- Pro Forma Adjusted Net Income increased 22.9% year-over-year to $0.26 per share for the quarter ended December 31, 2014
- Fee-earning AUM increased 41.4% year-over-year to $5.6 billion at December 31, 2014
- Total revenues were $103.2 million for the year ended December 31, 2014, a 40.2% year-over-year increase
- Management fees represented 92.5% of total revenues for the year ended December 31, 2014
GREENWICH, CT, March 30, 2015 (GLOBE NEWSWIRE) -- Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we") announces its financial results for the fourth quarter and year ended December 31, 2014. On November 4, 2014, we completed our initial public offering ("IPO") and realized net proceeds of $95.9 million. In addition, the previous members of Fifth Street Management agreed to allocate to the post-IPO owners, including FSAM, our earnings (excluding IPO-related charges) from October 1, 2014 through the date of the IPO. Therefore, our financial results prior to October 1, 2014 reflect those of FSAM's predecessor, Fifth Street Management Group.
Fourth Quarter and Full Year 2014 Financial Highlights
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Pro Forma Adjusted Net Income for the quarter ended December 31, 2014 was $12.9 million or $0.26 per share, as compared to $10.5 million or $0.21 per share for the quarter ended December 31, 2013;
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Pro Forma Adjusted Net Income for the year ended December 31, 2014 was $46.2 million or $0.92 per share, as compared to $35.3 million or $0.71 per share for the year ended December 31, 2013;
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Fee-earning Assets Under Management ("AUM") increased to $5.6 billion as of December 31, 2014, which represented a 41.4% increase from $3.9 billion at December 31, 2013;
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Total revenues for the quarter and year ended December 31, 2014 increased 29.8% and 40.2% to $30.3 million and $103.2 million, respectively, as compared to the quarter and year ended December 31, 2013; and
- Management fees represented 88.7% of total revenues for the quarter ended December 31, 2014 and 92.5% of total revenues for the year ended December 31, 2014.
"While we anticipate slower growth at FSAM in 2015, we remain very excited about our long-term growth prospects and are preparing for 2016 by leveraging our scalable platform to launch new products and execute on new initiatives," stated our Chief Executive Officer, Leonard M. Tannenbaum, adding, "We continue to believe that FSAM's direct origination platform is well-positioned to take advantage of positive business trends, including banks pulling out of middle market leveraged lending."
Results of Operations
Total revenues increased by 29.8%, or $7.0 million, to $30.3 million for the quarter ended December 31, 2014, as compared to $23.4 million for the quarter ended December 31, 2013. Total revenues increased by 40.2%, or $29.6 million, to $103.2 million for the year ended December 31, 2014, as compared to $73.6 million for the year ended December 31, 2013. The growth in total revenues was driven by a 41.4% increase in year-over-year fee-earning AUM. Management fees (which include base management fees and Part I fees) for the quarter ended December 31, 2014 were $26.9 million, or 88.7% of total revenues, and for the year ended December 31, 2014 were $95.4 million, or 92.5% of total revenues.
After adjusting for non-recurring and reimbursed items, net expenses increased by 51.4%, or $3.0 million, to $8.8 million for the quarter ended December 31, 2014, as compared to $5.8 million for the quarter ended December 31, 2013. After adjusting for non-recurring and reimbursed items, net expenses increased by 45.9%, or $9.7 million, to $31.0 million for the year ended December 31, 2014, as compared to $21.2 million for the year ended December 31, 2013. The increase in net expenses was due primarily to increases in employee costs due to additions in headcount of 28 employees, or 41.2%, and related occupancy costs during the year-over-year period.
Pro Forma Adjusted Net Income increased by 22.9%, or $2.4 million, to $12.9 million for the quarter ended December 31, 2014, as compared to $10.5 million for quarter ended December 31, 2013 and Pro Forma Adjusted Net Income per share increased to $0.26 for the quarter ended December 31, 2014 versus $0.21 per share for the quarter ended December 31, 2013. Pro Forma Adjusted Net Income increased by 30.8%, or $10.9 million, to $46.2 million for the year ended December 31, 2014, as compared to $35.3 million for year ended December 31, 2013 and Pro Forma Adjusted Net Income per share increased to $0.92 for the year ended December 31, 2014 versus $0.71 per share for the year ended December 31, 2013. Pro Forma Adjusted Net Income reflects changes related to our IPO, including an adjustment for federal, state and local corporate income taxes, net of tax benefits related to basis adjustments.
Dividend Declaration
On January 15, 2015, our Board of Directors declared an initial quarterly dividend of $0.30 per share of our Class A common stock. The declared dividend will be payable on April 15, 2015 to stockholders of record at the close of business on March 31, 2015.
Key Performance Metrics:
Three Months Ended | Years Ended | |||
December 31, | December 31, | |||
2014 | 2013 | 2014 | 2013 | |
(dollars in thousands, except per share amounts) | ||||
Total revenues | $30,343 | $23,383 | $103,206 | $73,622 |
Net income(1) | $709 | $14,991 | $38,813 | $39,772 |
Pro Forma Adjusted Net Income(2) | $12,908 | $10,505 | $46,201 | $35,325 |
Pro Forma Adjusted Net Income Per Share | $0.26 | $0.21 | $0.92 | $0.71 |
Management Fees as % of total revenues | 88.7% | 91.4% | 92.5% | 92.9% |
AUM at end of period(3) | $6,301,260 | $4,377,364 | $6,301,260 | $4,377,364 |
Fee-earning AUM at end of period(4) | $5,554,013 | $3,929,066 | $5,554,013 | $3,929,066 |
(1) Net income for the three months and year ended December 31, 2014 reflects $18.5 million and $19.4 million, respectively, of expenses related to our reorganization and IPO.
(2) Adjusted Net Income represents income before income tax benefit (provision) as adjusted for (i) certain compensation-related charges, including the amortization of equity-based awards related to our reorganization and IPO, (ii) non-recurring underwriting costs relating to public offerings of our funds, (iii) non-recurring professional fees incurred in connection with our IPO and (iv) other non-recurring items. Pro Forma Adjusted Net Income reflects an adjustment for federal, state and local corporate income taxes, net of tax benefits related to basis adjustments due to our IPO. Income before income tax benefit (provision) is the GAAP financial measure most comparable to Adjusted Net Income and net income is the GAAP financial measure most comparable to Pro Forma Adjusted Net Income. Please refer to Exhibit A for a reconciliation of income before income tax benefit (provision) to Adjusted Net Income and Pro Forma Adjusted Net Income.
(3) AUM refers to assets under management of our funds and material control investments of these funds and represents the sum of the net asset value of such funds and investments, the drawn debt and unfunded debt and equity commitments at the fund or investment level (including amounts subject to restrictions) and uncalled committed debt and equity capital (including commitments to funds that have yet to commence their investment periods).
(4) Fee-earning AUM refers to the AUM on which we directly or indirectly earn management fees and represents the sum of the net asset value of our funds and their material control investments and the drawn debt and unfunded debt and equity commitments at the fund or investment level (including amounts subject to restrictions).
Fee-earning AUM
The following table provides a roll-forward of fee-earning AUM for the three months and year ended December 31, 2014 (shown in thousands):
Three Months Ended | Year Ended | |
December 31, | December 31, | |
2014 | 2014 | |
Beginning balance | $4,782,834 | $3,929,066 |
Commitments and equity raises | 23,401 | 533,980 |
Subscriptions, deployments and changes in leverage | 826,622 | 1,199,780 |
Redemptions and distributions | (56,369) | (177,608) |
Change in fund value | (22,475) | 68,795 |
Ending balance | $5,554,013 | $5,554,013 |
Average fee-earning AUM | $5,168,423 | $4,747,540 |
Effective annualized management fee rate | 2.08% | 2.01% |
The following tables provide roll-forwards of fee-earning AUM by fund strategy for the three months and year ended December 31, 2014 (shown in thousands):
Three months ended December 31, 2014 | ||||||
Structured | Senior Loan | |||||
Equity | FSC | FSFR | FSOF | Funds | Total | |
Beginning balance | $4,452 | $4,088,566 | $322,526 | $35,691 | $331,599 | $4,782,834 |
Commitments and equity raises | — | — | — | 2,000 | 21,401 | 23,401 |
Subscriptions, deployments and changes in leverage | 35 | 350,899 | 343,492 | 1,409 | 130,787 | 826,622 |
Redemptions and distributions | (4,542) | (42,184) | (8,840) | — | (803) | (56,369) |
Change in fund value | 55 | (30,660) | 5,476 | 201 | 2,453 | (22,475) |
Ending balance | $— | $4,366,621 | $662,654 | $39,301 | $485,437 | $5,554,013 |
Average fee-earning AUM | $2,226 | $4,227,593 | $492,590 | $37,496 | $408,518 | $5,168,423 |
Fee-earning AUM increased to $5.6 billion as of December 31, 2014, which represented a $771.2 million, or 16.1%, increase from $4.8 billion as of September 30, 2014. The net increase in fee-earning AUM was primarily due to:
- $694.4 million of utilization of leverage and joint venture investment activity at our BDCs; and
- $152.2 million of capital contributions and incremental investment activity at our senior loan funds.
Year ended December 31, 2014 | ||||||
Structured | Senior Loan | |||||
Equity | FSC | FSFR | FSOF | Funds | Total | |
Beginning balance | $4,001 | $3,776,195 | $148,870 | $— | $— | $3,929,066 |
Commitments and equity raises | — | 138,139 | 276,182 | 30,100 | 89,559 | 533,980 |
Subscriptions, deployments and changes in leverage | 35 | 555,305 | 245,135 | 8,151 | 391,154 | 1,199,780 |
Redemptions and distributions | (4,542) | (151,183) | (21,013) | — | (870) | (177,608) |
Change in fund value | 506 | 48,165 | 13,480 | 1,050 | 5,594 | 68,795 |
Ending balance | $— | $4,366,621 | $662,654 | $39,301 | $485,437 | $5,554,013 |
Average fee-earning AUM | $2,001 | $4,071,408 | $405,762 | $19,651 | $242,718 | $4,741,540 |
Fee-earning AUM increased to $5.6 billion as of December 31, 2014, which represented an $1.6 billion, or 41.4%, increase from $3.9 billion as of December 31, 2013. The net increase in fee-earning AUM was primarily due to:
- $276.2 million and $138.1 million of equity capital raises in connection with follow-on equity offerings at FSFR and FSC, respectively;
- $800.4 million of utilization of leverage and joint venture investment activity at our BDCs; and
- the closing of SLF I and SLF II which produced $485.4 million of fee-earning AUM at period end.
Recent Developments
On February 19, 2015, we announced the closing of Fifth Street Senior Loan Fund I, LLC ("SLF I"), a $309.5 million CLO. SLF I is primarily invested in middle market senior secured loans sourced and originated through the Fifth Street platform. The vehicle has a four-year reinvestment period. FSAM sold securities rated from Aaa through Ba3 and retained some of the equity interests and Class F notes. Wells Fargo Securities, LLC served as the Placement Agent.
Non-GAAP Financial Measures and Operating Metrics
Certain of the terms used in this press release, including AUM, fee-earning AUM, Adjusted Net Income and Pro Forma Adjusted Net Income, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and fee-earning AUM are not based on any definition of AUM or fee-earning AUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM set forth in other agreements to which we are a party from time to time. Further, Adjusted Net Income and Pro Forma Adjusted Net Income are not performance measures calculated in accordance with GAAP. We use Adjusted Net Income and Pro Forma Adjusted Net Income as measures of our operating performance, not as measures of liquidity. We believe that Adjusted Net Income provides investors with a meaningful indication of our core operating performance and Adjusted Net Income is evaluated regularly by our management as a decision tool for deployment of resources. We believe that reporting Adjusted Net Income is helpful in understanding our business and that investors should review the same supplemental non-GAAP financial measures that our management uses to analyze our performance. In addition, Pro Forma Net Adjusted Net Income has been included in this press release to reflect certain tax adjustments in connection with our IPO. Adjusted Net Income and Pro Forma Adjusted Net Income have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results prepared in accordance with GAAP. The use of Adjusted Net Income or Pro Forma Adjusted Net Income without consideration of related GAAP measures is not adequate due to the adjustments described herein. Income before income tax benefit (provision) is the GAAP financial measure most comparable to Adjusted Net Income and net income is the GAAP financial measure most comparable to Pro Forma Adjusted Net Income. Please refer to Exhibit A for a reconciliation of income before income tax benefit (provision) to Adjusted Net Income and Pro Forma Adjusted Net Income.
Conference Call Information
We will host a conference call at 10:00 a.m. (Eastern Time) on Monday, March 30, 2015 to discuss our fourth quarter and full year 2014 financial results. All interested parties are welcome to participate. Domestic callers can access the conference call by dialing (800) 706-7749. International callers can access the conference call by dialing +1 (617) 614-3474. All callers will need to enter the Participant Passcode Number 37488726 and reference "Fifth Street Asset Management Inc." after being connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. An archived replay of the call will be available shortly after the end of the conference call through April 13, 2015, to domestic callers by dialing (888) 286-8010 and to international callers by dialing +1 (617) 801-6888. For all replays, please reference Passcode Number 65703273. An archived replay will also be available online in the "Investor Relations" section of FSAM's website under the "News & Events - Calendar of Events" section. FSAM's website can be accessed at fsam.fifthstreetfinance.com.
About Fifth Street Asset Management Inc.
Fifth Street Asset Management Inc. (NASDAQ:FSAM) is a growing credit-focused asset manager. The firm has over $6 billion of assets under management across two publicly-traded business development companies, Fifth Street Finance Corp. (NASDAQ:FSC) and Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR), as well as multiple private investment vehicles. The Fifth Street platform provides innovative and customized financing solutions to small and mid-sized businesses across the capital structure through complementary investment vehicles and co-investment capabilities. With a 17-year track record focused on disciplined credit investing across multiple economic cycles, Fifth Street is led by a seasoned management team that has issued billions of dollars in public equity, private capital and public debt securities. Fifth Street's national origination strategy, proven track record and established platform are supported by approximately 100 professionals across locations in Greenwich, Chicago, Palo Alto and Dallas. For more information, please visit fsam.fifthstreetfinance.com.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the company's current views with respect to, among other things, future events and financial performance. Words such as "believes," "expects," "will," "estimates," "projects," "anticipates," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from those projected in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect it. Therefore, you should not place undue reliance on these forward-looking statements. The company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Exhibit A. Calculation of Adjusted Net Income and Pro Forma Adjusted Net Income
Income before income tax benefit (provision) is the GAAP financial measure most comparable to Adjusted Net Income and net income is the GAAP financial measure most comparable to Pro Forma Adjusted Net Income. The following table provides a reconciliation of Income before income tax benefit (provision) to Adjusted Net Income and Pro Forma Adjusted Net Income (shown in thousands, except per share amounts):
Three months ended | Year ended | |||
December 31, | December 31, | |||
2014 | 2013 | 2014 | 2013 | |
Income (loss) before income tax benefit (provision) | $(1,169) | $14,991 | $36,935 | $39,772 |
Adjustments: | ||||
Compensation-related charges(1)(2) | 18,610 | 484 | 25,025 | 1,739 |
FSFR initial public offering underwriting costs(3) | — | 41 | — | 5,700 |
FSC follow-on equity offering underwriting costs(3) | — | — | 822 | — |
Lease termination charges(4) | 101 | — | 707 | — |
Professional fees and other expenses in connection with our IPO | 224 | — | 1,118 | — |
Adjusted Net Income(5) | $17,766 | $15,516 | $64,607 | $47,211 |
Pro Forma income tax provision(6) | (4,858) | (5,011) | (18,406) | (11,886) |
Pro Forma Adjusted Net Income | $12,908 | $10,505 | $46,201 | $35,325 |
Pro Forma weighted average shares outstanding(7) | 50,000 | 50,000 | 50,000 | 50,000 |
Pro Forma Adjusted Net Income per Class A common share(7) | $0.26 | $0.21 | $0.92 | $0.71 |
(1) For the years ended December 31, 2014 and 2013, this amount includes $1.8 million and $1.7 million, respectively, of amortization expense relating to certain equity-classified compensation awards. The $8.2 million remaining unamortized portion of these awards at our IPO date represents the fair value at their respective grant dates as determined by an independent third party appraisal net of cash paid for the awards and is being amortized on a straight-line basis over an eight-year vesting period.
(2) For the year ended December 31, 2014, this amount includes: (1) $3.1 million of noncash compensation expense relating to the separation of a former equity member in May 2014, (2) $3.1 million of cash payments to purchase the equity interest from a former member, (3) $15.1 million of noncash compensation expense relating to our reorganization and IPO, (4) $1.1 million of cash bonus awards paid to certain of our employees in connection with our IPO and (5) $0.8 million of amortization expense relating to stock-based compensation that was awarded to certain of our employees in connection with our IPO.
(3) These amounts represent the costs borne by us relating to equity underwriting commissions attributable to equity offerings of our BDCs.
(4) Includes non-recurring charges for termination payments and related exit costs accrued at present value relating to our office leases.
(5) Adjusted Net Income is presented on a pre-tax basis.
(6) Based on our estimated effective tax rate and includes an adjustment for pro forma tax benefits related to basis adjustments due to our IPO.
(7) Presented with the assumption that 100% of the LP interests in Fifth Street Holdings L.P. were converted on a one-for-one basis into shares of our Class A common stock as of January 1, 2013.
Exhibit B. Consolidated Statements of Financial Condition as of December 31, 2014 and December 31, 2013
As of | ||
December 31, 2014 | December 31, 2013 | |
Assets | ||
Cash and cash equivalents | $3,238,008 | $4,015,728 |
Management fees receivable (includes Part I Fees of $11,307,080 and $9,054,422 at December 31, 2014 and 2013, respectively) | 26,861,787 | 21,409,763 |
Performance fees receivable | 106,635 | — |
Prepaid expenses | 1,150,013 | 142,033 |
Investments in equity method investees | 4,115,429 | — |
Due from affiliates | 3,799,542 | 3,848,491 |
Fixed assets, net | 10,274,263 | 1,436,681 |
Deferred tax assets | 57,972,039 | — |
Deferred financing costs | 2,432,764 | — |
Other assets | 4,197,358 | 2,652,975 |
Total assets | $114,147,838 | $33,505,671 |
Liabilities and Equity | ||
Liabilities | ||
Accounts payable and accrued expenses | $3,045,651 | $1,198,205 |
Accrued compensation and benefits | 11,095,548 | 538,035 |
Income taxes payable | 361,052 | — |
Loan payable | 4,000,000 | 4,000,000 |
Credit facility payable | 12,000,000 | — |
Due to Principal | 9,063,792 | — |
Due to affiliates | 62,781 | 2,671,334 |
Due to former member | — | 2,093,437 |
Deferred rent liability | 3,261,434 | 1,980,146 |
Payable to related parties pursuant to tax receivable agreements | 47,373,245 | — |
Total liabilities | 90,263,503 | 12,481,157 |
Commitments and contingencies | ||
Equity | ||
Class A common stock, $0.01 par value 500,000,000 shares authorized; 6,000,033 shares issued and outstanding as of December 31, 2014 | 60,000 | — |
Class B common stock, $0.01 par value 50,000,000 shares authorized; 42,856,854 shares issued and outstanding as of December 31, 2014 | 428,569 | — |
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding as of December 31, 2014 | — | — |
Additional paid-in capital | 4,975,073 | — |
Retained earnings | 1,288,995 | — |
Total stockholders' equity, Fifth Street Asset Management Inc. | 6,752,637 | — |
Non-controlling interests in Fifth Street Holdings L.P. | 17,131,698 | — |
Members' equity of Predecessor | — | 21,024,514 |
Total equity | 23,884,335 | 21,024,514 |
Total liabilities and equity | $114,147,838 | $33,505,671 |
Exhibit C. Consolidated Statements of Income for the Three Months and Years Ended December 31, 2014 and 2013
For the Three Months Ended | For the Years Ended | |||
December 31, | December 31, | |||
2014 | 2013 | 2014 | 2013 | |
Revenues | ||||
Management fees (includes Part I Fees of $11,297,519 and $9,054,421 and $39,280,991 and $30,573,056 for the three months and years ended December 31, 2014 and 2013, respectively) | $26,907,406 | $21,367,406 | $95,425,407 | $68,417,218 |
Performance fees | (32,414) | — | 106,635 | — |
Other fees | 3,468,032 | 2,015,866 | 7,674,019 | 5,204,820 |
Total revenues | 30,343,024 | 23,383,272 | 103,206,061 | 73,622,038 |
Expenses | ||||
Compensation and benefits | 27,986,418 | 6,334,041 | 53,697,430 | 22,411,155 |
Fund offering and start-up expenses | 47,489 | 38,829 | 1,247,923 | 5,701,831 |
General, administrative and other expenses | 2,874,324 | 1,931,413 | 10,365,867 | 5,506,680 |
Depreciation and amortization | 344,396 | 83,300 | 985,845 | 236,892 |
Total expenses | 31,252,627 | 8,387,583 | 66,297,065 | 33,856,558 |
Other income (expense) | ||||
Interest income | 1,501 | 6,197 | 13,031 | 17,575 |
Interest expense | (248,568) | (11,233) | (323,363) | (11,233) |
Income from equity method investments | 29,611 | — | 246,361 | — |
Other income (expense), net | (41,951) | — | 90,049 | — |
Total other income, net | (259,407) | (5,036) | 26,078 | 6,342 |
Income before income tax benefit | (1,169,010) | 14,990,653 | 36,935,074 | 39,771,822 |
Income tax benefit | (1,877,758) | — | (1,877,758) | — |
Net income | 708,748 | 14,990,653 | 38,812,832 | 39,771,822 |
Net (income) loss attributable to Predecessor | 11,375,127 | (14,990,653) | (26,728,957) | (39,771,822) |
Net income attributable to non-controlling interests in Fifth Street Holdings L.P. | (11,555,298) | — | (11,555,298) | — |
Net income attributable to Fifth Street Asset Management Inc. | $528,577 | $— | $528,577 | $— |
Net income per share attributable to Fifth Street Asset Management Inc. Class A common stock - Basic and Diluted | $0.09 | $0.09 | ||
Weighted average shares of Class A common stock outstanding - Basic and Diluted from November 4, 2014 through December 31, 2014 | 6,000,033 | 6,000,033 | ||