10-QPeriod: Q2 FY2016

Ares Management Corp Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 9, 2016For Securities:ARESARES-PB

Summary

Ares Management, L.P. reported solid financial results for the second quarter and first half of 2016. Total revenues saw a significant increase in the quarter, driven by a substantial rise in performance fees, though they declined slightly year-to-date. Expenses, particularly compensation and benefits, increased, reflecting growth in incentive-based compensation and headcount. The company's Credit Group demonstrated strong performance with increased AUM and fee-related earnings. The Private Equity Group experienced a strong quarter for performance fees driven by asset appreciation, while the Real Estate Group showed modest revenue growth. The company also announced a significant preferred equity offering in June 2016, raising $310 million, which was temporarily used to repay its credit facility pending the ARCC-ACAS transaction. Overall, Ares Management demonstrated resilience and growth, with net income attributable to Ares Management, L.P. increasing significantly year-over-year for the quarter. The company's diverse business segments and strategic management of assets under management position it well for continued performance. Investors should note the impact of market volatility, particularly related to Brexit, on investment valuations and the company's forward-looking statements. The company's liquidity remains strong, with substantial cash on hand and an undrawn credit facility.

Financial Highlights

17 data points
Beta

Revenue

$369.54M

Net Income

$37.57M

10.2% Net Margin

Total Assets

$4.67B

Free Cash Flow

$91.80M

Financial Statements
Beta
Revenue$369.54M
Operating Expenses$303.94M
Net Income$37.57M

Key Highlights

  • 1Total revenues increased significantly in Q2 2016 due to a substantial rise in performance fees, although year-to-date revenues saw a slight decrease.
  • 2Net income attributable to Ares Management, L.P. grew by 210.9% year-over-year for the quarter, reaching $37.6 million.
  • 3Ares Management successfully completed a preferred equity offering in June 2016, raising $310 million.
  • 4Assets Under Management (AUM) grew to $95.3 billion as of June 30, 2016, up from $87.5 billion at the same time last year.
  • 5The Credit Group's Fee Related Earnings (FRE) and Economic Net Income (ENI) showed consistent growth compared to the prior year.
  • 6The company maintained a strong liquidity position with $264.6 million in cash and cash equivalents and no outstanding borrowings under its credit facility as of June 30, 2016.
  • 7The company is proceeding with the planned merger of Ares Capital Corporation (ARCC) with American Capital, Ltd. (ACAS).

Frequently Asked Questions

Performance fees significantly boosted Ares Management's revenue in the second quarter of 2016, increasing by $125.5 million compared to the same period in 2015, largely due to appreciation in the value of certain portfolio holdings across various funds in the Credit, Private Equity, and Real Estate groups. However, year-to-date performance fees saw a slight decrease of $9.4 million, primarily attributed to a $23.4 million decline in performance fees from the Credit Group due to the reversal of previously recognized unrealized performance fees.

Ares Management's Assets Under Management (AUM) grew from $87.5 billion as of June 30, 2015, to $95.3 billion as of June 30, 2016. This growth was driven by net new capital commitments and deployments across its Credit, Private Equity, and Real Estate segments, partially offset by distributions and changes in fund valuations.

The ARCC-ACAS transaction refers to the merger agreement between Ares Capital Corporation (ARCC) and American Capital, Ltd. (ACAS). Ares Management, through its subsidiary Ares Capital Management LLC, is supporting this transaction by providing $275 million in cash consideration and waiving certain fees. The transaction is expected to close by the fourth quarter of 2016, subject to shareholder and regulatory approvals.

Compensation and benefits expenses increased by $13.6 million (13.7%) for the quarter and $22.4 million (11.1%) year-to-date. This increase was primarily attributed to higher incentive-based compensation correlated with operating results, along with salary and benefit expenses from merit increases and headcount growth. Performance fee compensation also increased in line with performance fee revenues.