Medley Management Inc. Reports Fourth Quarter and Full Year 2017 Results

NEW YORK, March 29, 2018 (GLOBE NEWSWIRE) -- Medley Management Inc. (NYSE:MDLY) today reported its financial results for its fourth quarter and year ended December 31, 2017.

Highlights

  • Fee earning assets under management were $3.2 billion as of December 31, 2017
  • Total assets under management were $5.2 billion as of December 31, 2017
  • U.S. GAAP net income (loss) per share attributable to Medley Management Inc. was $(0.11) for Q4 2017 and $0.07 for the year ended December 31, 2017
  • Core Net Income Per Share was $0.05 for Q4 2017 and $0.33 for the year ended December 31, 2017

Results of Operations for the Three Months Ended December 31, 2017

Total revenues were $18.5 million for the three months ended December 31, 2017 compared to $18.3 million for the same period in 2016.

Total expenses from operations were $13.6 million for the three months ended December 31, 2017 compared to $9.2 million for the same period in 2016. The increase was due primarily to an increase in compensation and benefits, professional fees and expenses of our consolidated fund.

Total other expense, net was $1.8 million for the three months ended December 31, 2017 compared to $1.6 million for the same period in 2016. The increase was due primarily to a decrease in equity income from our investments due to unrealized losses, partly offset by an increase in dividend income.

Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC was $0.6 million for the three months ended December 31, 2017 compared to $5.3 million for the same period in 2016. Medley Management Inc.’s net loss per share was $0.11 for the three months ended December 31, 2017 compared to net income per share of $0.07 for the same period in 2016.

Pre-Tax Core Net Income was $2.5 million for the three months ended December 31, 2017 compared to $7.4 million for the same period in 2016. Core Net Income Per Share was $0.05 for the three months ended December 31, 2017, compared to $0.14 for the same period in 2016. Core EBITDA was $5.5 million for the three months ended December 31, 2017 compared to $9.8 million for the same period in 2016.

Results of Operations for the Year Ended December 31, 2017

Total revenues were $65.6 million for the year ended December 31, 2017 compared to $76.0 million in 2016. The decrease was due primarily to a decrease in performance and incentive fees, partly offset by an increase in other revenue and fees.

Total expenses from operations were $39.6 million for the year ended December 31, 2017 compared to $56.0 million in 2016. The decrease was due primarily to a reduction in expenses associated with our expense support agreement with SIC and a reduction in compensation and benefits expense, partly offset by an increase in general and administrative expenses.

Total other expense, net was $6.7 million for the year ended December 31, 2017 compared to $9.0 million in 2016. The decrease was due primarily to a decrease in expense associated with our revenue share payable and an increase in dividend income, partly offset by an increase in interest expense.

Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC was $10.6 million for the year ended December 31, 2017 compared to $7.4 million in 2016. Medley Management Inc.’s net income per share was $0.07 for the year ended December 31, 2017 compared to net income per share of $0.02 in 2016.

Pre-Tax Core Net Income was $17.6 million for the year ended December 31, 2017 compared to $29.0 million in 2016. Core Net Income Per Share was $0.33 for the year ended December 31, 2017, compared to $0.54 in 2016. Core EBITDA was $29.2 million for the year ended December 31, 2017 compared to $38.5 million in 2016.


Investor Contact:

Sam Anderson
Head of Capital Markets & Risk Management
Medley Management Inc.
212-759-0777

Media Contact:

Erin Clark
Teneo Strategy
646-214-8355


Key Performance Indicators:

For the Three Months Ended
December 31,
(unaudited)
For the Years Ended
December 31,
2017 2016 2017 2016
(Amounts in thousands, except AUM, share and per share amounts)
Consolidated Financial Data:
Pre-Tax Income$3,077 $7,472 $19,265 $11,015
Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC$605 $5,257 $10,591 $7,403
Net income (loss) per Class A common stock$(0.11) $0.07 $0.07 $0.02
Net Income Margin (1)3.3% 28.8% 16.2% 9.7%
Weighted average shares - Basic and Diluted5,478,910 5,809,130 5,553,026 5,804,042
Non-GAAP Data:
Pre-Tax Core Net Income (2)$2,543 $7,376 $17,609 $28,954
Core Net Income (2)$1,918 $6,451 $15,090 $25,531
Core EBITDA (3)$5,488 $9,843 $29,226 $38,481
Core Net Income Per Share (4)$0.05 $0.14 $0.33 $0.54
Core Net Income Margin (5)7.9% 23.0% 15.5% 21.7%
Pro-Forma Weighted Average Shares Outstanding (6)30,640,996 30,800,512 30,851,882 30,689,412
Other Data (at period end, in millions):
AUM$5,198 $5,335 $5,198 $5,335
Fee Earning AUM$3,158 $3,190 $3,158 $3,190

(1) Net Income Margin equals Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC divided by total revenue.
(2) Pre-Tax Core Net Income is calculated as Core Net Income before income taxes. Core Net Income reflects net income attributable to Medley Management Inc. and net income attributable to non-controlling interests in Medley LLC adjusted to exclude reimbursable expenses associated with the launch of funds, stock-based compensation associated with restricted stock units that were granted in connection with our IPO, other non-core items and the income tax expense associated with the foregoing adjustments. Please refer to the reconciliation of Core Net Income to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC in Exhibit C for additional details.
(3) Core EBITDA is calculated as Core Net Income before interest expense, income taxes, depreciation and amortization. Please refer to the reconciliation of Core EBITDA to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC in Exhibit C for additional details.
(4) Core Net Income Per Share is calculated as Core Net Income, adjusted for the income tax effect of assuming that all of our pre-tax earnings were subject to federal, state and local corporate income taxes, divided by Pro-Forma Weighted Average Shares Outstanding (as defined below). We assumed an effective corporate tax rate of 43.0% for all periods presented. Please refer to the calculation of Core Net Income Per Share in Exhibit D for additional details.
(5) Core Net Income Margin equals Core Net Income Per Share divided by total revenue per share.
(6) The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of 23,333,333 Medley LLC units for 23,333,333 shares of Class A common stock at the beginning of each period presented, as well as the vesting of the weighted average number of restricted stock units and, in 2017, the conversion of 320,000 restricted LLC units for an equal number of shares of Class A common stock.


Fee Earning AUM

The table below presents the quarter-to-date roll forward of our total fee earning AUM:

% of Fee Earning AUM
Permanent
Capital
Vehicles
Long-dated
Private
Funds
and SMAs
Total Permanent
Capital
Vehicles
Long-dated
Private
Funds
and SMAs
(Dollars in millions)
Ending balance, September 30, 2017$2,191 $1,050 $3,241 68% 32%
Commitments(39) 78 39
Capital reduction
Distributions(24) (30) (54)
Change in fund value(38) (30) (68)
Ending balance, December 31, 2017$2,090 $1,068 $3,158 66% 34%

Total fee earning AUM decreased by $83 million, or 3% as of December 31, 2017 compared to total fee earning AUM as of September 30, 2017. The permanent capital vehicles’ share of fee earning AUM decreased to 66% as of December 31, 2017 compared to September 30, 2017.

The table below presents the year-to-date roll forward of our total fee earning AUM:

% of Fee Earning AUM
Permanent
Capital
Vehicles
Long-dated
Private
Funds
and SMAs
Total Permanent
Capital
Vehicles
Long-dated
Private
Funds
and SMAs
(Dollars in millions)
Ending balance, December 31, 2016 $2,207 $983 $3,190 69% 31%
Commitments22 308 330
Capital reduction
Distributions(100) (178) (278)
Change in fund value(39) (45) (84)
Ending balance, December 31, 2017$2,090 $1,068 $3,158 66% 34%

Total fee earning AUM decreased by $32 million, or 1% as of December 31, 2017 compared to total fee earning AUM as of December 31, 2016. The permanent capital vehicles’ share of fee earning AUM decreased to 66% as of December 31, 2017 compared to December 31, 2016.

Conference Call and Webcast Information

We will host an earnings conference call and audio webcast at 10:00 a.m. (Eastern Time) on Thursday, March 29, 2018 to discuss our fourth quarter and year end financial results.

All interested parties may participate in the conference call by dialing (877) 524-5743 approximately 5-10 minutes prior to the call. International callers should dial (615) 247-0088. Participants should reference Medley Management Inc. and the conference ID of 8778928 when prompted. Following the call you may access a replay of the event via audio webcast. This conference call will be broadcast live over the Internet and can be accessed by all interested parties through the Company's website, http://www.mdly.com. To listen to the live call, please go to the Company's website at least 15 minutes prior to the start of the call to register and download any necessary audio software. For those who are not able to listen to the live broadcast, a replay will be available shortly after the call on the Company’s website.

About Medley

Medley is an alternative asset management firm offering yield solutions to retail and institutional investors. Medley’s national direct origination franchise, with over 85 people, is a premier provider of capital to the middle market in the U.S. Medley has over $5 billion of assets under management in two business development companies, Medley Capital Corporation (NYSE:MCC) (TASE:MCC) and Sierra Income Corporation, a credit interval fund, Sierra Total Return Fund (NASDAQ:SRNTX) and several private investment vehicles. Over the past 15 years, Medley has provided capital to over 400 companies across 35 industries in North America.(1)

Medley LLC, the operating company of Medley Management Inc., has outstanding bonds which trade on the NYSE under the symbols (NYSE:MDLX) and (NYSE:MDLQ). Medley Capital Corporation is dual-listed on the New York Stock Exchange (NYSE:MCC) and the Tel Aviv Stock Exchange (TASE:MCC) and has outstanding bonds which trade on both the New York Stock Exchange under the symbols (NYSE:MCV), (NYSE:MCX) and the Tel Aviv Stock Exchange under the symbol (TASE:MCC.B1).

Forward-Looking Statements

Statements included herein may contain "forward-looking statements." Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission, including those described in the section “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Except as required by law, the Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements made herein speak only as of the date of this press release.

Non-GAAP Financial Measures

We make reference to certain non-GAAP financial measures in this press release. A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP is contained in the tables attached hereto.

Non-GAAP measures used by management include Pre-Tax Core Net Income, Core Net Income, Core EBITDA, Core Net Income Per Share and Core Net Income Margin. Management believes that these measures provide analysts, investors and management with helpful information regarding our underlying operating performance and our business, as they remove the impact of items management believes are not reflective of underlying operating performance. These non-GAAP measures are also used by management for planning purposes, including the preparation of internal budgets; and for evaluating the effectiveness of operational strategies. Additionally, we believe these non-GAAP measures provide another tool for investors to use in comparing our results with other companies in our industry, many of whom use similar non-GAAP measures. There are limitations associated with the use of non-GAAP financial measures as compared to the use of the most directly comparable U.S. GAAP financial measure and these measures supplement and should be considered in addition to and not in lieu of the results of operations discussed below. Furthermore, such measures may be inconsistent with measures presented by other companies.

This press release does not constitute an offer for any Medley fund.

Available Information

Medley Management Inc.’s filings with the Securities and Exchange Commission, press releases, earnings releases and other financial information are available at www.mdly.com.

(1) Medley Management Inc. is the parent company of Medley LLC and several registered investment advisors (collectively, "Medley”). Assets under management refers to assets of our funds, which represents the sum of the net asset value of such funds, the drawn and undrawn debt (at the fund level, including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods). Assets under management are as of December 31, 2017.


Exhibit A. Consolidated Statements of Operations of Medley Management Inc.

For the Three Months Ended
December 31,
(unaudited)
For the Years Ended
December 31,
2017 2016 2017 2016
(Amounts in thousands, except share and per share data)
Revenues
Management fees (includes Part I incentive fees of
$2,936, $2,262, $4,874 and $14,209, respectively)
$16,170 $15,276 $58,104 $65,496
Performance fees102 715 (1,744) 2,421
Other revenues and fees2,197 2,260 9,201 8,111
Total Revenues18,469 18,251 65,561 76,028
Expenses
Compensation and benefits9,551 6,404 27,432 27,800
Performance fee compensation(29) (81) (874) (319)
General, administrative and other expenses4,113 2,861 13,045 28,540
Total Expenses13,635 9,184 39,603 56,021
Other Income (Expense)
Dividend income1,431 549 4,327 1,304
Interest expense(2,724) (2,633) (11,855) (9,226)
Other income (expenses), net(464) 489 835 (1,070)
Total Other Expense, Net(1,757) (1,595) (6,693) (8,992)
Income before income taxes3,077 7,472 19,265 11,015
Provision for income taxes463 772 1,956 1,063
Net Income2,614 6,700 ��17,309 9,952
Net income attributable to redeemable non-controlling
interests and non-controlling interests in consolidated
subsidiaries
2,009 1,443 6,718 2,549
Net income attributable to non-controlling interests in
Medley LLC
1,107 4,632 9,664 6,406
Net Income (Loss) Attributable to Medley
Management Inc.
$(502) $625 $927 $997
Net Income (Loss) Per Share of Class A Common Stock:
Basic$(0.11) $0.07 $0.07 $0.02
Diluted$(0.11) $0.07 $0.07 $0.02
Weighted average shares outstanding - Basic and
Diluted
5,478,910 5,809,130 5,553,026 5,804,042

Exhibit B. Consolidated Statements of Comprehensive Income

For the Three Months Ended
December 31,
(unaudited)
For the Years Ended
December 31,
2017 2016 2017 2016
(Amounts in thousands)
Net Income$2,614 $6,700 $17,309 $9,952
Other Comprehensive Income:
Change in fair value of available-for-sale securities (net
of income tax benefit of $0.4 million and $0.9 million
for Medley Management Inc. for the three months and
year ended December 31, 2017, respectively, and $0.2
million and $0.3 million for Non-controlling interests in
Medley LLC for the three months and year ended
December 31, 2017, respectively)
(5,225) (74) (10,305) 194
Total Comprehensive Income (Loss)(2,611) 6,626 7,004 10,146
Comprehensive income attributable to redeemable non-
controlling interests and non-controlling interests in
consolidated subsidiaries
2,009 1,440 6,690 2,577
Comprehensive income (loss) attributable to non-
controlling interests in Medley LLC
(3,441) 4,575 721 6,539
Comprehensive (Loss) Income Attributable to Medley
Management Inc.
$(1,179) $611 $(407) $1,030

Exhibit C. Reconciliation of Core Net Income and Core EBITDA to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC

For the Three Months Ended
December 31,
(unaudited)
For the Years Ended
December 31,
2017 2016 2017 2016
(Amounts in thousands)
Net income attributable to Medley Management Inc.$(502) $625 $927 $997
Net income attributable to non-controlling interests in
Medley LLC
1,107 4,632 9,664 6,406
Net income attributable to Medley Management Inc. and
non-controlling interests in Medley LLC
$605 $5,257 $10,591 $7,403
Reimbursable fund startup expenses664 (62) 1,510 16,329
IPO date award stock-based compensation272 793 461 2,811
Other non-core items:
Severance expense 215 1,184 218
Acceleration of debt issuance costs (1) 401 1,150 612
Other (2)
539 757 518
Income tax expense on adjustments(162) (153) (563) (2,360)
Core Net Income$1,918 $6,451 $15,090 $25,531
Interest expense2,723 2,232 10,705 8,614
Income taxes625 925 2,519 3,423
Depreciation and amortization222 235 912 913
Core EBITDA$5,488 $9,843 $29,226 $38,481

(1) Amounts relate to additional interest expense associated with the acceleration of amortization of debt issuance costs and discount relating to prepayments made on our Term Loan Facility as a result of the refinancing of our indebtedness from the issuance of Senior Unsecured Debt.
(2) For the three months ended December 31, 2017, other non-core items consist of $0.5 million of expenses related to non-core business development activities. For the year ended December 31, 2017, other items consist of an additional $0.2 million of expenses related to non-core business development activities and other expenses. For the year ended December 31, 2016, other non-core items consists of a $0.5 million impairment loss on our investment in CK Pearl Fund.


Exhibit D. Calculation of Core Net Income Per Share

For the Three Months Ended
December 31,
(unaudited)
For the Years Ended
December 31,
2017 2016 2017 2016
(Amounts in thousands, except share and per share amounts)
Numerator
Core Net Income$1,918 $6,451 $15,090 $25,531
Add: Income taxes625 925 2,519 3,423
Pre-Tax Core Net Income$2,543 $7,376 $17,609 $28,954
Denominator
Class A common stock5,478,910 5,809,130 5,553,026 5,804,042
Conversion of LLC Units and restricted LLC Units to
Class A common stock
23,653,333 23,333,333 23,607,744 23,333,333
Restricted Stock Units1,508,753 1,658,049 1,691,112 1,552,037
Pro-Forma Weighted Average Shares Outstanding (1)30,640,996 30,800,512 30,851,882 30,689,412
Pre-Tax Core Net Income Per Share$0.08 $0.24 $0.57 $0.94
Less: corporate income taxes per share (2)(0.03) (0.10) (0.25) (0.40)
Core Net Income Per Share$0.05 $0.14 $0.33 $0.54

(1) The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of 23,333,333 Medley LLC units for 23,333,333 shares of Class A common stock at the beginning of each period presented, as well as the vesting of the weighted average number of restricted stock units and, in 2017, 320,000 restricted LLC units during each of the periods presented and conversion of such restricted LLC units for an equal number of shares of Class A common stock.
(2) Represents a per share adjustment for income taxes assuming that all of our pre-tax earnings were subject to federal, state and local income taxes. We assumed an effective corporate tax rate of 43.0% for all periods presented.


Exhibit E. Reconciliation of Net Income Margin to Core Net Income Margin

For the Three Months Ended
December 31,
(unaudited)
For the Years Ended
December 31,
2017 2016 2017 2016
Net Income Margin3.3% 28.8% 16.2% 9.7%
Reimbursable fund startup expenses (1)3.6% (0.3)% 2.3% 21.5%
IPO date award stock-based compensation (1)1.5% 4.3% 0.7% 3.7%
Other non-core items:(1)
Severance expense—% 1.2% 1.8% 0.3%
Acceleration of debt issuance costs—% 2.2% 1.8% 0.8%
Other

2.9% —% 1.2% 0.7%
Provision for income taxes (1)2.5% 4.2% 3.0% 1.4%
Corporate income taxes (2)(5.9)% (17.4)% (11.5)% (16.4)%
Core Net Income Margin7.9% 23.0% 15.5% 21.7%

(1) Adjustments to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC to calculate Core Net Income are presented as a percentage of total revenue.
(2) Assumes that all of our pre-tax earnings, including adjustments above, are subject to federal, state and local income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 43.0% and presented the calculation as a percentage of total revenue.


Exhibit F. Consolidated Balance Sheets of Medley Management Inc.

As of December 31,
2017 2016
(Amounts in thousands)
Assets
Cash and cash equivalents$36,163 $49,666
Cash and cash equivalents of consolidated fund164
Restricted cash equivalents 4,897
Investments, at fair value56,399 31,904
Management fees receivable14,714 12,630
Performance fees receivable3,220 4,961
Other assets17,262 18,311
Total assets$127,922 $122,369
Liabilities, Redeemable Non-controlling Interests and Equity
Liabilities
Senior unsecured debt$116,892 $49,793
Loans payable9,233 52,178
Accounts payable, accrued expenses and other liabilities25,130 37,255
Total Liabilities151,255 139,226
Redeemable Non-controlling Interests53,741 30,805
Equity
Class A common stock55 58
Class B common stock
Additional paid in capital2,820 3,310
Accumulated other comprehensive income (loss)(1,301) 33
Accumulated deficit(9,545) (5,254)
Total stockholders' deficit, Medley Management Inc.(7,971) (1,853)
Non-controlling interests in consolidated subsidiaries(1,702) (1,717)
Non-controlling interests in Medley LLC(67,401) (44,092)
Total deficit(77,074) (47,662)
Total Liabilities, Redeemable Non-controlling Interests and Equity$127,922 $122,369

Source:Medley Management Inc.