Medley Management Inc.
Q4 2018 Earnings Call Transcript

Published: 2 Apr 2019

[Operator:]

Welcome, and thank you for joining Medley Management Inc's Fourth 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. At this time, all participants are in a listen-only mode, but will be prompted for a question-and-answer session following the prepared remarks. 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 will 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 fourth quarter 2018 investor presentation, which is available in the Investor Relations section of the Company's Web site at www.mdly.com. I would now like to turn the call over to Mr. Taube, please go ahead.

[Brook Taube:]

Thank you, Operator. And welcome, everyone to Medley's fourth quarter 2018 conference call. I will provide an update on our announced merger later in the call. But first, I'd like to briefly review the 2018 year-end results. The company reported a net loss per share for the quarter of $0.03. For the year, however, core net income per share was $0.12. Fourth quarter profitability was impacted by increased compensation expense relating to retention, as well as existing and planned growth initiatives. On March 27, 2019, our Board of Directors approved a dividend of $0.03 per share that will be paid on May 3rd to shareholders of record on April 15th. Our total AUM ended the quarter at $4.7 billion and our fee earning AUM was $2.8 billion at quarter end. Clearly, the fourth quarter was a volatile quarter in the end of '18, followed by rapid and significant rebound in risk assets in the first quarter of 2019. At Medley, we continue to seek investment opportunities with an eye towards protecting downside risk and generating durable income with a broad rising rate environment as the backdrop. In our credit business, we remain focused on larger sponsor backed borrowers that are well capitalized, have sensible structures with appropriate deal terms. We do expect that this trend will continue as we position the various balance sheets at the firm for growth in the future. I'd like to spend a few moments reviewing our business activities and results in 2018. Throughout the year, we continued to build upon our four main product verticals. As a result, we have a pipeline of demand from institutional and retail clients from managed accounts, private funds, direct lending corporate credits, structured credits and tactical opportunities strategies. During 2018, our direct lending and corporate credit business provided over $950 million of capital. In aggregate that was to a 107 unique borrowers. And consistent with our stated investment strategy, this was provided to larger sponsor backed borrowers. 89% of these loans were to sponsors with an average EBITDA on the deal of just under $33 million. Over 85% of these positions were first lien senior secured with an average all-in yield to maturity of just over 10%. In 2018, our tactical opportunities business closed four new transactions, increasing its invested capital base over to $170 million now in 10 companies. And based upon the success over the last three years in the tac ops business, we expect to continue to develop on the institutional side, both with the dedicated funds, as well as managed accounts and we'd expect that to come online in the latter half of 2019. We do continue to see attractive investment opportunities in this space and expect continued expansion in this business line over time. Also, in 2018, we continued to add to our structured credit portfolios that now total nearly $200 million. And like the tactical opportunities business, over the last few years, we've built a great foundation in the structured product discipline. This relates to people, performance and process. We are on-file with a retail investment product, and we're actively engaged with a distribution partner. We do look forward to progress in the retail channel, as well as the institutional channel for the structured credit business over the course of 2019 and into 2020. I'd like now to turn the call over to Rick, our Chief Financial Officer, to review the financial results in more detail.

[Rick Allorto:]

Thank you, Brook. Our results from operations for the three months ended December 31, 2018 were as follows

[Brook Taube:]

Great, thanks Rick, and appreciate the continued support. I just would like to point out a couple of things and then talk about the merger, proposed merger plan. Performance across the board for the credit business, since 2015 as we have publically stated, has continued to be strong. As well the tac ops business has continued provide significant returns, that's the base upon which we expect to continue to grow that business. The same goes for the structured credit business. The latter two providing double digit returns over the last several years. So, we are looking optimistically towards the growth in each piece of the business at this point. The attenuation of our proposed merger plan certainly has had an impact, and this has delayed certain targeted growth initiatives and expectations. We remain hard at work, however, and the related parties are working on requirements that will be necessary in order to consummate the merger. So that's the update I can provide at this point. We appreciate your continued support. And operator, we can now open the call for questions. Thank you. We'll now begin the question-and-answer session [Operator instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Brook Taube for any closing remarks.

[Brook Taube:]

Great, thank you operator. I would just like to say thanks to our team, which remains committed, both to the performance of the portfolios, as well as the future and our efforts to remain on the announced merger plan. We look forward to providing timing on that as and when that is available, and can really sincerely appreciate the continued support. Thank you all very much.

[Operator:]

And thank you sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.