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01/11 03:36
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights positive aspects like a 17% increase in AUM and continued product expansion. However, uncertainties such as a 7% decrease in adjusted net income, higher borrowing costs, and management's vague responses in the Q&A session temper enthusiasm. The strategic focus on mid-market opportunities and share repurchases are positives, but the lack of clear guidance and weak organic fundraising in Q3 balance the sentiment to neutral.
Fee-paying assets under management (AUM) $29.1 billion, a 17% increase year-over-year. The increase is attributed to strong fundraising and deployment activities, despite step-downs and expirations.
Organic fundraising and capital deployment $915 million in the third quarter. This was offset by $673 million in step-downs and expirations, which were higher than expected due to early paydowns in the credit business and the expiration of a large separately managed account.
Fee-related revenue (FRR) $75.9 million in the third quarter, a 4% increase year-over-year and a 13% increase excluding direct and secondary catch-up fees. Growth was driven by strength across product offerings.
Operating expenses $65.2 million, flat compared to the third quarter of the previous year.
GAAP net income $3 million, an increase from $1.3 million in the prior year's third quarter. The increase is due to improved operational performance.
Adjusted net income (ANI) $28.6 million, a 7% decrease year-over-year. The decrease is primarily due to higher cash interest paid resulting from debt refinancing and additional borrowing costs from the Qualitas acquisition.
Fully diluted ANI per share $0.24, compared to $0.26 in the prior year.
Fee-related earnings (FRE) $36 million, a 3% increase year-over-year. FRE margin was 47%, reflecting cost discipline.
Cash and cash equivalents Approximately $40 million at the end of the third quarter.
Total debt balance $398 million, including $325 million on the term loan and $73 million drawn on the revolver.
Assets under management (AUM) $42.5 billion as of September 30, 2025, reflecting the breadth and scale of the business.
New Fund Launches: Launched 4 new funds in Q3 2025: Bonaccord Fund III, RCP Small and Emerging Manager Fund IV, RCP Multi-Strat III, and Qualitas Funds US I.
Secondary Fund V: Closed at $1.26 billion, exceeding the $1 billion target, and achieved this in 13 months compared to 25 months for the predecessor fund.
Market Focus: Continued focus on middle and lower-middle markets, which are less crowded and offer structural advantages.
Global Expansion: Engaging with larger pools of global capital and offering customized solutions. Dual listing on NYSE Texas to enhance engagement with the investment community.
Fundraising: Raised and deployed $915 million in organic gross new fee-paying assets under management in Q3 2025. Increased full-year 2025 fundraising target to $5 billion.
Fee-Related Revenue (FRR): FRR grew 5% year-to-date and 11% excluding direct and secondary catch-up fees.
Operational Efficiency: Maintained FRE margin at 47% in Q3 2025, reflecting cost discipline.
M&A Activity: Active M&A pipeline with disciplined evaluation of new strategies to add to the platform.
Share Repurchases: Repurchased approximately 110,000 shares in Q3 2025 for $1.25 million at an average price of $11.34 per share.
Private Credit Market Concerns: The company acknowledges recent concerns about the private credit market. While private credit represents less than 20% of their fee-paying AUM, they aim to expand in this area, which could expose them to potential market volatility and credit risks.
Step-Downs and Expirations: The company experienced increased step-downs and expirations in 2025, slightly above their initial expectations of 5%-7%. This was driven by early paydowns in the credit business and the expiration of a large separately managed account earlier than anticipated. These factors could impact revenue stability.
Debt Refinancing and Borrowing Costs: The company faced higher borrowing costs due to debt refinancing in August 2024 and additional borrowing costs from the Qualitas acquisition. This has led to a reduction in adjusted net income (ANI) compared to the prior year.
Fundraising and Deployment Risks: While fundraising and deployment have been strong, the company acknowledges that the timing of fund closings and catch-up fees can impact financial performance. Catch-up fees are expected to expand in 2026 and 2027, but current variability could pose short-term challenges.
Economic and Market Conditions: The company operates in middle and lower-middle markets, which are less crowded but could be more vulnerable to economic downturns or market disruptions. Their reliance on these segments could pose risks if market conditions deteriorate.
M&A Pipeline Risks: The company is actively evaluating M&A opportunities but emphasizes the need for discipline and strategy. Poor execution or overextension in M&A activities could adversely affect financial performance and strategic objectives.
Organic Gross Fundraising Target: The company has exceeded its annual organic gross fundraising guidance of $4 billion for 2025 and has raised its full-year target to approximately $5 billion.
Fundraising and Deployment Environment: The company expects continued resilience and compelling opportunities across its diverse franchise, supported by secular tailwinds in private markets and global demand for middle and lower-middle market investments.
Future Fundraising Plans: The company plans to have 19 funds in the market for the remainder of 2025 and expects catch-up fees to expand in 2026 and 2027 as many commingled funds are early in their fundraising lives.
Step-Downs and Expirations: Step-downs and expirations for 2025 are expected to be slightly above the initial expectation of 5%-7%, but the company anticipates a return to historical averages in 2026.
M&A Pipeline: The company has an active M&A pipeline and is evaluating attractive opportunities, with plans to remain disciplined and on strategy when adding new strategies to its platform.
Fee-Related Revenue (FRR): The company expects the core fee rate for 2025 to average 103 basis points and anticipates catch-up fees to expand in 2026 and 2027.
Private Credit Expansion: The company views private credit as an area with meaningful opportunities and plans to further expand in this asset class.
Quarterly Cash Dividend: The Board of Directors approved a quarterly cash dividend of $0.0375 per share payable on December 19, 2025, to stockholders of record as of the close of business on November 28, 2025.
Share Repurchase: During the third quarter, the company repurchased approximately 110,000 shares at a weighted average price of $11.34, totaling $1.25 million. The share repurchases slowed in the third quarter as capacity was pulled forward into the second quarter.
The earnings call highlights positive aspects like a 17% increase in AUM and continued product expansion. However, uncertainties such as a 7% decrease in adjusted net income, higher borrowing costs, and management's vague responses in the Q&A session temper enthusiasm. The strategic focus on mid-market opportunities and share repurchases are positives, but the lack of clear guidance and weak organic fundraising in Q3 balance the sentiment to neutral.
The earnings call reveals mixed signals: strong fee-related revenue growth and strategic acquisitions are positive, but declining GAAP net income and increased interest expenses are concerning. The Q&A highlights management's confidence in M&A capacity but lacks clarity on financial specifics. Guidance on revenue growth and dividends is optimistic, but the impact of Qualitas on expenses is uncertain. Overall, the sentiment is balanced, leading to a neutral prediction for stock price movement.
The earnings call presents mixed signals: a slight revenue increase and dividend raise are positive, but decreased net income and EPS, along with increased operating expenses and interest costs, are concerning. The Q&A reveals management's reluctance to provide specific guidance, which adds uncertainty. While a 7% dividend increase and share repurchase are positives, they are countered by macroeconomic volatility and competitive pressures. The neutral sentiment reflects these balanced positives and negatives.
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