Contacts:
Media: 703.469.1004 or media@fbr.com
Investors: Bradley J. Wright at 703.469.1080 or fbcmir@fbr.com
FBR Capital Markets Reports
First Quarter 2009 Financial Results
Strength in Institutional Brokerage and Lower Cost Structure Demonstrated
ARLINGTON, VA, April 22, 2009 /PRNewswire-FirstCall/ – FBR Capital Markets Corporation (NASDAQ: FBCM) (FBR Capital Markets), a leading investment bank serving the middle market, today reported a net after-tax loss of $16.2 million, or $0.27 per share (diluted), for the quarter ended March 31, 2009, compared to a net after-tax loss of $10.2 million in the first quarter of 2008 and a net after-tax loss of $130.7 million in the fourth quarter of 2008.
FBR Capital Markets’ pre-tax core operating loss on a non-GAAP basis was $8.9 million for the first quarter of 2009 compared to pre-tax core earnings of $1.7 million in the first quarter of 2008 and a pre-tax core operating loss of $21.8 million for the fourth quarter of 2008. This non-GAAP measurement excludes specified non-core items and non-cash expenses, including, for the first quarter of 2009, $4.3 million in stock compensation, $1.4 million net investment loss, and $0.6 million in severance. On a GAAP basis, FBR Capital Markets reported a pre-tax loss of $15.6 million for the first quarter of 2009, compared to a pre-tax loss of $11.0 million in the first quarter of 2008 and a pre-tax loss of $105.3 million for the fourth quarter of 2008. See “Non-GAAP Financial Measures” below for a reconciliation of our non-GAAP pre-tax core operating results to our GAAP pre-tax operating results for the specified 2009 and 2008 periods.
During the quarter, as previously disclosed, the Company sold its remaining holdings of mortgage-backed securities totaling $454.3 million and eliminated all debt on its balance sheet. As a consequence, the Company has meaningfully reduced its balance sheet risk and enhanced its already high levels of liquidity. At March 31, 2009, the Company’s shareholders’ equity totaled $294.3 million, cash totaled $207.0 million, and its book value was $4.95 per share.
For the first quarter 2009, net revenue before net investment loss was $51.1 million compared to $47.8 million in the fourth quarter of 2008. Institutional brokerage generated net revenue of $39.7 million compared to $35.6 million in the fourth quarter of 2008 and $31.8 million in the first quarter of 2008. This increase was attributable to the addition of our convertible securities sales and trading business in the second half of 2008. For the first quarter of 2009, investment banking net revenue was $7.9 million and asset management fees were $2.4 million.
First quarter 2009 non-compensation expenses were $28.2 million, compared with $44.2 million in the first quarter of 2008 and $34.8 million in the fourth quarter of 2008, reflecting a decrease of $6.6 million, or 19%, quarter over quarter. These decreases reflect the significant actions taken over the past year to size our business and cost structure to the current operating environment. Through comprehensive evaluation of our non-compensation costs, combined with headcount reductions of 27%, since the beginning of 2008, we have achieved a nearly 50% reduction in the annual revenue required to break-even over that same time period. Annualized cash fixed costs for the first quarter of 2009 were $155 million which is approximately 30% lower than one year ago.
“The equity capital markets environment remained extraordinarily challenging in the first quarter, and we expect this could continue to be the case throughout 2009. However, the expense reductions achieved over the last several quarters have dramatically improved our ability to return to profitability in advance of a full recovery in banking revenue,” said Richard J. Hendrix, President and Chief Executive Officer of FBR Capital Markets. “We remain focused on building our franchise during this economic downturn, even as we reduce costs. The changes to our competitive landscape have created a unique opportunity to attract talented producers who can have a meaningful, positive impact on our core business and on new businesses that are consistent with our strategic plan.”
Investors wishing to listen to the earnings conference call at 9:00 A.M. U.S. EDT, Wednesday, April 22, 2009, may do so via the Web at: http://phx.corporate-ir.net/phoenix.zhtml?c=204322&p=irol-irhome.
Replays of the webcast will be available after the call.
FBR Capital Markets Corporation (NASDAQ: FBCM) provides investment banking, merger and acquisition advisory, institutional brokerage and research services through its subsidiary FBR Capital Markets & Co. FBR Capital Markets focuses capital and financial expertise on seven industry sectors: consumer; diversified industrials; energy & natural resources; financial institutions; insurance; real estate; and technology, media & telecom. Asset management and private wealth advisory services are provided by FBR Investment Management, Inc., and mutual funds are provided by FBR Fund Advisers, Inc.; both companies are subsidiaries of FBR Capital Markets Corporation. FBR Capital Markets is headquartered in the Washington, D.C. metropolitan area with offices throughout the United States and in London. For more information, please visit www.fbrcapitalmarkets.com.
Statements in this release concerning future performance, developments, events, market forecasts, revenues, expenses, earnings, run rates and any other guidance on present or future periods, constitute forward-looking statements that are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the effect of demand for public offerings, activity in the secondary securities markets, interest rates, costs of borrowing, interest spreads, risks associated with merchant banking investments, the realization of gains and losses on principal investments, available technologies, competition for business and personnel, and general economic, political and market conditions. For a discussion of these and other risks and important factors that could affect our future results and financial condition, see "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
Financial data follow.
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| FBR CAPITAL MARKETS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) |
| Quarter ended | ||||||||
| March 31, | ||||||||
| 2009 | 2008 | |||||||
| REVENUES: | ||||||||
| Investment banking: | ||||||||
| Capital raising | $ | 4,299 | $ | 64,909 | ||||
| Advisory | 3,599 | 5,076 | ||||||
| Institutional brokerage: | ||||||||
| Principal transactions | 11,318 | 5,957 | ||||||
| Agency commissions | 28,352 | 25,816 | ||||||
| Asset management: | ||||||||
| Base management fees | 2,433 | 4,644 | ||||||
| Interest income | 856 | 2,461 | ||||||
| Net investment loss | (1,447 | ) | (5,028 | ) | ||||
| Other | 493 | 244 | ||||||
| Total revenues | 49,903 | 104,079 | ||||||
| Interest expense | 252 | 33 | ||||||
| Revenues, net of interest expense | 49,651 | 104,046 | ||||||
| NON-INTEREST EXPENSES: | ||||||||
| Compensation and benefits | 36,998 | 70,863 | ||||||
| Professional services | 4,541 | 11,163 | ||||||
| Business development | 3,631 | 12,020 | ||||||
| Clearing and brokerage fees | 3,297 | 3,598 | ||||||
| Occupancy and equipment | 7,957 | 8,607 | ||||||
| Communications | 5,161 | 6,043 | ||||||
| Other operating expenses | 3,624 | 2,733 | ||||||
| Total non-interest expenses | 65,209 | 115,027 | ||||||
| Loss before income taxes | (15,558 | ) | (10,981 | ) | ||||
| Income tax provision (benefit) | 609 | (807 | ) | |||||
| Net loss | $ | (16,167 | ) | $ | (10,174 | ) | ||
| Basic loss per share | $ | (0.27 | ) | $ | (0.16 | ) | ||
| Diluted loss per share | $ | (0.27 | ) | $ | (0.16 | ) | ||
| Weighted average shares - basic (in thousands) | 59,119 | 64,430 | ||||||
| Weighted average shares - diluted (in thousands) | 59,119 | 64,430 | ||||||
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Non-GAAP Financial Measures
In addition to the financial results reported in accordance with generally accepted accounting principles (GAAP), we have disclosed non-GAAP pre-tax core operating earnings (losses) for the quarters ended March 31, 2009 and 2008 and the quarter ended December 31, 2008 in this press release. This non-GAAP measurement is used by management to analyze and assess the results of the core capital markets and asset management operating units. In determining core earnings (losses), we have excluded from GAAP financial results the following non-core operating items: (1) severance costs associated with reductions in headcount and (2) net investment income (losses) from our mortgage-backed securities and long-term investments. We also have excluded the following non-cash expenses: (1) compensation costs associated with stock-based awards and (2) amortization of intangibles. Management believes that this non-GAAP measurement assists investors in understanding the impact of these non-core items and non-cash expenses on the performance of the Company, and provides additional clarity around the firm’s forward earnings capacity and trend.
A limitation of utilizing these non-GAAP measures is that the GAAP accounting effects of these events do in fact reflect the underlying financial results of our business and these effects should not be ignored in evaluating and analyzing our financial results. Therefore, management believes income (loss) before income taxes on a GAAP basis and core earnings (loss) before income taxes on a non-GAAP basis should be considered together.
The following table presents a reconciliation of the GAAP financial results to non-GAAP measurements discussed above (dollars in thousands).
| Q1 - 09 | Q4 - 08 | Q3 - 08 | Q2 - 08 | Q1 - 08 | ||||||||||||||||
| Net revenues before net investment income/loss | $ | 51,098 | $ | 47,828 | $ | 56,598 | $ | 49,743 | $ | 109,074 | ||||||||||
| GAAP pre-tax loss | $ | (15,558 | ) | $ | (105,334 | ) | $ | (46,682 | ) | $ | (35,223 | ) | $ | (10,981 | ) | |||||
| Non-core items: | ||||||||||||||||||||
| Severance | 560 | 10,425 | 3,575 | 838 | 3,107 | |||||||||||||||
| Net investment loss, MBS | 1,043 | 33,622 | - | - | - | |||||||||||||||
| Net investment loss, long-term investments | 404 | 32,387 | 11,043 | (745 | ) | 5,028 | ||||||||||||||
| Non-cash expenses: | ||||||||||||||||||||
| Stock compensation expense | 4,341 | 6,806 | 5,540 | 2,785 | 4,232 | |||||||||||||||
| Amortization of intangibles | 291 | 291 | 291 | 291 | 291 | |||||||||||||||
| Non-GAAP pre-tax core operating (loss) income | $ | (8,919 | ) | $ | (21,803 | ) | $ | (26,233 | ) | $ | (32,054 | ) | $ | 1,677 |
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| FBR CAPITAL MARKETS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) |
| 31-Mar-09 | 31-Dec-08 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 207,027 | $ | 207,801 | ||||
| Receivables | 29,223 | 32,110 | ||||||
| Investments: | ||||||||
| Mortgage-backed securities, at fair value | - | 454,339 | ||||||
| Long-term investments | 39,864 | 41,174 | ||||||
| Trading securities, at fair value | 30,773 | 17,954 | ||||||
| Due from clearing broker | 3,734 | - | ||||||
| Derivative assets, at fair value | - | 264 | ||||||
| Intangible assets, net | 8,605 | 8,943 | ||||||
| Furniture, equipment and leasehold improvements, net | 22,238 | 24,442 | ||||||
| Prepaid expenses and other assets | 7,239 | 13,342 | ||||||
| Total assets | $ | 348,703 | $ | 800,369 | ||||
| LIABILITIES AND SHAREHOLDERS ’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Trading account securities sold but not yet purchased, at fair value | $ | 12,402 | $ | 8,325 | ||||
| Repurchase agreements | - | 416,037 | ||||||
| Accrued compensation and benefits | 22,573 | 43,919 | ||||||
| Accounts payable, accrued expenses and other liabilities | 19,383 | 25,352 | ||||||
| Due to clearing broker | - | 3,009 | ||||||
| Total liabilities | 54,358 | 496,642 | ||||||
| Shareholders' equity: | ||||||||
| Common stock | 59 | 60 | ||||||
| Additional paid-in capital | 398,365 | 396,059 | ||||||
| Restricted stock units | 13,737 | 9,309 | ||||||
| Accumulated other comprehensive loss | (166 | ) | (218 | ) | ||||
| Accumulated deficit | (117,650 | ) | (101,483 | ) | ||||
| Total shareholders' equity | 294,345 | 303,727 | ||||||
| Total liabilities and shareholders' equity | $ | 348,703 | $ | 800,369 | ||||
| Book Value per Share | $ | 4.95 | $ | 5.18 | ||||
| Shares Outstanding | 59,431 | 58,652 | ||||||
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| FBR CAPITAL MARKETS CORPORATION Financial & Statistical Supplement - Operating Results (Dollars in thousands) (Unaudited) |
| Q-1 09 | Q-4 08 | Q-3 08 | Q-2 08 | Q-1 08 | ||||||||||||||||
| Revenues, net of interest expense | $ | 49,651 | $ | (18,181 | ) | $ | 45,555 | $ | 50,488 | $ | 104,046 | |||||||||
| Non-interest expenses: | ||||||||||||||||||||
| Variable | 21,143 | 17,801 | 30,640 | 31,860 | 52,328 | |||||||||||||||
| Fixed | 44,066 | 69,352 | 61,597 | 53,851 | 62,699 | |||||||||||||||
| Loss before income taxes | (15,558 | ) | (105,334 | ) | (46,682 | ) | (35,223 | ) | (10,981 | ) | ||||||||||
| Income tax provision (benefit) | 609 | 25,413 | (18,122 | ) | (9,974 | ) | (807 | ) | ||||||||||||
| Net loss | $ | (16,167 | ) | $ | (130,747 | ) | $ | (28,560 | ) | $ | (25,249 | ) | $ | (10,174 | ) | |||||
| Fixed expenses | $ | 44,066 | $ | 69,352 | $ | 61,597 | $ | 53,851 | $ | 62,699 | ||||||||||
| Less: Non-cash expenses | 4,632 | 7,097 | 5,831 | 3,076 | 4,523 | |||||||||||||||
| Severance | 560 | 10,425 | 3,575 | 838 | 3,107 | |||||||||||||||
| Cash fixed costs | $ | 38,874 | $ | 51,830 | $ | 52,191 | $ | 49,937 | $ | 55,069 | ||||||||||
| Statistical Data | ||||||||||||||||||||
| Net assets under management (in millions) | ||||||||||||||||||||
| Managed accounts | $ | 128.8 | $ | 216.6 | $ | 276.8 | $ | 275.7 | $ | 333.9 | ||||||||||
| Hedge & offshore funds | 16.1 | 21.0 | 27.5 | 33.4 | 40.4 | |||||||||||||||
| Mutual funds | 1,079.8 | 1,179.4 | 1,427.1 | 1,533.8 | 1,698.0 | |||||||||||||||
| Private equity and venture capital funds | 13.6 | 15.9 | 16.2 | 20.2 | 20.2 | |||||||||||||||
| Total | $ | 1,238.3 | $ | 1,432.9 | $ | 1,747.6 | $ | 1,863.1 | $ | 2,092.5 | ||||||||||
| Employee count | 550 | 568 | 652 | 700 | 707 | |||||||||||||||
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