Medley Management Inc. Declares $0.20 Per Share Dividend, Reports Third Quarter 2018 Results

Key Performance Indicators:

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30, 
(unaudited)

2018

2017

2018

2017

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

Consolidated Financial Data:

Pre-Tax Income (Loss)

$

2,868

$

5,202

$

(8,847)

$

16,188

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

$

(1,448)

$

2,633

$

(6,570)

$

9,986

Net (loss) income per Class A common stock

$

(0.15)

$

0.03

$

(0.49)

$

0.18

Net (Loss) Income Margin ⁽¹⁾

(10.1)

%

15.9

%

(15.0)

%

21.2

%

Weighted average shares - Basic and Diluted

5,591,123

5,342,939

5,539,804

5,578,003

Non-GAAP Data:

Pre-Tax Core Net Income ⁽²⁾

$

2,684

$

4,651

$

7,212

$

15,065

Core Net Income  ⁽²⁾

$

1,889

$

3,851

$

5,163

$

13,171

Core EBITDA  ⁽³⁾

$

5,582

$

7,592

$

15,941

$

23,737

Core Net Income Per Share ⁽⁴⁾

$

0.06

$

0.09

$

0.16

$

0.28

Core Net Income Margin ⁽⁵⁾

12.5

%

15.9

%

11.0

%

18.2

%

Pro-Forma Weighted Average Shares Outstanding ⁽⁶⁾

32,174,946

30,777,252

31,539,125

30,922,950

Other Data (at period end, in millions):

AUM

$

4,796

$

5,296

$

4,796

$

5,296

Fee Earning AUM

$

2,891

$

3,241

$

2,891

$

3,241

⁽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, 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, June 30, 2018

$

1,896

$

1,064

$

2,960

64

%

36

%

Commitments

(27)

60

33

Distributions

(21)

(12)

(33)

Change in fund value

(34)

(35)

(69)

Ending Balance, September 30, 2018

$

1,814

$

1,077

$

2,891

63

%

37

%

% of Fee Earning AUM

Permanent
Capital
Vehicles

Long-dated
Private F
unds
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

(116)

214

98

Distributions

(66)

(100)

(166)

Change in fund value

(94)

(105)

(199)

Ending Balance, September 30, 2018

$

1,814

$

1,077

$

2,891

63

%

37

%

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)

2018

2017

2018

2017

 (Amounts in thousands, except share and per share data)

Revenues

Management fees (includes Part I incentive fees of $447,
$1,393, $447 and $1,937, respectively)

$

12,336

$

14,838

$

36,386

$

41,934

Performance fees

—

(167)

—

(1,984)

Other revenues and fees

2,769

2,016

8,136

7,004

Investment income (loss):

Carried interest

(326)

(34)

271

139

Other investment loss

(382)

(91)

(849)

(101)

Total Revenues

14,397

16,562

43,944

46,992

Expenses

Compensation and benefits

6,320

6,382

21,991

17,881

Performance fee compensation

(79)

(14)

(112)

(845)

General, administrative and other expenses

6,244

3,510

15,095

8,932

Total Expenses

12,485

9,878

36,974

25,968

Other Income (Expense)

Dividend income

962

1,428

3,351

2,896

Interest expense

(2,717)

(2,718)

(8,113)

(9,131)

Other income (expenses), net

2,711

(192)

(11,055)

1,399

Total Other Expense, Net

956

(1,482)

(15,817)

(4,836)

Income (loss) before income taxes

2,868

5,202

(8,847)

16,188

Provision for income taxes

450

652

835

1,493

Net Income (Loss)

2,418

4,550

(9,682)

14,695

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

3,866

1,917

(3,112)

4,709

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

(963)

2,172

(4,729)

8,557

Net (Loss) Income Attributable to Medley
Management Inc.

$

(485)

$

461

$

(1,841)

$

1,429

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

Basic

$

(0.15)

$

0.03

$

(0.49)

$

0.18

Diluted

$

(0.15)

$

0.03

$

(0.49)

$

0.18

Weighted average shares outstanding - Basic and
Diluted

5,591,123

5,342,939

5,539,804

5,578,003

Exhibit B. Consolidated Statements of Comprehensive Income

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30, 
(unaudited)

2018

2017

2018

2017

(Amounts in thousands)

Net Income (Loss)

$

2,418

$

4,550

$

(9,682)

$

14,695

Other Comprehensive Income:

Change in fair value of available-for-sale securities (net
of taxes of $0.3 million and $0.4 million for Medley
Management Inc. for the three and nine months ended
September, 2017, respectively)

—

(2,915)

—

(5,081)

Total Comprehensive Income (Loss)

2,418

1,635

(9,682)

9,614

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

3,866

1,917

(3,112)

4,680

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

(963)

(381)

(4,729)

4,164

Comprehensive (Loss) Income Attributable to Medley
Management Inc.

$

(485)

$

99

$

(1,841)

$

770

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
September 30,
(unaudited)

For the Nine Months Ended
September 30, 
(unaudited)

2018

2017

2018

2017

(Amounts in thousands)

Net (loss) income attributable to Medley Management Inc.

$

(485)

$

461

$

(1,841)

$

1,429

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

(963)

2,172

(4,729)

8,557

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

$

(1,448)

$

2,633

$

(6,570)

$

9,986

Reimbursable fund startup expenses

240

596

1,304

847

IPO date award stock-based compensation

444

532

1,018

189

Other non-core items:

Unrealized losses on shares of MCC

—

—

3,543

—

Severance expense

39

20

2,263

1,184

Acceleration of debt issuance costs ⁽¹⁾

—

—

—

1,148

Other ⁽²⁾

2,959

218

4,819

218

Income tax expense on adjustments

(345)

(148)

(1,214)

(401)

Core Net Income

$

1,889

$

3,851

$

5,163

$

13,171

Interest expense

2,717

2,718

8,113

7,982

Income taxes

795

800

2,049

1,894

Depreciation and amortization

181

223

616

690

Core EBITDA

$

5,582

$

7,592

$

15,941

$

23,737

⁽¹⁾

For the nine months ended September 30, 2017, this amount relates 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 the three and nine months ended September 30, 2018, other items consists primarily of fees related to strategic initiatives including our pending merger with Sierra.

Exhibit D. Calculation of Core Net Income Per Share

For the Three Months Ended
September 30,
(unaudited)

For the Nine Months Ended
September 30, 
(unaudited)

2018

2017

2018

2017

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

Numerator

Core Net Income

$

1,889

$

3,851

$

5,163

$

13,171

Add: Income taxes

795

800

2,049

1,894

Pre-Tax Core Net Income

$

2,684

$

4,651

$

7,212

$

15,065

Denominator

Class A common stock

5,591,123

5,342,939

5,539,804

5,578,003

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

24,215,302

23,653,333

24,008,815

23,592,381

Restricted Stock Units

2,368,521

1,780,980

1,990,506

1,752,566

Pro-Forma Weighted Average Shares Outstanding ⁽¹⁾

32,174,946

30,777,252

31,539,125

30,922,950

Pre-Tax Core Net Income Per Share

$

0.08

$

0.15

$

0.23

$

0.49

Less: corporate income taxes per share ⁽²⁾

(0.02)

(0.06)

(0.07)

(0.21)

Core Net Income Per Share

$

0.06

$

0.09

$

0.16

$

0.28

⁽¹⁾

The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 24,839,302 vested and unvested LLC Units for 24,839,302 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 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
September 30,
(unaudited)

For the Nine Months Ended
September 30, 
(unaudited)

2018

2017

2018

2017

Net Income Margin

(10.1)

%

15.9

%

(15.0)

%

21.2

%

Reimbursable fund startup expenses ⁽¹⁾

1.7

%

3.6

%

3.0

%

1.7

%

IPO date award stock-based compensation ⁽¹⁾

3.1

%

3.2

%

2.3

%

0.4

%

Other non-core items:⁽¹⁾

Unrealized losses on shares of MCC

—

%

—

%

8.1

%

—

%

Severance expense

0.3

%

0.1

%

5.1

%

2.6

%

Acceleration of debt issuance costs

—

%

—

%

—

%

2.4

%

Other

20.6

%

1.3

%

11.0

%

0.5

%

Provision for income taxes ⁽¹⁾

3.1

%

3.9

%

1.9

%

3.2

%

Corporate income taxes ⁽²⁾

(6.2)

%

(12.1)

%

(5.4)

%

(13.8)

%

Core Net Income Margin

12.5

%

15.9

%

11.0

%

18.2

%

⁽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 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

September 30, 2018

(unaudited)

(Amounts in thousands)

Assets

Cash and cash equivalents

$

21,515

$

36,327

Investments, at fair value

46,285

56,632

Management fees receivable

10,884

14,714

Performance fees receivable

—

2,987

Other assets

15,421

17,262

Total Assets

$

94,105

$

127,922

Liabilities, Redeemable Non-controlling Interests and Equity

Liabilities

Senior unsecured debt, net

$

117,428

$

116,892

Loans payable, net

9,726

9,233

Accounts payable, accrued expenses and other liabilities

37,068

25,130

Total Liabilities

164,222

151,255

Redeemable Non-controlling Interests

32,226

53,741

Equity

Class A common stock

57

55

Class B common stock

—

—

Additional paid in capital

6,260

2,820

Accumulated other comprehensive loss

—

(1,301)

Accumulated deficit

(17,591)

(9,545)

Total stockholders' deficit, Medley Management Inc.

(11,274)

(7,971)

Non-controlling interests in consolidated subsidiaries

(1,638)

(1,702)

Non-controlling interests in Medley LLC

(89,431)

(67,401)

Total Deficit

(102,343)

(77,074)

Total Liabilities, Redeemable Non-controlling Interests and Equity

$

94,105

$

127,922