GREENWICH, CT, Aug. 21, 2017 (GLOBE NEWSWIRE) -- Fifth Street Asset Management Inc. (NASDAQ:FSAM) ("FSAM" or "we") today announced its financial results for the second quarter ended June 30, 2017.
Second Quarter 2017 Highlights
- GAAP net loss attributable to FSAM for the quarter ended June 30, 2017 of $0.9 million, or $0.06 per share;
- Total revenues for the quarter ended June 30, 2017 of $15.9 million; and
- Management fees represented 88.8% of total revenues for the quarter ended June 30, 2017.
Results of Operations
Total revenues for the quarter ended June 30, 2017 were $15.9 million, representing a $7.3 million, or 31.4%, decrease from $23.2 million for the quarter ended June 30, 2016. Management fees (which include base management fees and Part I fees) for the quarter ended June 30, 2017 were $14.1 million, representing 88.8% of total revenues. The decrease in revenues was primarily due to lower levels of fee-earning assets and pre-incentive fee net investment income at FSC.
Total expenses for the quarter ended June 30, 2017 were $19.4 million, and include amounts reimbursed by our funds of $1.8 million and IPO-related compensation charges of $1.0 million. After adjusting for these items, net expenses were $16.7 million for the quarter ended June 30, 2017, which included non-recurring professional and consulting fees of $8.9 million and severance and other one-time compensation costs of $1.3 million. Total expenses for the quarter ended June 30, 2016 were $22.1 million, and include amounts reimbursed by our funds of $1.8 million, IPO-related compensation charges of $1.9 million, lease termination/abandonment charges of $2.9 million and operating expenses attributable to MMKT of $0.4 million. After adjusting for these items, net expenses were $15.1 million for the quarter ended June 30, 2016, which included non-recurring professional and consulting fees of $5.9 million and severance and other one-time compensation costs of $0.7 million.
Net expenses for the quarter ended June 30, 2017 were $16.7 million, representing an increase of $1.6 million from $15.1 million for the quarter ended June 30, 2016. This increase was primarily due to higher levels of non-recurring professional and consulting fees and one-time compensation costs in the current period. Excluding these non-recurring professional and compensation costs, net expenses decreased by $2.0 million as compared to the quarter ended June 30, 2016, primarily driven by lower employee headcount in the current period.
GAAP net loss attributable to FSAM for the quarter ended June 30, 2017 was $0.9 million or $0.06 per share, versus GAAP net income attributable to FSAM of $0.8 million, or $0.15 per share, for the quarter ended June 30, 2016. The decrease in GAAP net income (loss) attributable to FSAM was primarily due to the revenue and net expense variances described above.
Key Performance Metrics
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Total revenues | $ | 15,880 | $ | 23,152 | $ | 31,518 | $ | 42,199 | ||||||||
| Net income (loss) attributable to FSAM | $ | (902 | ) | $ | 848 | $ | 693 | $ | (384 | ) | ||||||
| Net income (loss) per share attributable to FSAM | $ | (0.06 | ) | $ | 0.15 | $ | 0.04 | $ | (0.07 | ) | ||||||
| Management Fees as % of total revenues | 88.8 | % | 92.0 | % | 87.7 | % | 90.9 | % | ||||||||
Recent Developments
Amended and Restated Credit Agreement
On June 30, 2017, Fifth Street Holdings LP ("FSH"), a subsidiary of FSAM, entered into an amended and restated credit agreement with the guarantors and lenders party thereto, Sumitomo Mitsui Banking Corporation, as administrative agent, and Cortland Capital Market Services LLC, as collateral agent. As amended and restated, the credit facility is a $100 million term loan facility that matures on August 1, 2019 and provides for monthly amortization of amounts owing under the facility beginning on January 1, 2018 at a rate of 5.0% of the aggregate amount outstanding as of January 1, 2018, subject to certain reductions. The credit facility is now secured by substantially all of the assets of FSH and certain of its subsidiaries.
NewStar Financial Purchase Agreement
On July 1, 2017, FSH entered into a purchase agreement with New Star Financial, Inc ("Newstar"). At the closing of the transactions contemplated thereby on July 20, 2017, NewStar acquired 100% of the limited liability company interests of Fifth Street CLO Management LLC ("CLO Management"), a wholly-owned subsidiary of FSH and the collateral manager for the two Fifth Street-managed CLOs. The aggregate purchase price was $29.0 million less borrowings outstanding at CLO Management, subject to post-closing adjustments for working capital and transactions expenses, which resulted in an aggregate net purchase price of $15.3 million.
Oaktree Asset Purchase Agreement
On July 13, 2017, we entered into an asset purchase agreement with Oaktree Capital Management, L.P. ("Oaktree"), under which Oaktree would become the new investment adviser to Fifth Street's two business development companies ("BDCs"), Fifth Street Finance Corp. ("FSC") and Fifth Street Senior Floating Rate Corp. ("FSFR"), subject to the approval of new investment advisory agreements between the BDCs and Oaktree by the BDCs' stockholders and certain other closing conditions. Oaktree would pay gross cash consideration of $320.0 million upon the close of the transaction. The shares of common stock of FSC and FSFR held by FSH are not included in the transaction. The transaction is expected to be completed in the fourth quarter of 2017.
Conference Call Information
Due to the pending transaction with Oaktree, FSAM will not have an earnings call or webcast for its second quarter results.
About Fifth Street Asset Management Inc.
Fifth Street Asset Management Inc. (NASDAQ:FSAM) is a nationally recognized credit-focused asset manager. The firm manages two publicly-traded business development companies, Fifth Street Finance Corp. (NASDAQ:FSC) and Fifth Street Senior Floating Rate Corp. (NASDAQ:FSFR). 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 nearly 20-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 have allowed the firm to surpass $10 billion of loan commitments since inception. For more information, please visit fsam.fifthstreetfinance.com.
Forward-Looking Statements
Some of the statements in this press release may include forward-looking statements that reflect current views with respect to future events and financial performance, and FSAM may make related oral, forward-looking statements on or following the date hereof. Statements that include the words “should,” “would,” “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “seek,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements in this press release or similar oral statements for purposes of the U.S. federal securities laws or otherwise. Such statements are “forward looking” statements as such term is defined in the Private Securities Litigation Reform Act of 1995, including the date that the parties expect the proposed transaction to be completed. Because forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied and include, but are not limited to, those discussed in filings with the SEC, and (i) the satisfaction or waiver of certain closing conditions specified in the definitive agreements relating to the proposed transaction, including the consents of certain third parties, (ii) the parties’ ability to successfully close the proposed transaction and the timing of such closing, (iii) that the proposed transaction may disrupt current plans and operations of FSC and FSFR, and (iv) the possibility that competing offers or acquisition proposals related to the proposed transaction will be made and if made could be successful. Additional risks and uncertainties specific to FSAM include (a) that FSAM will have limited or no revenue generating operations following the closing of the proposed transaction, (b) the amount and timing of any release of escrowed transaction proceeds to FSAM and its subsidiaries, which will depend on the outcome of contingencies set forth in the asset purchase agreement, (c) the costs and expenses that FSAM and its subsidiaries have, and may incur, in connection with the transaction, (d) the impact that any litigation relating to the transaction may have on FSAM and its subsidiaries, (e) that future dividends and distributions of proceeds of the proposed transaction to FSAM Class A stockholders must declared by FSAM’s Board of Directors subject to applicable law, and could be subject to FSAM’s Board of Directors determining to approve and seek stockholder approval of a plan of dissolution with the Secretary of State of Delaware, (f) that any amounts distributed to FSAM Class A stockholders may not be reflective of the price at which any investor has purchased, or may purchase, shares of FSAM Class A common stock, (g) ongoing operational costs at FSAM and its subsidiaries and, if applicable, potential wind-down costs, and their impact on amounts that may be available for distribution by FSAM to its Class A stockholders and (h) negative effects of the entering into the asset purchase agreement and consummation of the transactions contemplated thereby on the trading volume and market price of FSAM’s Class A common stock. FSAM undertakes no obligation to 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. Consolidated Statements of Financial Condition as of June 30, 2017 and December 31, 2016
| June 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 2,249,197 | $ | 6,727,085 | ||||
| Management fees receivable (includes Part I Fees of $3,863,389 and $4,837,944 as of June 30, 2017 and December 31, 2016, respectively) | 11,249,474 | 15,346,566 | ||||||
| Performance fees receivable | — | 123,300 | ||||||
| Insurance recovery receivable | — | 9,250,000 | ||||||
| Prepaid expenses (includes $418,300 and $620,794 related to income taxes as of June 30, 2017 and December 31, 2016, respectively) | 1,641,480 | 2,073,393 | ||||||
| Investments in equity method investees | 67,978,868 | 66,176,884 | ||||||
| Beneficial interests in CLOs at fair value: (cost December 31, 2016: $24,138,496) | — | 23,155,062 | ||||||
| Due from affiliates | 2,493,370 | 3,405,921 | ||||||
| Fixed assets, net | 4,903,204 | 5,344,332 | ||||||
| Deferred tax assets | 72,108,971 | 42,415,143 | ||||||
| Deferred financing costs | — | 1,426,103 | ||||||
| Other assets | 3,225,001 | 3,355,072 | ||||||
| Assets held for sale | 23,329,606 | — | ||||||
| Total assets | $ | 189,179,171 | $ | 178,798,861 | ||||
| Liabilities and Equity (Deficit) | ||||||||
| Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 13,563,051 | $ | 5,260,511 | ||||
| Accrued compensation and benefits | 4,944,144 | 12,516,497 | ||||||
| Income taxes payable | 33,694 | 223,694 | ||||||
| Loans payable | 2,000,000 | 14,972,565 | ||||||
| Legal settlement payable | — | 9,250,000 | ||||||
| Credit facility payable (net of $1,547,259 of deferred financing costs at June 30, 2017) | 98,452,741 | 102,000,000 | ||||||
| Dividends payable | 885,403 | 1,961,863 | ||||||
| Due to affiliates | 32,983 | 30,412 | ||||||
| Deferred rent liability | 2,013,723 | 2,079,354 | ||||||
| Payable to related parties pursuant to tax receivable agreements | 62,091,926 | 35,990,255 | ||||||
| Liabilities associated with assets held for sale | 14,015,515 | — | ||||||
| Total liabilities | 198,033,180 | 184,285,151 | ||||||
| Commitments and contingencies | ||||||||
| Equity (deficit) | ||||||||
| Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued and outstanding as of June 30, 2017 and December 31, 2016 | — | — | ||||||
| Class A common stock, $0.01 par value; 500,000,000 shares authorized; 15,649,686 and 6,602,374 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively | 156,497 | 66,024 | ||||||
| Class B common stock, $0.01 par value; 50,000,000 shares authorized; 34,285,484 and 42,856,854 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively | 342,855 | 428,569 | ||||||
| Additional paid-in capital | 5,632,770 | 6,354,291 | ||||||
| Accumulated deficit | (1,032,999 | ) | (1,726,061 | ) | ||||
| Total stockholders' equity, Fifth Street Asset Management Inc. | 5,099,123 | 5,122,823 | ||||||
| Non-controlling interests | (13,953,132 | ) | (10,609,113 | ) | ||||
| Total deficit | (8,854,009 | ) | (5,486,290 | ) | ||||
| Total liabilities and equity (deficit) | $ | 189,179,171 | $ | 178,798,861 | ||||
Exhibit B. Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | ||||||||||||||||
| Management fees (includes Part I Fees of $4,624,389 and $9,084,207; $8,079,994 and $14,022,275 for the three and six months ended June 30, 2017 and 2016, respectively) | $ | 14,096,482 | $ | 21,291,423 | $ | 27,637,128 | $ | 38,378,968 | ||||||||
| Performance fees | (34,587 | ) | 60,411 | — | 86,175 | |||||||||||
| Other fees | 1,817,890 | 1,799,676 | 3,881,167 | 3,734,098 | ||||||||||||
| Total revenues | 15,879,785 | 23,151,510 | 31,518,295 | 42,199,241 | ||||||||||||
| Expenses | ||||||||||||||||
| Compensation and benefits | 5,609,040 | 8,878,001 | 12,132,124 | 17,646,626 | ||||||||||||
| General, administrative and other expenses | 13,500,604 | 10,080,123 | 18,616,022 | 17,381,615 | ||||||||||||
| Depreciation and amortization | 319,312 | 3,158,322 | 635,179 | 3,576,044 | ||||||||||||
| Total expenses | 19,428,956 | 22,116,446 | 31,383,325 | 38,604,285 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest income | 299,621 | 356,139 | 629,473 | 695,741 | ||||||||||||
| Interest expense | (1,957,920 | ) | (1,080,448 | ) | (3,281,613 | ) | (2,195,447 | ) | ||||||||
| Income from equity method investments | 1,681,307 | 1,110,217 | 4,640,066 | 1,978,326 | ||||||||||||
| Unrealized gain on MMKT Notes | — | — | — | 2,582,405 | ||||||||||||
| Unrealized gain (loss) on beneficial interests in CLOs | 134,249 | 480,037 | 328,519 | (368,227 | ) | |||||||||||
| Loss on reclassification to held for sale | (940,297 | ) | — | (940,297 | ) | — | ||||||||||
| Gain on extinguishment of debt | — | 2,000,000 | — | 2,000,000 | ||||||||||||
| Adjustment of TRA liability due to tax rate change | — | 7,525,901 | (92,348 | ) | 7,525,901 | |||||||||||
| Loss on legal settlement | — | (9,250,000 | ) | — | (9,250,000 | ) | ||||||||||
| Insurance recoveries | — | 12,246,731 | 4,332,024 | 12,246,731 | ||||||||||||
| Unrealized loss on derivatives | — | (3,707,194 | ) | — | (8,383,213 | ) | ||||||||||
| Realized gain on derivatives | — | 465,425 | — | 465,425 | ||||||||||||
| Loss on investor settlement | — | — | — | (10,419,274 | ) | |||||||||||
| Other income (expense), net | — | 25,175 | — | (544,785 | ) | |||||||||||
| Total other income (expense), net | (783,040 | ) | 10,171,983 | 5,615,824 | (3,666,417 | ) | ||||||||||
| Income (loss) before provision (benefit) for income taxes | (4,332,211 | ) | 11,207,047 | 5,750,794 | (71,461 | ) | ||||||||||
| Provision (benefit) for income taxes | (405,144 | ) | 7,114,876 | 905,375 | 6,852,103 | |||||||||||
| Net income (loss) | (3,927,067 | ) | 4,092,171 | 4,845,419 | (6,923,564 | ) | ||||||||||
| Net (income) loss attributable to non-controlling interests | 3,024,999 | (3,244,625 | ) | (4,152,357 | ) | 6,539,165 | ||||||||||
| Net income (loss) attributable to Fifth Street Asset Management Inc. | $ | (902,068 | ) | $ | 847,546 | $ | 693,062 | $ | (384,399 | ) | ||||||
| Net income (loss) per share attributable to Fifth Street Asset Management Inc. Class A common stock - Basic | $ | (0.06 | ) | $ | 0.15 | $ | 0.04 | $ | (0.07 | ) | ||||||
| Net income (loss) per share attributable to Fifth Street Asset Management Inc. Class A common stock - Diluted | $ | (0.06 | ) | $ | 0.07 | $ | 0.04 | $ | (0.10 | ) | ||||||
| Weighted average shares of Class A common stock outstanding - Basic | 15,613,554 | 5,833,575 | 15,421,058 | 5,815,998 | ||||||||||||
| Weighted average shares of Class A common stock outstanding - Diluted | 15,613,554 | 48,790,784 | 15,452,490 | 48,740,139 | ||||||||||||