Medley Management Inc. Declares $0.03 Per Share Dividend, Reports Fourth Quarter And Full Year 2018 Results

Key Performance Indicators:

For the Three Months Ended
December 31,
(unaudited)

For the Year Ended
December 31,

2018

2017

2018

2017

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

Consolidated Financial Data:

Pre-Tax Income (Loss)

$

(12,421)

$

3,077

$

(21,268)

$

19,265

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

$

(3,873)

$

605

$

(10,443)

$

10,591

Net (Loss) income per Class A common stock

$

(0.16)

$

(0.11)

$

(0.65)

$

0.07

Net (Loss) Income Margin ⁽¹⁾

(30.8)

%

3.4

%

(18.5)

%

16.3

%

Weighted average shares - Basic and Diluted

5,697,802

5,478,910

5,579,628

5,553,026

Non-GAAP Data:

Pre-Tax Core Net Income ⁽²⁾

$

(1,397)

$

2,543

$

5,818

$

17,609

Core Net Income  ⁽²⁾

$

(1,106)

$

1,918

$

4,058

$

15,090

Core EBITDA  ⁽³⁾

$

1,478

$

5,488

$

17,420

$

29,226

Core Net Income Per Share ⁽⁴⁾

$

(0.03)

$

0.05

$

0.12

$

0.33

Core Net Income Margin ⁽⁵⁾

(7.4)

%

7.9

%

7.0

%

15.4

%

Pro-Forma Weighted Average Shares Outstanding ⁽⁶⁾

32,158,366

30,640,996

31,695,208

30,851,882

Other Data (at period end, in millions):

AUM

$

4,712

$

5,198

$

4,712

$

5,198

Fee Earning AUM

$

2,785

$

3,158

$

2,785

$

3,158

⁽¹⁾   

Net (Loss) Income Margin equals Net (loss) 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, 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 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 33.0% for 2018 and 43.0% for 2017. 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 up to 24,639,302 vested and unvested LLC Units for 24,639,302 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, September 30, 2018

$

1,814

$

1,077

$

2,891

63

%

37

%

Commitments

(20)

23

3

Distributions

(41)

(58)

(99)

Change in fund value

(10)

—

(10)

Ending Balance, December 31, 2018

$

1,743

$

1,042

$

2,785

63

%

37

%

% 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, 2017

$

2,090

$

1,068

$

3,158

66

%

34

%

Commitments

(137)

237

100

Distributions

(107)

(159)

(266)

Change in fund value

(103)

(104)

(207)

Ending Balance, December 31, 2018

$

1,743

$

1,042

$

2,785

63

%

37

%

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

For the Three Months Ended
December 31,
(unaudited)

For the Year Ended
December 31,

2018

2017

2018

2017

 (in thousands, except share and per share data)

Revenues

Management fees

$

10,699

$

16,170

$

47,085

$

58,104

Performance fees

—

10

—

(1,974)

Other revenues and fees

2,367

2,197

10,503

9,201

Investment income (loss):

Carried interest

(129)

91

142

230

Other investment loss

(372)

(427)

(1,221)

(528)

Total Revenues

12,565

18,041

56,509

65,033

Expenses

Compensation and benefits

9,168

9,551

31,159

27,432

Performance fee compensation

619

(29)

507

(874)

General, administrative and other expenses

4,271

4,113

19,366

13,045

Total Expenses

14,058

13,635

51,032

39,603

Other Income (Expense)

Dividend income

960

1,431

4,311

4,327

Interest expense

(2,693)

(2,724)

(10,806)

(11,855)

Other income (expenses), net

(9,195)

(36)

(20,250)

1,363

Total Other Expense, Net

(10,928)

(1,329)

(26,745)

(6,165)

Income (loss) before income taxes

(12,421)

3,077

(21,268)

19,265

Provision for (benefit from) income taxes

(577)

463

258

1,956

Net Income (Loss)

(11,844)

2,614

(21,526)

17,309

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

(7,971)

2,009

(11,083)

6,718

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

(3,282)

1,107

(8,011)

9,664

Net (Loss) Income Attributable to Medley
Management Inc.

$

(591)

$

(502)

$

(2,432)

$

927

Net (Loss) Income Per Share of Class A Common
Stock:

Basic

$

(0.16)

$

(0.11)

$

(0.65)

$

0.07

Diluted

$

(0.16)

$

(0.11)

$

(0.65)

$

0.07

Weighted average shares outstanding - Basic and
Diluted

5,697,802

5,478,910

5,579,628

5,553,026

Exhibit B. Consolidated Statements of Comprehensive Income

For the Three Months Ended
December 31,
(unaudited)

For the Year Ended
December 31,

2018

2017

2018

2017

(in thousands)

Net Income (Loss)

$

(11,844)

$

2,614

$

(21,526)

$

17,309

Other Comprehensive Income (Loss):

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)

—

(10,305)

Total Comprehensive Income (Loss)

(11,844)

(2,611)

(21,526)

7,004

Comprehensive income (Loss) attributable to
redeemable non-controlling interests and non-controlling
interests in consolidated subsidiaries

(7,971)

2,009

(11,083)

6,690

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

(3,282)

(3,441)

(8,011)

721

Comprehensive (Loss) Income Attributable to Medley
Management Inc.

$

(591)

$

(1,179)

$

(2,432)

$

(407)

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 Year Ended
December 31,

2018

2017

2018

2017

(in thousands)

Net (loss) income attributable to Medley Management Inc.

$

(591)

$

(502)

$

(2,432)

$

927

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

(3,282)

1,107

(8,011)

9,664

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

$

(3,873)

$

605

$

(10,443)

$

10,591

Reimbursable fund startup expenses

179

664

1,483

1,510

IPO date award stock-based compensation

428

272

1,446

461

Expenses associated with strategic initiatives

975

530

4,833

737

Other non-core items:

Unrealized losses on shares of MCC

—

—

3,543

—

Severance expense

467

—

2,730

1,184

Acceleration of debt issuance costs ⁽¹⁾

—

—

—

1,150

Other ⁽²⁾

1,004

9

1,967

20

Income tax expense on adjustments

(286)

(162)

(1,501)

(563)

Core Net Income

$

(1,106)

$

1,918

$

4,058

$

15,090

Interest expense

2,693

2,723

10,806

10,705

Income taxes

(290)

625

1,760

2,519

Depreciation and amortization

181

222

796

912

Core EBITDA

$

1,478

$

5,488

$

17,420

$

29,226

⁽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 2018, consists primarily of expenses related to the consolidation of our business activities to our New York office.

For the Three Months Ended December 31,
(unaudited)

For the Year Ended
December 31,

2018

2017

2018

2017

(in thousands, except share and per share amounts)

Numerator

Core Net Income

$

(1,106)

$

1,918

$

4,058

$

15,090

Add: Income taxes

(291)

625

1,760

2,519

Pre-Tax Core Net Income

$

$

2,543

$

5,818

$

17,609

Denominator

Class A common stock

5,697,802

5,478,910

5,579,628

5,553,026

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

24,215,302

23,653,333

24,060,861

23,607,744

Restricted Stock Units

2,245,262

1,508,753

2,054,719

1,691,112

Pro-Forma Weighted Average Shares Outstanding ⁽¹⁾

32,158,366

30,640,996

31,695,208

30,851,882

Pre-Tax Core Net Income Per Share

$

$

0.08

$

0.18

$

0.57

Less: corporate income taxes per share ⁽²⁾

0.01

(0.03)

(0.06)

(0.25)

Core Net Income Per Share

$

(0.03)

$

0.05

$

0.12

$

0.33

⁽¹⁾    

The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 24,639,302 vested and unvested LLC Units for 24,639,302 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⁾ 

Represents a per share adjustment for income taxes assuming that all of our pre-tax earnings were subject to federal, state and local corporate income taxes. We assumed an effective corporate tax rate of 33.0% for 2018 and 43.0% for 2017. The lower effective corporate tax rate was primarily the result of the enactment of the Tax Cuts and Jobs Act which reduced the federal corporate tax rate from 34.0% to 21.0% effective January 1, 2018.

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

For the Three Months Ended
December 31,
(unaudited)

For the Year Ended
December 31,

2018

2017

2018

2017

Net Income Margin

(30.8)

%

3.4

%

(18.5)

%

16.3

%

Reimbursable fund startup expenses ⁽¹⁾

1.4

%

3.7

%

2.6

%

2.2

%

IPO date award stock-based compensation ⁽¹⁾

3.4

%

1.5

%

2.6

%

0.7

%

Expenses associated with strategic initiatives ⁽¹⁾

7.8

%

2.9

%

8.6

%

1.1

%

Other non-core items:⁽¹⁾

Unrealized losses on shares of MCC

—

%

—

%

6.3

%

—

%

Severance expense

3.7

%

—

%

4.8

%

1.9

%

Acceleration of debt issuance costs

—

%

—

%

—

%

1.8

%

Other

8.0

%

—

%

3.5

%

—

%

Provision for income taxes ⁽¹⁾

(4.6)

%

2.6

%

0.5

%

3.0

%

Corporate income taxes ⁽²⁾

3.7

%

(6.1)

%

(3.4)

%

(11.6)

%

Core Net Income Margin

(7.4)

%

7.9

%

7.0

%

15.4

%

⁽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 corporate income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 33.0% for 2018 and 43.0% for 2017 and presented the calculation as a percentage of total revenue.

Exhibit F. Consolidated Balance Sheets of Medley Management Inc.

As of December 31,

2018

2017

(in thousands)

Assets

Cash and cash equivalents

$

17,219

$

36,327

Investments, at fair value

36,425

56,632

Management fees receivable

10,274

14,714

Performance fees receivable

—

2,987

Other assets

14,298

17,262

Total Assets

$

78,216

$

127,922

Liabilities, Redeemable Non-controlling Interests and Equity

Liabilities

Senior unsecured debt, net

$

117,618

$

116,892

Loans payable, net

9,892

9,233

Due to former minority interest holder

11,402

—

Accounts payable, accrued expenses and other liabilities

26,739

25,130

Total Liabilities

165,651

151,255

Redeemable Non-controlling Interests

23,186

53,741

Equity

Class A common stock

57

55

Class B common stock

—

—

Additional paid in capital

7,529

2,820

Accumulated other comprehensive loss

—

(1,301)

Accumulated deficit

(19,618)

(9,545)

Total stockholders' deficit, Medley Management Inc.

(12,032)

(7,971)

Non-controlling interests in consolidated subsidiaries

(747)

(1,702)

Non-controlling interests in Medley LLC

(97,842)

(67,401)

Total Deficit

(110,621)

(77,074)

Total Liabilities, Redeemable Non-controlling Interests and Equity

$

78,216

$

127,922