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Edited Transcript of MDLY earnings conference call or presentation 16-May-19 2:00pm GMT

Q1 2019 Medley Management Inc Earnings Call

New York Jun 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Medley Management Inc earnings conference call or presentation Thursday, May 16, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brook Taube

Medley Management Inc. - Co-CEO & Co-Chairman

* Richard T. Allorto

Medley Management Inc. - CFO

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Presentation

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Operator [1]

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Welcome, and thank you for joining Medley Management Inc.'s first quarter conference call. Today's call is being recorded. Please note that this call is the property of Medley Management Inc. and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone numbers and PIN provided in the company's earnings press release. (Operator Instructions)

On the call today is Brook Taube, CEO; Rick Allorto, CFO; and Sam Anderson, Head of Capital Markets.

Before the call begins, the company would like to call to your attention the customary safe harbor disclosure in the company's press release regarding forward-looking information as today's conference call may include forward-looking statements and projections, which are subject to risks and uncertainties. Any statement other than a statement of historical fact may constitute a forward-looking statement. Please note that the company's actual results could differ materially from those expressed by any forward-looking statements for any reason such as those disclosed in the company's most recent filings with the SEC. The company does not undertake to update its forward-looking statements unless required by law.

During this conference call, the company may refer to certain non-GAAP financial measures, including fee earning assets under management, pretax core net income and core net income per share. The company uses these as a measure of operating performance, not as a measure of liquidity. These measures should not be considered in isolation from, or as a substitute for, measures prepared in accordance with generally accepted accounting principles. In addition, these measures may not be comparable to similarly titled measures used by other companies. Please refer to Medley Management Inc.'s earnings release and Form 10-K for definitions and reconciliations of these measures to the most directly comparable GAAP measures.

The company has posted its first quarter 2019 investor presentation, which is available in the Investor Relations section of the company's website at www.mdly.com.

I would now like to turn the call over to Mr. Taube

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Brook Taube, Medley Management Inc. - Co-CEO & Co-Chairman [2]

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Thank you, operator, and welcome, everyone, to Medley's First Quarter 2019 Conference Call. As announced in our earnings release last night, the company's core net income per share for the quarter was $0.02 and core EBITDA was $3.9 million. Our Board of Directors did not declare a dividend for the quarter ended March 31.

Total AUM at the quarter end was unchanged period-over-period at $4.7 billion, and our fee earning AUM was $2.7 billion at quarter end.

I'd like to provide a brief update on the previously announced mergers between MCC and Sierra and the acquisition of MDLY by Sierra. On April 18, the shareholder vote related to the announced merger was postponed. At this point, I want to clarify the merger agreements have not been terminated and the company continues to evaluate potential amendments to the merger agreements in consultation with the other counterparties.

So turning now to an update on the platform. During the quarter, we continued to build on the positive momentum outlined on last quarter's call within both our structured credit and tactical opportunity businesses. We are seeing attractive investment opportunities in both and expect expansion in these business lines over time.

In our tac opps business, we had 2 successful results since the quarter end. The first, we have been active in the cold food storage sector with a large prominent private equity firm. Together, we have been investing in a growing platform that was sold this quarter, the result was over 2.5x our invested capital. It was an early exit and several of our vehicles benefited as well as other of our institutional investors.

Second, separate portfolio investment, where we have a structured piece of capital as well as warrants, is pricing its IPO today and listing tomorrow. Both of our BDCs as well as several of our institutional accounts are expected to benefit from this event. I'd just mention these are just 2 data points within a broader tactical opportunities portfolio and business that's growing. But they speak to the very strong results being delivered by our team and support -- and continue to support our view on the long-term opportunity that we see in this space.

We continue to believe based on these early wins and liquidity events as well as the strong performance across the other investments that this business will continue to see increased interest from investors as we look to raise dedicated capital for the strategy in the back half of 2019 and into 2020.

We continue to focus as well on actively growing our structured credit platform. Returns here remain strong. IRRs continue in the mid-20% range. We are working with our strategic partner in the retail channel and do look forward to reporting progress on the retail development in the quarters ahead.

Within the direct lending business, we continue to seek investments to protect downside risk and generate durable income. As we've said, we're primarily focused on larger sponsor-backed borrowers that are well capitalized, have sensible structures and attractive deal terms. And I guess I'll just repeat what I said before, what that means are first lien loans, to sponsor-backed deals, floating rate with sensible structures that have covenants. We believe this is the right positioning in the market environment that we find ourselves.

I'd like to turn the call over to Rick now, Chief Financial Officer, to review the financial results for the quarter.

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Richard T. Allorto, Medley Management Inc. - CFO [3]

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Thank you, Brook. Our results from operations for the 3 months ended March 31, 2019, were as follows: total revenues were $13.8 million compared to $14.4 million for the same period in 2018. Revenues consisted of $10.9 million of management fees, $2.4 million of other revenues and fees and $0.4 million of investment income.

Total expenses were $11.3 million compared to $12.8 million for the same period in 2018. The decrease was due primarily to $0.7 million decrease in professional fees as well as a $0.5 million decrease in expenses associated with our consolidated fund, Sierra Total Return Fund.

Other income net was $1.2 million compared to other expense net of $11 million for the same period in 2018. The current quarter income included $3.5 million of unrealized gain relating to our investments in MCC stock. The gain was allocated to the noncontrolling interests and consolidated subsidiaries and did not have an impact on the income attributed to Medley Management Inc.

Pretax core net income was $0.8 million compared to pretax core net income of $2.1 million for the same period in 2018. Core net income per share was $0.02 compared to $0.05 for the same period in 2018, and core EBITDA was $3.9 million compared to $5 million for the same period in 2018.

That concludes my financial review. I'll now turn the call back over to Brook.

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Brook Taube, Medley Management Inc. - Co-CEO & Co-Chairman [4]

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Thanks, Rick. Our entire team is energized and committed to growing our existing businesses. We are optimistic about AUM growth for both the tac opps and structured credit businesses to the balance of 2019 and into 2020. These are important growth initiatives and are supported by the continued strong investment results and very strong team leadership here at Medley.

Finally, the management team here is focused on a successful path forward for the announced merger plan. I'd like to thank everybody for the continued support.

And operator, we can now open the line for questions.

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Operator [5]

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(Operator Instructions) There are no current questions. I would like to turn it back to management for closing remarks.

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Brook Taube, Medley Management Inc. - Co-CEO & Co-Chairman [6]

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Thank you all for the time today. We look forward to keeping you updated on the announced merger plan and to speaking with you next quarter. Thanks very much.

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Operator [7]

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[The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.]