Medley Management Inc. Reports Third Quarter 2019 Results

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30,
(unaudited)

2019

2018

2019

2018

(dollars in thousands, except AUM, share and per share amounts)

Consolidated Financial Data:

Pre-Tax (Loss) Income

$

(1,881)

$

2,868

$

(4,989)

$

(8,847)

Net loss attributable to Medley Management Inc. and
non-controlling interests in Medley LLC

$

(3,312)

$

(1,448)

$

(4,848)

$

(6,570)

Net loss per Class A common stock

$

(0.09)

$

(0.15)

$

(0.13)

$

(0.49)

Net Income Margin ⁽¹⁾

(28.7)

%

(10.1)

%

(12.7)

%

(15.0)

%

Weighted average shares - Basic and Diluted

5,899,328

5,591,123

5,834,489

5,539,804

Non-GAAP Data:

Pre-Tax Core Net (Loss) Income ⁽²⁾

$

(926)

$

2,684

$

656

$

7,212

Core Net (Loss) Income  ⁽²⁾

$

(987)

$

1,889

$

378

$

5,163

Core EBITDA  ⁽³⁾

$

2,123

$

5,582

$

9,830

$

15,941

Core Net (Loss) Income Per Share ⁽⁴⁾

$

(0.02)

$

0.06

$

0.01

$

0.16

Core Net Income Margin ⁽⁵⁾

(5.4)

%

12.5

%

1.2

%

11.0

%

Pro-Forma Weighted Average Shares Outstanding ⁽⁶⁾

34,507,579

32,174,946

33,339,090

31,539,125

Other Data (at period end, in millions):

AUM

$

4,271

$

4,796

$

4,271

$

4,796

Fee Earning AUM

$

2,320

$

2,891

$

2,320

$

2,891

⁽¹⁾ 

Net Income Margin equals Net income (loss) 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 (loss)   attributable to Medley Management Inc. and 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, non-recurring expenses associated with strategic initiatives, such as our pending merger with Sierra, 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 (loss) attributable to Medley Management Inc. and non-controlling interests in Medley LLC in Exhibit B 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 (loss) attributable to Medley Management Inc. and non-controlling interests in Medley LLC in Exhibit B 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 assume that all of our pre-tax earnings are subject to federal, state and local corporate income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 33.0%. Please refer to the calculation of Core Net Income Per Share in Exhibit C 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 up to 26,316,642 vested and unvested LLC Units for 26,316,642 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 granted to employees and directors during each of the periods presented.

% 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, June 30, 2019

$

1,527

$

945

$

2,472

62

%

38

%

Commitments

(14)

15

1

Capital reduction

?

?

?

Distributions

(16)

(62)

(78)

Change in fund value

(53)

(22)

(75)

Ending balance, September 30, 2019

$

1,444

$

876

$

2,320

62

%

38

%

% 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, 2018

$

1,743

$

1,042

$

2,785

63

%

37

%

Commitments

(6)

96

90

Capital reduction

(135)

?

(135)

Distributions

(51)

(193)

(244)

Change in fund value

(107)

(69)

(176)

Ending balance, September 30, 2019

$

1,444

$

876

$

2,320

62

%

38

%

⁽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 September 30, 2019.

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

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30,
(unaudited)

2019

2018

2019

2018

 (in thousands, except share and per share data)

Revenues

Management fees

$

9,607

$

12,336

$

30,728

$

36,386

Other revenues and fees

2,621

2,769

7,731

8,136

Investment income:

Carried interest

(142)

(326)

651

271

Other investment loss, net

(550)

(382)

(922)

(849)

Total Revenues

11,536

14,397

38,188

43,944

Expenses

Compensation and benefits

7,090

6,241

22,069

21,879

General, administrative and other expenses

5,403

6,244

12,763

15,095

Total Expenses

12,493

12,485

34,832

36,974

Other Income (Expense)

Dividend income

182

962

942

3,351

Interest expense

(2,874)

(2,717)

(8,646)

(8,113)

Other expenses, net

1,768

2,711

(641)

(11,055)

Total other expenses, net

(924)

956

(8,345)

(15,817)

Loss before income taxes

(1,881)

2,868

(4,989)

(8,847)

(Benefit from) provision for income taxes

(188)

450

(281)

835

Net Loss

(1,693)

2,418

(4,708)

(9,682)

Net loss attributable to redeemable non-controlling
interests and non-controlling interests in consolidated
subsidiaries

1,619

3,866

140

(3,112)

Net (loss) income attributable to non-controlling interests in Medley LLC

(2,796)

(963)

(4,078)

(4,729)

Net Loss Attributable to Medley Management Inc.

$

(516)

$

(485)

$

(770)

$

(1,841)

Net Loss Per Share of Class A Common Stock:

Basic

$

(0.09)

$

(0.15)

$

(0.13)

$

(0.49)

Diluted

$

(0.09)

$

(0.15)

$

(0.13)

$

(0.49)

Weighted average shares outstanding - Basic and Diluted

5,899,328

5,591,123

5,834,489

5,539,804

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

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30,
(unaudited)

2019

2018

2019

2018

(in thousands)

Net loss attributable to Medley Management Inc.

$

(516)

$

(485)

$

(770)

$

(1,841)

Net (loss) income attributable to non-controlling interests in Medley LLC

(2,796)

(963)

(4,078)

(4,729)

Net (loss) income attributable to Medley Management Inc.
and non-controlling interests in Medley LLC

$

(3,312)

$

(1,448)

$

(4,848)

$

(6,570)

Reimbursable fund startup expenses

22

240

283

1,304

IPO date award stock-based compensation

282

444

555

1,018

Expenses associated with strategic initiatives

2,070

2,067

3,486

3,858

Other non-core items:

Unrealized losses on shares of MCC

?

?

?

3,543

Severance expense

200

39

1,462

2,263

Other

?

892

?

961

Income tax expense on adjustments

(249)

(345)

(560)

(1,214)

Core Net Income

$

(987)

$

1,889

$

378

$

5,163

Interest expense

2,874

2,717

8,647

8,113

Income taxes

61

795

278

2,049

Depreciation and amortization

175

181

527

616

Core EBITDA

$

2,123

$

5,582

$

9,830

$

15,941

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30,
(unaudited)

2019

2018

2019

2018

(in thousands, except share and per share amounts)

Numerator

Core Net Income

$

(987)

$

1,889

$

378

$

5,163

Add: Income taxes

61

795

278

2,049

Pre-Tax Core Net Income

$

$

2,684

$

656

$

7,212

Denominator

Class A common stock

5,899,328

5,591,123

5,834,489

5,539,804

Conversion of LLC Units and restricted LLC Units to
Class A common stock

26,316,642

24,215,302

25,389,742

24,008,815

Restricted Stock Units

2,291,609

2,368,521

2,114,859

1,990,506

Pro-Forma Weighted Average Shares Outstanding ⁽¹⁾

34,507,579

32,174,946

33,339,090

31,539,125

Pre-Tax Core Net Income Per Share

$

$

0.08

$

0.02

$

0.23

Less: corporate income taxes per share ⁽²⁾

0.01

(0.02)

(0.01)

(0.07)

Core Net Income Per Share

$

(0.02)

$

0.06

$

0.01

$

0.16

⁽¹⁾

The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 26,316,642 vested and unvested LLC Units for 26,316,642 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 granted to employees and directors during each of the periods presented.

⁽²⁾

Assumes that all of our pre-tax earnings are subject to federal, state and local corporate income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 33.0%.

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

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30,
(unaudited)

2019

2018

2019

2018

Net Income Margin

(28.7)

%

(10.1)

%

(12.7)

%

(15.0)

%

Reimbursable fund startup expenses ⁽¹⁾

0.2

%

1.7

%

0.7

%

3.0

%

IPO date award stock-based compensation ⁽¹⁾

2.4

%

3.1

%

1.5

%

2.3

%

Expenses associated with strategic initiatives ⁽¹⁾

17.9

%

14.4

%

9.1

%

8.8

%

Other non-core items:⁽¹⁾

Unrealized losses on shares of MCC

?

%

?

%

?

%

8.1

%

Severance expense

1.7

%

0.3

%

3.8

%

5.1

%

Other

?

%

6.2

%

?

%

2.2

%

Provision for income taxes ⁽¹⁾

(1.6)

%

3.1

%

(0.7)

%

1.9

%

Corporate income taxes ⁽²⁾

2.7

%

(6.2)

%

(0.6)

%

(5.4)

%

Core Net Income Margin

(5.4)

%

12.5

%

1.2

%

11.0

%

⁽¹⁾ 

Adjustments to Net income (loss) 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 are subject to federal, state and local corporate income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 33.0%

Exhibit E. Consolidated Balance Sheets of Medley Management Inc.

As of

September 30, 2019
(unaudited)

(in thousands)

Assets

Cash and cash equivalents

$

11,125

$

17,219

Investments, at fair value

34,331

36,425

Management fees receivable

8,526

10,274

Right-of-use assets under operating leases

6,996

?

Other assets

14,444

14,298

Total Assets

$

75,422

$

78,216

Liabilities, Redeemable Non-controlling Interests and Equity

Liabilities

Senior unsecured debt, net

$

118,190

$

117,618

Loans payable, net

10,000

9,892

Due to former minority interest holder, net

8,735

11,402

Operating lease liabilities

8,772

?

Accounts payable, accrued expenses and other liabilities

20,371

26,739

Total Liabilities

166,068

165,651

Redeemable Non-controlling Interests

20,503

23,186

Equity

Class A common stock

60

57

Class B common stock

?

?

Additional paid in capital

12,242

7,529

Accumulated deficit

(20,290)

(19,618)

Total stockholders' deficit, Medley Management Inc.

(7,988)

(12,032)

Non-controlling interests in consolidated subsidiaries

(509)

(747)

Non-controlling interests in Medley LLC

(102,652)

(97,842)

Total Deficit

(111,149)

(110,621)

Total Liabilities, Redeemable Non-controlling Interests and Equity

$

75,422

$

78,216