1st Quarter Results

RNS Number : 9649G

Titanium Asset Management Corp

20 May 2011

 

Titanium Asset Management Corp. 

Reports 2011 First Quarter Results

Milwaukee, WI, May 19, 2011 - Titanium Asset Management Corp. (AIM - TAM) today reported results for the first quarter ended March 31, 2011.

Highlights for the first quarter are as follows:

·      Managed assets increased by 4.0% from $8,125.0 million to $8,457.4 million during the first quarter of 2011 primarily reflecting net asset flows and market gains for both fixed income and equity strategies.

·      Average managed assets of $8,291.2 million for the first quarter of 2011 were substantially unchanged relative to the $8,324.8 million for the same period last year.  Investment management fee revenues were $5,047,000 for the first quarter of 2011, a 2.1% increase over investment management fee revenues of $4,943,000 for the same period last year primarily due to a marginally higher average fee rate.

·      Distributed assets increased by 1.6% from $894.4 million to $908.5 million during the first quarter of 2011 reflecting market gains on the hedge fund strategies.

·      Average distributed assets of $901.5 million for the first quarter of 2011 were 8.3% lower than the $983.5 million for the same period last year reflecting significant redemptions in the fourth quarter of 2010.  Referral fee revenues were $395,000 for the first quarter of 2011, a 34.9% decrease from referral fee revenues of $607,000 for the first quarter of 2010 reflecting both the lower average distributed assets and a 29% decrease in our average referral fees due to a decrease in the hedge fund adviser's fees.

·      An Adjusted EBITDA deficit ⁽¹⁾ of $69,000 for the first quarter of 2011 compared to an Adjusted EBITDA deficit of $690,000 for the same period last year.

·      A goodwill impairment charge of $3,500,000 recognized in the first quarter of 2011, primarily due to the long-term impact of the reductions to our referral revenue stream.

·      Net investment income of $375,000 for the first quarter of 2011 compared to $315,000 for the same period last year.

·      Net loss of $4,437,000, or $0.22 per diluted common share, for the first quarter of 2011 compared to a net loss of $1,270,000, or $0.06 per diluted common share, for the first quarter of 2010.

(1)   See the accompanying table on page 10 for a definition of Adjusted EBITDA, a non-GAAP financial measure.  The table provides a description of this non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure.

For further information please contact:

Titanium Asset Management Corp.

Robert Brooks, CEO                                                                  312-335-8300

Seymour Pierce Ltd

Jonathan Wright                                                                        [phone]

Assets Under Management

Assets under management of $8.5 billion at March 31, 2011 were higher than the $8.1 billion reported at December 31, 2010 due to both positive net flows and positive investment returns.   The following table presents summary activity for 2011 and 2010 periods.

		Three Months Ended		2011
		March 31,		vs.
(in millions)		2011	2010	2010
Annual Activity:
Beginning balance		$        8,125.0	$        8,151.4
	Inflows	496.6	513.1
	Outflows	(267.0)	(329.7)
	Net flows	229.6	183.4
	Market value change	102.9	163.3
	Ending balance	$        8,457.4	$        8,498.1
	Average Assets Under Management	$        8,291.2	$        8,324.8	-0.4%
	Average Fee Rate (basis points)	24.3	23.7	2.5%

The principle factors affecting our net flows during the periods ended March 31, 2011 and 2010 include the following:

·      Multiemployer pension and welfare plans represent approximately 33% of our client base, and these plans have been faced with a challenging economic environment over the last several years due to the equity market collapse of 2008 and general business conditions that affect their contribution and withdrawal levels.  These factors have led to increased levels of outflows from our fixed income strategies throughout the last several years.  Inflows from multiemployer pension and welfare plans were approximately $87 million for the three months ended March 31, 2011 compared to approximately $120 million for the prior year period, which included the addition of a significant new real estate client.  Outflows from multiemployer pension and welfare plans moderated somewhat as outflows were approximately $62 million for the three months ended March 31, 2011 compared to $97 million for the prior year period.

·      Inflows and outflows are also significantly affected by the timing of tax receipts and disbursements for several public entity accounts that we manage.  While these flows can fluctuate significantly from period to period, they do not have a significant impact on our overall fees due to low or fixed fee rates.

·      Inflows and net flows for 2011 were positively impacted by the addition of approximately $20 million of equity assets of a mutual fund for which Clal Finance serves as investment adviser, and for which we serve as sub-adviser pursuant to a sub-advisory agreement with Clal Finance.

Market value changes reflect our investment performance. Fixed income assets comprised approximately 87% of our total assets under management at March 31, 2011. Fixed income returns as measured by the Barclays Capital Aggregate Bond Index were 0.4% for the three months ended March 31, 2011 (1.8% for the comparable 2010 period). For the three months ended March 31, 2011, approximately 90% of our fixed income assets with defined performance benchmarks outperformed their respective benchmarks.

Equity assets comprised approximately 10% of our total assets under management at March 31, 2011. Equity returns as measured by the S&P 500 Index were 5.9% for the three months ended March 31, 2011 (5.4% for the comparable 2010 period). Our equity assets generally underperformed their respective benchmarks for the three months ended March 31, 2011.

The following table presents summary breakdowns for our assets under management at March 31, 2011 and December 31, 2010.

(in millions)		March 31, 2011	% of total	December 31, 2010	% of total
	By investment strategy:
	Fixed income	$        7,378.9	87.2%	$        7,137.4	87.9%
	Equity	867.5	10.3%	781.3	9.6%
	Real estate	211.0	2.5%	206.3	2.5%
	Total	$        8,457.4	100.0%	$        8,125.0	100.0%
	By client type:
	Institutional	$        7,126.2	84.3%	$        6,902.8	85.0%
	Retail	1,331.2	15.7%	1,222.2	15.0%
	Total	$        8,457.4	100.0%	$        8,125.0	100.0%
	By investment vehicle:
	Separate accounts	$        7,555.3	89.3%	$        7,246.9	89.2%
	Private funds	902.1	10.7%	878.1	10.8%
	Total	$        8,457.4	100.0%	$        8,125.0	100.0%

Our mix of assets under management by investment strategy was relatively unchanged as fixed income assets comprised 87.2% of total assets under management at March 31, 2011, compared to 87.9% at December 31, 2010. 

Our mix of assets under management by client type was relatively unchanged as institutional accounts comprised 84.3% of total assets under management as of March 31, 2011 compared to 85.0% at December 31, 2010.

Our mix of assets under management by investment vehicle was relatively unchanged as separate accounts comprised 89.3% of total assets under management as of March 31, 2011 compared to 89.2% at December 31, 2010.

We earn referral fees on clients referred to Attalus Capital LLC ("Attalus"), a hedge fund manager with whom we have a referral arrangement.  The distributed assets managed by Attalus under this arrangement increased from $894.4 million at December 31, 2010 to $908.5 million at March 31, 2011.  The activity related to these distributed assets was as follows:

		For the Three Months Ended
		March 31,
(in millions)		2011	2010
Annual Activity:
Beginning balance		$           894.4	$           974.9
	Inflows	-	5.2
	Outflows	-	-
	Market value change	14.1	12.0
	Ending balance	$           908.5	$           992.1
	Average Assets Under Management	$           901.5	$           983.5	-8%
	Average Referral Fee Rate (basis points)	17.5	24.6	-29%

The assets managed by Attalus came under significant pressure in the fourth quarter of 2010 as a result of several factors, including Attalus' overall fee rates, the investment performance of the hedge funds managed by Attalus relative to the performance of other hedge funds, and certain changes in Attalus' management.  The combination of these factors resulted in outflows totaling approximately $125 million (representing approximately $260,000 of annualized referral fees) during the fourth quarter of 2010.  Starting January 1, 2011, Attalus has reduced its average fee rates.  The reduction in their fees reduced our average referral rate from approximately 24.6 basis points to 17.5 points and will reduce our annualized referral fees by approximately $650,000.

Prior to completing the Company's forecast for its 2010 year end valuation of goodwill, Attalus notified the Company that they had received further redemption requests that could be effected at the end of the first and second quarter of 2011.  This information was utilized by the Company in its year end goodwill impairment analysis. 

Attalus has informed us that they have received additional redemption requests since that time.  Based on the most recent information from Attalus, the current total of redemption requests is approximately $260 million (representing approximately $380,000 of annualized referral fees) that may occur in the second, third and fourth quarters.  If all these additional redemptions occur as scheduled, they would further reduce 2011 referral fees by approximately $200,000.

Attalus investment performance improved during the first quarter of 2011 and Attalus and our client service personnel have been actively communicating with our mutual clients regarding Attalus' investment strategies, the changes in Attalus' management, and the reduction in Attalus' fees in efforts to limit the redemptions.  Despite these efforts, redemptions have continued as described above.  From ensuing discussions with the management of Attalus, we became aware of additional concerns with the relationship that may impact our marketing relationship beyond the current contractual period.  These factors caused the Company to further reduce its long term forecast of referral fee revenues and triggered a reassessment of the carrying amount of goodwill as of March 31, 2011.

Operating Results

	Three Months Ended March 31,
	2011	2010
Average assets under management (in millions)	$           8,291.2	$           8,324.8
Average fee rate (basis points)	24.3	23.8
Average distributed assets under management (in millions)	$              901.5	$              983.5
Average referral fee rate (basis points)	17.5	24.7
Investment management fees	$        5,047,000	$        4,943,000
Referral fees	395,000	607,000
Total operating revenue	5,442,000	5,550,000
Adjusted EBITDA deficit(1)	(69,000)	(690,000)
Impairment of goodwill	3,500,000	-
Operating loss	(4,812,000)	(1,585,000)
Net investment income	375,000	315,000
Net loss	(4,437,000)	(1,270,000)
Earnings per share:
Basic	$                 (0.22)	$               (0.06)
Diluted	$                 (0.22)	$               (0.06)

(1)   See the accompanying table on page 10 for a definition of Adjusted EBITDA, a non-GAAP financial measure.  The table provides a description of this non-GAAP financial measure and a reconciliation to the most directly comparable GAAP measure.

Our 2011 first quarter investment management fees increased $104,000, or 2.1%, relative to the first quarter of 2010 due to a modest increase in the average fee rate.

Referral fee revenue decreased to $395,000 in the first quarter of 2011, a 34.9% decrease compared to the referral fee revenue of $607,000 in the first quarter of 2010, due to a combination of redemptions incurred by Attalus in the fourth quarter of 2010 and a 29.1% reduction in our average referral fee rate due to Attalus' reduction in its fees.

Our Adjusted EBITDA deficit of $69,000 for the first quarter of 2011 reflects an improvement of $621,000 over the prior year amount as a result of cost reductions achieved during 2010, the elimination of $420,000 of severance costs incurred in the 2010 period, offset in part by the decrease in referral fee revenue.

Goodwill Impairment

During April 2011, the Company was notified by Attalus of further redemptions and a further reduction in our referral fee rates.  From ensuing discussions with the management of Attalus, we became aware of additional concerns with the relationship that may impact our marketing relationship beyond the current contractual period.  These factors caused the Company to further reduce its long term forecast of referral fee revenues and triggered a reassessment of the carrying amount of goodwill.

In preparing the current forecasts, we have increased our estimates of potential redemptions of the Attalus assets for 2011 from approximately $200 million to $260 million and we have forecasted a continued decline in the referral fee asset base through 2015.  In addition, we have moderated our estimate of average fee rates based on an expected renewal of the referral contract at reduced terms.  The combination of these factors resulted in estimated annual referral fees of approximately $1.1 million, reduced from a previous estimate of approximately $2.0 million.

The reduction in the forecasted long-term referral fee revenues resulted in a reduced estimate of the Company's value and we have concluded that our goodwill balance was further impaired and recognized an impairment charge of $3,500,000.

Forward-looking Statements

Statements in this press release which are not historical facts may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements are subject to a number of assumptions, risks, and uncertainties, many of which are beyond our control.

Any forward-looking statements made in this press release speak as of the date made and are not guarantees of future performance.  Actual results or developments may differ materially from the expectations expressed or implied in the forward-looking statements, and we undertake no obligation to update any such statements.  Results may differ significantly due to market fluctuations that alter our assets under management; a further decline in our distributed assets; termination of investment advisory agreements; impairment of goodwill and other intangible assets; our inability to compete; market pressure on investment advisory fees; ineffective management of risk; changes in interest rates, equity prices, liquidity of global markets and international and regional political conditions; or actions taken by Clal Finance Ltd., as our significant stockholder.  Additional factors that could influence Titanium's financial results are included in its Securities and Exchange Commission filings, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

The Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, was filed with the Securities and Exchange Commission on May 18, 2011. The report will be available on the SEC's website at www.sec.gov and on the Company's website at www.ti-am.com.

Titanium Asset Management Corp. Condensed Consolidated Balance Sheets

	March 31, 2011	December 31, 2010
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$           187,000	$        4,698,000
Investments	4,074,000	3,354,000
Accounts receivable	3,755,000	4,783,000
Other current assets	805,000	1,179,000
Total current assets	8,821,000	14,014,000
Investments in affiliates	6,126,000	5,898,000
Property and equipment, net	467,000	455,000
Goodwill	21,647,000	25,147,000
Intangible assets, net	20,388,000	21,605,000
Total assets	$      57,449,000	$      67,119,000
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$           101,000	$             42,000
Acquisition payments due	-	4,000,000
Other current liabilities	2,255,000	3,539,000
Total current liabilities and total liabilities	2,356,000	7,581,000
Commitments and contingencies
Stockholders' equity
Common stock, $0.0001 par value; 54,000,000 shares authorized; 20,634,232 issued and outstanding at March 31, 2011 and 20,442,232 shares issued and outstanding at December 31, 2010	2,000	2,000
Restricted common stock, $0.0001 par value; 720,000 shares authorized; 612,716 issued and outstanding at March 31, 2011 and December 31, 2010	-	-
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued	-	-
Additional paid-in capital	100,971,000	100,971,000
Accumulated deficit	(45,805,000)	(41,368,000)
Other comprehensive income	(75,000)	(67,000)
Total stockholders' equity	55,093,000	59,538,000
Total liabilities and stockholders' equity	$      57,449,000	$      67,119,000

Titanium Asset Management Corp. Condensed Consolidated Statements of Operations  (unaudited)

	Three Months Ended March 31,
	2011	2010
Operating revenues	$        5,442,000	$        5,550,000
Operating expenses:
Administrative	5,537,000	6,306,000
Amortization of intangible assets	1,217,000	829,000
Impairment of goodwill	3,500,000	-
Total operating expenses	10,254,000	7,135,000
Operating loss	(4,812,000)	(1,585,000)
Other income
Interest income	22,000	88,000
Net realized gain (loss) on investments	(6,000)	104,000
Income from equity investees	359,000	139,000
Interest expense	-	(16,000)
Loss before taxes	(4,437,000)	(1,270,000)
Income tax benefit	-	-
Net loss	$      (4,437,000)	$      (1,270,000)
Earnings (loss) per share
Basic	$              (0.22)	$              (0.06)
Diluted	$              (0.22)	$              (0.06)
Weighted average number of common shares outstanding:
Basic	20,634,232	20,701,493
Diluted	20,634,232	20,701,493

Titanium Asset Management Corp. Condensed Consolidated Statements of Cash Flows  (unaudited)

	Three Months Ended March 31,
	2011	2010
Cash flows from operating activities
Net loss	$      (4,437,000)	$      (1,270,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	1,217,000	829,000
Impairment of goodwill	3,500,000	-
Depreciation	26,000	25,000
Share compensation expense	-	41,000
Loss (gain) on investments	6,000	(104,000)
Income from equity investees	(359,000)	(139,000)
Income distributions from equity investees	131,000	-
Accretion of acquisition payments	-	16,000
Changes in assets and liabilities:
Decrease in accounts receivable	1,028,000	1,241,000
Decrease in other current assets	374,000	41,000
Increase (decrease) in accounts payable	59,000	(39,000)
Increase (decrease) in other current liabilities	(1,284,000)	(981,000)
Net cash provided by (used in) operating activities	261,000	(340,000)
Cash flows from investing activities
Purchases of property and equipment	(38,000)	-
Purchases of investments	(1,717,000)	(6,675,000)
Sales and redemptions of investments	983,000	7,189,000
Investments in equity investees	-	(4,000,000)
Acquisitions of subsidiaries, net of cash acquired	(4,000,000)	-
Net cash used in investing activities	(4,772,000)	(3,486,000)
Net decrease in cash and cash equivalents	(4,511,000)	(3,826,000)
Cash and cash equivalents:
Beginning	4,698,000	4,773,000
Ending	$           187,000	$           947,000

Titanium Asset Management Corp. Reconciliation of Adjusted EBITDA  (unaudited)

	Three Months Ended March 31,
	2011	2010
Operating loss	$      (4,812,000)	$      (1,585,000)
Amortization of intangible assets	1,217,000	829,000
Impairment of goodwill	3,500,000	-
Depreciation expense	26,000	25,000
Share compensation expense	-	41,000
Adjusted EBITDA deficit(1)	$           (69,000)	$         (690,000)

Notes:

(1)   Adjusted EBITDA deficit is defined as operating income or loss before non-cash charges for amortization and impairment of intangible assets and goodwill, depreciation, and share compensation expense.  We believe Adjusted EBITDA deficit is useful as an indicator of our ongoing performance and our ability to service debt, make new investments, and meet working capital obligations.  Adjusted EBITDA deficit, as we calculate it may not be consistent with computations made by other companies.  We believe that many investors use this information when analyzing the operating performance, liquidity, and financial position of companies in the investment management industry.

 

END

 

 

QRFKMGMKVLMGMZM