Exhibit 99.1
GLEACHER & COMPANY REPORTS SECOND QUARTER
2012 FINANCIAL RESULTS
NEW YORK, N.Y., August 7, 2012 — Gleacher & Company, Inc. (Nasdaq: GLCH) today reported net revenues of $44.6 million, net loss from continuing operations of ($60.8) million, or ($7.6) million on a non-GAAP basis, and diluted loss per share of ($0.51), or ($0.06) on a non-GAAP basis for the quarter ended June 30, 2012. A reconciliation of the Company’s GAAP results to these non-GAAP results is discussed below under “Non-GAAP Financial Results.”
Highlights
· Continued actions consistent with previously announced long term strategic plan
· Substantially rebuilt MBS & Rates business unit
· Added experienced professionals to Credit Products unit
· Reduced balance sheet usage including adjustments to repo book
Thomas Hughes, Chief Executive Officer, said, “One year ago, after my arrival, we announced a strategic plan to better position Gleacher & Company for profitability and meaningful returns for all stakeholders. We described the major building blocks of the plan, including: a cultural shift to foster coordination among business units; growing our Investment Banking capabilities to include additional industry verticals; assembling best in class content and problem solving skills in particular business units; and achieving significant expense reductions, especially regarding our compensation to revenue ratio. We stated that the plan would take time to implement, and that the roadmap for implementation included critical mileposts. One year later, we have effected a great deal of change against that roadmap: we have recruited new leadership for two business units who are experienced professionals, aligned with our cultural values; we have upgraded our staff, and we are delivering more relevant content and a deeper skill set to our clients; we have reduced expenses by exiting unprofitable activities, and through adjustments to our compensation practices; and we have repositioned our balance sheet so that it is more easily understood. That said, we still have work to do regarding our Investment Banking division, and we continue to analyze our ClearPoint options.
This undertaking has not been without pain. As we have said previously, when rebuilding, one must invest the time and capital before reaping results. To that end, we have taken charges, in this and prior quarters, for write downs of goodwill, deferred tax assets, and so forth. These charges were necessary elements of the cleansing required for long term growth.”
Mr. Hughes continued, “Today, Gleacher & Company is staffed by professionals sharing a common vision, and we continue to recruit actively. We have assembled a deeply experienced management team tasked with orchestrating change and building best in class businesses. While we are making progress against the roadmap we designed a year ago, we have a great deal of work left to do, and a number of challenges to overcome; our efforts remain a work in progress, and our results will continue to be impacted by the natural cost of change and early stage business building efforts. We believe our strategic plan is well suited for the current market environment, and our team can deliver against that plan, creating value for all of our stakeholders.”
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| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(In thousands, except for per share amounts) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Net revenues | | $ | 44,647 | | $ | 64,743 | | $ | 56,379 | | $ | 109,390 | | $ | 145,768 | |
Pre-tax (loss)/income from continuing operations | | (31,751 | ) | (5,282 | ) | 2,416 | | (37,033 | ) | 17,144 | |
Net (loss)/income from continuing operations | | (60,809 | ) | (4,716 | ) | 1,252 | | (65,525 | ) | 9,851 | |
Discontinued operations, net of taxes | | (23 | ) | 32 | | (11,672 | ) | 9 | | (13,066 | ) |
| | | | | | | | | | | |
Non-GAAP pre-tax (loss)/income from continuing operations* | | (10,655 | ) | (3,632 | ) | 4,101 | | (14,287 | ) | 16,499 | |
Non-GAAP net (loss)/income from continuing operations* | | (7,639 | ) | (3,769 | ) | 2,219 | | (11,408 | ) | 8,488 | |
| | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.51 | ) | $ | (0.04 | ) | $ | 0.01 | | $ | (0.55 | ) | $ | 0.08 | |
Diluted - continuing operations (Non-GAAP)* | | (0.06 | ) | (0.03 | ) | 0.02 | | (0.10 | ) | 0.06 | |
* Designates non-GAAP financial results. A reconciliation of the Company’s GAAP results to non-GAAP financial results is set forth below under the caption “Non-GAAP Financial Results.”
The Company has included in this press release “non-GAAP financial results.” A non-GAAP financial result is a numerical measure of financial position or results of operations that includes amounts that are excluded, or excludes amounts that are included, in the most directly comparable result calculated and presented in accordance with generally accepted accounting principles (“GAAP”). In the financial data included in this press release, the items for which the Company adjusted its GAAP results consist of the following:
· impairment of goodwill recorded during the second quarter of 2012,
· valuation allowance on deferred tax assets recorded during the second quarter of 2012,
· severance expense recorded during the first quarter of 2012,
· compensation expense related to the resignation of the former interim CEO in the second quarter of 2011, and
· the bargain purchase gain related to the ClearPoint acquisition in the first quarter of 2011.
Impairment of Goodwill
During the second quarter of 2012, the Company recorded a $21.1 million impairment of goodwill relating to both the MBS & Rates (previously captioned MBS/ABS & Rates) and Investment Banking reporting units. The evaluation was performed and the impairment was recognized as a result of the Company’s market capitalization remaining significantly below its book value for an extended period of time.
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Deferred Tax Asset — Valuation Allowance
During the second quarter of 2012, the Company provided for a valuation allowance of $32.1 million on its net deferred tax assets, as the Company entered into a cumulative loss in the most recent three-year period, inclusive of the current quarter operating results. Such an assessment generally weighs the Company’s recent financial reporting losses to a greater extent than its projections of future taxable income.
The impairment of goodwill and the valuation allowance on the Company’s deferred tax assets are non-cash charges and had no impact to the Company’s liquidity or the net capital of the Company’s broker-dealer subsidiary.
For detailed information on the adjustments made, and a reconciliation of the non-GAAP financial results included in this press release to the most directly comparable GAAP financial metrics, refer to “Non-GAAP Financial Results” below. While the Company believes that the non-GAAP financial results included herein are instructive, they should only be considered together with their corresponding GAAP financial metrics.
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Business Segment Results (including Non-GAAP results)
| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(In thousands of dollars) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net revenues: | | | | | | | | | | | |
Investment Banking | | $ | 8,730 | | $ | 4,533 | | $ | 8,956 | | $ | 13,263 | | $ | 16,600 | |
MBS & Rates(1) | | 5,282 | | 20,331 | | 23,770 | | 25,613 | | 75,476 | |
Credit Products(2) | | 17,872 | | 21,717 | | 14,851 | | 39,589 | | 35,316 | |
ClearPoint | | 11,316 | | 15,545 | | 7,008 | | 26,861 | | 13,366 | |
Net revenues - operating segments | | 43,200 | | 62,126 | | 54,585 | | 105,326 | | 140,758 | |
Other | | 1,447 | | 2,617 | | 1,794 | | 4,064 | | 2,680 | * |
Total | | $ | 44,647 | | $ | 64,743 | | $ | 56,379 | | $ | 109,390 | | $ | 143,438 | * |
| | | | | | | | | | | |
Pre-tax (loss)/income from continuing operations: | | | | | | | | | | | |
Investment Banking | | $ | 2,195 | | $ | 579 | | $ | 3,728 | | $ | 2,774 | | $ | 4,991 | |
MBS & Rates | | (1,746 | ) | 5,487 | | 6,542 | | 3,741 | | 25,407 | |
Credit Products | | 1,285 | | 962 | * | 631 | | 2,247 | * | 2,843 | |
ClearPoint | | (2,512 | ) | (2,853 | ) | (1,451 | ) | (5,365 | ) | (2,571 | ) |
Pre-tax (loss)/income - operating segments | | (778 | ) | 4,175 | * | 9,450 | | 3,397 | | 30,670 | |
Other | | (9,877 | )* | (7,807 | ) | (5,349 | )* | (17,684 | )* | (14,171 | )* |
Total | | $ | (10,655 | )* | $ | (3,632 | )* | $ | 4,101 | * | $ | (14,287 | )* | $ | 16,499 | * |
* Designates non-GAAP financial results. A reconciliation of the Company’s GAAP results to its non-GAAP financial results is set forth below under the caption “Non-GAAP Financial Results.”
(1) This business segment was formerly referred to as “MBS/ABS & Rates.”
(2) This business segment was formerly referred to as “Corporate Credit.”
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Investment Banking
Net revenues were $8.7 million for the quarter ended June 30, 2012, an improvement of $4.2 million compared to the first quarter of 2012 and relatively flat compared to the second quarter of 2011. Net revenues were $13.3 million for the six-months ended June 30, 2012, a decline of $3.3 million compared to the prior-year period. Investment banking revenue for the three and six months ended June 30, 2012 benefitted from advisory fees of $7.5 million relating to an engagement on a transaction that closed during the quarter.
The composition of the division’s investment banking revenues was as follows:
| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(In thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Advisory | | $ | 8,251 | | $ | 2,530 | | $ | 8,203 | | $ | 10,781 | | $ | 11,835 | |
Capital Markets | | 479 | | 2,003 | | 753 | | 2,482 | | 4,765 | |
Total: | | $ | 8,730 | | $ | 4,533 | | $ | 8,956 | | $ | 13,263 | | $ | 16,600 | |
MBS & Rates (formerly referred to as “MBS/ABS & Rates”)
Net revenues were $5.3 million for the quarter ended June 30, 2012, a decline of $15.0 million compared to the first quarter of 2012 and $18.5 million compared to the second quarter of 2011. The decrease in net revenues was primarily attributable to a leadership transition within the division accompanied by significant employee turnover during the current quarter. During this period, the segment’s headcount fell to a low of 35 compared to headcount of approximately 70 at April 1, 2012. New leadership, which was announced in the beginning of May 2012, has substantially rebuilt the division, and headcount stood at approximately 50 at June 30, 2012, which is 80% of the division’s target. This turnover led to a disruption in sales and trading activities and a re-positioning of inventory, resulting in a decline in net revenues. Net interest income also declined approximately $5.5 million, compared to the first quarter of 2012 and $3.8 million compared to the second quarter of 2011, due primarily to lower inventory levels. Partially offsetting these declines were approximately $1.5 million of other revenue recorded in the second quarter of 2012, related to the clawback of certain stock-based compensation grants subject to non-competition provisions.
Net revenues of $25.6 million for the six months ended June 30, 2012, declined by $49.9 million compared to the prior-year period. This was largely attributable to non-agency asset-backed securities gains of approximately $40.4 million in the prior-year period.
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Credit Products (formerly referred to as “Corporate Credit”)
Net revenues were $17.9 million for the quarter ended June 30, 2012, a decline of $3.8 million compared to the first quarter of 2012. This decrease was due to the recognition of investment banking revenues of $1.9 million in the first quarter of 2012, coupled with lower trading volumes, partially offset by higher spreads. Revenues improved by $3.0 million compared to the second quarter of 2011 due to an expanded product profile.
Net revenues of $39.6 million for the six months ended June 30, 2012 improved by $4.3 million compared to the prior-year period, due to an expanded product profile.
ClearPoint
Net revenues were $11.3 million for the quarter ended June 30, 2012, a decline of $4.2 million compared to the first quarter of 2012 and an improvement of $4.3 million compared to the second quarter of 2011. Net revenues declined compared to the first quarter of 2012 as a result of limiting ClearPoint’s daily average loan commitments to a level aligned with its distribution capabilities. Revenues resulting from prior loan commitment levels were not commercially sustainable and resulted in previously reported liquidity constraints.
Net revenues for the six months ended June 30, 2012 were $26.9 million, an improvement of $13.5 million compared to the prior-year period. This increase was due to lower daily average loan commitments in the prior-year period as the division’s operations had commenced on January 3, 2011, offset in part by the loan commitment limits implemented in the second quarter of 2012.
The division reported a pre-tax loss of $2.5 million and $5.4 million, respectively, for the quarter and six months ended June 30, 2012. The pre-tax losses were primarily due to the limits placed on loan origination activities as a result of the liquidity constraints experienced in the first quarter of 2012. In late May 2012, the division implemented a rightsizing plan in order to better align compensation with distribution capabilities. In connection with this plan, the division incurred approximately $0.4 million of severance expense during the second quarter of 2012.
Other
Net revenues were $1.4 million for the quarter ended June 30, 2012, a decline of $1.2 million compared to the first quarter of 2012 and $0.3 million compared to the second quarter of 2011. The reduction in net revenues when compared to the first quarter of 2012 is due to lower net interest income. Net revenues were lower when compared to the second quarter of 2011, primarily due to the changes in value of the Company’s FATV investment.
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Consolidated Compensation and Benefits Expenses (including Non-GAAP results)
Compensation and benefits expense was $32.6 million for the second quarter of 2012, a decline of $11.1 million ($9.5 million on a non-GAAP basis) compared to compensation and benefits expense in the first quarter of 2012, and a decline of $4.7 million ($3.0 million on a non-GAAP basis) compared to compensation and benefits expense in the second quarter of 2011.
Compensation and benefits expense as a percentage of net revenues was 73.0% for the second quarter of 2012, compared to 67.5% (65.0% on a non-GAAP basis) for the first quarter of 2012 and 66.1% (63.1% on a non-GAAP basis) for the second quarter of 2011. The adverse period-to-period changes in the Company’s compensation as a percentage of revenue was impacted during the second quarter of 2012, by the decline in revenues of the MBS & Rates division, driven by lower net interest income on lower inventory levels, as well as the disruption in sales and trading activities previously described. To a lesser extent, the ratio was also affected by the lower net revenues of ClearPoint when compared to the first quarter of 2012.
The Company’s compensation and benefits as a percentage of net revenues was 69.8% (68.3% on a non-GAAP basis) for the six months ended June 30, 2012, compared to 66.1% for the prior-year period.
Consolidated Non-Compensation Expenses (including Non-GAAP results)
Non-compensation expenses were $43.8 million ($22.7 million on a non-GAAP basis) for the second quarter of 2012, compared to $26.3 million for the first quarter of 2012 and $16.7 million for the second quarter of 2011. Non-GAAP results for the second quarter of 2012 exclude the $21.1 million goodwill impairment charge. Non-compensation expenses include ClearPoint broker fees and loan processing fees of $8.1 million, $12.9 million and $4.6 million for the second quarter of 2012, first quarter of 2012 and second quarter of 2011, respectively, driven by the level of ClearPoint loan commitment volumes in each respective period. Non-compensation expenses for the second quarter of 2012 were also impacted by higher legal, consulting and advisory fees when compared to the first quarter of 2012 and second quarter of 2011.
Provision for Income Taxes
Second Quarter 2012
The Company’s effective income tax rate from continuing operations for the three months ended June 30, 2012 was negative 91.5%, resulting in income tax expense of approximately $29.1 million. The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of a valuation allowance against substantially all of the Company’s deferred tax assets (negative 101%) as well as a non-deductible discrete item attributable to the write-off of goodwill (negative 25%).
The Company provided for a valuation allowance of $32.1 million on its net deferred tax assets, as the Company entered into a cumulative loss in the most recent three-year period, inclusive of the current quarter operating results. Such an assessment generally weighs the Company’s recent financial reporting losses to a greater extent than its projections of future taxable income.
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Six Months Ended 2012
The Company’s effective income tax rate from continuing operations for the six months ended June 30, 2012 of negative 76.9% resulted in income tax expense of approximately $28.5 million. The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of the previously mentioned valuation allowance against substantially all of the Company’s deferred tax assets during the three months ended June 30, 2012 (negative 87%), as well as the previously mentioned non-deductible discrete item attributable to the write-off of goodwill recorded during the three months ended June 30, 3012 (negative 21%) and tax expense associated with stock-based compensation shortfalls (negative 5%).
Discontinued Operations
Second Quarter 2012 vs. 2011
The Company has classified the results of its Equities segment as discontinued operations due to the Company’s decision to exit this business on August 22, 2011. Results of these discontinued operations for the three and six months ended June 30, 2012 and 2011 are presented in the following table:
| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(In thousands) | | 2012 | | 2012 | | 2011* | | 2012 | | 2011* | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net revenues | | $ | 6 | | $ | 37 | | $ | 4,929 | | $ | 43 | | $ | 10,200 | |
Total expenses (excluding interest) | | (31 | ) | (73 | ) | 19,675 | | (104 | ) | 27,408 | |
Income/(loss) from discontinued operations before income taxes | | 37 | | 110 | | (14,746 | ) | 147 | | (17,208 | ) |
Provisions for income taxes | | 60 | | 78 | | (3,074 | ) | 138 | | (4,142 | ) |
(Loss)/income from discontinued operations, net of taxes | | $ | (23 | ) | $ | 32 | | $ | (11,672 | ) | $ | 9 | | $ | (13,066 | ) |
*Included within the table above for the three and six months ended June 30, 2011 is a goodwill and intangible impairment charge of approximately $14.3 million.
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Non-GAAP Financial Results
The Company has included in this press release certain financial metrics that were not prepared in accordance with accounting principles generally accepted in the United States. These non-GAAP financial results, which include presentations of net revenues, compensation and benefits, non-compensation expenses, income before income taxes from continuing operations, provision for income taxes, net income from continuing operations, compensation expense ratios, pre-tax margin, return on average tangible equity and diluted earnings per share, are presented as an additional aid in understanding and analyzing the Company’s financial results for the quarters ended June 30, 2012, March 31, 2012, and June 30, 2011 and the six months ended June 30, 2012 and 2011. Specifically, the Company believes that the non-GAAP results provide useful information by excluding certain items that may not be indicative of the Company’s core operating results or business outlook and also to emphasize information that is critical to understanding the Company’s performance. These non-GAAP amounts exclude items reflected as adjustments within the “Reconciliation of GAAP to Non-GAAP Income from Continuing Operations” table below. The Company believes these non-GAAP results will allow for a better evaluation of the operating performance of the Company’s business and facilitate a meaningful comparison of the Company’s results in the current period to those in prior periods and future periods. References to these non-GAAP results should not be considered a substitute for results that are presented in a manner consistent with GAAP.
A limitation of utilizing these non-GAAP financial results is that the GAAP accounting effects of these excluded items do in fact reflect the underlying financial results of the Company’s business, and these effects should not be ignored in evaluating and analyzing its financial results. Therefore, the Company believes that non-GAAP results should always be considered together with their corresponding GAAP results.
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Reconciliation of GAAP to Non-GAAP Loss from Continuing Operations
| | Three Months Ended June 30, 2012 | | Three Months Ended June 30, 2011 | |
| | (Unaudited) | | (Unaudited) | |
(Dollars in thousands, except per share amounts) | | GAAP | | Adjustments | | Non-GAAP | | GAAP | | Adjustments | | Non-GAAP | |
| | | | | | | | | | | | | |
Net revenues: | | $ | 44,647 | | $ | — | | $ | 44,647 | | $ | 56,379 | | $ | — | | $ | 56,379 | |
| | | | | | | | | | | | | |
Expenses (excluding interest): | | | | | | | | | | | | | |
Compensation and benefits | | 32,606 | | — | | 32,606 | | 37,286 | | (1,685 | )(1) | 35,601 | |
Non-compensation expenses | | 43,792 | | (21,096 | )(2) | 22,696 | | 16,677 | | — | | 16,677 | |
Total expenses (excluding interest) | | 76,398 | | (21,096 | ) | 55,302 | | 53,963 | | (1,685 | ) | 52,278 | |
| | | | | | | | | | | | | |
Loss from continuing operations before income taxes | | (31,751 | ) | 21,096 | | (10,655 | ) | 2,416 | | 1,685 | | 4,101 | |
Provision for income taxes | | 29,058 | | (32,074 | )(3) | (3,016 | ) | 1,164 | | 718 | (4) | 1,882 | |
Net (loss)/income from continuing operations | | $ | (60,809 | ) | $ | 53,170 | | $ | (7,639 | ) | $ | 1,252 | | $ | 967 | | $ | 2,219 | |
| | | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.51 | ) | | | $ | (0.06 | )(5) | $ | 0.01 | | | | $ | 0.02 | (5) |
As a percentage of net revenues: | | | | | | | | | | | | | |
Compensation and benefits | | 73.0 | % | | | 73.0 | % | 66.1 | % | | | 63.1 | % |
(Loss)/income from continuing operations before income taxes | | (71.1 | )% | | | (23.9 | )% | 2.2 | % | | | 7.3 | % |
(1) Compensation related to the resignation of the former interim CEO in the second quarter of 2011.
(2) Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.
(3) Adjustment to remove the effects of the valuation allowance on the Company’s deferred tax assets (note: the goodwill impairment charge is non-deductible for tax purposes).
(4) Non-GAAP adjustments multiplied by the Company’s statutory rate of 42.6%.
(5) Non-GAAP net (loss)/income from continuing operations divided by 119.6 million and 130.6 million dilutive shares for the three months ended June 30, 2012 and 2011, respectively.
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Reconciliation of GAAP to Non-GAAP Loss from Continuing Operations (Continued)
| | Three Months Ended June 30, 2012 | | Three Months Ended March 31, 2012 | |
| | (Unaudited) | | (Unaudited) | |
(Dollars in thousands, except per share amounts) | | GAAP | | Adjustments | | Non-GAAP | | GAAP | | Adjustments | | Non-GAAP | |
| | | | | | | | | | | | | |
Net revenues: | | $ | 44,647 | | $ | — | | $ | 44,647 | | $ | 64,743 | | $ | — | | $ | 64,743 | |
| | | | | | | | | | | | | |
Expenses (excluding interest): | | | | | | | | | | | | | |
Compensation and benefits | | 32,606 | | — | | 32,606 | | 43,719 | | (1,650 | )(1) | 42,069 | |
Non-compensation expenses | | 43,792 | | (21,096 | )(2) | 22,696 | | 26,306 | | — | | 26,306 | |
Total expenses (excluding interest) | | 76,398 | | (21,096 | ) | 55,302 | | 70,025 | | (1,650 | ) | 68,375 | |
| | | | | | | | | | | | | |
Loss from continuing operations before income taxes | | (31,751 | ) | 21,096 | | (10,655 | ) | (5,282 | ) | 1,650 | | (3,632 | ) |
Provision for income taxes | | 29,058 | | (32,074 | )(3) | (3,016 | ) | (566 | ) | 703 | (4) | 137 | |
Net loss from continuing operations | | $ | (60,809 | ) | $ | 53,170 | | $ | (7,639 | ) | $ | (4,716 | ) | $ | 947 | | $ | (3,769 | ) |
| | | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.51 | ) | | | $ | (0.06 | )(5) | $ | (0.04 | ) | | | $ | (0.03 | )(5) |
As a percentage of net revenues: | | | | | | | | | | | | | |
Compensation and benefits | | 73.0 | % | | | 73.0 | % | 67.5 | % | | | 65.0 | % |
Loss from continuing operations before income taxes | | (71.1 | )% | | | (23.9 | )% | (8.2 | )% | | | (5.6 | )% |
(1) Represents severance expense (of which $1.0 million is non-cash stock-based compensation).
(2) Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.
(3) Adjustment to remove the effects of the valuation allowance on the Company’s deferred tax assets (note: the goodwill impairment charge is non-deductible for tax).
(4) Non-GAAP adjustments multiplied by the Company’s statutory tax rate of approximately 42.6%.
(5) Non-GAAP net loss from continuing operations divided by 119.6 million and 119.5 million dilutive shares for the three months ended June 30, 2012 and March 31, 2012, respectively.
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Reconciliation of GAAP to Non-GAAP Loss from Continuing Operations (Continued)
| | Six Months Ended June 30, 2012 | | Six Months Ended June 30, 2011 | |
| | (Unaudited) | | (Unaudited) | |
(Dollars in thousands, except per share amounts) | | GAAP | | Adjustments | | Non-GAAP | | GAAP | | Adjustments | | Non-GAAP | |
| | | | | | | | | | | | | |
Net revenues: | | $ | 109,390 | | $ | — | | $ | 109,390 | | $ | 145,768 | | $ | (2,330 | )(1) | $ | 143,438 | |
| | | | | | | | | | | | | |
Expenses (excluding interest): | | | | | | | | | | | | | |
Compensation and benefits | | 76,325 | | (1,650 | )(2) | 74,675 | | 96,374 | | (1,685 | )(3) | 94,689 | |
Non-compensation expenses | | 70,098 | | (21,096 | )(4) | 49,002 | | 32,250 | | — | | 32,250 | |
Total expenses (excluding interest) | | 146,423 | | (22,746 | ) | 123,677 | | 128,624 | | (1,685 | ) | 126,939 | |
| | | | | | | | | | | | | |
(Loss)/income from continuing operations before income taxes | | (37,033 | ) | 22,746 | | (14,287 | ) | 17,144 | | (645 | ) | 16,499 | |
Provision for income taxes | | 28,492 | | (31,371 | )(5) | (2,879 | ) | 7,293 | | 718 | (6) | 8,011 | |
Net (loss)/income from continuing operations | | $ | (65,525 | ) | $ | 54,117 | | $ | (11,408 | ) | $ | 9,851 | | $ | (1,363 | ) | $ | 8,488 | |
| | | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.55 | ) | | | $ | (0.10 | )(7) | $ | 0.08 | | | | $ | 0.06 | (7) |
As a percentage of net revenues: | | | | | | | | | | | | | |
Compensation and benefits | | 69.8 | % | | | 68.3 | % | 66.1 | % | | | 66.0 | % |
(Loss)/income from continuing operations before income taxes | | (33.9 | )% | | | (13.1 | )% | 11.8 | % | | | 11.5 | % |
(1) Represents the bargain purchase gain related to the ClearPoint acquisition on January 3, 2011
(2) Represents severance expense (of which $1.0 million is non-cash stock-based compensation).
(3) Compensation related to the resignation of the former interim CEO in the second quarter of 2011.
(4) Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.
(5) Represents the compensation and benefits adjustment of $1.7 million multiplied by the Company’s statutory tax rate of 42.6%, plus the removal of the effects of the valuation allowance on the Company’s deferred tax assets (note: the goodwill impairment charge is non-deductible for tax).
(6) Non-GAAP adjustments (excluding the bargain purchase gain which is non-taxable) multiplied by the Company’s statutory rate of 42.6%.
(7) Non-GAAP net (loss)/income from continuing operations divided by 119.2 million and 130.7 million dilutive shares for the six months ended June 30, 2012 and 2011, respectively.
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Reconciliation of GAAP to Non-GAAP Pre-Tax (Loss)/Income from Continuing Operations — by Segment
Three Months Ended June 30, 2012 | | Three Months Ended June 30, 2011 | |
Other | | Other | |
(In thousands) | | | | (In thousands) | | | |
| | | | | | | |
Revenues - GAAP | | $ | 1,447 | | Revenues - GAAP | | $ | 1,794 | |
| | | | | | | |
Expenses - GAAP | | 32,420 | | Expenses - GAAP | | 8,828 | |
| | | | | | | |
Adjustments | | (21,096 | )(1) | Adjustments | | (1,685 | )(2) |
| | | | | | | |
Expenses - non GAAP | | 11,324 | | Expenses - non GAAP | | 7,143 | |
| | | | | | | |
Pre-tax loss from continuing operations - non GAAP | | $ | (9,877 | ) | Pre-tax loss from continuing operations - non GAAP | | $ | (5,349 | ) |
Three Months Ended March 31, 2012 | |
Credit Products | |
(In thousands) | | | |
| | | |
Revenues - GAAP | | $ | 21,717 | |
| | | |
Expenses - GAAP | | 22,405 | |
| | | |
Adjustments | | (1,650 | )(3) |
| | | |
Expenses - non GAAP | | 20,755 | |
| | | |
Pre-tax income from continuing operations - non GAAP | | $ | 962 | |
(1) Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.
(2) Compensation expense related to the resignation of the former interim CEO in the second quarter of 2011.
(3) Represents severance expense (of which $1.0 million is non-cash stock-based compensation).
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Reconciliation of GAAP to Non-GAAP Pre-Tax (Loss)/Income from Continuing Operations — by Segment (Continued)
Six Months Ended June 30, 2012 | |
Credit Products | | Other | |
(In thousands) | | | | (In thousands) | | | |
| | | | | | | |
Revenues - GAAP | | $ | 39,589 | | Revenues - GAAP | | $ | 4,064 | |
| | | | | | | | | |
Expenses - GAAP | | 38,992 | | Expenses - GAAP | | 42,844 | |
| | | | | | | |
Adjustments | | (1,650 | )(1) | Adjustments | | (21,096 | )(2) |
| | | | | | | |
Expenses - non GAAP | | 37,342 | | Expenses - non GAAP | | 21,748 | |
| | | | | | | |
Pre-tax income from continuing operations - non GAAP | | $ | 2,247 | | Pre-tax loss from continuing operations - non GAAP | | $ | (17,684 | ) |
Six Months Ended June 30, 2011 | |
Other | |
(In thousands) | |
| | | |
Revenues - GAAP | | $ | 5,010 | |
| | | |
Adjustments | | (2,330 | )(3) |
| | | |
Revenues - non GAAP | | 2,680 | |
| | | |
Expenses - GAAP | | 18,536 | |
| | | |
Adjustments | | (1,685 | )(4) |
| | | |
Expenses - non GAAP | | 16,851 | |
| | | |
Pre-tax loss from continuing operations - non GAAP | | $ | (14,171 | ) |
(1) Represents severance expense (of which $1.0 million is non-cash stock-based compensation).
(2) Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.
(3) Represents the bargain purchase gain related to the ClearPoint acquisition on January 3, 2011.
(4) Compensation related to the resignation of the former interim CEO in the second quarter of 2011.
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Return on Tangible Equity — Annualized (Non-GAAP Unaudited)
Presented below is information on the Company’s annualized return on average tangible stockholders’ equity (Non-GAAP)
| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(Dollars in thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net (loss)/income from continuing operations (non-GAAP) | | $ | (7,639 | )(1) | $ | (3,769 | )(1) | $ | 2,219 | (1) | $ | (11,408 | )(1) | $ | 8,488 | (1) |
Plus: Amortization of intangibles, net of tax | | 70 | | 70 | | 418 | | 141 | | 871 | |
Net (loss)/income from continuing operations, adjusted (non-GAAP) | | (7,569 | ) | (3,699 | ) | 2,637 | | (11,267 | ) | 9,359 | |
Net (loss)/income from continuing operations, adjusted (non-GAAP) - annualized | | $ | (30,276 | ) | $ | (14,796 | ) | $ | 10,548 | | $ | (22,534 | ) | $ | 18,718 | |
| | | | | | | | | | | |
Average total stockholders’ equity (GAAP) | | $ | 224,150 | | $ | 257,560 | | $ | 350,568 | | $ | 235,808 | | $ | 349,098 | |
Less: Average intangible assets | | (14,674 | ) | (25,345 | ) | (113,746 | ) | (18,251 | ) | (116,250 | ) |
Average tangible stockholders’ equity (non-GAAP) | | $ | 209,476 | | $ | 232,215 | | $ | 236,822 | | $ | 217,557 | | $ | 232,848 | |
Annualized return on tangible equity (non-GAAP) | | (14.4 | )% | (6.4 | )% | 4.5 | % | (10.4 | )% | 8.0 | % |
Return on Average Stockholders’ Equity - Annualized (GAAP)
Presented below is information on the Company’s annualized return on average stockholders’ equity, which is the most directly comparable GAAP metric to the Non-GAAP metric above:
| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(Dollars in thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net (loss)/income from continuing operations | | $ | (60,809 | ) | $ | (4,716 | ) | $ | 1,252 | | $ | (65,525 | ) | $ | 9,851 | |
Net (loss)/income from continuing operations - annualized | | $ | NM | (2) | $ | (18,864 | ) | $ | 5,008 | | $ | NM | (2) | $ | 19,702 | |
| | | | | | | | | | | |
Average total stockholders’ equity | | $ | 224,150 | | $ | 257,560 | | $ | 350,568 | | $ | 235,808 | | $ | 349,098 | |
Annualized return on stockholders’ equity | | NM | (2) | (7.3 | )% | 1.4 | % | NM | (2) | 5.6 | % |
(1) Designates non-GAAP financial results. A reconciliation of the Company’s GAAP results to non-GAAP financial results is set forth above under the caption “Reconciliation of GAAP to Non-GAAP Income from Continuing Operations.”
(2) Not meaningful
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Summary Results of Operations
| | Three Months Ended | | Six Months Ended | |
| | June | | March | | June | | June | | June | |
(In thousands, except for per share amounts) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Revenues: | | | | | | | | | | | |
Principal transactions | | $ | 7,891 | | $ | 21,320 | | $ | 16,460 | | $ | 29,211 | | $ | 61,801 | |
Commissions | | 16,197 | | 19,151 | | 16,339 | | 35,348 | | 34,798 | |
Investment banking | | 9,115 | | 6,678 | | 10,042 | | 15,793 | | 20,364 | |
Investment (losses)/gains, net | | (139 | ) | 132 | | 368 | | (7 | ) | (318 | ) |
Interest income | | 11,558 | | 19,204 | | 14,884 | | 30,762 | | 29,952 | |
Gain from bargain purchase - ClearPoint Funding, Inc. acquisition | | — | | — | | — | | — | | 2,330 | |
Fees and other | | 3,527 | | 2,877 | | 1,341 | | 6,404 | | 2,465 | |
Total revenues | | 48,149 | | 69,362 | | 59,434 | | 117,511 | | 151,392 | |
Interest expense | | 3,502 | | 4,619 | | 3,055 | | 8,121 | | 5,624 | |
Net revenues | | 44,647 | | 64,743 | | 56,379 | | 109,390 | | 145,768 | |
Non-interest expenses | | | | | | | | | | | |
Compensation and benefits | | 32,606 | | 43,719 | | 37,286 | | 76,325 | | 96,374 | |
Impairment of goodwill | | 21,096 | | — | | — | | 21,096 | | — | |
Clearing, settlement and brokerage | | 8,695 | | 12,993 | | 5,284 | | 21,688 | | 10,071 | |
Communications and data processing | | 3,160 | | 3,319 | | 3,279 | | 6,479 | | 6,494 | |
Occupancy, depreciation and amortization | | 2,236 | | 2,134 | | 2,159 | | 4,370 | | 4,071 | |
Business development | | 981 | | 1,018 | | 1,236 | | 1,999 | | 2,344 | |
Other | | 7,624 | | 6,842 | | 4,719 | | 14,466 | | 9,270 | |
Total non-interest expenses | | 76,398 | | 70,025 | | 53,963 | | 146,423 | | 128,624 | |
(Loss)/income from continuing operations before income taxes and discontinued operations | | (31,751 | ) | (5,282 | ) | 2,416 | | (37,033 | ) | 17,144 | |
Income tax expense/(benefit) | | 29,058 | | (566 | ) | 1,164 | | 28,492 | | 7,293 | |
(Loss)/income from continuing operations | | (60,809 | ) | (4,716 | ) | 1,252 | | (65,525 | ) | 9,851 | |
(Loss)/income from discontinued operations, net of taxes | | (23 | ) | 32 | | (11,672 | ) | 9 | | (13,066 | ) |
Net loss | | $ | (60,832 | ) | $ | (4,684 | ) | $ | (10,420 | ) | $ | (65,516 | ) | $ | (3,215 | ) |
| | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | |
Basic (loss)/income per share | | | | | | | | | | | |
| | | | | | | | | | | |
Continuing operations | | $ | (0.51 | ) | $ | (0,04 | ) | $ | 0.01 | | $ | (0.55 | ) | $ | 0.08 | |
Discontinued operations | | — | | (0.00 | ) | (0.09 | ) | — | | (0.11 | ) |
| | | | | | | | | | | |
Net (loss)/income per share | | $ | (0.51 | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.55 | ) | $ | (0.03 | ) |
| | | | | | | | | | | |
Diluted (loss)/income per share | | | | | | | | | | | |
| | | | | | | | | | | |
Continuing operations | | $ | (0.51 | ) | $ | (0,04 | ) | $ | 0.01 | | $ | (0.55 | ) | $ | 0.08 | |
Discontinued operations | | — | | (0.00 | ) | (0.09 | ) | — | | (0.10 | ) |
| | | | | | | | | | | |
Net (loss)/income per share | | $ | (0.51 | ) | $ | (0.04 | ) | $ | (0.08 | ) | $ | (0.55 | ) | $ | (0.02 | ) |
| | | | | | | | | | | |
Weighted average number of shares of common stock: | | | | | | | | | | | |
Basic | | 119,564 | | 119,510 | | 124,061 | | 119,176 | | 123,825 | |
Diluted | | 119,564 | | 119,510 | | 130,606 | | 119,176 | | 130,698 | |
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Consolidated Statement of Financial Condition (Unaudited)
| | June 30, | | March 31, | | December 31, | |
(In thousands, except for share and per share amounts) | | 2012 | | 2012 | | 2011 | |
Assets: | | | | | | | |
Cash and cash equivalents | | $ | 52,733 | | $ | 32,688 | | $ | 36,672 | |
Cash and securities segregated for regulatory and other purposes | | 1,150 | | 2,000 | | 9,612 | |
Securities purchased under agreements to resell | | 1,879,740 | | 2,984,884 | | 1,523,227 | |
Receivables from | | | | | | | |
Brokers, dealers and clearing organizations | | 31,582 | | 89,834 | | 58,776 | |
Related parties | | 1,362 | | 1,337 | | 1,337 | |
Other | | 16,218 | | 15,364 | | 16,161 | |
Financial instruments owned, at fair value | | 763,550 | | 1,457,273 | | 1,554,660 | |
Investments | | 19,090 | | 18,440 | | 18,310 | |
Office equipment and leasehold improvements, net | | 6,164 | | 6,608 | | 6,735 | |
Goodwill | | — | | 21,096 | | 21,096 | |
Intangible assets | | 4,064 | | 4,187 | | 4,311 | |
Income taxes receivable | | 4,623 | | 9,094 | | 12,102 | |
Deferred tax assets, net | | 581 | | 27,193 | | 30,766 | |
Other assets | | 9,896 | | 9,843 | | 9,791 | |
Total Assets | | $ | 2,790,753 | | $ | 4,679,841 | | $ | 3,303,556 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Liabilities | | | | | | | |
Payables to: | | | | | | | |
Brokers, dealers and clearing organizations | | $ | 500,882 | | $ | 1,054,028 | | $ | 1,108,664 | |
Related parties | | 594 | | 4,956 | | 4,939 | |
Other | | 3,676 | | 3,773 | | 3,243 | |
Securities sold under agreements to repurchase | | 1,904,807 | | 2,979,606 | | 1,478,081 | |
Securities sold, but not yet purchased, at fair value | | 110,333 | | 233,499 | | 184,996 | |
Secured borrowings | | 46,718 | | 117,195 | | 213,611 | |
Accrued compensation | | 15,540 | | 10,596 | | 26,274 | |
Accounts payable and accrued expenses | | 11,536 | | 13,562 | | 18,223 | |
Income taxes payable | | 3,770 | | 4,082 | | 3,979 | |
Deferred tax liabilities | | — | | 1,746 | | 1,622 | |
Subordinated debt | | 595 | | 801 | | 801 | |
Total Liabilities | | 2,598,451 | | 4,423,844 | | 3,044,433 | |
Stockholders’ Equity | | | | | | | |
Common stock ($.01 par value; authorized 200,000,000 shares) | | 1,337 | | 1,337 | | 1,337 | |
Additional paid-in capital | | 452,299 | | 455,540 | | 463,497 | |
Deferred compensation | | 124 | | 161 | | 161 | |
Accumulated deficit | | (251,403 | ) | (190,571 | ) | (185,887 | ) |
Treasury stock, at cost | | (10,055 | ) | (10,470 | ) | (19,985 | ) |
Total Stockholders’ Equity | | 192,302 | | 255,997 | | 259,123 | |
Total Liabilities and Stockholders’ Equity | | $ | 2,790,753 | | $ | 4,679,841 | | $ | 3,303,556 | |
| | | | | | | |
Common stock (in shares) | | | | | | | |
Shares issued: | | 133,769,219 | | 133,769,219 | | 133,714,786 | |
Shares outstanding: | | 125,731,141 | | 127,072,570 | | 120,883,601 | |
| | | | | | | |
Treasury stock (in shares): | | 8,038,078 | | 6,696,649 | | 12,831,185 | |
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Conference Call Information
The Company will hold a conference call today, August 7, 2012, at 8:30 A.M. (EDT). This event can be accessed on the Investor Relations portion of the Gleacher & Company website at www.gleacher.com, as well as through the Thomson StreetEvents Network. Individual investors can listen to the call at www.earnings.com, Thomson’s individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson StreetEvents (www.streetevents.com), a password protected event management site. To participate on the call, please dial 888.771.4384 (domestic) or 847.585.4409 (international), participant passcode 9810870#, or request the Gleacher & Company earnings call.
Pre-registration is available at any time prior to and during the call, which provides immediate entry into the call. Pre-registration can be accessed at the following website:
www.yourconferencecenter.com/confcenter/PinCode/Pin_Code.aspx?100374&o=UXkEvkyIcSUzXB
For those who cannot listen to the live broadcast, a recording of the call will be available for seven days following the call by dialing 888.843.7419 (domestic) or 630.652.3042 (international), participant passcode 9810870#.
About Gleacher & Company
Gleacher & Company, Inc. (Nasdaq: GLCH) is an independent investment bank that provides corporate and institutional clients with strategic and financial advisory services, including merger and acquisition, restructuring, recapitalization, and strategic alternative analysis, as well as capital raising, research based investment analysis, and securities brokerage services, and, through a new subsidiary, engages in residential mortgage lending. For more information, please visit www.gleacher.com.
Forward Looking Statements
This press release contains “forward-looking statements.” These statements are not historical facts but instead represent the Company’s belief or plans regarding future events, many of which are inherently uncertain and outside of the Company’s control. The Company often, but not always, identifies forward-looking statements by using words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “target,” “expect,” “continuing,” “ongoing,” “believe” and “intend.” The Company’s forward-looking statements are based on facts as the Company understands them at the time the Company makes any such statement as well as estimates and judgments based on these facts. The Company’s forward-looking statements may turn out to be inaccurate for a variety of reasons, many of which are outside of its control. Factors that could render the Company’s forward-looking statements subsequently inaccurate include the conditions of the securities markets, generally, and demand for the Company’s services within those markets, the risk of further credit rating downgrades of the U.S. government by major credit rating agencies, the impact of international and domestic sovereign debt uncertainties, the possibilities of localized or global economic recession and other risks and factors identified from time to time in the Company’s filings with the Securities and Exchange Commission. Moreover, the Company is implementing a strategic plan designed to improve its operating results, and this plan may not be successful. It is possible that future events will differ materially from those suggested by the Company’s forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake to update any of its forward-looking statements.
18
For Additional Information Please Contact:
Investor Contact | Media Contact |
Gleacher & Company, Inc. | Joele Frank, Wilkinson Brimmer Katcher |
Thomas J. Hughes | Andrew Siegel / Nick Lamplough |
Chief Executive Officer | 212.355.4449 |
212.273.7100 | |
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