CIFC LLC Announces Second Quarter 2016 Results

NEW YORK, Aug. 15, 2016 (GLOBE NEWSWIRE) -- CIFC LLC (NASDAQ:CIFC) ("CIFC" or the "Company") today announced its results for the second quarter ended June 30, 2016.

Highlights
  • GAAP net income (loss) for the six months was $22.1 million as compared to $6.5 million for the same period in the prior year. GAAP net income (loss) for the quarter was $17.6 million as compared to $1.1 million for the same period in the prior year.
  • Economic Net Income "ENI", a non-GAAP measure, for the six months was $27.6 million as compared to $22.6 million for the same period in the prior year. ENI for the quarter was $20.6 million as compared to $11.5 million for the same period in the prior year.
  • Fee Earning AUM was $13.6 billion as of June 30, 2016, as compared to $14.1 billion as of December 31, 2015 and $14.0 billion  as of June 30, 2015.

Executive Overview

The second quarter saw a strong recovery in risk assets. Both the U.S. high yield and leveraged loan markets performed strongly, driven by higher commodity prices and increased investor risk appetites. Our Credit Funds recorded strong inflows, pushing Credit Fund AUM to $1.4 billion across 15 co-mingled funds and separately managed accounts. Net investment income during the second quarter grew to $15.3 million. Incentive fees also recorded strong growth year-over-year, totaling $7.9 million in the second quarter. For the first six months of the year, net investment income and incentive fees stood at $20.2 million and $12.1 million, respectively.

The new issue CLO market continued to be challenging throughout the second quarter. As loan prices rallied, CLO liabilities lagged. As a result, prospective new issue CLO equity returns were largely uncompetitive compared to secondary market opportunities. Total issuance during the first six months of the year was limited to just 62 CLOs compared to 114 CLOs in the first half of 2015. During the month of July, we have seen a strong rally in CLO liabilities leading to a surge in issuance. We expect to see higher CLO new issue volumes in the second half of the year. Given the challenging market environment for new issue CLOs, CIFC chose not to sponsor a CLO during the first half of the year. We are currently managing two CLO warehouses which are expected to drive new issuance late in the third quarter and early in the fourth quarter.  We continue to be well positioned to meet our obligations for risk retention, due to be implemented in December 2016, with more than $200 million in cash and investments on our balance sheet.

Selected Financial Metrics (In thousands, except per share data)

SELECTED GAAP RESULTS 2Q'16 2Q'15 % Change vs. 2Q'15 YTD'16 YTD'15 % Change vs. YTD'15
Total net revenues (1) $ 47,248   $ 25,860     83 % $ 86,986   $ 52,837     65 %
Total expenses (1) $ 30,726   $ 17,470     76 % $ 59,803   $ 37,133     61 %
Income tax expense (benefit) - Current $ 1,343   $ 2,253     (40 )% $ 1,306   $ 5,490     (76 )%
Income tax expense (benefit) - Deferred $ 1,525   $ 7,575     (80 )% $ 2,840   $ 7,425     (62 )%
Net income (loss) attributable to CIFC LLC $ 17,585   $ 1,103     1,494 % $ 22,089   $ 6,531     238 %
Earnings (loss) per share - basic $ 0.73   $ 0.04     1,725 % $ 0.89   $ 0.26     242 %
Earnings (loss) per share - diluted $ 0.68   $ 0.04     1,600 % $ 0.85   $ 0.25     240 %
Distributions declared per share $ 0.25   $ 0.10     150 % $ 0.59   $ 0.20     195 %
Weighted average shares outstanding - basic 24,096   25,302     (5 )% 24,725   25,291     (2 )%
Weighted average shares outstanding - diluted 25,761   26,432     (3 )% 25,963   26,504     (2 )%

NON-GAAP FINANCIAL MEASURES (2) 2Q'16 2Q'15 % Change vs. 2Q'15 YTD'16 YTD'15 % Change vs. YTD'15
Management Fees from CLOs 13,737   13,979     (2 )% 27,679   28,939     (4 )%
Management Fees from Non-CLO products 1,485   977     52 % 2,671   1,838     45 %
Total Management Fees 15,222   14,956     2 % 30,350   30,777     (1 )%
Incentive Fees 7,861   4,066     93 % 12,144   8,066     51 %
Net Investment Income 15,290   5,742     166 % 20,182   11,850     70 %
Total ENI Revenues 38,373   24,764     55 % 62,676   50,693     24 %
Employee compensation and benefits 9,463   7,187     32 % 17,493   15,471     13 %
Share-based compensation (3) 1,737   952     82 % 4,144   2,628     58 %
Other operating expenses 4,545   4,332     5 % 9,438   8,699     8 %
Corporate interest expense 1,999   800     150 % 3,956   1,294     206 %
Total ENI Expenses 17,744   13,271     34 % 35,031   28,092     25 %
ENI (2) $ 20,629   $ 11,493     79 % $ 27,645   $ 22,601     22 %
ENI per share - basic (4) $ 0.86   $ 0.45     91 % $ 1.12   $ 0.89     26 %
ENI per share - diluted (4) $ 0.80   $ 0.43     86 % $ 1.06   $ 0.85     25 %

NON-GAAP FINANCIAL MEASURES (2) 2Q'16 2Q'15 % Change vs. 2Q'15 YTD'16 YTD'15 % Change vs. YTD'15
ENI EBITDA (5) $ 22,998   $ 12,642     82 % $ 32,335   $ 24,577     32 %
ENI EBITDA Margin (6) 60 % 51 %   9 % 52 % 48 %   4 %
ENI Margin (6) 54 % 46 %   8 % 44 % 45 %   (1 )%

NON-GAAP FINANCIAL MEASURE - AUM 6/30/2016 12/31/2015 % Change vs. 12/31/15 6/30/2015 % Change vs. 6/30/15
Fee Earning AUM from loan-based products (7) $ 13,617,299   $ 14,055,487     (3 )% $ 14,007,339     (3 )%

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Explanatory Notes:
 
(1) Prior year amounts have been re-presented to conform to current period presentation, including the Company's adoption of Accounting Standard Update "ASU" 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"). The guidance was adopted on a modified retroactive basis. As such, prior year amounts have been re-presented to reflect the deconsolidation of 30 CLOs and 1 credit fund as of January 1, 2015.
(2) See Appendix for a detailed description of these non-GAAP measures and reconciliations from GAAP net income (loss) attributable to the Company to non-GAAP measures.
(3) Share-based compensation includes equity award amortization expense for both employees and directors of the Company.
(4) GAAP weighted average shares outstanding is used to calculate ENI per share - basic and diluted.
(5) ENI EBITDA is ENI before corporate interest expense and depreciation of fixed assets. See Appendix.
(6) ENI EBITDA Margin is ENI EBITDA divided by Total ENI Revenue. ENI Margin is ENI divided by Total ENI Revenue. 
(7) Amount excludes Fee Earning AUM attributable to non-core products of $525.0 million, $592.8 million and $643.3 million as of June 30, 2016, December 31, 2015 and June 30, 2015, respectively. Fee Earning AUM attributable to non-core products is expected to continue to decline as these funds run-off per their contractual terms.
 

Second Quarter Overview

CIFC reported GAAP net income attributable to the Company of $17.6 million for the second quarter of 2016, as compared to net income of $1.1 million in the same period of the prior year. GAAP operating results increased quarter over quarter by $16.5 million, primarily due to higher revenues from (i) unrealized gains as the Company held more investments period over period and the increase in market value of loans and CLO securities were higher period over period and (ii) incentive fees from the call of a CLO and a credit fund. In addition, income tax expenses decreased by $7.0 million as a result of the Company being taxed as a partnership in 2016. Offsetting these increases were higher (i) accrued employee compensation expenses as a result of better performance year over year, (ii) stock-based compensation from the amortization of equity awards granted since the third quarter of 2015 and (iii) corporate interest expense predominately related to the issuance of $40.0 million unsecured senior notes in November 2015 and a change in the stated rate of the March Junior Subordinated Notes.

CIFC reported ENI of $20.6 million for the second quarter of 2016, as compared to $11.5 million for the same period in the prior year. ENI increased quarter over quarter by $9.1 million, or 79%, primarily due to pre-tax increases noted above. See the Non-GAAP Financial Measures section of the Appendix for a reconciliation between GAAP and Non-GAAP ENI.

Fee Earning AUM

The following table summarizes Fee Earning AUM for the Company's loan-based products:
    June 30, 2016   December 31, 2015   June 30, 2015
(in thousands, except # of Accounts) (1)(2)   # of Accounts   Fee Earning AUM   # of Accounts   Fee Earning AUM   # of Accounts   Fee Earning AUM
 Post 2011 CLOs              18     $   9,809,980                18     $      9,860,519                15     $      8,457,581
Legacy CLOs (3)   9     1,897,208     10     2,559,066     15     4,016,596  
Total CLOs   27     11,707,188     28     12,419,585     30     12,474,177  
Credit Funds (4)   15     1,367,871     12     1,062,712     9     884,713  
Other Loan-Based Products (4)   2     542,240     2     573,190     2     648,449  
Total Non-CLOs (4)   17     $ 1,910,111     14     $ 1,635,902     11     $ 1,533,162  
AUM from loan-based products   44     $ 13,617,299     42     $ 14,055,487     41     $ 14,007,339  

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Explanatory Notes:
 
(1) Table excludes Fee Earning AUM attributable to non-core products of $525.0 million, $592.8 million and $643.3 million as of June 30, 2016, December 31, 2015 and June 30, 2015, respectively. Fee Earning AUM attributable to non-core products is expected to continue to decline as these funds run-off per their contractual terms.
(2) Fee Earning AUM is based on the latest available monthly report issued by the trustee or fund administrator prior to the end of the period, and may not tie back to the Consolidated GAAP financial statements.
(3) Legacy CLOs represent all managed CLOs issued prior to 2011, including CLOs acquired since 2011 but issued prior to 2011.
(4) Management fees for Non-CLO products vary by fund and may not be similar to a CLO.
 

Since 2012, CIFC has raised $11.6 billion of new AUM through organic growth (i.e. excluding mergers and acquisition related transactions) which has more than offset the run-off from Legacy CLOs (including acquired CLOs). Our Legacy CLO AUM of $1.9 billion is less than a fifth of our total CLO AUM of $11.7 billion, and we anticipate it will run off over the next three years.

A chart accompanying this announcement is available at  http://www.globenewswire.com/NewsRoom/AttachmentNg/dea791a4-69fd-446b-bf22-009f053f6945

Total loan-based Fee Earning AUM activity for the periods below are as follows ($ in thousands):
    2Q'16   YTD'15   LTM 2Q'15
Opening AUM Balance
  $ 13,955,639   $ 14,055,487   $ 14,007,339
CLO New Issuances           1,499,709  
CLO Paydowns   (519,708 )   (709,969 )   (2,265,737 )
Net Subscriptions to Credit Funds   192,194     267,309     451,210  
Net Redemptions from Other Loan-Based Products   (21,466 )   (30,949 )   (106,208 )
Other (1)   10,640     35,421     30,986  
Ending AUM Balance   $ 13,617,299     $ 13,617,299     $ 13,617,299  

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Explanatory Note:
 
(1) Includes changes in collateral balances of CLOs between periods and market value or portfolio value changes in certain Non-CLO products.
 

Balance Sheet Highlights
($ in thousands)   As of June 30, 2016   As of December 31, 2015
Cash and Cash Equivalents           39,720          $     57,968  
                 
Investments (1)                
CIFC CLO Equity   $ 69,596         $ 53,912      
Warehouses   44,990              
Fund Coinvestments   33,163         41,401      
CLO Debt   11,317         32,140      
Other (2)   26,846         24,946      
Total Investments       $ 185,912         $ 152,399  
Total Cash and Investments       225,632         210,367  
                 
Long Term Debt (Par)                
Junior Subordinated Notes due 2035   $ 120,000         $ 120,000      
Senior Notes due  2025   40,000         40,000      
Total Long Term Debt (Par)       160,000         160,000  
Net Cash and Investments       $ 65,632         $ 50,367  

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Explanatory Notes:
 
(1) Pursuant to GAAP, investments in consolidated CLOs, warehouses and certain Non-CLO products are eliminated from "Investments" on our Consolidated Balance Sheets.
(2) Primarily includes investment in CIFC's Tactical Income Fund, which may be redeemed with 60 days' notice on the last day of each calendar quarter.
 

Appendix

Non-GAAP Financial Measures

The Company discloses financial measures that are calculated and presented on a basis of methodology other than in accordance with generally accepted accounting principles of the United States of America ("Non-GAAP") as follows:

ENI and ENI EBITDA are non-GAAP financial measures of performance that management uses in addition to GAAP Net income (loss) attributable to CIFC LLC to measure the performance of our core business (excluding non-core products). We believe ENI and ENI EBITDA are helpful to investors as they reflect the nature and substance of the business, the economic results achieved by management fee revenues from the management of client funds and earnings on our investments.

ENI represents GAAP Net income (loss) attributable to CIFC LLC, prior to the consolidation of Funds (or the "Management Company") as required under Accounting Standard Codification ASC Topic 810, Consolidation, excluding (i) current and deferred income taxes, (ii) merger and acquisition related items, including fee-sharing arrangements, amortization and impairments of intangible assets and gain (loss) on contingent consideration for earn-outs, (iii) non-cash compensation related to profits interests granted by CIFC Parent Holdings LLC in June 2011, (iv) revenues attributable to non-core investment products, (v) advances for fund organizational expenses and (vi) certain other items as detailed.

In addition to the pre-consolidation impact, the following adjustments were made to arrive at ENI Revenues and ENI Expenses (Refer to Summary of Reconciliation of GAAP to Net Income (loss) attributable to CIFC LLC to Non-GAAP Measures for more details):

-- ENI Revenues represent GAAP revenues excluding management fee sharing arrangements and fees attributable to non-core investment products. Further GAAP net (gain)/loss on contingent liabilities and other have been reclassed to ENI Revenues.

-- ENI Expenses represent GAAP expenses excluding amortization and impairment of intangibles, employee compensation costs from non-cash compensation related to profits interest granted by CIFC Parent Holdings LLC in June 2011, other (such as advances for fund organizational expenses and certain other items as detailed), and current and deferred income taxes.

Further ENI EBITDA represents ENI before corporate interest expense and depreciation of fixed assets, a non-cash item.

ENI and ENI EBITDA may not be comparable to similar measures presented by other companies, as they are non-GAAP financial measures that are not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. In addition, ENI and ENI EBITDA should be considered as an addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

A detailed calculation of ENI and ENI EBITDA and a reconciliation to the most comparable GAAP financial measure is included in the Appendix.

Fee Earning Assets Under Management ("AUM") refers to the assets managed by the Company on which we receive management fees and/or incentive based fees. Generally, with respect to CLOs, management fees are paid to the Company based on the aggregate collateral balance at par plus principal cash, and with respect to Non-CLO funds, the value of the assets in such funds. We believe this measure is useful to investors as it is an additional performance measure providing insight into the overall investment activities of the Company's managed Funds (or core business).

[Financial Tables to Follow in Appendix]

About CIFC

Founded in 2005, CIFC is a private debt manager specializing in secured U.S. corporate loan strategies. Headquartered in New York, CIFC is a SEC registered investment adviser and a publicly traded company (NASDAQ: CIFC).  Serving institutional investors globally, CIFC is one of the largest managers of senior secured corporate credit. For more information, please visit CIFC's website at www.cifc.com.

Forward-Looking Statements

This release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 which reflect CIFC's current views with respect to, among other things, CIFC's operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. CIFC believes these factors include but are not limited to those described under the section entitled "Risk Factors" in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as such factors may be updated from time to time in its periodic filings with the Securities and Exchange Commission, which are accessible on the SEC's website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in the filings. CIFC undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Summary Reconciliation of GAAP Net income (loss) attributable to CIFC LLC to Non-GAAP Measures
(In thousands)   2Q'16   2Q'15   YTD'16   YTD'15
GAAP Net income (loss) attributable to CIFC LLC   $ 17,585     $ 1,103     $ 22,089     $ 6,531  
Income tax expense (benefit) - current and deferred (1)     2,868       9,828       4,146       12,915  
Amortization and impairment of intangibles   712     2,193     2,175     4,550  
Management fee sharing arrangements (2)   (312 )   (1,627 )   (2,313 )   (3,466 )
Net (gain)/loss on contingent liabilities and other   (150 )   577     214     1,290  
Employee compensation costs (3)   7     319     1,465     603  
Management fees attributable to non-core funds   (137 )   (167 )   (245 )   (340 )
Other (4)   56     (733 )   114     518  
Total reconciling and other items   3,044     10,390     5,556     16,070  
ENI   $ 20,629     $ 11,493     $ 27,645     $ 22,601  
Add: Corporate interest expense   1,999     800     3,956     1,294  
Add: Depreciation of fixed assets   370     349     734     682  
ENI EBITDA   $ 22,998     $ 12,642     $ 32,335     $ 24,577  

¿
Explanatory Notes:
 
(1) Includes current taxes of  $1.3 million for both the three and six months ended June 30, 2016, and $2.3 million and $5.5 million for the three and six months ended June 30, 2015, respectively, and deferred taxes of $1.5 million and $2.8 million for the three and six months ended June 30, 2016, respectively, and $7.6 million and $7.4 million for the three and six months ended June 30, 2015, respectively.
(2) The Company shares management fees on certain of the acquired CLOs it manages with the party that sold the funds to CIFC, or an affiliate thereof. Management fees are presented on a gross basis for GAAP and on a net basis for ENI.
(3) Employee compensation and benefits has been adjusted for non-cash compensation related to profits interests granted to CIFC employees by CIFC Parent Holdings LLC and sharing of incentive fees with certain former employees established in connection with the Company's acquisition of certain CLOs from CNCIM.
(4) In 2016, other represents certain professional services expenses incurred in relation to the strategic process announced in January 2016. In 2015, other represents fund set up expenses, which are written-off upfront for GAAP purposes and amortized over the life of the fund for Non-GAAP ENI, and certain professional services in relation to the Reorganization Transaction.
 

Condensed Consolidated Statement of Operations

The Consolidated Condensed Financial Statements include the financial statements of CIFC LLC & Subsidiaries, or the Company's core asset management business ("Management Company") and certain managed Funds ("Consolidated Entities"). The supplemental financial information provided below illustrates the consolidating effects of the Management Company, and the Consolidated Entities which we are required to consolidate under ASC 810. Further, management internally views and manages the business as one reportable segment.
    2Q'16   2Q'15
(In thousands) (1)   Management Company   Consolidated Entities   Eliminations   CIFC LLC Consolidated   Management Company   Consolidated Entities   Eliminations   CIFC LLC Consolidated
Total net revenues   $  27,086     $  24,809   $ (4,647 )   $  47,248     $  22,922     $  3,035     $ (97   $  25,860
Total expenses   18,516     14,487       (2,277 )     30,726     16,112     1,577     (219 )   17,470  
Net other income (expense) and gain (loss)   11,883     (8,610 )     980       4,253     4,121     (478 )   (539 )   3,104  
Income (loss) before income taxes   20,453     1,712       (1,390 )     20,775     10,931     980       (417 )     11,494  
Income tax (expense) benefit   (2,868 )           (2,868 )   (9,828 )           (9,828 )
Net income (loss)   17,585     1,712     (1,390 )   17,907     1,103     980       (417 )     1,666  
Net (income) loss attributable to noncontrolling interest in Consolidated Entities       (1,712 )   1,390     (322 )       (980 )   417     (563 )
Net income (loss) attributable to CIFC LLC   $ 17,585     $       $       $ 17,585     $ 1,103     $       $       $ 1,103  

    YTD'16   YTD'15
(In thousands) (1)   Management Company   Consolidated Entities   Eliminations   CIFC LLC Consolidated   Management Company   Consolidated Entities   Eliminations   CIFC LLC Consolidated
Total net revenues   $  51,826     $  43,799     $ (8,639 )   $  86,986     $  47,489     $  5,791     $ (443   $  52,837
Total expenses   38,784     25,176       (4,157 )     59,803     33,763     3,808     (438 )   37,133  
Net other income (expense) and gain (loss)   13,193     (16,496 )     2,679       (624 )   5,720     930     (2,091 )   4,559  
Income (loss) before income taxes   26,235     2,127       (1,803 )     26,559     19,446     2,913       (2,096 )     20,263  
Income tax (expense) benefit   (4,146 )           (4,146 )   (12,915 )           (12,915 )
Net income (loss)   22,089     2,127     (1,803 )   22,413     6,531     2,913       (2,096 )     7,348  
Net (income) loss attributable to noncontrolling interest in Consolidated Entities       (2,127 )   1,803     (324 )       (1,541 )   724     (817 )
Net income (loss) attributable to CIFC LLC   $ 22,089     $       $       $ 22,089     $ 6,531     $ 1,372     $ (1,372 )     $ 6,531  

Explanatory Note:
 
(1) Prior year amounts have been re-presented to conform to current period presentation, including the Company's adoption of Accounting Standard Update "ASU" 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis ("ASU 2015-02"). The guidance was adopted on a modified retroactive basis, on January 1, 2015. As such, prior year amounts have been re-presented to reflect the deconsolidation of 30 CLOs and 1 credit fund as of January 1, 2015.

Investor RelationsInvestor@cifc.com(646) 367-6633

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