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Fifth Street Asset Management Inc. Announces First Quarter 2015 Results

  • Pro Forma Adjusted Net Income of $9.3 million or $0.19 per share for the quarter ended March 31, 2015
  • Fee-earning AUM increased 22.4% year-over-year to $5.3 billion at March 31, 2015
  • Total revenues were $24.9 million for the quarter ended March 31, 2015, a 4.6% year-over-year increase
  • Management fees represented 94.8% of total revenues for the quarter ended March 31, 2015

GREENWICH, CT, May 15, 2015 (GLOBE NEWSWIRE) -- Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we") announces its financial results for the first quarter ended March 31, 2015.

First Quarter 2015 Financial Highlights

  • Pro Forma Adjusted Net Income for the quarter ended March 31, 2015 was $9.3 million or $0.19 per share;
  • Fee-earning Assets Under Management ("AUM") increased to $5.3 billion as of March 31, 2015, which represented a 22.4% increase from $4.4 billion at March 31, 2014;
  • Total revenues for the quarter ended March 31, 2015 increased 4.6% to $24.9 million as compared to the quarter ended March 31, 2014;
  • Management fees represented 94.8% of total revenues for the quarter ended March 31, 2015; and
  • We closed Fifth Street Senior Loan Fund I, LLC ("SLF I"), a $309.5 million collateralized loan obligation ("CLO"), representing our initial CLO under management.

"Despite slower growth in FSAM's core product offerings, we remain optimistic about our long-term growth potential and our ability to increase market share, specifically as banks continue to pull out of middle market leveraged lending," stated our Chief Executive Officer, Leonard M. Tannenbaum, adding, "We continue to invest in FSAM's future by focusing on managing our existing products, developing new product offerings and making additional key hires to help us build out our platform for future success."

Results of Operations

Total revenues increased by 4.6%, or $1.1 million, to $24.9 million for the quarter ended March 31, 2015, as compared to $23.8 million for the quarter ended March 31, 2014. The growth in total revenues was driven by a 22.4% increase in year-over-year fee-earning AUM. Management fees (which include base management fees and Part I fees) for the quarter ended March 31, 2015 were $23.6 million, or 94.8% of total revenues.

After adjusting for non-recurring and reimbursed items, net expenses increased by 27.9%, or $2.1 million, to $9.8 million for the quarter ended March 31, 2015, as compared to $7.7 million for the quarter ended March 31, 2014. The increase in net expenses was due primarily to increases in employee costs due to additions in headcount of 20 employees during the year-over-year period.

Pro Forma Adjusted Net Income was $9.3 million for the quarter ended March 31, 2015, which represented a $0.9 million, or 8.7%, decrease as compared to $10.2 million for quarter ended March 31, 2014. Pro Forma Adjusted Net Income per share was $0.19 for the quarter ended March 31, 2015, versus $0.20 per share for the quarter ended March 31, 2014. Pro Forma Adjusted Net Income reflects an adjustment for net federal, state and local corporate income tax expenses.

Dividend Declaration

On May 11, 2015, our Board of Directors declared a quarterly dividend of $0.17 per share of our Class A common stock. The declared dividend is payable on July 15, 2015 to stockholders of record at the close of business on June 30, 2015.

Key Performance Metrics

Three months ended
March 31,
2015 2014
(dollars in thousands, except per
share amounts)
Total revenues $ 24,870 $ 23,767
Net income $ 10,828 $ 14,489
Pro Forma Adjusted Net Income(1) $ 9,295 $ 10,184
Pro Forma Adjusted Net Income Per Share $ 0.19 $ 0.20
Management Fees as % of total revenues 94.8% 95.5%
AUM at end of period(2) $ 6,275,209 $ 4,809,279
Fee-earning AUM at end of period(3) $ 5,323,341 $ 4,350,461

(1) 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.

(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 table provides a roll-forward of fee-earning AUM for the quarter ended March 31, 2015 (shown in thousands):

Beginning balance $ 5,554,013
Commitments and equity raises 66,188
Subscriptions, deployments and changes in leverage (301,955)
Redemptions and distributions (34,545)
Change in fund value 39,640
Ending balance $ 5,323,341
Average fee-earning AUM $ 5,438,677
Effective annualized management fee rate 1.73%

The following table provides a roll-forward of fee-earning AUM by fund strategy for the quarter ended March 31, 2015 (shown in thousands):

Senior Loan
FSC FSFR FSOF Funds Total
Beginning balance $ 4,366,621 $ 662,654 $ 39,301 $ 485,437 $ 5,554,013
Commitments and equity raises 66,188 66,188
Subscriptions, deployments and changes in leverage (273,895) (22,564) 561 (6,057) (301,955)
Redemptions and distributions (23,262) (8,840) (2,443) (34,545)
Change in fund value 25,406 6,543 715 6,976 39,640
Ending balance $ 4,094,870 $ 637,793 $ 40,577 $ 550,101 $ 5,323,341
Average fee-earning AUM $ 4,230,746 $ 650,223 $ 39,939 $ 517,769 $ 5,438,677

Fee-earning AUM was $5.3 billion as of March 31, 2015, which represented a $230.7 million, or 4.2%, decrease from $5.6 billion as of December 31, 2014. The net decrease in fee-earning AUM was primarily due to $296.5 million net reduction of leverage at our BDCs, which was partially offset by $66.2 million of incremental investment capacity as a result of the securitization of SLF I.

Recent Developments

On April 2, 2015, we contributed a $7.5 million investment into the Fifth Street Opportunities Fund ("FSOF"). This contribution was funded primarily from borrowings under our credit facility.

On April 6, 2015, Fifth Street Management repaid all amounts due to its previous members in satisfaction of undistributed earnings from our inception through the date of our IPO. The aggregate amount repaid was $9.2 million. These payments were funded primarily from borrowings under our credit facility.

On May 11, 2015, our Board of Directors declared a quarterly dividend of $0.17 per share on our Class A common stock. The declared dividend is payable on July 15, 2015 to stockholders of record at the close of business on June 30, 2015.

On May 11, 2015, our Board of Directors authorized a share repurchase program of up to $20.0 million of our Class A common stock. The repurchase program will terminate on May 11, 2016, unless earlier terminated or extended by the Board, 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. 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, May 18, 2015 to discuss our first quarter 2015 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 19650976 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 25, 2015, 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 19650976. 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 March 31,
2015 2014
Income before provision for income taxes $ 12,050 $ 14,489
Adjustments:
Compensation-related charges(1)(2) 1,485 519
Lease termination charges(3) (71)
Adjusted Net Income(4) $ 13,464 $ 15,008
Pro Forma income tax provision(5) (5,330) (6,004)
Pro Forma tax receivable agreement benefit 1,161 1,180
Pro Forma Adjusted Net Income $ 9,295 $ 10,184
Pro Forma weighted average shares outstanding(6) 50,000 50,000
Pro Forma Adjusted Net Income per Class A common share(6) $ 0.19 $ 0.20

(1) For the quarter ended March 31, 2015 and 2014, this amount includes $0.3 million and $0.5 million, respectively, of amortization expense relating to certain equity-classified compensation awards. As of the date of our IPO, the $8.2 million unamortized portion of these awards represented 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 quarter ended March 31, 2015, this amount includes $1.2 million of amortization expense relating to stock-based compensation that was awarded to certain of our employees in connection with our IPO.

(3) Includes non-recurring charges for termination payments and related exit costs accrued at present value relating to our office leases.

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

(5) Based on our estimated statutory 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 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, 2015 and December 31, 2014

As of
March 31, 2015 December 31, 2014
Assets (unaudited)
Cash and cash equivalents $ 1,300,364 $ 3,238,008
Management fees receivable (includes Part I Fees of $8,501,254 and $11,307,080 at March 31, 2015 and December 31, 2014, respectively) 23,344,726 26,861,787
Performance fees receivable 89,602 106,635
Prepaid expenses 856,405 1,150,013
Investments in equity method investees 112,635 4,115,429
Subordinated debt interest in CLO: held-to-maturity 1,043,144
Beneficial interest in CLO: available-for-sale 3,443,940
Due from affiliates 2,367,700 3,799,542
Fixed assets, net 9,977,576 10,274,263
Deferred tax assets 57,972,039 57,972,039
Deferred financing costs 2,306,931 2,432,764
Other assets 4,137,943 4,197,358
Total assets $ 106,953,005 $ 114,147,838
Liabilities and Equity
Liabilities
Accounts payable and accrued expenses $ 2,318,452 $ 3,045,651
Accrued compensation and benefits 3,241,602 11,095,548
Income taxes payable 1,033,118 361,052
Loans payable 4,050,351 4,000,000
Credit facility payable 15,000,000 12,000,000
Dividend payable 2,075,259
Due to Principal 9,046,929 9,063,792
Due to affiliates 67,979 62,781
Deferred rent liability 3,217,417 3,261,434
Payable to related parties pursuant to tax receivable agreements 47,373,245 47,373,245
Total liabilities 87,424,352 90,263,503
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 March 31, 2015 and December 31, 2014 60,000 60,000
Class B common stock, $0.01 par value 50,000,000 shares authorized; 42,856,854 shares issued and outstanding as of March 31, 2015 and December 31, 2014 428,569 428,569
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding as of March 31, 2015 and December 31, 2014
Additional paid-in capital 6,454,985 4,975,073
Retained earnings 523,066 1,288,995
Total stockholders' equity, Fifth Street Asset Management Inc. 7,466,620 6,752,637
Non-controlling interests in Fifth Street Holdings L.P. 12,062,033 17,131,698
Total equity 19,528,653 23,884,335
Total liabilities and equity $ 106,953,005 $ 114,147,838

Exhibit C. Consolidated Statements of Income for the Three Months Ended March 31, 2015 and 2014

For the three months ended
March 31,
2015 2014
Revenues (unaudited) (unaudited)
Management fees (includes Part I Fees of $8,501,254 and $8,780,508 for the three months ended March 31, 2015 and 2014, respectively) $ 23,579,398 $ 22,702,726
Performance fees 89,602
Other fees 1,201,124 1,064,639
Total revenues 24,870,124 23,767,365
Expenses
Compensation and benefits 9,307,686 7,375,578
Fund offering and start-up expenses 145,848
General, administrative and other expenses 2,801,309 1,616,176
Depreciation and amortization 402,706 126,674
Total expenses 12,511,701 9,264,276
Other income (expense)
Interest income 12,108 4,638
Interest expense (371,181) (24,657)
Income (loss) from equity method investments (9,952) 5,444
Other income, net 61,000
Total other income (expense), net (308,025) (14,575)
Income before provision for income taxes 12,050,398 14,488,514
Provision for income taxes 1,222,066
Net income 10,828,332 14,488,514
Net income attributable to Predecessor (14,488,514)
Net income attributable to non-controlling interests in Fifth Street Holdings L.P. (9,519,002)
Net income attributable to Fifth Street Asset Management Inc. $ 1,309,330 $ —
Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock - Basic and Diluted $ 0.22
Weighted average shares of Class A common stock outstanding - Basic 6,000,033
Weighted average shares of Class A common stock outstanding - Diluted 6,042,777

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