CIFC Corp. Announces Third Quarter of 2014 Results and a Quarterly Dividend

NEW YORK, Nov. 14, 2014 /PRNewswire/ -- CIFC Corp. (NASDAQ: CIFC) ("CIFC" or the "Company") today announced its results for the third quarter ended September 30, 2014.

Highlights

• Economic Net Income ("ENI", a non-GAAP measure) for the nine months was $32.8 million, compared to $28.9 million⁽¹⁾ for the prior year. ENI for the quarter was $4.4 million, compared to $12.9 million⁽¹⁾ for the same period of the prior year.
• GAAP net income (loss) for the nine months was $7.6 million compared to $18.5 million for the prior year. GAAP net income (loss) for the quarter was $0.9 million compared to $8.2 million for the same period in the prior year.
• Fee Earning Assets Under Management ("Fee Earning AUM" or "AUM") from loan-based products was $13.3 billion as of September 30, 2014 as compared to $12.0 billion as of December 31, 2013 and $12.3 billion as of September 30, 2013.
  • During the quarter, the Company sponsored the issuance of two new CLOs that represented $1.3 billion of new AUM.
• CIFC declares a cash dividend of $0.10 per share. The dividend will be paid on December 15, 2014 to shareholders of record as of the close of business on November 25, 2014.

Executive Overview

During the third quarter, CIFC sponsored the issuance of two CLOs for $1.3 billion of new AUM, increasing our loan-based AUM to $13.3 billion. Year-to-date, we have sponsored the issuance of four CLOs representing $2.7 billion of new AUM, making CIFC one of the largest U.S. CLO sponsors in 2014 by AUM⁽²⁾. Our ability to establish warehouses and accumulate assets before pricing the CLOs has been a key competitive advantage that we continue to leverage. ENI for the third quarter of the current year decreased by 66% as compared to the same period in the prior year. Despite the decrease in ENI quarter over quarter, ENI increased by 14% year over year.

Third Quarter Overview

CIFC reported ENI of $4.4 million for the third quarter of 2014, as compared to $12.9 million for the same period in the prior year. ENI decreased period to period by $8.5 million or 66% primarily driven by net increases in operating expenses and net decreases in net investment income. To support the growth and diversification of the business, compensation and benefits, professional fees, general and administrative expenses increased period to period. Net investment income decreased predominately due to (i) the sale of certain residual equity investments in CLOs and (ii) decreases in loan values during the quarter. Further, during the quarter, we entered into a consulting agreement with DFR Holdings LLC ("DFR Holdings"), retroactively from January 1, 2014, where DFR Holdings will provide us with advisory services on an ongoing basis. As part of the consulting agreement, we incurred aggregate professional fees of $1.5 million for the first nine months of the year.

CIFC reported GAAP net income attributable to CIFC Corp. of $0.9 million for the third quarter of 2014, as compared to $8.2 million in the same period of the prior year. GAAP operating results decreased by $7.3 million from the prior year period due to the $8.5 million decrease noted above (see Non-GAAP Financial Measures section for a reconciliation between GAAP and Non-GAAP ENI).  Additional decreases include a (i) $1.5 million reduction in revenues from fee sharing (GAAP presents fees gross of fee sharing), (ii) $1.5 million decrease in gains recognized on contingent liabilities related to changes in the expected performance of legacy CIFC CLOs with fee sharing arrangements, (iii) $0.6 million of litigation expenses and (iv) a $0.6 million reduction related to gain on sale of management contracts in the prior year. These decreases were offset by a reduction of $4.3 million in income tax expense due to lower income quarter over quarter and a $1.1 million reduction in intangible asset amortization compared to the prior year as certain CLO and CDO management contracts were written off in the prior year.

Fee Earning AUM

Fee Earning AUM or AUM refers to the assets managed by the Company on which it is paid management fees and/or incentive fees. Generally, with respect to CLOs, management fees are paid to the Company based on the aggregate collateral balance at par plus principal cash, and with respect to credit funds, the value of the assets in such funds (excluding non-fee earning AUM such as the Company's investments).

The Company's total loan-based Fee Earning AUM was $13.3 billion as of September 30, 2014. During the third quarter, the Company sponsored the issuance of two new CLOs increasing Fee Earning AUM by $1.3 billion. New AUM was offset by declines in Fee Earning AUM for certain CLOs which have reached the end of their contractual reinvestment periods (after which capital is returned to investors as the loan assets underlying the CLOs repay principal).

The following table summarizes Fee Earning AUM for the Company's significant loan-based products (1):

The following graph illustrates that since 2011, CIFC has successfully replaced run-off from Legacy CLOs (including acquired CLOs) through organic growth from post 2011 CLOs and other loan-based products. By the second quarter of 2014, our Legacy CLO AUM of $5.8 billion was less than half of our loan-based AUM of $12.6 billion.

Total loan-based Fee Earning AUM activity for the three months ended September 30, 2014, and the last twelve months ("LTM") ended September 30, 2014, are as follows ($ in thousands):

Liquidity and Capital Resources

As of September 30, 2014, total deconsolidated non-GAAP cash and cash equivalents increased by $3.7 million to $25.1 million from $21.4 million as of December 31, 2013. For the nine months ended September 30, 2014, deconsolidated non-GAAP cash flows from operations was $34.8 million. Our net investment activity in CIFC managed CLO equity, warehouses and funds during the nine months was $19.3 million. The Company paid down $5.9 million of contingent liabilities (related to fee sharing arrangements) and paid dividends of $6.7 million. In addition, the Company received approximately $0.8 million in proceeds from the exercise of options and the extension of DFR Holdings' warrants.

Investments

During the nine months ended September 30, 2014, our investments increased by $26.9 million. During the year, we increased our investments in warehouses and seeded additional capital in our credit funds by selling our investments in certain CLO residual interests. Our investments as of September 30, 2014 and December 31, 2013 are as follows ($ in thousands):

Excluding non-recourse variable interest entity ("VIE") debt, the Company had $120.0 million of Junior Subordinated Notes outstanding as of September 30, 2014, which mature in 2035 and have a weighted average interest rate of LIBOR + 2.77% over the term of the loans. In addition, on July 12, 2014, DFR Holdings converted its $25.0 million aggregate principal amount of Convertible Notes into 4,132,231 shares of the Company's common stock.

Non-GAAP Financial Measures

The Company discloses financial measures that are calculated and presented on a basis of methodology other than in accordance with generally accepted accounting principles of the United States of America ("Non-GAAP") as follows:

ENI is a non-GAAP financial measure of profitability which management uses in addition to GAAP Net income attributable to CIFC Corp. to measure the performance of its core business (excluding non-core products). The Company believes ENI reflects the nature and substance of the business, the economic results driven by management fee revenues from the management of client funds and earnings on the Company's investments. ENI represents net income (loss) attributable to CIFC Corp. excluding (i) income taxes, (ii) merger and acquisition related items including fee-sharing arrangements, amortization and impairments of intangible assets and gain (loss) on contingent consideration for earn-outs, (iii) non-cash compensation related to profits interests granted by CIFC Parent in June 2011, (iv) revenues attributable to non-core investment products, and (v) other non-recurring items.

The Deconsolidated Non-GAAP Statements represent the Consolidated GAAP statements adjusted to eliminate the impact of the Consolidated Entities. On the Statement of Operations, the Company has reclassed the sum of Net results of Consolidated Entities, Net (income) loss attributable to noncontrolling interest in Consolidated Entities and Net gain (loss) on investments at fair value to the Deconsolidated Non-GAAP line items that represent its characteristics: management fees and interest income. On the Balance Sheets, the Company has excluded amounts related to all consolidated entities. Management uses these Non-GAAP statements in addition to Consolidated GAAP Statements to measure the performance of its core asset management business.

EBIT and ENI EBITDA are also non-GAAP financial measures that management considers, in addition to net income (loss) attributable to CIFC Corp., to evaluate the Company's core performance. ENI EBIT represents ENI before corporate interest expense and ENI EBITDA represents ENI EBIT before depreciation of fixed assets, a non-cash item.

ENI, ENI EBIT and ENI EBITDA may not be comparable to similar measures presented by other companies, as they are non-GAAP financial measures that are not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. In addition, ENI, ENI EBIT and ENI EBITDA should be considered as an addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

A detailed calculation of ENI, ENI EBIT and ENI EBITDA and a reconciliation to the most comparable GAAP financial measure is included in the Appendix.

[Financial Tables to Follow in Appendix]

About CIFC

CIFC is a fundamentals-based, relative value credit manager. Headquartered in New York, CIFC is an SEC registered investment adviser and a publicly traded company (NASDAQ: CIFC). We currently serve over 200 institutional investors globally. For more information, please visit CIFC's website at www.cifc.com.

Forward-Looking Statements

This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect CIFC's current views with respect to, among other things, CIFC's operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. CIFC believes these factors include but are not limited to those described under the section entitled "Risk Factors" in its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as such factors may be updated from time to time in its periodic filings with the Securities and Exchange Commission, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the filings. CIFC undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Appendix - Table of Contents

• Summary reconciliation of GAAP net income (loss) attributable to CIFC Corp. to Non-GAAP measures (ENI, ENI EBIT and ENI EBITDA) for the Three and Nine Months Ended September 30, 2014 and 2013 (unaudited)
• Reconciliation of GAAP to Non-GAAP measures (GAAP basis Statements of Operations are adjusted to exclude the consolidation of Entities) for the Three Months Ended September 30, 2014 and 2013 (unaudited)
• Reconciliation of GAAP to Non-GAAP measures (GAAP basis Statements of Operations are adjusted to exclude the consolidation of Entities) for the Nine Months Ended September 30, 2014 and 2013 (unaudited)
• Reconciliation of GAAP to Non-GAAP measures (GAAP basis Balance Sheets are adjusted to exclude the consolidation of Entities) as of September 30, 2014 and December 31, 2013 (unaudited)

Appendix

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SOURCE CIFC Corp.