Ladenburg Reports Third Quarter 2017 Financial Results

Highlights:

  • Record third quarter 2017 revenues of $322.3 million, up 17.5% compared to prior year
  • Record client assets of $152.8 billion at September 30, 2017, including advisory assets under management of $66.2 billion and cash balances of $4.1 billion
  • Third quarter 2017 net income of $3.4 million and EBITDA, as adjusted, of $16.7 million
  • Recurring revenue of 78.5% for the trailing 12 months ended September 30, 2017 in independent advisory and brokerage services segment
  • Shareholders’ equity of $358.8 million at September 30, 2017

MIAMI--()--Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS, LTS PrA) today announced financial results for the three and nine months ended September 30, 2017.

Dr. Phillip Frost, Chairman of Ladenburg, said, “The third quarter of 2017 saw continued strength across all of Ladenburg’s businesses, with record quarterly revenues of $322.3 million, a 17.5% increase from the prior year. Adjusted EBITDA increased during the quarter by 199.5% to $16.7 million. Strong market conditions and higher interest rates are positively impacting the Company's independent advisory and brokerage and capital markets businesses. We believe that these factors, coupled with successful recruiting efforts, position us well for continued growth and success over the coming year and beyond, as Ladenburg remains committed to generating strong returns and driving sustainable growth."

Richard Lampen, President and Chief Executive Officer of Ladenburg, said, “Ladenburg continues to strengthen its position as a leader in the independent advisory and brokerage business, as our nationwide network of approximately 4,000 financial advisors provides high quality independent advice, trustworthy financial planning and investment solutions to the mass affluent segment. This is reflected in our record year-over-year growth of 16.1% in total client assets to $152.8 billion, and 21.5% in advisory assets under management to $66.2 billion. Higher asset totals and improved market conditions contributed to an increase in advisory fee revenue of 23.2% to $146.4 million for the third quarter of 2017. We remain focused on improving margins through increased recurring revenues and shared services, and managing all of our operating segments efficiently. We are also very pleased to have recently initiated a quarterly dividend on our common stock, reflecting our long-term commitment to delivering value for shareholders.”

For the Three and Nine Months Ended September 30, 2017

Third quarter 2017 revenues were $322.3 million, a 17.5% increase from revenues of $274.3 million in the third quarter of 2016. Advisory fee revenue for the three months ended September 30, 2017 increased by 23.2% to $146.4 million from $118.9 million for the comparable period in 2016 due to improved market conditions and higher average advisory assets. Commissions revenue for the third quarter of 2017 increased by 3.1% to $131.5 million from $127.5 million for the comparable period in 2016 primarily due to increased sales of mutual fund and variable annuity products. Also, investment banking revenue for the third quarter of 2017 increased by 233.3% to $14.7 million from $4.4 million for the comparable period in 2016 due to improved market conditions.

Net income attributable to the Company for the third quarter of 2017 was $3.4 million, as compared to net loss attributable to the Company of $7.5 million in the third quarter of 2016. Net loss available to common shareholders, after payment of preferred dividends, was $4.8 million or ($0.02) per basic and diluted common share for the third quarter of 2017, as compared to net loss available to common shareholders of $15.3 million or ($0.08) per basic and diluted common share in the comparable 2016 period. The third quarter 2017 results included $1.3 million of income tax expense, $8.4 million of non-cash charges for depreciation, amortization and compensation, $1.8 million of amortization of retention and forgivable loans and $0.6 million of interest expense. The third quarter 2016 results included $0.6 million of income tax expense, $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.

For the nine months ended September 30, 2017, the Company had revenues of $924.1 million, a 14.1% increase from revenues of $809.9 million for the comparable 2016 period. Net income attributable to the Company for the nine months ended September 30, 2017 was $1.1 million, as compared to net loss attributable to the Company of $22.9 million in the comparable 2016 period. Net loss available to common shareholders, after payment of preferred dividends, was $23.0 million or $(0.12) per basic and diluted common share for the nine months ended September 30, 2017, as compared to net loss available to common shareholders, after payment of preferred dividends, of $45.4 million or $(0.25) in the comparable 2016 period. The results for the nine months ended September 30, 2017 included approximately $26.0 million of non-cash charges for depreciation, amortization and compensation, $0.3 million of income tax expense, $5.1 million of amortization of retention and forgivable loans and $1.6 million of interest expense. The comparable 2016 results included approximately $25.1 million of non-cash charges for depreciation, amortization and compensation, $8.1 million of 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.

Recurring Revenues

For the trailing twelve months ended September 30, 2017, recurring revenues, which consist of advisory fees, trailing commissions, cash sweep revenues and certain other fees, represented approximately 78.5% of revenues from the Company’s independent advisory and brokerage services segment.

EBITDA, as adjusted

EBITDA, as adjusted, for the third quarter of 2017 was $16.7 million, an increase of 199.5% from $5.6 million in the comparable 2016 period. EBITDA, as adjusted, for the nine months ended September 30, 2016 was $37.3 million, an increase of 76.4% from $21.1 million for the prior-year period. Attached hereto as Table 2 is a reconciliation of net income (loss) attributable to the Company as reported (see “Non-GAAP Financial Measures” below) to EBITDA, as adjusted. The increase in EBITDA, as adjusted, for the third quarter of 2017 and the nine months ended September 30, 2017 was primarily attributable to increases in our Ladenburg segment as a result of higher investment banking revenues and increased revenue from our cash sweep programs in our independent advisory and brokerage services segment.

Client Assets

At September 30, 2017, total client assets under administration were $152.8 billion, a 16.1% increase from $131.6 billion at September 30, 2016. At September 30, 2017, client assets included cash balances of approximately $4.1 billion, including approximately $3.8 billion participating in our cash sweep programs.

Stock Repurchases

During the quarter ended September 30, 2017, Ladenburg repurchased 753,468 shares of its common stock at a cost of approximately $1.9 million, including 680,801 shares repurchased under its stock repurchase program, representing an average price per share of $2.48. During the period from January 1, 2017 through September 30, 2017, Ladenburg repurchased 1,816,920 shares of its common stock at a cost of approximately $4.5 million, including 1,578,675 shares repurchased under its stock repurchase program, representing an average price per share of $2.45. Since the inception of its stock repurchase program in March 2007, Ladenburg has repurchased over 26.6 million shares of its common stock at a total cost of approximately $56.3 million, including purchases outside its stock repurchase program, representing an average price per share of $2.12. As of September 30, 2017, Ladenburg has the authority to repurchase an additional 8,421,325 shares under its current repurchase plan.

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, 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, income (loss) before income taxes, net income (loss) and cash flows provided by (used in) operating activities.

About Ladenburg

Ladenburg Thalmann Financial Services Inc. (NYSE American: 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, Ladenburg Thalmann Annuity Insurance Services LLC, a full-service annuity processing and marketing 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, future synergies, changes in interest rates, recruitment of financial advisors, future margins 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, 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, %
2017       2016 Change 2017       2016 Change
Revenues:
Commissions $ 131,453 $ 127,515 3.1% $ 394,466 $ 380,523 3.7%
Advisory fees 146,400 118,873 23.2% 407,542 341,749 19.3%
Investment banking 14,745 4,424 233.3% 34,121 15,445 120.9%
Principal transactions 107 173 (38.2)% 685 686 (0.1)%
Interest and dividends 7,303 2,799 160.9% 16,945 7,198 135.4%
Service fees and other income 22,301 20,539 8.6% 70,377 64,293 9.5%
Total revenues 322,309 274,323 17.5% 924,136 809,894 14.1%
Expenses:
Commissions and fees 235,020 207,342 13.3% 679,843 605,881 12.2%
Compensation and benefits 45,131 35,984 25.4% 125,131 108,871 14.9%
Non-cash compensation 1,341 1,300 3.2% 4,148 3,996 3.8%
Brokerage, communication and clearance fees 4,173 4,331 (3.6)% 13,647 12,304 10.9%
Rent and occupancy, net of sublease revenue 2,305 2,334 (1.2)% 7,165 7,021 2.1%
Professional services 4,717 3,371 39.9% 12,651 9,785 29.3%
Interest 601 1,133 (47.0)% 1,599 3,512 (54.5)%
Depreciation and amortization 7,104 7,014 1.3% 21,830 21,130 3.3%
Acquisition-related expenses 55 936 (94.1)% 320 1,003 (68.1)%
Amortization of retention and forgivable loans 1,808 1,403 28.9% 5,070 4,381 15.7%
Other 15,394 16,014 (3.9)% 51,492 46,704 10.3%
Total expenses 317,649 281,162 13.0% 922,896 824,588 11.9%
Income (loss) before item shown below 4,660 (6,839) nm 1,240 (14,694) nm
Change in fair value of contingent consideration (3) (72) 95.8% 86 (178) nm
Income (loss) before income taxes 4,657 (6,911) nm 1,326 (14,872) nm
Income tax expense 1,255 604 107.8% 278 8,060 (96.6)%
Net income (loss) 3,402 (7,515) nm 1,048 (22,932) nm
Net income (loss) attributable to noncontrolling interest 3 (1) nm (5) (33) 84.8%
Net income (loss) attributable to the Company $ 3,399 $ (7,514) nm $ 1,053 $ (22,899) nm
Dividends declared on preferred stock (8,149) (7,780) (4.7)% (24,026) (22,514) (6.7)%
Net loss available to common shareholders $ (4,750) $ (15,294) 68.9% $ (22,973) $ (45,413) 49.4%
 
Net loss per common share available to common shareholders (basic) $ (0.02) $ (0.08) 75.0% $ (0.12) $ (0.25) 52.0%
Net loss per common share available to common shareholders (diluted) $ (0.02) $ (0.08) 75.0% $ (0.12) $ (0.25) 52.0%
 
Weighted average common shares used in computation of per share data:
Basic 192,912,643 181,032,730 6.6% 192,498,380 181,023,737 6.3%
Diluted 192,912,643 181,032,730 6.6% 192,498,380 181,023,737 6.3%
 

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The following table presents a reconciliation of net income (loss) attributable to the Company as reported to EBITDA, as adjusted for the periods ending September 30, 2017 and 2016:

TABLE 2

LADENBURG THALMANN FINANCIAL SERVICES INC.

                       
Three months ended Nine months ended

September 30,

September 30,
(Unaudited; dollars in thousands) 2017       2016 % Change 2017       2016 % Change
Total revenues $ 322,309 $ 274,323 17.5% $ 924,136 $ 809,894 14.1%
Total expenses 317,649 281,162 13.0% 922,896 824,588 11.9%
Income (loss) before income taxes 4,657 (6,911 ) nm 1,326 (14,872 ) nm
Net income (loss) attributable to the Company 3,399 (7,514 ) nm 1,053 (22,899 ) nm
 
Reconciliation of net income (loss) attributable to the Company to EBITDA, as adjusted:
 
Net income (loss) attributable to the Company $ 3,399 $ (7,514 ) nm $ 1,053 $ (22,899 ) nm
Less:
Interest income (115 ) (184 ) (37.5)% (315 ) (479 ) (34.2)%
Change in fair value of contingent consideration 3 72 95.8% (86 ) 178 nm
Add:
Interest expense 601 1,133 (47.0)% 1,599 3,512 (54.5)%
Income tax expense 1,255 604 107.8% 278 8,060 (96.6)%
Depreciation and amortization 7,104 7,014 1.3% 21,830 21,130 3.3%
Non-cash compensation expense 1,341 1,300 3.2% 4,148 3,996 3.8%
Amortization of retention and forgivable loans 1,808 1,403 28.9% 5,070 4,381 15.7%
Financial advisor recruiting expense 744 514 44.7% 2,176 1,191 82.7%
Acquisition-related expense 55 936 (94.1)% 320 1,003 (68.1)%
Other (1) 467   286   63.3% 1,236   1,076   14.9%
EBITDA, as adjusted $ 16,662   $ 5,564   199.5% $ 37,309   $ 21,149   76.4%
(1)   Includes severance of $212 and $406, excise and franchise tax expense of $149 and $435 and compensation expense that may be paid in stock of $109 and $411 for the three and nine months ended September 30, 2017, respectively. Includes severance of $44 and $277, excise and franchise tax expense of $109 and $343 and compensation expense that may be paid in stock of $133 and $456 for the three and nine months ended September 30, 2016.

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Contacts

Sard Verbinnen & Co
Emily Claffey / Benjamin Spicehandler
212-687-8080

Contacts

Sard Verbinnen & Co
Emily Claffey / Benjamin Spicehandler
212-687-8080