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CIFC LLC Announces Second Quarter 2016 Results

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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 RESULTS2Q'162Q'15% Change
vs. 2Q'15
YTD'16YTD'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 - basic24,096 25,302  (5)%24,725 25,291  (2)%
Weighted average shares outstanding - diluted25,761 26,432  (3)%25,963 26,504  (2)%



NON-GAAP FINANCIAL MEASURES (2)2Q'162Q'15% Change
vs. 2Q'15
YTD'16YTD'15% Change
vs. YTD'15
Management Fees from CLOs13,737 13,979  (2)%27,679 28,939  (4)%
Management Fees from Non-CLO products1,485 977  52%2,671 1,838  45%
Total Management Fees15,222 14,956  2%30,350 30,777  (1)%
Incentive Fees7,861 4,066  93%12,144 8,066  51%
Net Investment Income15,290 5,742  166%20,182 11,850  70%
Total ENI Revenues38,373 24,764  55%62,676 50,693  24%
Employee compensation and benefits9,463 7,187  32%17,493 15,471  13%
Share-based compensation (3)1,737 952  82%4,144 2,628  58%
Other operating expenses4,545 4,332  5%9,438 8,699  8%
Corporate interest expense1,999 800  150%3,956 1,294  206%
Total ENI Expenses17,744 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'162Q'15% Change
vs. 2Q'15
YTD'16YTD'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 - AUM6/30/201612/31/2015% 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)%



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 



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 



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 



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

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