Market Overview

Ladenburg Reports Second Quarter 2018 Financial Results

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Highlights:

  • Second quarter 2018 revenues of $357.8 million, up 14.8% compared to
    prior year
  • Second quarter 2018 net income of $9.3 million and EBITDA, as
    adjusted, of $25.8 million
  • Record client assets of $168.0 billion at June 30, 2018, including
    advisory assets under management of $75.2 billion and cash balances of
    $4.3 billion
  • Recurring revenue of 79.1% for the trailing 12 months ended June 30,
    2018 in independent advisory and brokerage services segment
  • Shareholders' equity of $390.5 million at June 30, 2018

Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS, LTS PrA,
LTSL, LTSF) today announced financial results for the three and six
months ended June 30, 2018.

Dr. Phillip Frost, Chairman of Ladenburg, said, "We are very pleased
with our robust second quarter 2018 results with continued strong growth
in client assets as well as revenues and profitability. Solid execution
by our management team, together with stable equity markets and the
increasing interest rate environment, contributed to our strong
performance. Our focus remains on creating value and, as appropriate,
returning capital to our shareholders. If our business continues to
perform as we anticipate, the Board will consider increasing the cash
dividend on our common stock and accelerating our share repurchase
program."

Richard Lampen, President and Chief Executive Officer of Ladenburg,
said, "All segments of our businesses continued to perform well in the
second quarter, with revenues of $357.8 million, a 14.8% increase from
the prior year period, and a 96.4% increase in adjusted EBITDA, to $25.8
million. The continued growth of our nationwide network of approximately
4,300 independent financial advisors reflects our successful recruiting
efforts of talented advisors over the past two years. Total client
assets grew to a record $168.0 billion and advisory assets under
management increased to a record $75.2 billion, up 13.6% and 18.6%,
respectively, on a year-over-year basis. We will continue to focus on
increasing shared services, growing recurring revenues and managing our
operations more efficiently to further drive margin and profitability
improvements across the enterprise."

Adoption of New ASC 606 Accounting Standard

On January 1, 2018, the Company adopted FASB Accounting Standards Update
No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" and all
related amendments ("ASC 606"). The Company believes it is important to
include a presentation of its financial results on the most comparable
basis practical. The Company's adoption of the new revenue standard has
an impact on the timing of when revenues and related costs are
recognized and impacts the gross vs. net reporting presentation of
advisory and commissions revenues. The Company has adopted this standard
under the modified retrospective method, which does not require a
restatement of prior period results. In order to make the presentation
of these financial results more comparable, the Company has included an
adjustment to the results of 2018 to exclude the impact of the adoption
of the new revenue standard so that such results are presented on the
same revenue recognition methodology used by the Company prior to the
adoption of the new revenue standard (see Tables 3 and 4). For the three
months ended June 30, 2018, the impact of the new revenue standard was a
decrease in total revenues of $27.3 million, a decrease in total
expenses of $31.3 million, an increase in net income attributable to the
Company of $3.9 million, and increase in net income per basic and
diluted common share of $0.02. For the six months ended June 30, 2018,
the impact of the new revenue standard was a decrease in total revenues
of $58.3 million, a decrease in total expenses of $65.8 million, an
increase in net income attributable to the Company of $5.7 million, and
decrease in net loss per basic and diluted common share of $0.03.

During the three and six months ended June 30, 2018, the Company's net
income as reported is greater than the net income amounts without the
adoption of ASC 606 due to the following: 1) the timing of revenue
recognized for commissions on future renewals of insurance policies sold
is accelerated, as these future commissions represent variable
consideration and are required to be estimated, 2) certain costs to
obtain a contract with a customer are now capitalized and have
historically been recorded as a period expense, and 3) forgivable loans
to independent financial advisors are now amortized over the expected
useful lives of their relationship period with the Company's
subsidiaries; previously these loans were amortized based on their legal
terms.

For the Three and Six Months Ended June 30, 2018

Second quarter 2018 revenues were $357.8 million, a 14.8% increase from
revenues of $311.5 million in the second quarter of 2017. Commissions
revenue for the second quarter of 2018 increased by 35.7% to $180.4
million from $133.0 million for the comparable period in 2017, primarily
due to increased sales of variable annuity, mutual fund and fixed
annuities/insurance products, and due to the impact of the adoption of
ASC 606. Advisory fee revenue for the three months ended June 30, 2018
decreased by 8.9% to $122.6 million from $134.6 million for the
comparable period in 2017, primarily due to the impact of the adoption
of ASC 606. Investment banking revenue for the second quarter of 2018
decreased by 9.0% to $11.7 million from $12.9 million for the comparable
period in 2017, due to a decrease in capital raising revenue and
strategic advisory services. Also, service fees revenue for the second
quarter of 2018 increased by 35.6% to $27.6 million from $20.3 million,
primarily due to increased revenues from our cash sweep programs.

Net income attributable to the Company for the second quarter of 2018
was $9.3 million, as compared to net income attributable to the Company
of $1.3 million in the second quarter of 2017. Net income available to
common shareholders, after payment of preferred dividends, was $0.8
million or $0.00 per basic and diluted common share for the second
quarter of 2018, as compared to net loss available to common
shareholders of $6.6 million or ($0.03) per basic and diluted common
share in the comparable 2017 period. The second quarter 2018 results
included $4.6 million of income tax expense, $7.3 million of non-cash
charges for depreciation, amortization and compensation, $0.1 million of
amortization of retention and forgivable loans, $2.4 million of
amortization of contract acquisition costs and $2.2 million of interest
expense. The second quarter 2017 results included $0.1 million of income
tax benefit, $8.7 million of non-cash charges for depreciation,
amortization and compensation, $1.7 million of amortization of retention
and forgivable loans and $0.5 million of interest expense.

For the six months ended June 30, 2018, the Company had revenues of
$687.1 million, a 14.2% increase from revenues of $601.8 million for the
comparable 2017 period. Net income attributable to the Company for the
six months ended June 30, 2018 was $14.8 million, as compared to net
loss attributable to the Company of $2.3 million in the comparable 2017
period. Net loss available to common shareholders, after payment of
preferred dividends, was $2.3 million or ($0.01) per basic and diluted
common share for the six months ended June 30, 2018, as compared to net
loss available to common shareholders of $18.2 million or ($0.09) per
basic and diluted common share in the comparable 2017 period. The
results for the six months ended June 30, 2018 included $6.7 million of
income tax expense, $14.6 million of non-cash charges for depreciation,
amortization and compensation, $0.2 million of amortization of retention
and forgivable loans, $4.6 million of amortization of contract
acquisition costs and $4.0 million of interest expense. The comparable
2017 results included $1.0 million of income tax benefit, $17.5 million
of non-cash charges for depreciation, amortization and compensation,
$3.3 million of amortization of retention and forgivable loans and $1.0
million of interest expense.

Recurring Revenues

For the trailing twelve months ended June 30, 2018, recurring revenues,
which consist of advisory fees, trailing commissions, cash sweep
revenues and certain other fees, represented approximately 79.1% of
revenues from the Company's independent advisory and brokerage services
segment.

EBITDA, as adjusted

EBITDA, as adjusted, for the second quarter of 2018 was $25.8 million,
an increase of 96.4% from $13.2 million in the comparable 2017 period.
EBITDA, as adjusted, for the six months ended June 30, 2018 was $46.0
million, an increase of 122.8% from $20.6 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 second quarter of 2018 was primarily attributable to
increases in our independent advisory and brokerage services segment and
our insurance brokerage segment as a result of increased revenue from
our cash sweep programs and increased commissions revenue due in part to
the impact of the adoption of ASC 606.

Client Assets

At June 30, 2018, total client assets under administration were $168.0
billion, a 13.6% increase from $147.9 billion at June 30, 2017. At June
30, 2018, client assets included cash balances of approximately $4.3
billion, including approximately $4.0 billion participating in our cash
sweep programs.

Stock Repurchases

During the quarter ended June 30, 2018, the Company repurchased 489,591
shares of its common stock at a cost of approximately $1.7 million,
including 472,215 shares repurchased under its stock repurchase program,
representing an average price per share of $3.47. Since the inception of
its stock repurchase program in March 2007, the Company has repurchased
over 27.6 million shares of its common stock at a total cost of
approximately $59.5 million, including purchases outside its stock
repurchase program, representing an average price per share of $2.15. As
of June 30, 2018, the Company has the authority to repurchase an
additional 7,392,170 shares under its current repurchase plan.

Non-GAAP Financial Measures

Earnings before interest, taxes, depreciation and amortization, or
EBITDA, as adjusted for acquisition-related expense, amortization of
retention and forgivable loans, amortization of contract acquisition
costs, 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, amortization of contract
acquisition costs 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,
LTSL, LTSF) is a publicly-traded diversified financial services company
based in Miami, Florida. Ladenburg's subsidiaries include
industry-leading independent advisory and brokerage (IAB) firms
Securities America, Triad Advisors, Securities Service Network,
Investacorp, and KMS Financial Services, as well as Premier Trust,
Ladenburg Thalmann Asset Management, Highland Capital Brokerage, a
leading independent life insurance brokerage company, Ladenburg Thalmann
Annuity Insurance Services, 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 advisory and brokerage business,
growth of our investment banking business, future levels of recurring
revenue, future synergies, changes in interest rates, recruitment of
financial advisors, future margins, future dividends 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 SEC's proposed rules and interpretations concerning the
standards of conduct for broker dealers and investment advisers when
dealing with retail investors, future cash flows, a change in the
Company's dividend policy by the Company's Board of Directors (which has
the ability in its sole discretion to increase, decrease or eliminate
entirely the Company's dividend at any time) 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, 2017 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

(Amounts in thousands, except share and per share amounts)

(Unaudited)

       
Three Months Ended Six Months Ended
June 30, % June 30,   %
2018     2017   Change 2018     2017       Change
Revenues:
Commissions $ 180,381 $ 132,975 35.7 % $ 343,667 $ 263,025 30.7 %
Advisory fees 122,638 134,642 (8.9 )% 237,021 261,645 (9.4 )%
Investment banking 11,729 12,887 (9.0 )% 28,219 19,376 45.6 %
Principal transactions 233 258 (9.7 )% 400 578 (30.8 )%
Interest and dividends 1,080 657 64.4 % 1,867 1,292 44.5 %
Service fees 27,585 20,336 35.6 % 52,487 38,892 35.0 %
Other income 14,110     9,781   44.3 % 23,479   17,019     38.0 %
Total revenues 357,756     311,536   14.8 % 687,140   601,827     14.2 %
Expenses:
Commissions and fees 254,405 226,089 12.5 % 485,716 444,823 9.2 %
Compensation and benefits 48,573 40,875 18.8 % 95,822 80,000 19.8 %
Non-cash compensation 1,568 1,378 13.8 % 3,062 2,807 9.1 %
Brokerage, communication and clearance fees 2,941 4,909 (40.1 )% 8,260 9,474 (12.8 )%
Rent and occupancy, net of sublease revenue 2,387 2,468 (3.3 )% 4,880 4,860 0.4 %
Professional services 5,311 3,771 40.8 % 10,329 7,894 30.8 %
Interest 2,154 521 313.4 % 4,020 998 302.8 %
Depreciation and amortization 5,762 7,294 (21.0 )% 11,571 14,726 (21.4 )%
Acquisition-related expenses 89 (100.0 )% 913 265 244.5 %
Amortization of retention and forgivable loans 107 1,671 (93.6 )% 183 3,262 (94.4 )%

Amortization of contract acquisition costs

2,361 nm 4,571 nm
Other 18,253     21,221   (14.0 )% 36,182   36,138     0.1 %
Total expenses 343,822     310,286   10.8 % 665,509   605,247     10.0 %
Income (loss) before item shown below 13,934 1,250 1,014.7 % 21,631 (3,420 ) nm
Change in fair value of contingent consideration (50 ) (63 ) (20.6 )% (111 ) 89     nm
Income (loss) before income taxes 13,884 1,187 1,069.7 % 21,520 (3,331 ) nm
Income tax expense (benefit) 4,574     (138 ) nm 6,746   (977 )   nm
Net income (loss) 9,310 1,325 602.6 % 14,774 (2,354 ) nm
Net income (loss) attributable to noncontrolling interest 8     (3 ) nm 9   (8   ) nm
Net income (loss) attributable to the Company $ 9,302 $ 1,328 600.5 % $ 14,765 $ (2,346 ) nm
Dividends declared on preferred stock (8,508 )   (7,953 ) 7.0 % (17,016 ) (15,877   ) 7.2 %
Net Income (loss) available to common shareholders $ 794     $ (6,625 ) nm $ (2,251 ) $ (18,223   ) (87.6 )%
 
Net income (loss) per common share available to common shareholders
(basic)
$ 0.00     $ (0.03 ) (100.0 )% $ (0.01 ) $ (0.09   ) (88.9 )%
Net income (loss) per common share available to common shareholders
(diluted)
$ 0.00     $ (0.03 ) (100.0 )% $ (0.01 ) $ (0.09   ) (88.9 )%
 
Weighted average common shares used in computation of per share data:
Basic 196,557,837     192,304,828   2.2 % 196,230,136   192,287,816     2.1 %
Diluted 209,855,936     192,304,828   9.1 % 196,230,136   192,287,816     2.1 %

nm- not meaningful

TABLE 2

LADENBURG THALMANN FINANCIAL SERVICES INC.

The following table presents a reconciliation of net income (loss)
attributable to the Company as reported to EBITDA, as adjusted for
the periods ending June 30, 2018 and 2017:

         
Three months ended Six months ended
June 30 June 30
(Unaudited; amounts in thousands) 2018     2017   % Change 2018     2017   % Change
Total revenues $ 357,756 $ 311,536 14.8% $ 687,140 $ 601,827 14.2%
Total expenses 343,822 310,286 10.8% 665,509 605,247 10.0%
Income (loss) before income taxes 13,884 1,187 1,069.7% 21,520 (3,331 ) nm
Net income (loss) attributable to the Company 9,302 1,328 600.5% 14,765 (2,346 ) nm
 
Reconciliation of net income (loss) attributable to the Company to
EBITDA, as adjusted:
 
Net income (loss) attributable to the Company $ 9,302 $ 1,328 600.5% $ 14,765 $ (2,346 ) nm
Less:
Interest income (508 ) (98 ) 418.4% (878 ) (200 ) 339.0%
Change in fair value of contingent consideration 50 63 (20.6)% 111 (89 ) nm
Add:
Interest expense 2,154 521 313.4% 4,020 998 302.8%
Income tax expense (benefit) 4,574 (138 ) nm 6,746 (977 ) nm
Depreciation and amortization 5,762 7,294 (21.0)% 11,571 14,726 (21.4)%
Non-cash compensation expense 1,568 1,378 13.8% 3,062 2,807 9.1%
Amortization of retention and forgivable loans 107 1,671 (93.6)% 183 3,262 (94.4)%
Amortization of contract acquisition costs 2,361 nm 4,571 nm
Financial advisor recruiting expense 89 564 (84.2)% 176 1,432 (87.7)%
Acquisition-related expense 89 (100.0)% 913 265 244.5%
Other (1) (2) 380   485   (21.6)% 763   769   (0.8)%
EBITDA, as adjusted $ 25,839   $ 13,157   96.4% $ 46,003   $ 20,647   122.8%

(1) Includes severance costs of $86 and $174, excise and
franchise tax expense of $169 and $322 and compensation expense that may
be paid in stock of $125 and $267 for the three and six months ended
June 30, 2018.

(2) Includes severance costs of $194, excise and franchise
tax expense of $145 and $286 and compensation expense that may be paid
in stock of $160 and $303 for the three and six months ended June 30,
2017.

nm- not meaningful

TABLE 3

LADENBURG THALMANN FINANCIAL SERVICES

CONSOLIDATED STATEMENT OF OPERATIONS

(Amounts in thousands, except share and per share amounts)

(Unaudited)
    Three Months Ended June 30, 2018    
  As Reported    

Amounts without
the adoption of
ASC
606

 

Effect of Change
Higher/(Lower)

 
Revenues:
Commissions $ 180,381 $ 157,576 $ 22,805
Advisory fees 122,638 173,888 (51,250 )
Investment banking 11,729 10,479 1,250
Principal transactions 233 290 (57 )
Interest and dividends 1,080 1,080
Service fees 27,585 27,585
Other income 14,110   14,110    
Total revenues 357,756   385,008   (27,252 )
Expenses:
Commissions and fees 254,405 283,915 (29,510 )
Compensation and benefits 48,573 48,901 (328 )
Non-cash compensation 1,568 1,568
Brokerage, communication and clearance fees 2,941 2,818 123
Rent and occupancy, net of sublease revenue 2,387 2,387
Professional services 5,311 4,659 652
Interest 2,154 2,141 13
Depreciation and amortization 5,762 7,076 (1,314 )
Acquisition-related expenses
Amortization of retention and forgivable loans 107 3,444 (3,337 )
Amortization of contract acquisition costs 2,361 2,361
Other 18,253   18,246   7  
Total expenses 343,822   375,155   (31,333 )
Income before item shown below 13,934 9,853 4,081
Change in fair value of contingent consideration (50 ) (50 )  
Income before income taxes 13,884 9,803 4,081
Income tax expense 4,574   4,439   135  
Net income 9,310 5,364 3,946
Net income attributable to noncontrolling interest 8   8    
Net income attributable to the Company $ 9,302 $ 5,356 $ 3,946
Dividends declared on preferred stock (8,508 ) (8,508 )  
Net income (loss) available to common shareholders $ 794   $ (3,152 ) $ 3,946  
Net income (loss) per common share available to common shareholders
(basic)
$ 0.00   $ (0.02 ) $ 0.02  
Net income (loss) per common share available to common shareholders
(diluted)
$ 0.00   $ (0.02 ) $ 0.02  
Weighted average common shares used in computation of per share data:
Basic 196,557,837   196,557,837    
Diluted 209,855,936   196,557,837   13,298,099  

TABLE 4

LADENBURG THALMANN FINANCIAL SERVICES

CONSOLIDATED STATEMENT OF OPERATIONS

(Amounts in thousands, except share and per share amounts)

(Unaudited)
 
  Six Months Ended June 30, 2018  
  As Reported  

Amounts without
the adoption of
ASC
606

Effect of Change
Higher/(Lower)

Revenues:
Commissions $ 343,667 $ 303,614 $ 40,053
Advisory fees 237,021 337,815 (100,794 )
Investment banking 28,219 25,625 2,594
Principal transactions 400 483 (83 )
Interest and dividends 1,867 1,860 7
Service fees 52,487 52,487
Other income 23,479   23,573   (94 )
Total revenues 687,140   745,457   (58,317 )
Expenses:
Commissions and fees 485,716 547,736 (62,020 )
Compensation and benefits 95,822 96,387 (565 )
Non-cash compensation 3,062 3,062
Brokerage, communication and clearance fees 8,260 7,889 371
Rent and occupancy, net of sublease revenue 4,880 4,880
Professional services 10,329 9,296 1,033
Interest 4,020 4,007 13
Depreciation and amortization 11,571 14,198 (2,627 )
Acquisition-related expenses 913 913
Amortization of retention and forgivable loans 183 6,600 (6,417 )
Amortization of contract acquisition costs 4,571 4,571
Other 36,182   36,316   (134 )
Total expenses 665,509   731,284   (65,775 )
Income before item shown below 21,631 14,173 7,458
Change in fair value of contingent consideration (111 ) (111 )  
Income before income taxes 21,520 14,062 7,458
Income tax expense 6,746   4,960   1,786  
Net income 14,774 9,102 5,672
Net income attributable to noncontrolling interest 9   9    
Net income attributable to the Company $ 14,765 $ 9,093 $ 5,672
Dividends declared on preferred stock (17,016 ) (17,016 )  
Net loss available to common shareholders $ (2,251 ) $ (7,923 ) $ 5,672  
Net loss per common share available to common shareholders (basic) $ (0.01 ) $ (0.04 ) $ 0.03  
Net loss per common share available to common shareholders (diluted) $ (0.01 ) $ (0.04 ) $ 0.03  
Weighted average common shares used in computation of per share data:
Basic 196,230,136   196,230,136    
Diluted 196,230,136   196,230,136    

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