Press Release Source: Highbury Financial Inc.
Highbury Financial Inc. Financial and Operating Results for Fourth Quarter and Full Year 2006
Friday March 23, 4:49 pm ET
Company Reports EPS of $(1.35), Cash EPS of $0.07 for Fourth Quarter, EPS of ($1.38), Cash EPS of $0.12 for Full Year 2006
DENVER--(BUSINESS WIRE)--Highbury Financial Inc. (OTCBB: HBRF - News) today reported its financial and operating results for the fourth quarter and full year 2006.
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Net Loss for the fourth quarter of 2006 was $(13.0) million, compared to $(1,996) for the fourth quarter of 2005. Cash Net Income was $629,533 for the fourth quarter of 2006, compared to $(1,996) for the fourth quarter of 2005. Cash Net Income per share ("Cash EPS") for the fourth quarter of 2006 was $0.07, compared to zero for the fourth quarter of 2005 prior to Highbury's initial public offering. Diluted earnings per share for the fourth quarter of 2006 was $(1.35), compared to zero for the same period of 2005. (Cash Net Income is defined in the attached tables.)
For the fourth quarter of 2006, revenue was $3.8 million, compared to zero for the fourth quarter of 2005. Adjusted EBITDA for the fourth quarter of 2006 was $881,007, compared to $(1,996) for the same period of 2005. (Adjusted EBITDA is defined in the attached tables.)
Cash EPS for the year ended December 31, 2006 was $0.12, compared to zero for the year ended December 31, 2005 prior to Highbury's initial public offering, while diluted earnings per share for 2006 was $(1.38), compared to zero for 2005.
For the year ended December 31, 2006, Cash Net Income was $1.1 million, while Adjusted EBITDA was $1.7 million. For the same period, Net Loss was $(12.5) million, on revenue of $3.8 million. For the year ended December 31, 2005, Cash Net Income, Adjusted EBITDA and Net Loss were $(2,452) on revenue of zero.
Net mutual fund client cash flows, which represent aggregate contributions from new and existing clients less withdrawals, for the fourth quarter of 2006 were approximately neutral on balanced contributions and withdrawals. Net mutual fund client cash flows for the full year 2006 were $(1.1) billion. Aggregate mutual assets under management declined by approximately $0.9 billion, or 14%, during 2006 to $5.5 billion at December 31, 2006. During 2006, separate account assets under management increased from $149 million to $199 million.
"Highbury achieved two significant milestones in 2006," stated Richard S. Foote, President and Chief Executive Officer. "First, we completed our initial public offering and contemporaneous private placement with net proceeds of $43.8 million. Second, we completed the acquisition of the ABN AMRO U.S. mutual fund business through our affiliate Aston Asset Management LLC."
Mr. Foote continued, "In December 2006 Highbury's weighted average assets under management totaled $5,645 million with a weighted average fee basis of 0.80%. We expect Highbury's 2007 Adjusted EBITDA to be 18.2% of affiliate revenue less holding company expenses. With cash on hand at December 31, 2006 of $6.2 million and no debt or other long-term liabilities, Highbury has substantial senior and subordinated term debt capacity. This debt capacity and our expected after-tax free cash flow support our strategy of providing permanent capital solutions to mid-sized investment management firms."
Mr. Foote concluded, "Our mutual fund advisory, sales, marketing, compliance, finance, operation and administration resources allow us to bring distribution capacity to future affiliates using a co-branded, sub-advised model. Coupled with the extensive industry relationships of our directors, officers, employees and stockholders, we believe Highbury is well positioned to grow as an investment management holding company."
Highbury is an investment management holding company providing permanent capital solutions to mid-sized investment management firms. We pursue acquisition opportunities and seek to establish accretive partnerships with high quality investment management firms. Highbury's strategy is to provide permanent equity capital to fund buyouts from corporate parents, buyouts of founding or departing partners, growth initiatives, or exit strategies for private equity funds. This strategy includes leaving material equity interests with management teams to align the interests of management and Highbury's shareholders and, in general, does not include integrating future acquisitions, although Highbury may execute add-on acquisitions for its current or future affiliates. We seek to augment and diversify our sources of revenue by asset class, investment style, distribution channel, client type and management team. We intend to fund acquisitions with retained net income or the issuance of debt or equity.
Highbury currently expects to release its financial and operating results for the first quarter of 2007 during the week of April 30, 2007.
Questions and inquiries for further information may be directed to Richard S. Foote, President and Chief Executive Officer of Highbury Financial Inc. He can be reached via telephone at 212-688-2341. More information is also available at www.highburyfinancial.com.
Forward Looking Statements
This press release includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of Highbury's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements.
The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: changes in the securities or financial markets or in general economic conditions, the availability of equity and debt financing, competition for acquisitions of interests in investment management firms, the ability to close pending investments, the investment performance of the Aston Funds and our ability to effectively market their investment strategies, and other risks detailed from time to time in Highbury's filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Highbury assumes no obligation to update the information contained in this press release.
Highbury Financial Inc.
Financial Highlights
Three Months Three Months
Ended Ended
12/31/05 12/31/06
------------- -------------
Revenue $ -- $ 3,828,100
Net Income $ (1,996) $(12,955,456)
Cash Net Income (1) $ (1,996) $ 629,533
Adjusted EBITDA (2) $ (1,996) $ 881,006
Average shares outstanding - basic and
diluted 1,725,000 9,598,609
Earnings per share - basic and diluted $ (0.00) $ (1.35)
Year Year
Ended Ended
12/31/05 12/31/06
------------- -------------
Revenue $ -- $ 3,828,100
Net Income $(2,452) $(12,463,206)
Cash Net Income (1) $(2,452) $ 1,121,783
Adjusted EBITDA (2) $(2,452) $ 1,661,606
Average shares outstanding - basic and
diluted 1,725,000 9,045,773
Earnings per share - basic and diluted $ (0.00) $ (1.38)
Highbury Financial Inc.
Financial Highlights
December 31, December 31,
2005 2006
------------ ------------
Cash and cash equivalents $ 36,902 $ 6,248,705
Senior debt $ -- $ --
Senior convertible debt $ -- $ --
Mandatory convertible securities $ -- $ --
Other long term obligations $ -- $ --
Stockholders' equity $ 22,548 $44,228,779
Highbury Financial Inc.
Average Shares Outstanding
Three Months Three Months
Ended Ended
12/31/05 12/31/06
------------ ------------
Average shares outstanding - basic 1,725,000 9,598,609
Dilutive impact of warrants -- --
------------ ------------
Average shares outstanding - diluted (3) 1,725,000 9,598,609
Year Year
Ended Ended
12/31/05 12/31/06
------------ ------------
Average shares outstanding - basic 1,725,000 9,045,773
Dilutive impact of warrants -- --
------------ ------------
Average shares outstanding - diluted (3) 1,725,000 9,045,773
Highbury Financial Inc.
Reconciliations of Performance and Liquidity Measures
Three Three
Months Months
Ended Ended
12/31/05 12/31/06
------------- -------------
Net Income $ (1,996) $(12,955,456)
Intangible amortization -- --
Intangible-related deferred taxes -- 74,989
Affiliate depreciation -- --
Other non-cash expenses (4)
Compensation expense for 35% interest
in Aston -- 20,784,615
Adjustment for minority interest -- (7,274,615)
------------- -------------
Cash Net Income (1) $ (1,996) $ 629,533
============ ============
Net Income $ (1,996) $(12,955,456)
Income tax expense -- 326,462
Interest expense -- --
Intangible amortization -- --
Depreciation and other amortization -- --
Other non-cash expenses (4)
Compensation expense for 35% interest
in Aston -- 20,784,615
Adjustment for minority interest -- (7,274,615)
------------- -------------
Adjusted EBITDA (2) $ (1,996) $ 881,006
============ ============
Cash flow from operations $ -- $ (808,837)
Interest expense -- --
Current income tax provision -- 209,722
Changes in operating assets and
liabilities (1,996) 2,107,022
Changes in minority interest -- (626,901)
------------- -------------
Adjusted EBITDA (2) $ (1,996) $ 881,006
============ ============
Highbury Financial Inc.
Reconciliations of Performance and Liquidity Measures
Year Year
Ended Ended
12/31/05 12/31/06
------------- -------------
Net Income
$ (2,452) $(12,463,206)
Intangible amortization -- --
Intangible-related deferred taxes -- 74,989
Affiliate depreciation -- --
Other non-cash expenses (4)
Compensation expense for 35% interest
in Aston -- 20,784,615
Adjustment for minority interest -- (7,274,615)
------------- -------------
Cash Net Income (1) (2,452) 1,121,783
============ =============
Net Income $ (2,452) $(12,463,206)
Income tax expense -- 614,812
Interest expense -- --
Intangible amortization -- --
Depreciation and other amortization -- --
Other non-cash expenses (4)
Compensation expense for 35% interest
in Aston -- 20,784,615
Adjustment for minority interest -- (7,274,615)
------------- -------------
Adjusted EBITDA (2) $ (2,452) $ 1,661,606
============ ============
Cash flow from operations
$ -- $ (12,229)
Interest expense -- --
Current income tax provision -- 702,088
Changes in operating assets and
liabilities (2,452) 1,598,648
Changes in minority interest -- (626,901)
------------ -------------
Adjusted EBITDA (2)
$ (2,452) $ 1,661,606
============ =============
Highbury Financial Inc.
Consolidated Balance Sheets
December 31, 2005 December 31, 2006
----------------- -----------------
Current assets:
Cash and equivalents $ 36,902 $ 6,248,705
Accounts receivable - 3,646,422
Prepaid expenses - 221,220
Other current assets - 13,670
----------------- -----------------
Total current assets 36,902 10,130,017
Fixed assets, net - 573,534
Identifiable intangibles - 26,753,000
Goodwill - 9,673,412
Deferred registration costs 483,492 -
Deferred income taxes - 87,276
Other long term assets - 150,000
----------------- -----------------
Total assets $ 520,394 $ 47,367,239
================= =================
Current liabilities:
Accounts payable and accrued
expenses $ 427,846 $ 2,269,470
Income taxes payable - 242,089
Notes payable, stockholders 70,000 -
----------------- -----------------
Total liabilities 497,846 2,511,560
Commitments and contingencies
Minority interest (5) - 626,901
----------------- -----------------
Stockholders' equity: (6)
Preferred stock, $0.0001 par
value, authorized 1,000,000
shares; none issued - -
Common stock, $0.0001 par value,
authorized 50,000,000 shares;
issued and outstanding 9,527,000
shares and 1,725,000,
respectively 173 953
Additional paid-in capital 24,827 56,693,484
Retained income (deficit) (2,452) (12,465,658)
----------------- -----------------
Total stockholders' equity 22,548 44,228,779
----------------- -----------------
Total liabilities and
stockholders' equity $ 520,394 $ 47,367,239
================= =================
Highbury Financial Inc.
Consolidated Statements of Income
Period from
Three July 13, Twelve
Months Three Months 2005 Months
Ended Ended (inception) Ended
December December to December December 31,
31, 2005 31, 2006 31, 2005 2006
---------- ------------- ----------- -------------
Revenue $- $3,828,100 $- $3,828,100
---------- ------------- ----------- -------------
Operating expenses:
Distribution and
sub-advisory costs $- $(1,796,910) $- $(1,796,910)
Compensation and
related expenses - (21,109,331) - (21,109,331)
Amortization of
intangible assets - - - -
Depreciation and
other amortization - - - -
Other operating
expenses (1,996) (754,552) (2,452) (1,162,875)
---------- ------------- ----------- -------------
Total expenses (1,996) (23,660,793) (2,452) (24,069,116)
---------- ------------- ----------- -------------
Operating loss (1,996) (19,832,693) (2,452) (20,241,016)
Non-operating
income:
Interest income - 555,984 - 1,744,907
---------- ------------- ----------- -------------
Total non-
operating income - 555,984 - 1,744,907
---------- ------------- ----------- -------------
Loss before
minority interest (1,996) (19,276,709) (2,452) (18,496,109)
Minority
interest(5) - 6,647,715 - 6,647,715
---------- ------------- ----------- -------------
Loss before
provision for
income taxes (1,996) (12,628,994) (2,452) (11,848,394)
Provision for
income taxes:
Current - (209,722) - (702,088)
Deferred -
Intangible-related - (74,989) - (74,989)
Deferred - Other - (41,751) - 162,265
---------- ------------- ----------- -------------
Total income taxes - (326,462) - (614,812)
---------- ------------- ----------- -------------
Net loss for the
period $(1,996) $(12,955,456) $(2,452) $(12,463,206)
========== ============= =========== =============
Weighted average
shares
outstanding, basic
and diluted 1,725,000 9,598,609 1,725,000 9,045,773
Net loss per share,
basic and diluted $(0.00) $(1.35) $(0.00) $(1.38)
Highbury Financial Inc.
Consolidated Statements of Cash Flow
Period from
Three July 13,
Months Three Months 2005 Twelve Months
Ended Ended (inception) Ended
December December 31, to December December 31,
31, 2005 2006 31, 2005 2006
--------- ------------- ------------ -------------
Cash flows from
operating
activities:
Net income / (loss)
for the period $(1,996) $(12,955,456) $(2,452) $(12,463,206)
Adjustments to
reconcile net
income to
net cash used in
operating
activities:
(Increase) /
decrease in
deferred taxes - 116,741 - (87,276)
Addback: expense
related to grant of
minority interest
in Aston, net - 20,784,615 - 20,784,615
Addback: minority
interest - (6,647,715) - (6,647,715)
Changes in
operating assets
and liabilities:
(Increase) /
decrease in
accounts
receivable - (3,646,422) - (3,646,422)
(Increase) /
decrease in
prepaid expenses - (142,425) - (221,220)
(Increase) /
decrease in other
current assets - (13,670) - (13,670)
(Increase) /
decrease in other
long term assets - (150,000) - (150,000)
Increase /
(decrease) in
accounts payable
and accrued
expenses 1,996 2,050,964 - 2,190,576
Increase /
(decrease) in
income taxes
payable - (20,277) - 242,089
--------- ------------- ------------ -------------
Net cash used in
operating
activities - (808,837) - (12,229)
--------- ------------- ------------ -------------
Cash flows from
investing
activities:
Payment for
acquisition (7) - (38,600,000) - (38,600,000)
Receipt of cash for
working capital in
acquisition - 3,500,000 - 3,500,000
Payment of costs of
the acquisition - (1,398,828) - (1,782,869)
Capital
expenditures - (40,634) - (40,634)
--------- ------------- ------------ -------------
Net cash used in
investing
activities - 7,885,031 - (36,923,503)
--------- ------------- ------------ -------------
Cash flows from
financing
activities:
Proceeds from sale
of shares of
common stock - - 25,000 47,460,000
Proceeds from
issuance of option - - - 100
Proceeds from notes
payable,
stockholders - - 70,000 -
Payments of notes
payable,
stockholders - - - (70,000)
Payment of costs of
public offering (9,350) - (58,098) (2,944,987)
Payment of deferred
underwriting fees - (678,606) - (678,606)
Payment to
shareholder
electing
conversion - (618,972) - (618,972)
--------- ------------- ------------ -------------
Net cash provided
by financing
activities (9,530) (1,297,578) 36,902 43,147,535
--------- ------------- ------------ -------------
Net increase in
cash (9,350) 5,778,616 36,902 6,211,803
Cash at beginning
of period 46,252 470,089 - 36,902
--------- ------------- ------------ -------------
Cash at end of
period $36,902 $6,248,705 $36,902 $6,248,705
========= ============= ============ =============
Supplemental
schedule of non-
cash financing and
investing
activities:
Accrual of costs
of public
offering $268,759 $- $425,394 $-
Accrual of
acquisition costs - 76,443 - 76,443
Supplemental
disclosure of cash
flow information:
Cash paid for
taxes $- $230,000 $- $462,146
Highbury Financial Inc.
Notes
(1) Cash Net Income means the sum of (a) net income determined in accordance with GAAP, plus (b) amortization of intangible assets, plus (c) deferred taxes related to intangible assets, plus (d) affiliate depreciation, plus (e) other non-cash expenses. We consider Cash Net Income an important measure of our financial performance, as we believe it best represents operating performance before non-cash expenses relating to the acquisition of our interest in our affiliated investment management firm. Cash Net Income is not a measure of financial performance under GAAP and, as calculated by us, may not be consistent with computations of Cash Net Income by other companies. Cash Net Income is used by our management and board of directors as a principal performance benchmark.
Since our acquired assets do not generally depreciate or require replacement by us, and since they generate deferred tax expenses that are unlikely to reverse, we add back these non-cash expenses to Net Income to measure operating performance. We will add back amortization attributable to acquired client relationships because this expense does not correspond to the changes in value of these assets, which do not diminish predictably over time. The portion of deferred taxes generally attributable to intangible assets (including goodwill) that we do not amortize but which generates tax deductions is added back, because these accruals would be used only in the event of a future sale of Aston or an impairment charge, which we consider unlikely. We will add back the portion of consolidated depreciation expense incurred by Aston because under Aston's operating agreement we are not required to replenish these depreciating assets. We also add back expenses that we incur for financial reporting purposes for which there is no corresponding cash expense because such expenses cause our Net Income to be understated relative to our ability to generate cash flow to service debt, if any, finance accretive acquisitions, and repurchase securities, if appropriate.
(2) Adjusted EBITDA means the sum of (a) net income determined in accordance with GAAP, plus (b) amortization of intangible assets, plus (c) interest expense, plus (d) depreciation, plus (e) other non-cash expenses, plus (f) taxes. This definition of Adjusted EBITDA is consistent with the definition of EBITDA used in our credit facility. Adjusted EBITDA, as calculated by us, may not be consistent with computations of Adjusted EBITDA by other companies. As a measure of liquidity, we believe that Adjusted EBITDA is useful as an indicator of our ability to service debt, make new investments and meet working capital requirements. We further believe that many investors use this information when analyzing the financial position of companies in the investment management industry.
(3) There are no dilutive instruments included in 2005 because the Company's warrants were not issued and outstanding until after the Company's initial public offering in January 2006. There are no dilutive instruments included in 2006 because the Company had a net loss and the effect of the warrants would be anti-dilutive. If the Company had generated net income in the fourth quarter of 2006 and for the full year 2006, the dilutive effect of the warrants would have increased Average shares outstanding - diluted by 766,737 to 10,365,346 and by 193,260 to 9,239,033, respectively. The dilutive effect of the warrants is calculated using the treasury stock method and the average share price during the period.
(4) Upon consummation of the acquisition of the U.S. mutual fund business of ABN AMRO and as a result of the amendment to the Aston limited liability company agreement to admit the Aston management members, we recorded a one-time, non-cash compensation charge of approximately $20.8 million for the value of such ownership interests. Since none of the Aston management members had any ownership interest in the acquired business prior to the consummation of the acquisition, the value of the ownership grant was deemed to be compensatory in nature for financial reporting purposes and not purchase price consideration. See Note 7 for more information about the acquisition.
(5) Minority interest on the Company's income statement represents the profits or losses allocated to the Aston management owners for that period. Minority interest on the Company's balance sheet represents the undistributed profits and capital owned by the Aston management.
(6) The registration statement for the Company's initial public offering (the "Offering") was declared effective January 25, 2006. The Company consummated the Offering, including full exercise of the over-allotment option, on January 31, 2006 and February 3, 2006, respectively. Simultaneously with the Offering, all of the Company's stockholders prior to the Offering (the "Initial Stockholders"), including all of the officers and directors of the Company, purchased an aggregate of 166,667 units from the Company in a private placement (the "Private Placement"). The units sold in the Private Placement were identical to the units sold in the Offering, but the purchasers in the Private Placement waived their rights to conversion and to receipt of distribution on liquidation in the event the Company did not complete a business combination.
The Company sold 7,910,000 units ("Units") at a price of $6 each in the Private Placement and the Offering, which included all of the 1,010,000 Units subject to the underwriters' over-allotment option. Each Unit consists of one share of the Company's common stock, $0.0001 par value ("Common Stock"), and two redeemable common stock purchase warrants ("Warrants"). Each Warrant entitles the holder to purchase from the Company one share of Common Stock at an exercise price of $5.00 commencing January 25, 2007 and expiring four years from the effective date of the Offering (January 25, 2010). The Warrants will be redeemable, at the Company's option, at a price of $0.01 per Warrant upon 30 days' notice after the Warrants become exercisable, only in the event that the last sale price of the Common Stock is at least $8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given. Separate trading of the Common Stock and Warrants underlying the Company's Units was permitted on February 21, 2006 and commenced on March 1, 2006.
(7) On April 20, 2006, the Company and Aston, a newly formed Delaware limited liability company (together with Highbury, the "Highbury Entities"), entered into an Asset Purchase Agreement ("Asset Purchase Agreement") with AAAMHI, ABN AMRO Investment Fund Services, Inc. ("AAIFS"), ABN AMRO Asset Management, Inc., ("AAAMI"), Montag & Caldwell, Inc., ("Montag"), Tamro Capital Partners LLC, ("TAMRO"), Veredus Asset Management LLC, ("Veredus"), and River Road Asset Management, LLC, ("River Road" and together with AAAMHI, AAIFS, AAAMI, Montag, TAMRO and Veredus individually referred to as a "Seller" and collectively as "Sellers") to acquire substantially all of the Sellers' business of providing investment advisory, administration, distribution and related services to the U.S. mutual funds (the "Target Funds") specified in the Asset Purchase Agreement (collectively, the "Business"). After entering into the Asset Purchase Agreement, Highbury submitted the transaction for stockholder approval. The stockholders approved the business combination at the Company's annual meeting of stockholders on November 27, 2006, and the business combination was subsequently consummated on November 30, 2006. The Highbury Entities purchased the Business from the Sellers for a cash payment of $38,600,000 at the closing. Highbury did not issue any equity interests to the Sellers in connection with the transaction.
Contact:
Highbury Financial Inc.
Richard S. Foote, 212-688-2341
President and Chief Executive Officer
www.highburyfinancial.com
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Source: Highbury Financial Inc. |
