10-QPeriod: Q3 FY2014

Ares Management Corp Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 12, 2014For Securities:ARESARES-PB

Summary

Ares Management, L.P. (ARES) reported its third-quarter results for the period ending September 30, 2014, highlighting growth in management fees across its key segments, particularly Direct Lending and Real Estate, bolstered by new capital raises and acquisitions. Total revenues for the three months ended September 30, 2014, reached $175.2 million, an increase from $135.9 million in the prior year period. This growth was primarily driven by an 17.1% increase in management fees to $127.5 million, supported by ARCC's performance and expansion in the Real Estate Group. While the company saw a significant increase in performance fees to $41.9 million due to strong performance in the Private Equity Group, overall expenses also rose, notably in compensation and benefits due to increased headcount and equity compensation. Despite higher expenses, the company's economic net income (ENI) and distributable earnings (DE) demonstrate the underlying profitability of its core operations, supported by a substantial assets under management (AUM) base of $79.6 billion across its segments. The company also successfully completed its IPO in May 2014, raising $209.2 million in net proceeds, positioning it for future growth and strategic initiatives.

Financial Highlights

19 data points
Beta

Revenue

$175.16M

Net Income

$13.97M

8.0% Net Margin

Total Assets

$22.02B

Free Cash Flow

-$845.84M

Financial Statements
Beta
Revenue$175.16M
Operating Expenses$203.34M
Net Income$13.97M
Shares Outstanding (Basic)80.67M

Key Highlights

  • 1Total revenues increased by 28.9% to $175.2 million for the three months ended September 30, 2014, compared to $135.9 million in the prior year period.
  • 2Management fees grew by 17.1% to $127.5 million, driven by increased AUM in the Direct Lending and Real Estate segments, as well as new fund launches in Tradable Credit.
  • 3Performance fees more than doubled to $41.9 million, primarily due to strong results in the Private Equity Group, particularly from ACOF IV.
  • 4Compensation and benefits expenses rose by 8.2% to $100.9 million, reflecting increased headcount and merit increases.
  • 5The company completed its Initial Public Offering (IPO) on May 7, 2014, raising $209.2 million in net proceeds.
  • 6Assets Under Management (AUM) reached $79.6 billion as of September 30, 2014, showing growth across all segments.
  • 7The company reported a net loss of $79.3 million for the three months ended September 30, 2014, largely due to increased expenses and a significant increase in non-controlling interests' share of losses from Consolidated Funds.

Frequently Asked Questions

For the quarter ended September 30, 2014, Ares Management reported total revenues of $175.2 million, an increase from $135.9 million in the same period of 2013. Net income attributable to Ares Management, L.P. was $14.0 million, compared to effectively $0 in the prior year period due to the IPO structure. However, the consolidated net loss was $79.3 million, impacted by significant non-controlling interests.

Management fees saw a robust increase across most segments, with Direct Lending and Real Estate showing notable growth driven by new capital and acquisitions. Performance fees significantly increased, particularly from the Private Equity Group, reflecting strong investment performance in certain funds. The Tradable Credit Group experienced a decrease in performance fees due to market depreciation.

The IPO in May 2014 raised $209.2 million in net proceeds, strengthening the company's capital position. Following the IPO, the financial statements reflect the holding partnership structure. While it improved liquidity, the post-IPO period includes detailed equity-based compensation expenses and a different presentation of net income attributable to controlling interests versus prior periods.

Compensation and benefits expenses increased due to higher headcount and equity awards. Performance fee compensation decreased, mirroring the change in performance fees (before consolidation eliminations). Expenses of Consolidated Funds increased due to new CLO fund launches and associated closing fees. General, administrative, and other expenses decreased year-over-year, partly due to the prior year's higher amortization of intangible assets.