Medley Management Inc. Reports Third Quarter 2020 Results

Key Performance Indicators:

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30,
(unaudited)

2020

2019

2020

2019

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

Consolidated Financial Data:

Pre-Tax (Loss) Income

$

(2,015)

$

(1,881)

$

(17,431)

$

(4,989)

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

$

(1,696)

$

(3,312)

$

(15,854)

$

(4,848)

Net loss per Class A common stock

$

(0.19)

$

(0.86)

$

(3.39)

$

(1.32)

Net Income Margin ⁽¹⁾

(20.4)

%

(28.7)

%

(64.0)

%

(12.7)

%

Weighted average shares - Basic and Diluted

639,216

589,933

631,620

583,449

Non-GAAP Data:

Pre-Tax Core Net Income (Loss) ⁽²⁾

$

(1,038)

$

(926)

$

(11,748)

$

656

Core Net Income (Loss) ⁽²⁾

$

(837)

$

(987)

$

(10,749)

$

378

Core EBITDA ⁽³⁾

$

1,677

$

2,123

$

(3,259)

$

9,830

Core Net Income (Loss) Per Share ⁽⁴⁾

$

(0.16)

$

(0.18)

$

(1.88)

$

0.13

Core Net Income Margin ⁽⁵⁾

(7.0)

%

(5.4)

%

(26.5)

%

1.2

%

Pro-Forma Weighted Average Shares Outstanding ⁽⁶⁾

3,560,303

3,450,758

3,495,108

3,333,909

Other Data (at period end, in millions):

AUM

$

3,408

$

4,271

$

3,408

$

4,271

Fee Earning AUM

$

1,670

$

2,320

$

1,670

$

2,320

(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 terminated
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 44.0%
and 33.0% for 2020 and 2019, respectively. The rate differential in 2020 from 2019 is attributed to the tax benefit from the
CARES Act which allows for the current year carryback of net operating losses to years in which the Federal rate was 34.0%
rather than the current rate of 21.0%. 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 2,673,516 and 2,631,658 vested and unvested LLC Units for 2,673,516 and 2,631,658 shares of Class A common stock at the beginning of each of the periods ended 2020 and 2019, respectively, 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, June 30, 2020

$

983

$

674

$

1,657

59

%

41

%

Commitments

—

25

25

Capital reduction

(14)

—

(14)

Distributions

—

(14)

(14)

Change in fund value

26

(10)

16

Ending balance, September 30, 2020

$

995

$

675

$

1,670

60

%

40

%

Total fee earning AUM increased by $13.0 million, or 0.8%, to $1.7 billion as of September 30, 2020 compared to June 30,
2020, due primarily to permanent reductions in leverage during the period.

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, 2019

$

1,361

$

777

$

2,138

64

%

36

%

Commitments

(91)

59

(32)

Capital reduction

(106)

—

(106)

Distributions

(21)

(90)

(111)

Change in fund value

(148)

(71)

(219)

Ending balance, September 30, 2020

$

995

$

675

$

1,670

60

%

40

%

Total fee earning AUM decreased by $468.0 million, or 22%, to $1.7 billion as of September 30, 2020 compared to
December 31, 2019, due primarily to changes in fund value, distributions and debt repayments representing capital reductions.

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)

2020

2019

2020

2019

 (in thousands, except share and per share data)

Revenues

Management fees

$

6,275

$

9,607

$

19,807

$

30,728

Other revenues and fees

1,635

2,621

6,269

7,731

Investment income (loss):

Carried interest

(3)

(142)

83

651

Other investment income (loss), net

419

(550)

(1,384)

(922)

Total Revenues

8,326

11,536

24,775

38,188

Expenses

Compensation and benefits

4,040

7,090

17,119

22,069

General, administrative and other expenses

3,599

5,403

11,682

12,763

Total Expenses

7,639

12,493

28,801

34,832

Other Income (Expense)

Dividend income

—

182

137

942

Interest expense

(2,535)

(2,874)

(7,950)

(8,646)

Other (expenses) income, net

(167)

1,768

(5,592)

(641)

Total other expenses, net

(2,702)

(924)

(13,405)

(8,345)

Loss before income taxes

(2,015)

(1,881)

(17,431)

(4,989)

Benefit from income taxes

(320)

(188)

(1,637)

(281)

Net Loss

(1,695)

(1,693)

(15,794)

(4,708)

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

1

1,619

60

140

Net loss attributable to non-controlling interests in
Medley LLC

(1,574)

(2,796)

(13,788)

(4,078)

Net Loss Attributable to Medley Management Inc.

$

(122)

$

(516)

$

(2,066)

$

(770)

Net Loss Per Share of Class A Common Stock:

Basic

$

(0.19)

$

(0.86)

$

(3.39)

$

(1.32)

Diluted

$

(0.19)

$

(0.86)

$

(3.39)

$

(1.32)

Weighted average shares outstanding - Basic and Diluted

639,216

589,933

631,620

583,449

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 September 30,
(unaudited)

2020

2019

2020

2019

(in thousands)

Net loss attributable to Medley Management Inc.

$

(122)

$

(516)

$

(2,066)

$

(770)

Net loss attributable to non-controlling interests in
Medley LLC

(1,574)

(2,796)

(13,788)

(4,078)

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

$

(1,696)

$

(3,312)

$

(15,854)

$

(4,848)

Reimbursable fund startup expenses

—

22

1

283

IPO date award stock-based compensation

—

282

—

555

Expenses associated with strategic initiatives

992

2,070

3,519

3,486

Other non-core items:

     Severance expense

(14)

200

2,103

1,462

Other

—

—

120

—

Income tax expense on adjustments

(119)

(249)

(638)

(560)

Core Net Income (Loss)

$

(837)

$

(987)

$

(10,749)

$

378

Interest expense

2,535

2,874

7,950

8,647

Income taxes

(201)

61

(999)

278

Depreciation and amortization

180

175

539

527

Core EBITDA

$

1,677

$

2,123

$

(3,259)

$

9,830

Exhibit C. Calculation of Core Net Income (Loss) Per Share

For the Three Months Ended September 30,
(unaudited)

For the Nine Months Ended September 30, 
 (unaudited)

2020

2019

2020

2019

(in thousands, except share and per share amounts)

Numerator

Core Net Income (Loss)

$

(837)

$

(987)

$

(10,749)

$

378

Add: Income taxes

(201)

61

(999)

278

Pre-Tax Core Net Income (loss)

$

(1,038)

$

(926)

$

(11,748)

$

656

Denominator

Class A common stock

639,216

589,933

631,620

583,449

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

2,673,516

2,631,664

2,655,031

2,538,974

Restricted Stock Units

247,571

229,161

208,457

211,486

Pro-Forma Weighted Average Shares Outstanding ⁽¹⁾

3,560,303

3,450,758

3,495,108

3,333,909

Pre-Tax Core Net Income (Loss) Per Share

$

(0.29)

$

(0.27)

$

(3.36)

$

0.20

Less: corporate income taxes per share ⁽²⁾

0.13

0.09

1.48

(0.07)

Core Net Income (Loss) Per Share

$

(0.16)

$

(0.18)

$

(1.88)

$

0.13

(1)

The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up
to 2,673,516 and 2,631,658 vested and unvested LLC Units for 2,673,516 and 2,631,658 shares of Class A common stock at
the beginning of each of the periods ended 2020 and 2019, respectively, 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 44.0% and 33.0% for 2020 and 2019, respectively.
The rate differential in 2020 from 2019 is attributed to the tax benefit from the CARES Act which allows for the current year
carryback of net operating losses to years in which the Federal rate was 34.0% rather than the current rate of 21.0%.

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)

2020

2019

2020

2019

Net Income Margin

(20.4)

%

(28.7)

%

(64.0)

%

(12.7)

%

Reimbursable fund startup expenses ⁽¹⁾

—

%

0.2

%

—

%

0.7

%

IPO date award stock-based compensation ⁽¹⁾

—

%

2.4

%

—

%

1.5

%

Expenses associated with strategic initiatives ⁽¹⁾

11.9

%

17.9

%

14.2

%

9.1

%

Other non-core items: ⁽¹⁾

Severance expense

(0.2)

%

1.7

%

8.5

%

3.8

%

Other

—

%

—

%

0.5

%

—

%

Provision for income taxes ⁽¹⁾

(3.8)

%

(1.6)

%

(6.6)

%

(0.7)

%

Corporate income taxes ⁽²⁾

5.5

%

2.7

%

20.9

%

(0.6)

%

Core Net Income Margin

(7.0)

%

(5.4)

%

(26.5)

%

1.2

%

(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 our pre-tax earnings, including adjustments above, are subject to federal, state and local corporate income
taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 44.0% and 33.0% for the
three and nine months ended September 30, 2020 and 2019, respectively. The rate differential in 2020 from 2019 is attributed
to the tax benefit from the CARES Act which allows for the current year carryback of net operating losses to years in which
the Federal rate was 34.0% rather than the current rate of 21.0%.

Exhibit E. Consolidated Balance Sheets of Medley Management Inc.

As of

September 30, 2020
(unaudited)

December 31, 2019

(in thousands)

Assets

Cash and cash equivalents

$

6,048

$

10,558

Investments, at fair value

9,637

13,287

Management fees receivable

5,799

8,104

Right-of-use assets under operating leases

5,206

6,564

Other assets

12,021

10,283

Total Assets

$

38,711

$

48,796

Liabilities, Redeemable Non-controlling Interests and Equity

Liabilities

Senior unsecured debt, net

$

118,958

$

118,382

Loans payable, net

10,000

10,000

Due to former minority interest holder, net

7,233

8,145

Operating lease liabilities

7,420

8,267

Accounts payable, accrued expenses and other liabilities

27,080

22,835

Total Liabilities

170,691

167,629

Redeemable Non-controlling Interests

—

(748)

Equity

Class A common stock

7

6

Class B common stock

—

—

Additional paid in capital

16,657

13,835

Accumulated deficit

(24,796)

(22,960)

Total stockholders' deficit, Medley Management Inc.

(8,132)

(9,119)

Non-controlling interests in consolidated subsidiaries

(477)

(391)

Non-controlling interests in Medley LLC

(123,371)

(108,575)

Total Deficit

(131,980)

(118,085)

Total Liabilities, Redeemable Non-controlling Interests and Equity

$

38,711

$

48,796