Approves Additional 10 Million Share Stock
Repurchase Program
Retires $18 Million of Senior Notes in
Connection with Warrant Exercises, including purchase of
9,000,000 common shares for $15.1 million by affiliate of Dr.
Phillip Frost, Ladenburg’s Chairman
Highlights:
- Third quarter 2016 revenues of $274.3
million
- Client assets of approximately $132
billion at September 30, 2016, including cash balances of $4.3
billion
- Third quarter 2016 recurring revenue
was 77% in independent brokerage and advisory services
business
- Shareholders’ equity of $351 million at
September 30, 2016
- Additional 10 million shares authorized
for common stock repurchase program
- Retirement of $18 million of Senior
Notes in connection with warrant exercises, including purchase of
9,000,000 common shares for $15.1 million by affiliate of Dr.
Phillip Frost, Ladenburg’s Chairman
Ladenburg Thalmann Financial Services Inc. (NYSE MKT: LTS, LTS
PrA) today announced financial results for the three and nine
months ended September 30, 2016.
Dr. Phillip Frost, Chairman of Ladenburg, said, "Ladenburg’s
advisory assets have continued to grow, demonstrating the appeal of
quality, independent offerings to a growing demographic. As we near
the end of 2016, we are well-positioned to provide exceptional
offerings and insights to our valued advisors and their clients. We
are also pleased to have increased our stock repurchase program,
reflecting the Board’s confidence in Ladenburg’s strong value
proposition."
Richard Lampen, President and Chief Executive Officer of
Ladenburg, said, “Our industry has been impacted by an
unprecedented wave of regulatory change, including the Department
of Labor’s pending fiduciary rule. We are pleased with the
continued strength of our core independent broker-dealer and
advisory business (IBD), with its high levels of recurring
revenues, which represents over 90% of our overall revenues.
Despite challenging market conditions and the costs of navigating
and preparing for the regulatory change, including its impact on
commissions revenues, we have been able to maintain margins in that
business due to an enterprise-wide focus on expense and revenue
synergies which will continue into 2017 and beyond. Our
year-over-year results continue to reflect the significant weakness
in Ladenburg’s investment banking business. After three years of
strong contribution from this business segment, 2016 has been a
difficult year as the softness in equity capital raising for small
and mid-cap companies continues. We have acted aggressively to
reduce the investment bank’s cost structure and believe our banking
franchise remains well positioned to deliver solutions to our
varied client base and to generate long-term returns for
shareholders.”
For the Three and Nine Months Ended
September 30, 2016
Third quarter 2016 revenues were $274.3 million, a 3% decline
from revenues of $282.2 million in the third quarter of 2015.
Commissions revenue for the three months ended September 30, 2016
decreased by 7% to $128.0 million from $136.9 million for the
comparable 2015 period, mainly a result of an industry-wide decline
in sales of alternative investment, mutual fund and variable
annuity products resulting from volatile markets, investor
uncertainty in the low interest rate environment and the impact of
the pending Department of Labor's fiduciary rule.
Net loss attributable to the Company for the third quarter of
2016 was $7.5 million, as compared to net loss attributable to the
Company of $2.9 million in the third quarter of 2015. Net loss
available to common shareholders, after payment of preferred
dividends, was $15.3 million or ($0.08) per basic and diluted
common share for the third quarter of 2016, as compared to net loss
available to common shareholders of $10.2 million or ($0.06) per
basic and diluted common share in the comparable 2015 period. The
third quarter 2016 results included $0.6 million of non-cash income
tax expense, primarily related to an increase in the valuation
allowance against our deferred tax assets, $8.3 million of non-cash
charges for depreciation, amortization and compensation, $1.4
million of amortization of retention and forgivable loans and $1.1
million of interest expense. The third quarter 2015 results
included approximately $7.0 million of non-cash charges for
depreciation, amortization and compensation, $2.2 million of
amortization of retention and forgivable loans, $1.3 million of
interest expense and $0.2 million of income tax benefit.
For the nine months ended September 30, 2016, the Company had
revenues of $809.9 million, a 6% decline from revenues of $857.8
million for the comparable 2015 period. Net loss attributable to
the Company for the nine months ended September 30, 2016 was $22.9
million, as compared to net loss attributable to the Company of
$8.9 million in the comparable 2015 period. Net loss available to
common shareholders, after payment of preferred dividends, was
$45.4 million or ($0.25) per basic and diluted common share for the
nine months ended September 30, 2016, as compared to net loss
available to common shareholders, after payment of preferred
dividends, of $29.7 million or ($0.16) per basic and diluted common
share in the comparable 2015 period. The results for the nine
months ended September 30, 2016 included approximately $25.1
million of non-cash charges for depreciation, amortization and
compensation, $8.1 million of non-cash income tax expense,
primarily related to the increase in the valuation allowance
against our deferred tax assets, $4.4 million of amortization of
retention and forgivable loans and $3.5 million of interest
expense. The comparable 2015 results included approximately $26.0
million of non-cash charges for depreciation, amortization and
compensation, $7.8 million of amortization of retention and
forgivable loans, $4.0 million of interest expense, $0.3 million of
loss on early extinguishment of debt and $2.3 million of income tax
benefit.
Recurring Revenues
For the three and nine months ended September 30, 2016,
recurring revenues, which consist of advisory fees, trailing
commissions, cash sweep fees and certain other fees, represented
approximately 77% and 76%, respectively, of revenues from the
Company’s independent brokerage and advisory services business.
EBITDA, as adjusted
EBITDA, as adjusted, for the third quarter of 2016 was $5.6
million, a 33% decrease from $8.4 million in the comparable 2015
period. EBITDA, as adjusted, for the nine months ended September
30, 2016 was $21.1 million, a decrease of 31% from $30.7 million
for the prior-year period. Attached hereto as Table 2 is a
reconciliation of EBITDA, as adjusted, to net loss attributable to
the Company as reported (see “Non-GAAP Financial Measures” below).
The decline in EBITDA, as adjusted, for the third quarter of 2016
and the nine months ended September 30, 2016 was primarily
attributable to decreases of $1.7 million and $9.6 million,
respectively, in EBITDA, as adjusted, in our Ladenburg segment as a
result of lower investment banking revenues.
Client Assets
At September 30, 2016, total client assets under administration
were approximately $132 billion, a 7% increase from the
approximately $123 billion at September 30, 2015. At September 30,
2016, client assets included cash balances of approximately $4.3
billion.
Stock Repurchases
During the quarter ended September 30, 2016, Ladenburg
repurchased 1,597,126 shares of its common stock at a cost of
approximately $3.8 million, representing an average price per share
of $2.38. During the period from January 1, 2016 through September
30, 2016, Ladenburg repurchased 4,693,037 shares of its common
stock at a cost of approximately $11.5 million, representing an
average price per share of $2.45. Since the inception of its stock
repurchase program in March 2007, Ladenburg has repurchased
24,462,604 shares of its common stock at a total cost of
approximately $51.2 million, including purchases of 7,500,000
shares outside its stock repurchase program. On November 7, 2016,
an amendment to the stock repurchase program was approved to permit
the repurchase of up to an additional 10,000,000 shares.
Retirement of Senior Notes
On October 26, 2016, holders of warrants to purchase an
aggregate of 10,699,999 shares of the Company’s common stock
exercised such warrants in full. The Company issued these warrants
in connection with the November 2011 loan used to finance the
acquisition of its largest subsidiary, Securities America, Inc. The
holders paid the exercise price by cancellation of $17.98 million
of indebtedness, which represented the remaining balance of the
November 2011 loan. As a result, the Company’s shareholders’ equity
was increased by the amount of the retired indebtedness. An
affiliate of Dr. Phillip Frost, the Company’s Chairman and
principal shareholder, exercised warrants to purchase 9,000,000
shares of common stock for $15.1 million.
Non-GAAP Financial Measures
Earnings before interest, taxes, depreciation and amortization,
or EBITDA, adjusted for acquisition-related expense, amortization
of retention and forgivable loans, change in fair value of
contingent consideration related to acquisitions, loss on
extinguishment of debt, non-cash compensation expense, financial
advisor recruiting expense and other expense, which includes loss
on write-off of receivable from subtenant, excise and franchise tax
expense, severance costs and compensation expense that may be paid
in stock, is a key metric the Company uses in evaluating its
financial performance. EBITDA, as adjusted, is considered a
non-GAAP financial measure as defined by Regulation G promulgated
by the SEC under the Securities Act of 1933, as amended. The
Company considers EBITDA, as adjusted, important in evaluating its
financial performance on a consistent basis across various periods.
Due to the significance of non-cash and non-recurring items,
EBITDA, as adjusted, enables the Company’s Board of Directors and
management to monitor and evaluate the business on a consistent
basis. The Company uses EBITDA, as adjusted, as a primary measure,
among others, to analyze and evaluate financial and strategic
planning decisions regarding future operating investments and
potential acquisitions. The Company believes that EBITDA, as
adjusted, eliminates items that are not indicative of its core
operating performance, such as amortization of retention and
forgivable loans and financial advisor recruiting expenses, or do
not involve a cash outlay, such as stock-related compensation,
which is expected to remain a key element in our long-term
incentive compensation program. EBITDA, as adjusted, should be
considered in addition to, rather than as a substitute for, (loss)
income before income taxes, net (loss) income and cash flows (used
in) provided by operating activities.
About Ladenburg
Ladenburg Thalmann Financial Services Inc. (NYSE MKT: LTS, LTS
PrA) is a publicly-traded diversified financial services company
based in Miami, Florida. Ladenburg’s subsidiaries include
industry-leading independent broker-dealer firms Securities
America, Inc., Triad Advisors, Inc., Securities Service Network,
Inc., Investacorp, Inc. and KMS Financial Services, Inc., as well
as Premier Trust, Inc., Ladenburg Thalmann Asset Management Inc.,
Highland Capital Brokerage, Inc., a leading independent life
insurance brokerage company, and Ladenburg Thalmann & Co. Inc.,
an investment bank which has been a member of the New York Stock
Exchange for over 135 years. The company is committed to investing
in the growth of its subsidiaries while respecting and maintaining
their individual business identities, cultures, and leadership. For
more information, please visit www.ladenburg.com.
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding future financial
performance, future growth, growth of our independent brokerage and
advisory business, growth of our investment banking business,
future levels of recurring revenue and advisory assets and future
repurchases of common stock. These statements are based on
management’s current expectations or beliefs and are subject to
uncertainty and changes in circumstances. Actual results may vary
materially from those expressed or implied by the statements herein
due to changes in economic, business, competitive and/or regulatory
factors, including the Department of Labor’s rule and exemptions
pertaining to the fiduciary status of investment advice providers
to 401(k) plan, plan sponsors, plan participants and the holders of
individual retirement or health savings accounts, and other risks
and uncertainties affecting the operation of the Company’s
business. These risks, uncertainties and contingencies include
those set forth in the Company’s annual report on Form 10-K for the
fiscal year ended December 31, 2015 and quarterly report on Form
10-Q for the quarter ended March 31, 2016 and other factors
detailed from time to time in its other filings with the Securities
and Exchange Commission. The information set forth herein should be
read in light of such risks. Further, investors should keep in mind
that the Company’s quarterly revenue and profits can fluctuate
materially depending on many factors, including the number, size
and timing of completed offerings and other transactions.
Accordingly, the Company’s revenue and profits in any particular
quarter may not be indicative of future results. The Company is
under no obligation to, and expressly disclaims any obligation to,
update or alter its forward-looking statements, whether as a result
of new information, future events, changes in assumptions or
otherwise, except as required by law.
TABLE 1
LADENBURG THALMANN FINANCIAL SERVICES
INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Dollars in thousands, except share and
per share amounts)
(Unaudited)
Three
Months Ended Nine Months Ended September 30,
% September 30, % 2016
2015 Change 2016 2015
Change Revenues: Commissions $ 128,010 $ 136,919
(6.5)% $ 381,933 $ 419,664 (9.0)% Advisory fees 118,873 118,050
0.7% 341,749 347,984 (1.8)% Investment banking 4,424 7,318 (39.5)%
15,445 25,132 (38.5)% Principal transactions 173 (250 ) 169.2% 686
757 (9.4)% Interest and dividends 2,799 1,076 160.1% 7,198 2,423
197.1% Service fees and other income 20,044
19,101 4.9% 62,883 61,825 1.7%
Total revenues 274,323 282,214 (2.8)%
809,894 857,785 (5.6)%
Expenses:
Commissions and fees 207,342 214,659 (3.4)% 605,881 647,034 (6.4)%
Compensation and benefits 35,984 35,911 0.2% 108,871 107,710 1.1%
Non-cash compensation 1,300 242 437.2% 3,996 5,926 (32.6)%
Brokerage, communication and clearance fees 4,331 5,170 (16.2)%
12,304 15,706 (21.7)% Rent and occupancy, net of sublease revenue
2,334 2,412 (3.2)% 7,021 7,374 (4.8)% Professional services 3,540
3,628 (2.4)% 10,543 10,472 0.7% Interest 1,133 1,255 (9.7)% 3,512
3,970 (11.5)% Depreciation and amortization 7,014 6,798 3.2% 21,130
20,080 5.2% Acquisition-related expenses 936 139 573.4% 1,003 257
290.3% Loss on extinguishment of debt — — N/A — 252 (100.0)%
Amortization of retention and forgivable loans 1,403 2,223 (36.9)%
4,381 7,831 (44.1)% Other 15,845 12,926
22.6% 45,946 42,478 8.2% Total expenses
281,162 285,363 (1.5)% 824,588
869,090 (5.1)% Loss before item shown below
(6,839 ) (3,149 ) (117.2)% (14,694 ) (11,305 ) (30.0)% Change in
fair value of contingent consideration (72 ) —
N/A (178 ) 31 (674.2)% Loss before income
taxes (6,911 ) (3,149 ) (119.5)% (14,872 ) (11,274 ) (31.9)% Income
tax expense (benefit) 604 (212 ) 384.9%
8,060 (2,288 ) 452.3% Net loss (7,515 ) (2,937 )
(155.9)% (22,932 ) (8,986 ) (155.2)% Net loss attributable to
noncontrolling interest (1 ) (11 ) 90.9% (33 )
(39 ) 15.4% Net loss attributable to the Company (7,514 )
(2,926 ) (156.8)% (22,899 ) (8,947 ) (155.9)% Dividends declared on
preferred stock (7,780 ) (7,289 ) (6.7)%
(22,514 ) (20,773 ) (8.4)% Net loss available to common
shareholders $ (15,294 ) $ (10,215 ) (49.7)% $ (45,413 ) $ (29,720
) (52.8)% Net loss per common share available to common
shareholders (basic) $ (0.08 ) $ (0.06 ) (33.3)% $ (0.25 ) $ (0.16
) (56.3)% Net loss per common share available to common
shareholders (diluted) $ (0.08 ) $ (0.06 ) (33.3)% $ (0.25 ) $
(0.16 ) (56.3)% Weighted average common shares used in
computation of per share data: Basic 181,032,730
183,519,768 (1.4)% 181,023,737
184,415,040 (1.8)% Diluted 181,032,730
183,519,768 (1.4)% 181,023,737
184,415,040 (1.8)%
TABLE 2
LADENBURG THALMANN FINANCIAL SERVICES
INC.
The following table presents a
reconciliation of EBITDA, as adjusted, to net loss attributable to
the Company as reported.
Three
months ended Nine months ended September 30,
September 30, (Unaudited; dollars in thousands)
2016 2015 % Change 2016
2015 % Change Total revenues $ 274,323 $ 282,214 (3)%
$ 809,894 $ 857,785 (6)% Total expenses 281,162 285,363 (1)%
824,588 869,090 (5)% Loss before income taxes (6,911 ) (3,149 )
(119)% (14,872 ) (11,274 ) (32)% Net loss attributable to the
Company (7,514 ) (2,926 ) (157)% (22,899 ) (8,947 ) (156)%
Reconciliation of EBITDA, as adjusted, to net loss attributable to
the Company: EBITDA, as adjusted $ 5,564 $ 8,360 (33)% $
21,149 $ 30,678 (31)% Add: Interest income 187 69 171% 479 178 169%
Change in fair value of contingent consideration related to
acquisitions (72 ) — N/A (178 ) 31 (674)% Less: Loss on
extinguishment of debt — — N/A — (252 ) 100% Interest expense
(1,133 ) (1,255 ) 10% (3,512 ) (3,970 ) 12% Income tax (expense)
benefit (604 ) 212 (385)% (8,060 ) 2,288 (452)% Depreciation and
amortization (7,014 ) (6,798 ) (3)% (21,130 ) (20,080 ) (5)%
Non-cash compensation expense (1,300 ) (242 ) (437)% (3,996 )
(5,926 ) 33% Acquisition-related expense (1) (936 ) (139 ) (573)%
(1,003 ) (257 ) (290)% Amortization of retention and forgivable
loans (1,403 ) (2,223 ) 37% (4,381 ) (7,831 ) 44% Financial advisor
recruiting expense (514 ) (764 ) 33% (1,191 ) (1,670 ) 29% Other
(2) (289 ) (146 ) (98)% (1,076 ) (2,136
) 50% Net loss attributable to the Company $ (7,514 ) $ (2,926 )
(157)% $ (22,899 ) $ (8,947 ) (156)% (1) Includes $60 in the
nine months ended September 30, 2016, for acquisition-related
expense that was previously included in professional service
expense. (2) Includes loss on severance costs of $44 and
$277 for the three and nine months ended September 30, 2016 and
excise and franchise tax expense of $109 and $343 for the three and
nine months ended September 30, 2016, and compensation expense that
may be paid in stock of $133 and $399, for the three and nine
months ended September 30, 2016, respectively. Includes loss on
write-off of receivable from subtenant of $855 for the nine months
ended September 30, 2015, rent expense due to default by subtenant
of $468 for the nine months ended September 30, 2015, and
compensation expense that may be paid in stock, of $133 and $399,
for the three and nine months ended September 30, 2015,
respectively, and excise and franchise tax expense of $263 for the
nine months ended September 30, 2015.
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Sard Verbinnen & CoPaul Caminiti/Emily Deissler,
212-687-8080
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