LTS: Reports Q2 2018 Results

MIAMI

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

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.”

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.

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.

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, 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.

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.

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.

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.