjustment for pro forma tax benefits related to basis adjustments due to our IPO.

(7) Presented with the assumption that 100% of the LP interests in Fifth Street Holdings L.P. were converted on a one-for-one basis into shares of our Class A common stock as of January 1, 2013.

Exhibit B. Consolidated Statements of Financial Condition as of December 31, 2014 and December 31, 2013

As of
December 31, 2014 December 31, 2013
Assets
Cash and cash equivalents $3,238,008 $4,015,728
Management fees receivable (includes Part I Fees of $11,307,080 and $9,054,422 at December 31, 2014 and 2013, respectively) 26,861,787 21,409,763
Performance fees receivable 106,635
Prepaid expenses 1,150,013 142,033
Investments in equity method investees 4,115,429
Due from affiliates 3,799,542 3,848,491
Fixed assets, net 10,274,263 1,436,681
Deferred tax assets 57,972,039
Deferred financing costs 2,432,764
Other assets 4,197,358 2,652,975
Total assets $114,147,838 $33,505,671
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses $3,045,651 $1,198,205
Accrued compensation and benefits 11,095,548 538,035
Income taxes payable 361,052
Loan payable 4,000,000 4,000,000
Credit facility payable 12,000,000
Due to Principal 9,063,792
Due to affiliates 62,781 2,671,334
Due to former member 2,093,437
Deferred rent liability 3,261,434 1,980,146
Payable to related parties pursuant to tax receivable agreements 47,373,245
Total liabilities 90,263,503 12,481,157
Commitments and contingencies
Equity
Class A common stock, $0.01 par value 500,000,000 shares authorized; 6,000,033 shares issued and outstanding as of December 31, 2014 60,000
Class B common stock, $0.01 par value 50,000,000 shares authorized; 42,856,854 shares issued and outstanding as of December 31, 2014 428,569
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding as of December 31, 2014
Additional paid-in capital 4,975,073
Retained earnings 1,288,995
Total stockholders' equity, Fifth Street Asset Management Inc. 6,752,637
Non-controlling interests in Fifth Street Holdings L.P. 17,131,698
Members' equity of Predecessor 21,024,514
Total equity 23,884,335 21,024,514
Total liabilities and equity $114,147,838 $33,505,671

Exhibit C. Consolidated Statements of Income for the Three Months and Years Ended December 31, 2014 and 2013

For the Three Months Ended For the Years Ended
December 31, December 31,
2014 2013 2014 2013
Revenues
Management fees (includes Part I Fees of $11,297,519 and $9,054,421 and $39,280,991 and $30,573,056 for the three months and years ended December 31, 2014 and 2013, respectively) $26,907,406 $21,367,406 $95,425,407 $68,417,218
Performance fees (32,414) 106,635
Other fees 3,468,032 2,015,866 7,674,019 5,204,820
Total revenues 30,343,024 23,383,272 103,206,061 73,622,038
Expenses
Compensation and benefits 27,986,418 6,334,041 53,697,430 22,411,155
Fund offering and start-up expenses 47,489 38,829 1,247,923 5,701,831
General, administrative and other expenses 2,874,324 1,931,413 10,365,867 5,506,680
Depreciation and amortization 344,396 83,300 985,845 236,892
Total expenses 31,252,627 8,387,583 66,297,065 33,856,558
Other income (expense)
Interest income 1,501 6,197 13,031 17,575
Interest expense (248,568) (11,233) (323,363) (11,233)
Income from equity method investments 29,611 246,361
Other income (expense), net (41,951) 90,049
Total other income, net (259,407) (5,036) 26,078 6,342
Income before income tax benefit (1,169,010) 14,990,653 36,935,074 39,771,822
Income tax benefit (1,877,758) (1,877,758)
Net income 708,748 14,990,653 38,812,832 39,771,822
Net (income) loss attributable to Predecessor 11,375,127 (14,990,653) (26,728,957) (39,771,822)
Net income attributable to non-controlling interests in Fifth Street Holdings L.P. (11,555,298) (11,555,298)
Net income attributable to Fifth Street Asset Management Inc. $528,577 $— $528,577 $—
Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock - Basic and Diluted $0.09 $0.09
Weighted average shares of Class A common stock outstanding - Basic and Diluted from November 4, 2014 through December 31, 2014 6,000,033 6,000,033

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.comSource:Fifth Street Asset Management