Medley Management Inc. Reports Fourth Quarter And Full Year 2019 Results

Key Performance Indicators:

For the Three Months Ended
December 31,
(unaudited)

For the Years Ended
December 31,

2019

2018

2019

2018

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

Consolidated Financial Data:

Pre-Tax (Loss) Income

$

(7,070)

$

(12,421)

$

(12,060)

$

(21,268)

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

$

(8,225)

$

(3,874)

$

(13,074)

$

(10,443)

Net loss per Class A common stock

$

(0.46)

$

(0.16)

$

(0.60)

$

(0.65)

Net Income Margin ⁽¹⁾

(77.2)

%

(30.8)

%

(26.8)

%

(18.5)

%

Weighted average shares - Basic and Diluted

6,007,954

5,697,802

5,878,211

5,579,628

Non-GAAP Data:

Pre-Tax Core Net (Loss) Income ⁽²⁾

$

(1,910)

$

(1,397)

$

(1,254)

$

5,818

Core Net (Loss) Income  ⁽²⁾

$

(7,030)

$

(1,107)

$

(6,652)

$

4,058

Core EBITDA  ⁽³⁾

$

1,115

$

1,477

$

10,945

$

17,420

Core Net (Loss) Income Per Share ⁽⁴⁾

$

(0.04)

$

(0.03)

$

(0.03)

$

0.12

Core Net Income Margin ⁽⁵⁾

(12.1)

%

(7.4)

%

(1.7)

%

7.0

%

Pro-Forma Weighted Average Shares Outstanding ⁽⁶⁾

34,388,060

32,158,366

33,603,488

31,695,208

Other Data (at period end, in millions):

AUM

$

4,122

$

4,712

$

4,122

$

4,712

Fee Earning AUM

$

2,138

$

2,785

$

2,138

$

2,785

⁽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% for all of the periods presented above. 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 26,449,973 vested and unvested LLC Units for 26,449,973 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.

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, 2019

$

1,444

$

876

$

2,320

62

%

38

%

Commitments

(60)

20

(40)

Capital reduction

—

—

—

Distributions

(16)

(115)

(131)

Change in fund value

(7)

(4)

(11)

Ending balance, December 30, 2019

$

1,361

$

777

$

2,138

64

%

36

%

The table below presents the roll forward of fee earning AUM for the year ended December 31, 2019:

% 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

(66)

113

47

Capital reduction

(135)

—

(135)

Distributions

(67)

(293)

(360)

Change in fund value

(114)

(85)

(199)

Ending balance, December 31, 2019

$

1,361

$

777

$

2,138

64

%

36

%

⁽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, 2019.

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

For the Three Months Ended
December 31,
(unaudited)

For the Years Ended
December 31,

2019

2018

2019

2018

 (in thousands, except share and per share data)

Revenues

Management fees

$

8,745

$

10,699

$

39,473

$

47,085

Other revenues and fees

1,972

2,367

9,703

10,503

Investment income:

Carried interest

168

(129)

819

142

Other investment loss, net

(231)

(372)

(1,154)

(1,221)

Total Revenues

10,654

12,565

48,841

56,509

Expenses

Compensation and benefits

6,856

9,787

28,925

31,666

General, administrative and other expenses

4,423

4,271

17,186

19,366

Total Expenses

11,279

14,058

46,111

51,032

Other Income (Expense)

Dividend income

177

960

1,119

4,311

Interest expense

(2,851)

(2,693)

(11,497)

(10,806)

Other expenses, net

(3,771)

(9,195)

(4,412)

(20,250)

Total other expenses, net

(6,445)

(10,928)

(14,790)

(26,745)

Loss before income taxes

(7,070)

(12,421)

(12,060)

(21,268)

Provision for (benefit from) income taxes

4,991

(576)

4,710

258

Net Loss

(12,061)

(11,845)

(16,770)

(21,526)

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

(3,836)

(7,971)

(3,696)

(11,083)

Net loss attributable to non-controlling interests in Medley LLC

(5,617)

(3,282)

(9,695)

(8,011)

Net Loss Attributable to Medley Management Inc.

$

(2,608)

$

(592)

$

(3,379)

$

(2,432)

Net Loss Per Share of Class A Common Stock:

Basic

$

(0.46)

$

(0.16)

$

(0.60)

$

(0.65)

Diluted

$

(0.46)

$

(0.16)

$

(0.60)

$

(0.65)

Weighted average shares outstanding - Basic and Diluted

6,007,954

5,697,802

5,878,211

5,579,628

Exhibit B. Reconciliation of Core Net Income (Loss) and Core EBITDA to Net income (loss) 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,

2019

2018

2019

2018

(in thousands)

Net loss attributable to Medley Management Inc.

$

(2,608)

$

(592)

$

(3,379)

$

(2,432)

Net loss attributable to non-controlling interests in Medley LLC

(5,617)

(3,282)

(9,695)

(8,011)

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

$

(8,225)

$

(3,874)

$

(13,074)

$

(10,443)

Reimbursable fund startup expenses

6

179

289

1,483

IPO date award stock-based compensation

222

428

777

1,446

Expenses associated with strategic initiatives

1,070

975

4,556

4,833

Other non-core items:

Unrealized (losses) gains on shares of MCC

(70)

—

(70)

3,543

Severance expense

96

467

1,558

2,730

Other

—

1,004

—

1,967

Income tax expense on adjustments

(129)

(286)

(688)

(1,501)

Core Net Income (Loss)

$

(7,030)

$

(1,107)

$

(6,652)

$

4,058

Interest expense

2,850

2,693

11,497

10,806

Income taxes

5,120

(290)

5,398

1,760

Depreciation and amortization

175

181

702

796

Core EBITDA

$

1,115

$

1,477

$

10,945

$

17,420

For the Three Months Ended
December 31,
(unaudited)

For the Years Ended
December 31,

2019

2018

2019

2018

(in thousands, except share and per share amounts)

Numerator

Core Net Income (Loss)

$

(7,030)

$

(1,107)

$

(6,652)

$

4,058

Add: Income taxes

5,120

(290)

5,398

1,760

Pre-Tax Core Net Income (loss)

$

(1,910)

$

(1,397)

$

(1,254)

$

5,818

Denominator

Class A common stock

6,007,954

5,697,802

5,878,211

5,579,628

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

26,316,641

24,215,302

25,623,372

24,060,861

Restricted Stock Units

2,063,465

2,245,262

2,101,905

2,054,719

Pro-Forma Weighted Average Shares Outstanding ⁽¹⁾

34,388,060

32,158,366

33,603,488

31,695,208

Pre-Tax Core Net Income (Loss) Per Share

$

(0.06)

$

(0.04)

$

(0.04)

$

0.18

Less: corporate income taxes per share ⁽²⁾

0.02

0.01

0.01

(0.06)

Core Net Income (Loss) Per Share

$

(0.04)

$

(0.03)

$

(0.03)

$

0.12

⁽¹⁾

The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 26,449,973 vested and unvested LLC Units for 26,449,973 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
December 31,
(unaudited)

For the Years Ended
December 31,

2019

2018

2019

2018

Net Income Margin

(77.2)

%

(30.8)

%

(26.8)

%

(18.5)

%

Reimbursable fund startup expenses ⁽¹⁾

0.1

%

1.4

%

0.6

%

2.6

%

IPO date award stock-based compensation ⁽¹⁾

2.1

%

3.4

%

1.6

%

2.6

%

Expenses associated with strategic initiatives ⁽¹⁾

10.0

%

7.8

%

9.3

%

8.6

%

Other non-core items:⁽¹⁾

Unrealized losses on shares of MCC

(0.7)

%

—

%

(0.1)

%

6.3

%

Severance expense

0.9

%

3.7

%

3.2

%

4.8

%

Other

—

%

8.0

%

—

%

3.5

%

Provision for income taxes ⁽¹⁾

46.8

%

(4.6)

%

9.6

%

0.5

%

Corporate income taxes ⁽²⁾

5.9

%

3.7

%

0.8

%

(3.4)

%

Core Net Income Margin

(12.1)

%

(7.4)

%

(1.7)

%

7.0

%

⁽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% for all of the periods presented above.

Exhibit E. Consolidated Balance Sheets of Medley Management Inc.

As of December 31,

2019

2018

(in thousands)

Assets

Cash and cash equivalents

$

10,558

$

17,219

Investments, at fair value

13,287

36,425

Management fees receivable

8,104

10,274

Right-of-use assets under operating leases

6,564

—

Other assets

10,283

14,298

Total Assets

$

48,796

$

78,216

Liabilities, Redeemable Non-controlling Interests and Equity

Liabilities

Senior unsecured debt, net

$

118,382

$

117,618

Loans payable, net

10,000

9,892

Due to former minority interest holder, net

8,145

11,402

Operating lease liabilities

8,267

—

Accounts payable, accrued expenses and other liabilities

22,835

26,739

Total Liabilities

167,629

165,651

Redeemable Non-controlling Interests

(748)

23,186

Equity

Class A common stock

62

57

Class B common stock

—

—

Additional paid in capital

13,779

7,529

Accumulated deficit

(22,960)

(19,618)

Total stockholders' deficit, Medley Management Inc.

(9,119)

(12,032)

Non-controlling interests in consolidated subsidiaries

(391)

(747)

Non-controlling interests in Medley LLC

(108,575)

(97,842)

Total Deficit

(118,085)

(110,621)

Total Liabilities, Redeemable Non-controlling Interests and Equity

$

48,796

$

78,216