National reported fiscal third quarter revenue of $50.8 million, up from the $46.7 million recorded in the second quarter of 2019, but down from the $56.2 million recognized in the third quarter of fiscal 2018, which included a $4.5 million banking advisory fee. Most all revenue categories rebounded well from the fiscal second quarter 2019 levels that were directly affected by the U.S. Government shutdown and market volatility. In the fiscal 2019 second quarter, the shutdown impacted banking deal execution, investment management fee levels, and retail investor trading. Despite the revenue increase, expenses were down at $49.6 million versus the current year second quarter and were down $5.1 million from $54.7 million in the comparable fiscal 2018 quarter. The broadening of our platform has kept our variable cost of sales under our target ratios. As a result, net income of $0.2 million and adjusted EBITDA of $2.0 million, rebounded nicely from the ($2.8) million net loss, and ($2.1) million negative adjusted EBITDA in the second quarter of 2019.

For the nine month year to date period, total revenue declined $11.1 million, or 7%, to $155.6 million, from the $166.7 million recorded in the year-ago period. All major revenue categories with the exception of brokerage commissions and related fees increased over the prior-year period.  The transactions-driven commissions category has declined due to various factors including better enterprise risk management, the redistribution of revenue to other revenue categories, early year Fed action, the December 2018 market correction, the January government shutdown, and what we see as the overall market level driven retail client trading volume reductions.

Year-to-date, total expenses have declined $3.6 million to $157 million. Across our revenue lines, our variable expense ratio remained well under our targets. Fixed and semi-fixed operating expenses have been negatively impacted year-to-date by legacy arbitration and litigation related reserves and expenses, as well as corporate legal expenses, and compensation and benefits from changes to our corporate staff. As a result, the current year net loss of $1.6 million and adjusted EBITDA of $4.2 million have declined from a comparative net loss of $9.5 million and $12.1 million of adjusted EBITDA.

• Commissions and related revenue were down 6% from the second quarter of fiscal 2019 to $22.9 million, and down slightly from the $23.2 million recorded in the first quarter of the current year.  The quarter declined $7.1 million from the $30.0 million in the strong 2018 third quarter, and declined approximately $20.7 million for the nine months ended June 30, 2019 compared to the comparative nine month period in fiscal 2018.  Enterprise risk controls along with the company's strategy of diversifying revenue across product lines, combined with the previously discussed early year market dislocations and retail client volume reduction, have collectively resulted in an overall decline in commission transaction revenue.
  
  
• Investment Banking rebounded as expected to $15.8 million in the current quarter, up approximately $6 million from the second quarter of 2019. While investment banking declined $2.9 million from the $18.7 million recorded in the comparative third quarter, on a year to date basis this category has increased $4.9 million, or 10%, from the nine months of fiscal 2018.
  
  
• Revenue from investment advisory increased to $7.6 million, a 37% increase over the second quarter of 2019, and a 43% increase over the third quarter of fiscal 2018. While the second quarter of 2019 was negatively impacted by market values that determine investment advisory fee billing, versus a positive impact on the current quarter, this business has continued to grow assets under management steadily and consistently over the past two years as we further diversify our assets and revenue streams.  The current quarter was also positively impacted by the recognition of carried interest on the liquidation of our private shares investment in Slack Technologies.  This positive performance continues when viewing year-to-date results—$18.9 million of revenue in fiscal 2019 to date compares favorably to the comparable period of fiscal 2018 at $15.8 million, a 20% increase year-over-year.
  
  
• Tax preparation and accounting revenue increased $0.2 million in the quarter to $2.7 million, up 9% from the fiscal 2018 third quarter revenue of $2.5 million. The third and fourth quarters are traditionally slower quarters for this business, however we continue to strategically to acquire tax and accounting practices when opportunities arise to add revenue, earnings, clients and investment growth. On a year-to-date basis, revenue has increased to $7.6 million, up from $6.8 million in the comparable period of last year, an 11% increase year-over-year.

For the nine-month period, total expenses declined $3.6 million, or 2%, to $157 million versus $160.6 million a year ago. Our variable expense ratio has improved year-over-year, generating an increase in our gross margins in line with our goals and objectives. As a result of a small decline in revenue and lower cost of sales, variable expenses associated with revenue generating compensation and execution declined $11.6 million, or 9%, in the first nine months of the year.   

While our non-variable operating expenses increased year-over-year $8 million, many of these operating expense categories either declined or increased immaterially which is the result of expense management initiatives that are under constant review. The overall increase is largely due to corporate legal expenses and legacy arbitration and litigation reserves that have increased operating costs approximately $4 million year-to-date. The remaining increase is due to increased compensation and benefits associated with the company's changes to staff, increases in software licensing costs due to the upgrade of our technology platform, and amortization of intangibles due to tax and accounting firm acquisitions.

Net income attributable to non-controlling interest in both the third quarter and year-to-date fiscal 2019 is due to National Asset Management Inc.'s ("NAM") majority voting interest in Innovation X Management, LLC ("Innovation"), which together serve as the investment manager of an investment fund. Because NAM has the majority voting interest in Innovation, the results of operations of Innovation are included in the Company's consolidated financial statements, and the amount attributable to the other investor is recorded as a non-controlling interest. During the three and nine months ended June 30, 2019, National recognized a carried interest earned from the investment fund of $2,247,000, of which $899,000 was attributable to the non-controlling interest.

In order to participate in the conference call, please call 1-800-681-1608-and provide the conference name: National Q3 Earnings Call. An audio recording of the conference call will be available for replay on the Company's website at www.yournational.com, for a period of 30 days after the call.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included with the financial information included in this press release. These measures are not in accordance with, or an alternative for, GAAP and may be different from non-GAAP measures used by other companies. Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to management and investors regarding financial and business trends related to the company's operating results.

National Holdings Corporation (NHLD) is a full-service investment banking and asset management firm that, through its affiliates, provides a range of services, including independent retail brokerage and advisory services, investment banking, institutional sales and trading, equity research, financial planning, market making, tax preparation, insurance, to corporations, institutions, high net-worth and retail investors. With over 1000 advisors, registered reps, traders, sales associates and corporate staff, National Holdings operates through various subsidiaries including National Securities Corporation, National Asset Management, Inc., National Insurance Corporation, National Tax and Financial Services Inc. (formerly Gilman Ciocia, Inc.) and GC Capital Corporation. Formed as a holding company in 1999, National Holdings' largest subsidiary National Securities Corporation has been in business since 1947. National Holdings is headquartered in New York and Florida. For more information, visit www.yournational.com.

This press release may contain certain forward-looking statements. Any such statements, other than statements of historical fact, are based on management's current expectations, estimates, projections, beliefs and assumptions about the Company, its current and prospective portfolio investments, and its industry. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Company's control, difficult to predict and could cause actual results to differ materially from those expected or forecasted in such forward-looking statements. Actual developments and results are likely to vary materially from these estimates and projections as a result of a number of factors, including investor confidence may weaken, negatively affecting brokerage services revenue, investment banking revenue may be negatively affected if market conditions worsen, the value of our carried interest may decline prior to being recognized and other risks described from time to time in National's filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and National undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.