10-QPeriod: Q2 FY2017

Ares Management Corp Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 7, 2017For Securities:ARESARES-PB

Summary

Ares Management, L.P. reported robust performance for the six months ended June 30, 2017, with total revenues reaching $775.5 million, a significant increase of 53% compared to the same period in the previous year. This growth was primarily driven by a substantial surge in performance fees, which more than doubled to $393.2 million, reflecting strong investment gains across its segments, particularly in Private Equity. Management fees also saw a healthy increase of 11% to $352.8 million. However, the company incurred a significant one-time transaction support expense of $275.2 million related to the ARCC-ACAS Transaction in the first quarter of 2017, which, combined with higher compensation and other operating expenses, resulted in total consolidated expenses of $939.7 million for the six-month period. Despite these elevated expenses, the company demonstrated underlying operational strength, as evidenced by improvements in its non-GAAP measures like Fee Related Earnings (FRE) and Economic Net Income (ENI), which grew year-over-year.

Financial Highlights

20 data points
Beta

Revenue

$572.20M

Net Income

$49.88M

8.7% Net Margin

Total Assets

$6.24B

Free Cash Flow

-$23.29M

Financial Statements
Beta
Revenue$572.20M
Operating Expenses$448.20M
Net Income$49.88M

Key Highlights

  • 1Total revenues increased by 53% to $775.5 million for the six months ended June 30, 2017, driven by strong performance fees.
  • 2Performance fees more than doubled, increasing by 127% to $393.2 million for the six months ended June 30, 2017, reflecting positive investment performance across segments.
  • 3Management fees grew by 11% to $352.8 million for the six months ended June 30, 2017, supported by fund growth and new launches.
  • 4A one-time transaction support expense of $275.2 million was incurred in Q1 2017 related to the ARCC-ACAS Transaction.
  • 5Compensation and benefits expenses increased by 14% for the six months ended June 30, 2017, partly due to headcount increases related to the ARCC-ACAS integration.
  • 6Total AUM grew to $104.0 billion as of June 30, 2017, up from $95.3 billion at the end of 2016, indicating continued fundraising success and asset growth.
  • 7The company's Fee Paying AUM (FPAUM) also saw a significant increase, reaching $70.5 billion as of June 30, 2017.

Frequently Asked Questions

The primary driver of Ares Management's revenue growth was a substantial increase in performance fees, which more than doubled compared to the prior year period. This surge was largely due to strong investment gains realized across its Private Equity and Real Estate segments.

The ARCC-ACAS Transaction led to a significant one-time transaction support expense of $275.2 million in the first quarter of 2017. Additionally, compensation and benefits expenses increased due to headcount growth associated with integrating ACAS into ARCC.

As of June 30, 2017, Ares Management's total Assets Under Management (AUM) stood at $104.0 billion, and its Fee Paying AUM (FPAUM) was $70.5 billion, indicating continued growth in assets managed and fees generated.

The company disclosed potential contingent repayment obligations related to performance fees. As of June 30, 2017, if all existing investments were considered worthless, the amount of performance fees subject to potential repayment (net of tax) was approximately $451.7 million. However, the company believes the possibility of all investments becoming worthless is remote, and based on current fair values, there was no contingent repayment liability recorded.