10-QPeriod: Q2 FY2014

Ares Management Corp Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 13, 2014For Securities:ARESARES-PB

Summary

Ares Management Corp's (ARES) Q2 2014 10-Q filing reveals a period of significant transformation, marked by its initial public offering (IPO) on May 7, 2014. This event fundamentally altered the company's capital structure and financial reporting. The company reported total revenues of $131.6 million for the quarter, a substantial increase from $89.3 million in the prior year's second quarter, driven by strong growth in management fees across its Direct Lending and Real Estate groups. However, increased compensation expenses, largely due to equity-based compensation related to the IPO and acquisitions, led to a net loss attributable to Ares Management, L.P. of $17.8 million for the quarter, compared to no net income attributable to the parent in the prior year's quarter (though the predecessor company had income). The company's assets under management (AUM) grew to $79.2 billion by the end of the quarter, indicating continued investor confidence and business expansion.

Financial Highlights

30 data points
Beta

Revenue

$131.62M

Net Income

$17.84M

13.6% Net Margin

Total Assets

$21.59B

Cash & Equivalents

$87.44M

Free Cash Flow

$2.37B

Financial Statements
Beta
Revenue$131.62M
SG&A Expenses$39.46M
Operating Expenses$259.10M
Interest Expense$2.04M
Net Income$17.84M
Shares Outstanding (Basic)79.42M

Key Highlights

  • 1Total revenues increased by 39.9% to $131.6 million for Q2 2014, driven by strong growth in management fees.
  • 2The company completed its Initial Public Offering (IPO) on May 7, 2014, raising approximately $209.2 million in gross proceeds.
  • 3Assets Under Management (AUM) grew to $79.2 billion by June 30, 2014, up from $74.0 billion at the start of the quarter.
  • 4Direct Lending Group and Real Estate Group saw significant increases in management fees, primarily due to capital raises and acquisitions.
  • 5Compensation and benefits expenses rose significantly due to equity-based compensation related to the IPO and acquisitions.
  • 6Net income attributable to Ares Management, L.P. was $17.8 million for the quarter, reflecting the post-IPO capital structure.
  • 7The company reported $138.5 million in investments at fair value on its balance sheet, with $137.2 million classified as Level III within the fair value hierarchy.

Frequently Asked Questions

The primary drivers of the revenue increase were higher management fees, particularly from the Direct Lending Group and Real Estate Group, due to new capital raises and acquisitions like the AREA acquisition. Performance fees also contributed positively, with a significant increase in net performance fees across several segments.

The IPO, completed on May 7, 2014, fundamentally changed the company's capital structure. It led to significant equity-based compensation expenses being recognized, impacting profitability for the quarter. The IPO also provided capital for debt repayment and general corporate purposes, enhancing liquidity.

The company is required by GAAP to consolidate certain affiliated funds, co-investment entities, and CLOs where it has a controlling financial interest. While these consolidated entities significantly increase the reported assets, liabilities, revenues, and expenses on a gross basis, their net effect on the income attributable to Ares Management, L.P. is generally eliminated, with non-controlling interests reflecting the economic ownership of third-party investors in these funds.

AUM showed strong growth, increasing from $74.0 billion at the beginning of the quarter to $79.2 billion by the end of Q2 2014. This growth was driven by new commitments, capital deployment, and an increase in fund values across the various segments, particularly in Direct Lending and Real Estate.