medley management inc. (nyse: mdly)€¦ · •growth in alternatives continues to outpace that of...
TRANSCRIPT
Medley Management Inc. (NYSE: MDLY)
Investor Presentation
Quarter ended September 30, 2018
2
Important Notice to Investors
This presentation contains “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks
and uncertainties. Actual outcomes and results could differ materially from those suggested by this presentation due to the impact of many factors beyond the control of
Medley Management Inc., including those listed in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and our
other filings with the Securities and Exchange Commission (“SEC”). Any such forward-looking statements are made pursuant to the safe harbor provisions available under
applicable securities laws and Medley Management Inc. assumes no obligation to update or revise any such forward-looking statements except as required by law.
Certain information discussed in this presentation (including information relating to portfolio companies) was derived from third party sources and has not been
independently verified and, accordingly, the Company makes no representation or warranty in respect of this information.
The following slides contain summaries of certain financial and statistical information about Medley Management Inc. The information contained in this presentation is
summary information that is intended to be considered in the context of our SEC filings and other public announcements that we may make, by press release or
otherwise, from time to time. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the
achievement of which cannot be assured. You should not view the past performance of Medley Management Inc., or information about the market, as indicative of Medley
Management Inc.’s future results. This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities of Medley Management Inc.
This presentation includes certain non-GAAP financial measures, including Core Net Income, Core EBITDA, Core Net Income Per Share, Pre-Tax Core Net Income per
Share, Pre-Tax Core Net Income Margin, Core Net Income Margin and Pro-Forma Weighted Average Shares Outstanding. These measures should be considered only as
supplemental to, and not as superior to, financial measures prepared in accordance with U.S. GAAP.
Please refer to the financial performance section of this presentation for a reconciliation of the non-GAAP financial measures included in this presentation to the most
directly comparable financial measures prepared in accordance with U.S. GAAP.
3
Table of Contents
1. Overview 4
2. Market Opportunity 9
3. Investment Process 12
4. Financial Performance 14
5. Appendix 18
OVERVIEW
4
• Diversified credit manager offering yield solutions for institutional and retail investors
• $4.8B of assets under management (“AUM”) and $2.9B of fee-earning assets under management
(“FEAUM”)
• Success in developing innovative new products and accessing multiple distribution channels
Company Overview
Note: Metrics in billions of USD. Due to rounding figures may not sum. 1. As of September 30, 2018.
Total AUM Fee Earning AUM(1)
5
$1.3 $1.8
$2.3
$3.7
$4.8 $5.3 $5.2
$4.8
2011 2012 2013 2014 2015 2016 2017 3Q18
Permanent Capital Institutional Capital
63%
16%
1%
20%
Permanent
9+ Years
6-9 Years
3-6 Years
Structured Credit
Corporate Credit
Tactical Opportunities
Direct Lending
• Flagship product delivering
capital solutions to private,
middle market companies
• National direct origination
franchise
• Medley leads origination,
underwriting and
credit management
• Primarily focused on syndicated
middle market corporate credit
• Typically larger borrowers than
direct lending
• Preferred and structured equity
• Leverages direct lending and
institutional deal sourcing capabilities
• Private equity risk-reward profile
• Investing in CLO equity issued by
top tier managers
• Secondary markets investing in CLO
equity and related securities
• Capability to sponsor and issue
Medley-branded CLOs
Broad Investment Capabilities 41 88 140
153 187 225
137 139 142
120 152 179
6
• Diversified alternative asset manager offering yield solutions for institutional and retail partners
• $4.8 billion in AUM1
1. As of September 30, 2018.
• Broad distribution through public and private channels
• Permanent capital, long-dated funds and managed accounts not subject to traditional outflows
Diversified AUM Across Multiple Funds
Sierra Total
Return Fund
MEDLEY (NYSE: MDLY)
Public Vehicles
Medley Capital
Corporation (NYSE: MCC)
Long-Dated Funds and Separately Managed Accounts
Senior Loan Fund
Medley Opportunity
Funds
Separately Managed Accounts
Institutional Capital
Medley Credit
Opportunity Fund
Sierra Income
Corporation
Senior Loan Fund
Tactical Opportunities
7
87%
13%
Floating
Fixed
23.8%
26%
11%
18% 32%
Industry Breakout
Portfolio Summary
8
12%
Investment Type Breakout
Medley Investments by Geography
Floating vs. Fixed Rate
Note: Portfolio summary represents total committed amounts as of 9/30/2018 and represents assets in all investment vehicles including TRS and SLS assets. Fixed/Floating mix includes only interest bearing investments. In addition, non-U.S. investments comprise approximately 1% of Medley’s overall investment portfolio.
15%
12%
8%
7%
8% 6% 4%
3%
4%
3%
3%
4%
2%
3% 2% 2%
14%
Services: Business
Healthcare & Pharmaceuticals
Construction & Building
Banking, Finance, Insurance & Real Estate
High Tech Industries
Multi-Sector Holdings
Aerospace & Defense
Wholesale
Services: Consumer
Automotive
Hotels, Gaming & Leisure
Energy: Oil & gas
Containers, Packaging and Glass
Media: Advertising, Printing & Publishing
Capital Equipment
Chemicals, Plastics & Rubber
Other
76%
8%
6%
10%
First Lien
Second Lien
Unsecured
Equity
MARKET OPPORTUNITY
9
AUM CAGR Since 2010(1)
$-
$5
$10
$15
$20
$25
2008 2015 2020E
Alternative Investments
$5T
$8T
$23T
8% CAGR
24% CAGR
• Market leading growth in AUM driven by:
- Increasing demand for yield in low rate environment
- Increasing demand by investors for senior secured and floating rate exposure
• Growth in alternatives continues to outpace that of traditional asset managers
- Increased allocation from both retail and institutional investors
- Retail investors significantly underweight exposure to alternatives
Increasing Demand for Alternatives
Note: Metrics in trillions of USD. 1. Traditional managers include: BEN, BLK, IVZ, JNS, OMAM, and TROW. Alternative managers include APO, BX, CG, KKR, OAK, and OZM. Medley selected the traditional and
alternative manager groups based on subjective factors. There may be other managers not mentioned. 2. Based on BCG, Global Asset Management 2016.
10
Growth in Alternatives(2)
7%
14%
22%
0%
10%
20%
30%
40%
Traditional Managers Alternative Managers MDLY
Large and Growing Market in Private Credit
Bank Consolidation(1)(2)
$16.8
$9.2
$6.7
$4.9 $3.6
$2.7 $2.5 $2.2
UnitedStates
China USMiddleMarket
Japan Germany France UK Brazil
• Traditional lenders to the middle market have changed in recent years
- Consolidation of the banking system
- Regulatory headwinds for banks and CLO managers
• The middle market remains a large opportunity
- 20 years ago banks represented over 70%
- Today banks represent <10%
• US middle market would rank as the 3rd largest global economy
• Private credit has emerged as an important asset class for all investors
- Retail
- Insurance companies
- Pension funds
- Endowments
1. Federal Deposit Insurance Corporation, represents number of commercial banking institutions insured by the FDIC as of 6/30/2018. 2. S&P LCD’s Leveraged Lending Review – Q2’18. 3. International Monetary Fund, World Economic Outlook Database, June 2014. Metrics in trillions of USD.
11
Top GDPs(3)
0%
10%
20%
30%
40%
50%
60%
70%
80%
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000 U.S. FDIC Insured Commercial Banks¹
Bank Participation in Levered Loan
Market (%)²
INVESTMENT PROCESS
12
Underwriting
• Downside protection – focused on capital preservation
• Three step underwriting process
• Multiple touch points and evaluations
• Disciplined Investment Committee process
Origination
• Nationwide platform
• Targeted middle market sectors
Underwriting
• Multi-step approval process
• Documentation process
• 3rd party resources
• Approve 1-3% of opportunities
• Medley has invested in over
400 borrowers(1)
Asset and Portfolio Management
• Best-in-class technology and
systems
• Frequent interaction with
borrowers
• Credit monitoring and reporting
Origination 1
2
Asset and Portfolio Management 3
1
2
3
41 88 140
153 187 225
137 139 142
120 152 179
Integrated Investing Processes
13
1. Since inception through 9/30/2018.
FINANCIAL PERFORMANCE
14
Consolidated Income Statements
15
1. Core Net Income reflects net income attributable to the controlling and non-controlling interests in Medley LLC adjusted to exclude reimbursable expenses associated with the launch of funds, certain one-time severance costs and stock-based compensation associated with restricted stock units that were granted in connection with our initial public offering (“IPO”), as well as other non-core items and, in 2018, unrealized losses related to our investment in shares of MCC. Please refer to the reconciliation of net income attributed to controlling and non-controlling interests in Medley LLC to Core Net Income on the following page.
2. Core Net Income Per Share reflects an adjustment for federal, state and local corporate income taxes. Please refer to the calculation of Core Net Income Per Share on the following page.
3. Core Net Income Margin equals Core Net Income Per Share divided by total revenue per share. 4. The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 24,639,302 Medley 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.
(Dollars in thousands except share and per share amounts)
Revenues
Management fees $ 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 income (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 income (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
3,866 1,917 (3,112) 4,709
$ (1,448) $ 2,633 $ (6,570) $ 9,986
Core Net Income (1) $ 1,889 $ 3,851 $ 5,163 $ 13,171
Core EBITDA $ 5,582 $ 7,592 $ 15,941 $ 23,737
Core Net Income per share (2) $ 0.06 $ 0.09 $ 0.16 $ 0.28
Core Net Income Margin (3) 12.5% 15.9% 11.0% 18.2%
Pro Forma Weighted Average Shares Outstanding (4)
For the Nine Months Ended
September 30,
(Unaudited)
2018 2017
31,539,125 30,922,950
Less: Net income (loss) attributable to redeemable non-controlling
interests and non-controlling interests in consolidated subsidiaries
Net (loss) income attributable to Medley Management Inc. and non-
controlling interests in Medley LLC
2018
32,174,946
For the Three Months Ended
September 30,
2017
30,777,252
(Unaudited)
Consolidated Income Statements (Cont.)
16
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 the three and nine months ended September 30, 2018, other items consist primarily of expenses related to our pending merger with SIC, and prior to the pending merger, the pursuit of other strategic initiatives.
3. 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 annualized effective corporate tax rate of 33.0% for 2018 and 43.0% for 2017.
$ (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
The calculation of Core Net Income Per Share is as follows:
Numerator
$ 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 to Class A common stock 24,215,302 23,653,333 24,008,815 23,592,381
Restricted stock units and restricted LLC units 2,368,521 1,780,980 1,990,506 1,752,566
Pro-Forma Weighted Average Shares Outstanding 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 (3) (0.02) (0.06) (0.07) (0.21)
Core Net Income Per Share $ 0.06 $ 0.09 $ 0.16 $ 0.28
For the Three Months Ended
September 30,
(Unaudited)
2017
2017
2018
For the Three Months Ended
September 30,
(Unaudited)
2018
Net (loss) income attributable to Medley Management Inc. and non-
controlling interests in Medley LLC
Core Net income
(Dollars in thousands except per share amounts)
The reconciliation of Net income (loss) attributable to Medley
Management Inc. and non-controlling interests in Medley LLC to
Core Net Income and Core EBITDA is as follows:
2018 2017
For the Nine Months Ended
September 30,
(Unaudited)
2018 2017
For the Nine Months Ended
September 30,
(Unaudited)
Consolidated Balance Sheets
17
(Dollars in thousands)
(unaudited)
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 and Equity
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
2018 2017
As of
December 31,
As of
September 30,
APPENDIX
18
19
Endnotes & Definitions
Definitions:
“Assets Under Management” or “AUM” refers to the assets of our funds, which represents the sum of the NAV of such funds, the drawn and undrawn debt (at the fund level, including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods).
“Core Earnings Before Interest, Income Taxes, Depreciation and Amortization (Core EBITDA)” is calculated as Core Net Income before interest expense, income taxes, depreciation and amortization.
“Core Net Income” is calculated by adjusting net income attributable to Medley Management Inc. and net income attributable to non-controlling interests in Medley LLC to exclude reimbursable expenses associated with the launch of funds, amortization of stock-based compensation expense associated with grants of restricted stock units at the time of our IPO, other non-core items and the income tax impact of these adjustments.
“Core Net Income Margin” equals Core Net Income Per Share divided by total revenue per share.
“Core Net Income Per Share” is Core Net Income adjusted for corporate income taxes assuming that all of our pre-tax earnings are subject to federal, state and local corporate income taxes, divided by Pro-Forma Weighted Average Shares Outstanding (as defined above). In determining corporate income taxes we used an annual effective corporate tax rate of 33% for 2018, and 43% for 2017.
“Fee Earning Assets Under Management” refers to the assets under management on which we directly earn base management fees.
“Pre-Tax Core Net Income” is calculated as Core Net Income excluding the impact of income taxes.
“Pre-Tax Core Net Income Margin” equals Pre-Tax Core Net Income Per Share divided by total revenue per share.
“Pre-Tax Core Net Income Per Share” is calculated as Pre-Tax Core Net Income divided by Pro-Forma Weighted Average Shares Outstanding.
“Pro-Forma Weighted Average Shares Outstanding” assumes the conversion by the pre-IPO holders of up to 24,639,302 Medley 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.
20
Corporate Information
Board of Directors
BROOK TAUBE Co-Chairman SETH TAUBE Co-Chairman JEFF TONKEL Director JAMES G. EATON Independent Director JEFFREY T. LEEDS Independent Director GUY ROUNSAVILLE, JR. Independent Director
Corporate Officers
BROOK TAUBE Co-Chief Executive Officer SETH TAUBE Co-Chief Executive Officer JEFF TONKEL President RICHARD T. ALLORTO, JR. Chief Financial Officer JOHN FREDERICKS General Counsel & Secretary
Research Coverage
COMPASS POINT Casey Alexander – (646) 452-7083 CREDIT SUISSE Craig Siegenthaler - (212) 325-3104
Corporate Headquarters
280 Park Avenue, 6th Floor East New York, NY 10017 (212) 759-0777 Investor Relations
SAM ANDERSON Head of Capital Markets & Risk Management (212) 759-0777 Corporate Counsel
LOWENSTEIN SANDLER LLP New York, NY Independent Registered Public Accounting Firm
RSM US, LLP New York, NY Securities Listing
NYSE: MDLY (Common Stock) MDLQ (Senior Notes Due 2024) MDLX (Senior Notes Due 2026) Transfer Agent
AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC (888) 777-0324 Media Contact
TENEO (212) 498-9197