ZAIS Group Holdings, Inc. Reports First Quarter 2017 Results

RED BANK, N.J., May 11, 2017 /PRNewswire/ -- ZAIS Group Holdings, Inc. (NASDAQ: ZAIS) ("ZAIS"), today reported financial results for the three months ended March 31, 2017.  ZAIS conducts substantially all of its operations through ZAIS Group, LLC ("ZAIS Group").  ZAIS Group provides investment advisory and asset management services to private funds, separately managed accounts, structured vehicles and, until October 31, 2016, ZAIS Financial Corp. ("ZFC REIT"), a publicly traded real estate investment trust (collectively, the "ZAIS Managed Entities").  References to the "Company" herein refer to ZAIS, together with (where the context requires) its consolidated subsidiaries and affiliates. 

FIRST QUARTER 2017 HIGHLIGHTS

A summary of the Company's results for the three months ended March 31, 2017 and March 31, 2016 are below.  All dollar amounts are presented in millions, with the exception of figures presented on a per share basis.

The consolidated financial statements include non-controlling interests of the members of ZAIS Group Parent, LLC ("ZGP") (the "ZGP Founder Members") which represent Class A Units of ZGP held by the ZGP Founder Members.  ZGP, a majority-owned consolidated subsidiary of ZAIS, is the sole member, and owns all of the equity, of ZAIS Group.

CONSOLIDATED GAAP RESULTS

The Company recorded GAAP net loss for the three months ended March 31, 2017 of $(5.4) million compared with a GAAP net loss of $(6.4) million for the three months ended March 31, 2016.  The decrease of $1.0 million in GAAP net loss was primarily driven by a decrease in expenses of $1.1 million offset by a decrease in other income of $0.3 million.  The GAAP results include the results of funds and structured financing entities which are consolidated by the Company (the "Consolidated Funds").

Total expenses decreased by $1.1 million primarily due to a $2.4 million decrease in salaries, bonuses, severance and associated payroll taxes and other employee benefits due to a reduction in force that occurred in 2016, offset by a $0.8 million increase in equity compensation expense relating to a reduction in the forfeiture rate on ZGP's Class B-0 units due to lower employee turnover.  General, administrative and other expenses increased by $0.5 million primarily due to an increase of $0.7 million in the cost of research and data services borne by ZAIS Group and paid directly by ZAIS Group to vendors relating to the management of the ZAIS Managed Entities, offset by $0.2 million of expense reductions with regard to professional fees, occupancy and utilities, information systems, and travel and entertainment.

Other income decreased by $0.3 million primarily due to a decrease of $0.5 million relating to an insurance reimbursement for legal costs incurred during the year ended December 31, 2015 which was received in 2016 and a $0.4 million decrease in net gains (losses) on Consolidated Funds' investments related to ZAIS Zephyr A-6, LP, a Consolidated Fund ("Zephyr A-6").  This was offset by a $0.6 million increase in net gain (loss) on Zephyr A-6's investment in ZAIS CLO 5, Limited, which is also a Consolidated Fund.

CONSOLIDATED NON-GAAP RESULTS

Please see the discussion of "Non-GAAP Financial Measures", including the definitions of net income (loss) (excluding Consolidating Funds of ZAIS Group) and Adjusted EBITDA, and reconciliations of such Non-GAAP financial measures to the respective GAAP net income (loss) and pre-tax GAAP net income (loss) measures for the periods discussed above at the end of this press release.

The Company's GAAP net income (loss) and non-GAAP measures of income (loss) may fluctuate materially depending upon the performance of ZAIS Managed Entities as well as other factors. Accordingly, the GAAP net income (loss) and non-GAAP measures of income (loss) in any particular period should not be expected to be indicative of future results.

LIQUIDITY & CAPITAL RESOURCES

As of March 31, 2017, the Company had cash and cash equivalents, on an unconsolidated basis, of $25.5 million and no debt obligations.

FIRST QUARTER 2017 SUPPLEMENTAL INFORMATION 

The Company's First Quarter 2017 Supplemental Information – March 31, 2017, is available on ZAIS's website at www.zaisgroupholdings.com. To access the information, go to the "ZAIS Shareholders" section of the website.

USE OF NON-GAAP FINANCIAL INFORMATION

In addition to the results presented in accordance with generally accepted accounting principles ("GAAP"), this press release includes certain non-GAAP financial information, including net income (loss) (excluding Consolidated Funds of ZAIS Group) and Adjusted EBITDA (and per share measures).  Net income (loss) (excluding Consolidated Funds of ZAIS Group) is a non-GAAP financial measure that the Company defines as GAAP net income (loss) excluding the consolidating effects of the Consolidated Funds of ZAIS Group.  Adjusted EBITDA is a non-GAAP financial measure that the Company defines as GAAP net income (loss), excluding consolidating effects of Consolidated Funds of ZAIS Group, compensation expense related to a portion of net operating income of ZAIS Group payable to certain employees of ZAIS Group, compensation expense related to incentive income in the form of percentage interests being recorded before related incentive income is recognized, equity-based compensation, severance, taxes, interest expense, depreciation and amortization expenses, goodwill impairment, foreign currency and certain other non-cash and non-operating items.

The Company believes that providing investors with this non-GAAP financial information, in addition to the related GAAP measures, gives investors greater transparency to the information used by management in its financial and operational decision-making. However, because net income (loss) (excluding Consolidated Funds of ZAIS Group) and Adjusted EBITDA are incomplete measures of the Company's financial performance and involve differences from net income (loss) computed in accordance with GAAP, they should be considered along with, but not as alternatives to, the Company's net income (loss) computed in accordance with GAAP as a measure of the Company's financial performance.  In addition, because not all companies use identical calculations, the Company's presentation of net income (loss) (excluding Consolidated Funds of ZAIS Group) and Adjusted EBITDA may not be comparable to other similarly-titled measures of other companies.

The following supplemental financial information illustrates the consolidating effects of the Consolidated Funds on the Company's financial position and results of operations: 

The following table presents the reconciliations of our consolidated GAAP net income, net of tax to (i) our non-GAAP financial measure of net income (loss) (excluding Consolidated Funds of ZAIS Group) and (ii) our non-GAAP financial measure of Adjusted EBITDA:

ABOUT ZAIS GROUP HOLDINGS, INC.
ZAIS (NASDAQ: ZAIS) owns a majority interest in, and is the managing member of, ZGP. ZGP is the sole member of ZAIS Group, an investment advisory and asset management firm focused on specialized credit strategies with approximately $3.360 billion of assets under management as of March 31, 2017.  Based in Red Bank, New Jersey with operations in London, ZAIS Group employs professionals across investment management, client relations, information technology, analytics, finance, law, compliance, risk management and operations. To learn more, visit www.zaisgroupholdings.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 
This press release contains statements that constitute "forward-looking statements," as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. These statements are generally identified by the use of words such as "outlook," "believe," "expect," "potential," "continue," "may," "will," "should," "could," "would," "seek," "approximately," "predict," "intend," "plan," "estimate," "anticipate," "opportunity," "pipeline," "comfortable," "assume," "remain," "maintain," "sustain," "achieve" or the negative version of those words or other comparable words.  These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to: the inability of the Company to realize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably, and retain its management and key employees; the ability to rationalize our expense structure and specifically to exit the residential whole loan related businesses in an orderly fashion, or at all; the outcome of the strategic review of the Company's business and availability of suitable strategic options; the ability of the Company to negotiate and enter into an agreement for a potential sale, business combination, going private or other strategic transaction; the ability of the Company to consummate any potential strategic transaction and to realize any anticipated benefits of such transaction;  the outcome of any legal proceedings that may be instituted against the Company or others; the inability to continue to be listed on the NASDAQ Stock Market; operational expenses and costs related to being a public company; changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; the relative and absolute investment performance of advised or sponsored investment products; the availability of suitable investment opportunities; changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability and terms of financing; conditions in the market for mortgage-related investments; the impact of capital improvement projects; the impact of future acquisitions or divestitures; the impact, extent and timing of technological changes and the adequacy of intellectual property protection; the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to the Company; terrorist activities and international hostilities, which may adversely affect the general economy, financial and capital markets, specific industries, and the Company; the ability to attract and retain highly talented professionals; the impact of changes to tax legislation and, generally, the tax position of the Company; legislative and regulatory changes that could adversely affect the business of the Company; and other factors, including those set forth in the Risk Factors section of the Company's Annual Report on Form 10-K  and other reports filed by the Company with the Securities and Exchange Commission (the "SEC"), copies of which are available on the SEC's website, www.sec.gov. The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

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SOURCE ZAIS Group Holdings, Inc.