Exhibit 99.1
GLEACHER & COMPANY REPORTS FOURTH QUARTER
AND YEAR END 2012 FINANCIAL RESULTS
Company Announces Sale of ClearPoint
Company Concludes Formal Strategic Review
NEW YORK, N.Y., February 15, 2013 — Gleacher & Company, Inc. (Nasdaq: GLCH) today reported net revenues of $50.9 million, net loss from continuing operations of ($11.5) million, or ($10.8) million on a non-GAAP basis, and diluted loss per share of ($0.10), or ($0.09) on a non-GAAP basis for the quarter ended December 31, 2012. The Company also announced that it has entered into an agreement with Homeward Residential, Inc., a wholly owned subsidiary of Ocwen Financial Corporation (NYSE: OCN) pursuant to which Homeward will purchase substantially all of the assets of ClearPoint. Finally, having considered a range of opportunities during its previously announced strategic review, including partnering with one or more equity investors, strategic acquisitions and divestitures, and business combinations, the Company determined that the available opportunities were not in the best interests of Gleacher’s stockholders at this time.
Highlights
· FY2012 dominated by restructuring the management team and compensation methodologies, and a review of strategic alternatives. The Company suffered a natural interruption in revenue generation as a result of those actions.
· Q4 results benefitted by performance in Investment Banking and Credit Products; MBS & Rates suffered from weaker sales volumes.
· ClearPoint entered into an agreement to sell substantially all of its assets to Homeward.
· Company concludes formal strategic review.
· The Board of Directors renewed the Company’s stock repurchase program, authorizing up to $10 million in stock repurchases.
Thomas Hughes, Chief Executive Officer, said, “We accomplished a great deal during the course of 2012, and I believe we are better positioned to begin sustained growth and profitability. We have assembled a management team and producers who possess deep experience serving clients in the product efforts that comprise our strategy. We have revamped our compensation methodologies in an effort to achieve our stated goal of a 60% compensation to revenue ratio in the coming years. And we have entered into an agreement to sell ClearPoint in a transaction that we expect will close in the first quarter.”
Mr. Hughes continued, “While the revenue decline in MBS & Rates has been natural in the face of all of our restructuring efforts in that business, we are not satisfied with those results. However, we recruited outstanding talent in this Business Unit, we believe our ability to serve customers in this product segment is strong, and once we have fully integrated our Rangemark capabilities with Sales & Trading, our customer interface will be even more compelling. We are pleased with our performance in Investment Banking and Credit Products. Our Real Estate Finance team now ranks #1 in M&A transactions executed for REITs, and our Credit Products business grew its market share throughout 2012.”
Mr. Hughes, commenting on the strategic review, said, “Assisted by our financial advisor, we looked at a wide variety of strategic transactions, including merger, acquisition and business combinations. Although we did not
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believe any proposal we received during the process adequately reflected Gleacher’s value, we will, as before, be opportunistic in considering value-building strategic initiatives that may accelerate our growth and improve stockholder returns. That said, we made significant strategic progress during the course of the year, we believe in our business strategy and in the capabilities of our team, and we intend to continue our business expansion and fortify our brand.”
| | Three Months Ended | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December 31, | |
(In thousands, except for per share amounts) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net revenues | | $ | 50,876 | | $ | 43,330 | | $ | 61,240 | | $ | 203,595 | | $ | 261,172 | |
Pre-tax loss from continuing operations | | (11,293 | ) | (5,024 | ) | (236 | ) | (53,353 | ) | (61,877 | ) |
Net (loss)/income from continuing operations | | (11,486 | ) | (2,801 | ) | 1,765 | | (77,955 | ) | (64,084 | ) |
Discontinued operations, net of taxes | | 224 | | 33 | | 383 | | 265 | | (18,040 | ) |
| | | | | | | | | | | |
Non-GAAP pre-tax (loss)/income from continuing operations* | | (10,590 | ) | (5,059 | ) | n/a | | (28,939 | ) | 20,267 | |
Non-GAAP net (loss)/income from continuing operations* | | (10,783 | ) | (2,821 | ) | n/a | | (24,397 | ) | 12,132 | |
| | | | | | | | | | | |
(Loss)/earnings per share: | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.10 | ) | $ | (0.02 | ) | $ | 0.01 | | $ | (0.66 | ) | $ | (0.52 | ) |
Diluted - continuing operations (Non-GAAP)* | | (0.09 | ) | (0.02 | ) | n/a | | (0.21 | ) | 0.09 | |
*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:
· legal, consulting and advisory costs incurred in connection with our strategic review process during the second, third and fourth quarter of 2012,
· impairment of goodwill and intangibles recorded during the second quarter of 2012 and the third quarter of 2011, as well as other non-compensation expenses incurred in connection with the Investment Banking realignment in the third quarter of 2011,
· the change in the valuation allowance on the deferred tax assets, initially established in the second quarter of 2012,
· severance expense recorded during the first quarter of 2012 (partially reversed in the third quarter of 2012) and third quarter of 2011,
· 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.
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
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“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.
Business Segment Results (including Non-GAAP results)
| | Three Months Ended | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December, 31 | |
(In thousands of dollars) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net revenues: | | | | | | | | | | | |
Investment Banking | | $ | 12,680 | | $ | 1,499 | | $ | 2,936 | | $ | 27,442 | | $ | 26,611 | |
MBS & Rates | | 6,081 | | 8,943 | | 14,668 | | 40,637 | | 103,857 | |
Credit Products | | 16,039 | | 18,804 | | 20,019 | | 74,432 | | 71,056 | |
ClearPoint | | 13,615 | | 12,899 | | 20,815 | | 53,375 | | 46,924 | |
Net revenues - operating segments | | 48,415 | | 42,145 | | 58,438 | | 195,886 | | 248,448 | |
Other | | 2,461 | | 1,185 | | 2,802 | | 7,709 | | 10,394 | * |
Total | | $ | 50,876 | | $ | 43,330 | | $ | 61,240 | | $ | 203,595 | | $ | 258,842 | * |
| | | | | | | | | | | |
Pre-tax (loss)/income from continuing operations: | | | | | | | | | | | |
Investment Banking | | $ | 2,061 | | $ | (257 | ) | $ | (1,249 | ) | $ | 4,576 | | $ | 4,584 | * |
MBS & Rates | | (5,434 | ) | 1,814 | | 3,465 | | 127 | | 33,120 | |
Credit Products | | (795 | ) | 2,619 | * | 3,400 | | 4,070 | * | 9,738 | |
ClearPoint | | (13 | ) | (524 | ) | (779 | ) | (5,891 | ) | (3,686 | ) |
Pre-tax (loss)/income - operating segments | | (4,181 | ) | 3,652 | * | 4,837 | | 2,882 | | 43,756 | * |
Other | | (6,409 | )* | (8,711 | )* | (5,073 | ) | (31,821 | )* | (23,489 | )* |
Total | | $ | (10,590 | )* | $ | (5,059 | )* | $ | (236 | ) | $ | (28,939 | )* | $ | 20,267 | * |
*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.”
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Investment Banking
Net revenues were $12.7 million for the quarter ended December 31, 2012, an improvement of $11.2 million compared to the third quarter of 2012 and $9.7 million compared to the fourth quarter of 2011. Net revenues also slightly improved year-over-year and were $27.4 million for the year ended December 31, 2012, compared to the prior year of $26.6 million.
The composition of the division’s investment banking revenues was as follows:
| | Three Months Ended | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December 31, | |
(In thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Advisory | | $ | 12,636 | | $ | 914 | | $ | 2,936 | | $ | 24,332 | | $ | 20,954 | |
Capital Markets | | 44 | | 585 | | — | | 3,110 | | 5,657 | |
Total: | | $ | 12,680 | | $ | 1,499 | | $ | 2,936 | | $ | 27,442 | | $ | 26,611 | |
MBS & Rates
Net revenues were $6.1 million for the quarter ended December 31, 2012, a decline of $2.9 million and $8.6 million compared to the third quarter of 2012 and fourth quarter of 2011, respectively. The market environment proved challenging for the division, which experienced reduced sales and trading revenues on lower spreads and market volatility. These declines were partially offset by higher net interest income due to higher average inventory levels when compared to the third quarter of 2012, as net interest income was $7.5 million in the fourth quarter of 2012 compared to $4.0 million in the third quarter of 2012 (net interest income was $13.3 million in the fourth quarter of 2011). Revenues for the third quarter of 2012 also included approximately $0.7 million of other revenue, related to the clawback of certain stock-based compensation grants of former employees which were subject to non-competition and/or other forfeiture provisions.
Net revenues of $40.6 million for the year ended December 31, 2012, declined by $63.2 million compared to the prior year. This was largely attributable to the previously reported leadership transition and accompanying turnover experienced during the second and third quarter of 2012, resulting in a repositioning and rebuilding of the division which is substantially complete. In addition, the division recognized lower net interest income year-over-year on lower average inventory levels and the prior year also includes non-agency asset-backed securities gains of approximately $26.5 million.
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Credit Products
Net revenues were $16.0 million for the quarter ended December 31, 2012, a decline of $2.8 million compared to the third quarter of 2012 and $4.0 million compared to the fourth quarter of 2011. The declines were primarily due to lower commissions and principal transaction revenues due to spreads tightening, which was partially offset by higher volumes.
Net revenues of $74.4 million for the year ended December 31, 2012 improved by $3.4 million compared to the prior year, due to higher volumes and an expanded product profile, partially offset by spread compression.
ClearPoint
Net revenues were $13.6 million for the quarter ended December 31, 2012, an increase of $0.7 million compared to the third quarter of 2012 due to improved pricing margins, and a decline of $7.2 million compared to the fourth quarter of 2011 on lower volumes. Net revenues during the fourth and third quarter of 2012 reflect limits placed on ClearPoint’s daily average loan commitments to a level aligned with its distribution capabilities.
Net revenues for the year ended December 31, 2012 were $53.4 million, an improvement of $6.5 million compared to the prior year. This increase was due to higher daily loan commitments primarily arising in the first quarter of 2012, prior to the implementation of the previously mentioned limits, coupled with lower daily average loan commitments in the prior year, as the division’s operations had commenced on January 3, 2011.
Subsequent to the liquidity constraints experienced during the first half of 2012, the division has been managed to operate at or near break-even levels. On February 14, 2013, the Company entered into an agreement to sell substantially all of ClearPoint’s assets to Homeward Residential, Inc., and we expect the transaction to close in the first quarter of 2013. The Company estimates it will recognize a loss of approximately $5.0 million in connection with this disposition.
ClearPoint will be reclassified as a discontinued operation in the first quarter of 2013.
Other
Net revenues were $2.5 million for the quarter ended December 31, 2012, an improvement of $1.3 million compared to the third quarter of 2012 and a decline of $0.3 million compared to the fourth quarter of 2011. Changes in net revenues are primarily related to 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 $41.6 million for the fourth quarter of 2012, an increase of $16.0 million ($14.7 million on a non-GAAP basis) compared to compensation and benefits expense in the third quarter of 2012, and $8.1 million compared to compensation and benefits expense in the fourth quarter of 2011.
Our compensation ratio from continuing operations was 81.7% for the fourth quarter of 2012, compared to 58.9% for the third quarter of 2012 (62.0% on a non-GAAP basis) and 54.7% for the fourth quarter of 2011. The Company’s compensation as a percentage of net revenue when compared to the third quarter of 2012 was significantly influenced by the Company’s decision to pay year-end bonus compensation primarily in the form of cash. In making this determination, the Company considered a variety of factors including the significant discount to which the Company’s stock trades in relation to its book value. Compensation expense for the fourth quarter of 2012 was also impacted by approximately $0.9 million of retention payments made to certain key employees as a result of general uncertainties stemming from the strategic review process and $1.2 million of compensation guarantees principally incurred in the MBS & Rates division in connection with the division’s rebuild.
The Company’s compensation and benefits as a percentage of net revenues was 70.4% (70.3% on a non-GAAP basis) for the year ended December 31, 2012, compared to 62.2% (61.4% on a non-GAAP basis) for the prior year. The disparity between the ratios year-over-year is directly related to the lower net revenues, as well as the Company’s election to pay primarily cash compensation in the current year, compared to a mix of cash and stock in the prior year.
Consolidated Non-Compensation Expenses (including Non-GAAP results)
Non-compensation expenses were $20.6 million for the fourth quarter of 2012 ($19.9 million on a non-GAAP basis), compared to $22.8 million for the third quarter of 2012 ($21.5 million on a non-GAAP basis) and $28.0 million for the fourth quarter of 2011. Included within non-compensation expenses are ClearPoint broker fees and loan processing fees of $9.3 million, $9.4 million and $16.0 million for the fourth quarter of 2012, third quarter of 2012 and fourth quarter of 2011, respectively, driven by the level of ClearPoint loan commitment volumes in each respective period.
Non-GAAP non-compensation expenses excludes legal, consulting and advisory fees incurred in connection with our strategic alternatives process of $0.7 million, $1.3 million and $3.0 million for the fourth quarter and third quarter of 2012 and year ended December 31, 2012, respectively.
Provision for Income Taxes
Fourth Quarter 2012
The Company’s effective income tax rate from continuing operations for the three months ended December 31, 2012 was negative 1.7%, resulting in income tax expense of approximately $0.2 million. The income tax expense is primarily attributable to an increase in the deferred tax asset valuation allowance and provision to return tax adjustments.
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Year Ended 2012
The Company’s effective income tax rate from continuing operations for the year ended December 31, 2012 was negative 46.1%, resulting in income tax expense of approximately $24.6 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 61%) in the second quarter of 2012, as well as the non-deductible discrete item attributable to the write-off of goodwill (negative 14%) and tax expense associated with stock-based compensation shortfalls (negative 6%).
Discontinued Operations
The Company has classified the results of its Equities segment as discontinued operations due to the Company’s decision to exit the business on August 22, 2011. Results of these discontinued operations are presented in the following table:
| | Three Months Ended | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December 31, | |
(In thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Net revenues | | $ | — | | $ | 11 | | $ | 269 | | $ | 54 | | $ | 13,064 | |
Total expenses (excluding interest) | | (224 | ) | (22 | ) | 7 | | (349 | ) | 38,808 | * |
Income/(loss) from discontinued operations before income taxes | | 224 | | 33 | | 262 | | 403 | | (25,744 | ) |
Income tax (benefit)/expense | | — | | — | | (121 | ) | 138 | | (7,704 | ) |
Income/(loss) from discontinued operations, net of taxes | | $ | 224 | | $ | 33 | | $ | 383 | | $ | 265 | | $ | (18,040 | ) |
*Included within the table above for the year ended December 31, 2011 is a goodwill and intangible impairment charge of approximately $14.3 million and a restructuring charge of $7.1 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 December 31, 2012, September 30, 2012, and December 31, 2011 and the years ended December 31, 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 the Company believes is important in 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)/Income from Continuing Operations
| | Three Months Ended December 31, 2012 | | Three Months Ended December 31, 2011 | |
| | (Unaudited) | | (Unaudited) | |
(Dollars in thousands, except per share amounts) | | GAAP | | Adjustments | | Non-GAAP | | GAAP | | Adjustments | | Non-GAAP | |
| | | | | | | | | | | | | |
Net revenues: | | $ | 50,876 | | $ | — | | $ | 50,876 | | $ | 61,240 | | $ | — | | $ | 61,240 | |
| | | | | | | | | | | | | |
Expenses (excluding interest): | | | | | | | | | | | | | |
Compensation and benefits | | 41,554 | | — | | 41,554 | | 33,478 | | — | | 33,478 | |
Non-compensation expenses | | 20,615 | | (703 | )(1) | 19,912 | | 27,998 | | — | | 27,998 | |
Total expenses (excluding interest) | | 62,169 | | (703 | ) | 61,466 | | 61,476 | | — | | 61,476 | |
| | | | | | | | | | | | | |
(Loss)/income from continuing operations before income taxes | | (11,293 | ) | 703 | | (10,590 | ) | (236 | ) | — | | (236 | ) |
Provision for income taxes | | 193 | | — | (2) | 193 | | (2,001 | ) | — | | (2,001 | ) |
Net (loss)/income from continuing operations | | $ | (11,486 | ) | $ | 703 | | $ | (10,783 | ) | $ | 1,765 | | $ | — | | $ | 1,765 | |
| | | | | | | | | | | | | |
(Loss)/earnings per share: | | | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.10 | ) | | | $ | (0.09 | )(3) | $ | 0.01 | | | | $ | 0.01 | |
As a percentage of net revenues: | | | | | | | | | | | | | |
Compensation and benefits | | 81.7 | % | | | 81.7 | % | 54.7 | % | | | 54.7 | % |
(Loss)/income from continuing operations before income taxes | | (22.2 | )% | | | (20.8 | )% | (0.0 | )% | | | (0.0 | )% |
(1) Represents legal, consulting and advisory fees incurred in connection with our strategic review process.
(2) No tax provision has been reflected as the Company has provided for a valuation allowance on its deferred tax assets and has fully utilized its available net operating loss carry-back capacity.
(3) Non-GAAP net loss from continuing operations divided by 119.0 million dilutive shares for the three months ended December 31, 2012.
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Reconciliation of GAAP to Non-GAAP (Loss)/Income from Continuing Operations (Continued)
| | Three Months Ended December 31, 2012 | | Three Months Ended September 30, 2012 | |
| | (Unaudited) | | (Unaudited) | |
(Dollars in thousands, except per share amounts) | | GAAP | | Adjustments | | Non-GAAP | | GAAP | | Adjustments | | Non-GAAP | |
| | | | | | | | | | | | | |
Net revenues: | | $ | 50,876 | | $ | — | | $ | 50,876 | | $ | 43,330 | | $ | — | | $ | 43,330 | |
| | | | | | | | | | | | | |
Expenses (excluding interest): | | | | | | | | | | | | | |
Compensation and benefits | | 41,554 | | — | | 41,554 | | 25,534 | | 1,320 | (1) | 26,854 | |
Non-compensation expenses | | 20,615 | | (703 | )(2) | 19,912 | | 22,820 | | (1,285 | )(2) | 21,535 | |
Total expenses (excluding interest) | | 62,169 | | (703 | ) | 61,466 | | 48,354 | | 35 | | 48,389 | |
| | | | | | | | | | | | | |
(Loss)/income from continuing operations before income taxes | | (11,293 | ) | 703 | | (10,590 | ) | (5,024 | ) | (35 | ) | (5,059 | ) |
Provision for income taxes | | 193 | | — | (3) | 193 | | (2,223 | ) | (15 | )(4) | (2,238 | ) |
Net (loss)/income from continuing operations | | $ | (11,486 | ) | $ | 703 | | $ | (10,783 | ) | $ | (2,801 | ) | $ | (20 | ) | $ | (2,821 | ) |
| | | | | | | | | | | | | |
Loss per share: | | | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.10 | ) | | | $ | (0.09 | )(5) | $ | (0.02 | ) | | | $ | (0.02 | ) |
As a percentage of net revenues: | | | | | | | | | | | | | |
Compensation and benefits | | 81.7 | % | | | 81.7 | % | 58.9 | % | | | 62.0 | % |
Loss from continuing operations before income taxes | | (22.2 | )% | | | (20.8 | )% | (11.6 | )% | | | (11.7 | )% |
(1) Represents the reversal of previously accrued severance expense (of which $1.0 million is non-cash stock-based compensation).
(2) Represents legal, consulting and advisory fees incurred in connection with our strategic review process.
(3) No tax provision has been reflected as the Company has provided for a valuation allowance on its deferred tax assets and has fully utilized its available net operating loss carry-back capacity.
(4) The statutory income tax rate of 43.6% differs from the federal statutory rate of 35% due to state and local taxes.
(5) Non-GAAP net loss from continuing operations divided by 119.0 million dilutive shares for the three months ended December 31, 2012.
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Reconciliation of GAAP to Non-GAAP (Loss)/Income from Continuing Operations (Continued)
| | Year Ended December 31, 2012 | | Year Ended December 31, 2011 | |
| | (Unaudited) | | (Unaudited) | |
(Dollars in thousands, except per share amounts) | | GAAP | | Adjustments | | Non-GAAP | | GAAP | | Adjustments | | Non-GAAP | |
| | | | | | | | | | | | | |
Net revenues: | | $ | 203,595 | | $ | — | | $ | 203,595 | | $ | 261,172 | | $ | (2,330 | )(1) | $ | 258,842 | |
| | | | | | | | | | | | | |
Expenses (excluding interest): | | | | | | | | | | | | | |
Compensation and benefits | | 143,414 | | (330 | )(2) | 143,084 | | 162,537 | | (3,632 | )(3) | 158,905 | |
Non-compensation expenses | | 113,534 | | (24,084 | )(4) | 89,450 | | 160,512 | | (80,842 | )(5) | 79,670 | |
Total expenses (excluding interest) | | 256,948 | | (24,414 | ) | 232,534 | | 323,049 | | (84,474 | ) | 238,575 | |
| | | | | | | | | | | | | |
(Loss)/income from continuing operations before income taxes | | (53,353 | ) | 24,414 | | (28,939 | ) | (61,877 | ) | 82,144 | | 20,267 | |
Provision for income taxes | | 24,602 | | (29,144 | )(6) | (4,542 | ) | 2,207 | | 5,928 | (7) | 8,135 | |
Net (loss)/income from continuing operations | | $ | (77,955 | ) | $ | 53,558 | | $ | (24,397 | ) | $ | (64,084 | ) | $ | 76,216 | | $ | 12,132 | |
| | | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Diluted - continuing operations | | $ | (0.66 | ) | | | $ | (0.21 | )(8) | $ | (0.52 | ) | | | $ | 0.09 | (8) |
As a percentage of net revenues: | | | | | | | | | | | | | |
Compensation and benefits | | 70.4 | % | | | 70.3 | % | 62.2 | % | | | 61.4 | % |
(Loss)/income from continuing operations before income taxes | | (26.2 | )% | | | (14.2 | )% | (23.7 | )% | | | 7.8 | % |
(1) Represents the bargain purchase gain related to the ClearPoint acquisition on January 3, 2011.
(2) Represents severance expense recognized during the first quarter of 2012.
(3) Includes (i) severance and stock-based compensation expense of $1.9 million related to the investment banking realignment, which resulted in the termination of 32 investment banking employees and certain administrative positions, and (ii) $1.7 million due to the resignation of the former interim CEO in the second quarter of 2011.
(4) Represents the goodwill impairment charge recognized during the second quarter of 2012 of $21.1 million, as well as $3.0 million of legal, consulting and advisory fees incurred in connection with our strategic review process.
(5) Includes goodwill and intangible impairment charges of $80.2 million and other non-compensation expenses of $0.6 million as a result of the investment banking realignment.
(6) Represents the change in the valuation allowance on the Company’s deferred tax assets.
(7) The effective income tax rate of 7.2% differs from the federal statutory rate of 35% primarily due to non-tax deductible goodwill, the non-taxable bargain purchase gain and state and local taxes.
(8) Non-GAAP net (loss)/income from continuing operations divided by 119.0 million and 129.5 million dilutive shares for the year ended December 31, 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 December 31, 2012 | | | |
| | | |
Other | | | |
(In thousands) | | | | | | | |
| | | | | | | |
Revenues - GAAP | | $ | 2,461 | | | | | | |
Expenses - GAAP | | 9,573 | | | | | |
Adjustments | | (703 | )(1) | | | | |
Expenses - non GAAP | | 8,870 | | | | | |
Pre-tax loss from continuing operations - non GAAP | | $ | (6,409 | ) | | | | | |
Three Months Ended September 30, 2012 | |
| | | |
Credit Products | | Other | |
(In thousands) | | | | (in thousands) | | | |
| | | | | | | |
Revenues - GAAP | | $ | 18,804 | | Revenues – GAAP | | $ | 1,185 | |
Expenses - GAAP | | 14,865 | | Expenses – GAAP | | 11,181 | |
Adjustments | | 1,320 | (2) | Adjustments | | (1,285 | )(1) |
Expenses - non GAAP | | 16,185 | | Expenses – non GAAP | | 9,896 | |
Pre-tax income from continuing operations - non GAAP | | $ | 2,619 | | Pre-tax loss from continuing operations – non GAAP | | $ | (8,711 | ) |
(1) Represents legal, consulting and advisory fees incurred in connection with our strategic review process.
(2) Represents the reversal of previously accrued 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)
Year Ended December 31, 2012 | |
| | |
Credit Products | | Other |
(In thousands) | | | | (In thousands) | | | |
| | | | | | | |
Revenues - GAAP | | $ | 74,432 | | Revenues - GAAP | | $ | 7,709 | |
| | | | | | | |
Expenses - GAAP | | 70,692 | | Expenses - GAAP | | 63,614 | |
| | | | | | | |
Adjustments | | (330 | )(1) | Adjustments | | (24,084 | )(2) |
| | | | | | | |
Expenses - non GAAP | | 70,362 | | Expenses - non GAAP | | 39,530 | |
| | | | | | | |
Pre-tax income from continuing operations - non GAAP | | $ | 4,070 | | Pre-tax loss from continuing operations - non GAAP | | $ | (31,821 | ) |
Year Ended December 31, 2011 | |
| | | |
Investment Banking | | Other | |
(In thousands) | | | | (In thousands) | | | |
| | | | | | | |
Revenues - GAAP | | $ | 26,611 | | Revenues – GAAP | | $ | 12,724 | |
| | | | | | | |
Adjustments | | — | | Adjustments | | (2,330 | )(3) |
| | | | | | | |
Revenues - non GAAP | | 26,611 | | Revenues – non GAAP | | 10,394 | |
| | | | | | | |
Expenses - GAAP | | 24,321 | | Expenses – GAAP | | 116,063 | |
| | | | | | | |
Adjustments | | (2,294 | )(4) | Adjustments | | (82,180 | )(5) |
| | | | | | | |
Expenses - non GAAP | | 22,027 | | Expenses – non GAAP | | (33,883 | ) |
| | | | | | | |
Pre-tax loss from continuing operations - non GAAP | | $ | 4,584 | | Pre-tax loss from continuing operations – non GAAP | | $ | (23,489 | ) |
(1) Represents severance expense recognized during the first quarter of 2012.
(2) Represents the goodwill impairment charge recognized during the three months ended June 30, 2012 of $21.1 million, as well as $3.0 million of legal, consulting and advisory fees incurred in connection with our strategic review process.
(3) Represents the bargain purchase gain related to the ClearPoint acquisition on January 3, 2011.
(4) Represents (i) severance and stock-based compensation expense of $1.9 million related to the investment banking realignment, which resulted in the termination of 32 investment banking employees and certain administrative positions, and also includes (ii) other non-compensation expenses of $0.4 million as a result of the investment banking realignment.
(5) Includes (i) goodwill and intangible impairment charges of $80.2 million related to the investment banking realignment, (ii) $1.7 million due to the resignation of the former interim CEO in the second quarter of 2011 and (iii) other non-compensation expenses of $0.2 million in connection with the company-wide strategic review conducted in the third quarter of 2011.
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Return on Tangible Equity — Annualized (Non-GAAP)
Presented below is information on the Company’s annualized return on average tangible stockholders’ equity (Non-GAAP):
| | Three Months Ended | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December 31, | |
(Dollars in thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net (loss)/income from continuing operations | | $ | (10,783 | )(1) | $ | (2,821 | )(1) | $ | 1,765 | | $ | (24,397 | )(1) | $ | 12,132 | (1) |
Plus: Amortization of intangibles, net of tax | | 96 | | 71 | | 70 | | 278 | | 1,540 | |
Net (loss)/income from continuing operations, adjusted (non-GAAP) | | (10,687 | ) | (2,750 | ) | 1,835 | | (24,119 | ) | 13,672 | |
Net (loss)/income from continuing operations, adjusted (non-GAAP) - annualized | | $ | (42,748 | ) | $ | (11,000 | ) | $ | 7,340 | | $ | (24,119 | ) | $ | 13,672 | |
| | | | | | | | | | | |
Average total stockholders’ equity (GAAP) | | $ | 184,679 | | $ | 190,333 | | $ | 262,135 | | $ | 215,356 | | $ | 314,313 | |
Less: Average intangible assets | | (5,228 | ) | (4,002 | ) | (25,469 | ) | (13,042 | ) | (79,938 | ) |
Average tangible stockholders’ equity (non-GAAP) | | $ | 179,451 | | $ | 186,331 | | $ | 236,666 | | $ | 202,314 | | $ | 234,375 | |
Annualized return on tangible equity (non-GAAP) | | (23.8 | )% | (5.9 | )% | 3.1 | % | (11.9 | )% | 5.8 | % |
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 | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December 31, | |
(Dollars in thousands) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
| | | | | | | | | | | |
Net (loss)/income from continuing operations | | $ | (11,486 | ) | $ | (2,801 | ) | $ | 1,765 | | $ | (77,955 | ) | $ | (64,084 | ) |
Net (loss)/income from continuing operations - annualized | | $ | (45,944 | ) | $ | (11,204 | ) | $ | 7,060 | | $ | NM | (2) | $ | NM | (2) |
| | | | | | | | | | | |
Average total stockholders’ equity | | $ | 184,679 | | $ | 190,333 | | $ | 262,135 | | $ | 215,356 | | $ | 314,313 | |
Annualized return on stockholders’ equity | | (24.9 | )% | (5.9 | )% | 2.7 | % | NM | (2) | NM | (2) |
(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 | | Years Ended | |
| | December 31, | | September 30, | | December 31, | | December 31, | | December 31, | |
(In thousands, except for per share amounts) | | 2012 | | 2012 | | 2011 | | 2012 | | 2011 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Revenues: | | | | | | | | | | | |
Principal transactions | | $ | 7,908 | | $ | 15,652 | | $ | 17,515 | | $ | 52,771 | | $ | 89,108 | |
Commissions | | 18,240 | | 17,830 | | 20,581 | | 71,418 | | 71,347 | |
Investment banking | | 12,765 | | 1,996 | | 3,345 | | 30,553 | | 33,069 | |
Investment gains, net | | 1,077 | | 163 | | 457 | | 1,233 | | 2,996 | |
Interest income | | 11,165 | | 6,879 | | 19,993 | | 48,796 | | 66,194 | |
Gain from bargain purchase - ClearPoint Funding, Inc. acquisition | | — | | — | | — | | — | | 2,330 | |
Fees and other | | 2,288 | | 2,959 | | 2,965 | | 11,651 | | 8,041 | |
Total revenues | | 53,443 | | 45,479 | | 64,856 | | 216,422 | | 273,085 | |
Interest expense | | 2,567 | | 2,149 | | 3,616 | | 12,827 | | 11,913 | |
Net revenues | | 50,876 | | 43,330 | | 61,240 | | 203,595 | | 261,172 | |
Non-interest expenses | | | | | | | | | | | |
Compensation and benefits | | 41,554 | | 25,534 | | 33,478 | | 143,414 | | 162,537 | |
Impairment of goodwill and intangible assets | | — | | — | | — | | 21,096 | | 80,244 | |
Clearing, settlement and brokerage | | 9,128 | | 9,461 | | 16,185 | | 40,281 | | 35,203 | |
Communications and data processing | | 3,107 | | 3,224 | | 3,363 | | 12,806 | | 13,471 | |
Professional fees | | 2,676 | | 4,282 | | 1,906 | | 15,504 | | 8,135 | |
Occupancy, depreciation and amortization | | 2,272 | | 2,277 | | 2,344 | | 8,919 | | 8,455 | |
Business development | | 897 | | 823 | | 1,137 | | 3,719 | | 4,620 | |
Other | | 2,535 | | 2,753 | | 3,063 | | 11,209 | | 10,384 | |
Total non-interest expenses | | 62,169 | | 48,354 | | 61,476 | | 256,948 | | 323,049 | |
Loss from continuing operations before income taxes and discontinued operations | | (11,293 | ) | (5,024 | ) | (236 | ) | (53,353 | ) | (61,877 | ) |
Income tax expense/(benefit) | | 193 | | (2,223 | ) | (2,001 | ) | 24,602 | | 2,207 | |
(Loss)/income from continuing operations | | (11,486 | ) | (2,801 | ) | 1,765 | | (77,955 | ) | (64,084 | ) |
Income/(loss) from discontinued operations, net of taxes | | 224 | | 33 | | 383 | | 265 | | (18,040 | ) |
Net (loss)/income | | $ | (11,262 | ) | $ | (2,768 | ) | $ | 2,148 | | $ | (77,690 | ) | $ | (82,124 | ) |
| | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | |
Basic (loss)/income per share | | | | | | | | | | | |
Continuing operations | | $ | (0.10 | ) | $ | (0.02 | ) | $ | 0.01 | | $ | (0.66 | ) | $ | (0.52 | ) |
Discontinued operations | | — | | — | | — | | — | | (0.15 | ) |
Net (loss)/income per share | | $ | (0.10 | ) | $ | (0.02 | ) | $ | 0.02 | | $ | (0.65 | ) | $ | (0.67 | ) |
| | | | | | | | | | | |
Diluted (loss)/income per share | | | | | | | | | | | |
Continuing operations | | $ | (0.10 | ) | $ | (0.02 | ) | $ | 0.01 | | $ | (0.66 | ) | $ | (0.52 | ) |
Discontinued operations | | — | | — | | — | | — | | (0.15 | ) |
Net (loss)/income per share | | $ | (0.10 | ) | $ | (0.02 | ) | $ | 0.02 | | $ | (0.65 | ) | $ | (0.67 | ) |
| | | | | | | | | | | |
Weighted average number of shares of common stock: | | | | | | | | | | | |
Basic | | 119,046 | | 118,699 | | 122,647 | | 118,977 | | 123,439 | |
Diluted | | 119,046 | | 118,699 | | 127,696 | | 118,977 | | 123,439 | |
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Consolidated Statements of Financial Condition (Unaudited)
| | December 31, | | September 30, | | December 31, | |
(In thousands, except for share and per share amounts) | | 2012 | | 2012 | | 2011 | |
Assets: | | | | | | | |
Cash and cash equivalents | | $ | 44,868 | | $ | 28,482 | | $ | 36,672 | |
Cash and securities segregated for regulatory and other purposes | | 13,000 | | 4,000 | | 9,612 | |
Securities purchased under agreements to resell | | — | | 132,608 | | 1,523,227 | |
Receivables from | | | | | | | |
Brokers, dealers and clearing organizations | | 12,824 | | 125,008 | | 58,776 | |
Related parties | | 1,474 | | 1,372 | | 1,337 | |
Others | | 12,563 | | 10,029 | | 16,161 | |
Financial instruments owned, at fair value | | 1,096,181 | | 1,100,731 | | 1,554,660 | |
Investments | | 20,478 | | 19,253 | | 18,310 | |
Office equipment and leasehold improvements, net | | 5,311 | | 5,726 | | 6,735 | |
Goodwill | | 1,212 | | — | | 21,096 | |
Intangible assets | | 5,303 | | 3,940 | | 4,311 | |
Income taxes receivable | | 7,394 | | 4,807 | | 12,102 | |
Deferred tax assets, net | | — | | 2,654 | | 30,766 | |
Other assets | | 9,030 | | 9,106 | | 9,791 | |
Total Assets | | $ | 1,229,638 | | $ | 1,447,716 | | $ | 3,303,556 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Liabilities | | | | | | | |
Payables to: | | | | | | | |
Brokers, dealers and clearing organizations | | $ | 638,009 | | $ | 791,172 | | $ | 1,108,664 | |
Related parties | | 2,944 | | 594 | | 4,939 | |
Others | | 2,251 | | 2,804 | | 3,243 | |
Securities sold under agreements to repurchase | | 159,386 | | 103,562 | | 1,478,081 | |
Securities sold, but not yet purchased, at fair value | | 132,730 | | 262,274 | | 184,996 | |
Secured borrowings | | 64,908 | | 66,575 | | 213,611 | |
Accrued compensation | | 34,199 | | 17,203 | | 26,274 | |
Accounts payable and accrued expenses | | 9,866 | | 10,750 | | 18,223 | |
Income taxes payable | | 3,755 | | 3,804 | | 3,979 | |
Deferred tax liabilities | | — | | — | | 1,622 | |
Subordinated debt | | 595 | | 595 | | 801 | |
Total Liabilities | | 1,048,643 | | 1,259,333 | | 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 | | 453,938 | | 451,850 | | 463,497 | |
Deferred compensation | | 124 | | 124 | | 161 | |
Accumulated deficit | | (263,577 | ) | (254,172 | ) | (185,887 | ) |
Treasury stock, at cost | | (10,827 | ) | (10,756 | ) | (19,985 | ) |
Total Stockholders’ Equity | | 180,995 | | 188,383 | | 259,123 | |
Total Liabilities and Stockholders’ Equity | | $ | 1,229,638 | | $ | 1,447,716 | | $ | 3,303,556 | |
| | | | | | | |
Common stock (in shares) | | | | | | | |
Shares issued: | | 133,769,219 | | 133,769,219 | | 133,714,786 | |
Shares outstanding: | | 124,440,655 | | 124,570,033 | | 120,883,601 | |
| | | | | | | |
Treasury stock (in shares): | | 9,328,564 | | 9,199,186 | | 12,831,185 | |
| | | | | | | |
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Conference Call Information
The Company will hold a conference call today, February 15, 2013, at 8:30 A.M. (EST). 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 888.680.0869 (domestic) or 617.213.4854 (international), participant passcode 28016360, 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.theconferencingservice.com/prereg/key.process?key=PARRDNEUV
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 888.286.8010 (domestic) or 617.801.6888 (international), participant passcode 55469646.
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 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’s previously disclosed strategic plan, which is designed to improve its operating results, is still being implemented. This plan may not be successful. 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.
17
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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