ARLINGTON, Va., Nov. 04, 2016 (GLOBE NEWSWIRE) -- FBR & Co. (NASDAQ:FBRC) ("FBR" or the “Company"), a leading investment bank serving the middle market, today reported a pre-tax operating loss of $11.6 million for the third quarter of 2016, compared to pre-tax operating losses of $6.3 million for the third quarter of 2015 and $9.2 million for the second quarter of 2016. Third quarter 2016 revenues were $19.3 million, compared to $25.6 million for the same period in 2015 and $20.9 million for the second quarter of 2016.
For the first nine months of 2016, the Company’s pre-tax operating loss was $32.9 million on revenue of $58.1 million, compared to a pre-tax operating loss of $5.8 million on revenue of $96.9 million for the same period in 2015.
During the third quarter of 2016, the Company recorded a $45.7 million tax provision related to the establishment of a full valuation reserve against its deferred tax assets. The recognition of this non-cash charge does not impact the Company's ability to realize the economic benefit of its deferred tax assets and net operating loss carry forwards on future tax returns. As a result, for the third quarter of 2016 the Company reported a net loss of $57.3 million, or $7.88 per share. This compares to a net loss of $3.4 million, or $0.43 per share, for the same period in 2015, and $8.2 million, or $1.08 per share, for the second quarter of 2016.
“The last several quarters have been among the worst for the U.S. IPO market in the past 20 years, worse in fact than 2009, immediately following the financial crisis. That environment is particularly challenging for an ECM-focused model like ours,” said Chairman and Chief Executive Officer, Richard J. Hendrix. “As a result of these challenges, we took further expense-related actions during the quarter which resulted in a reduction of approximately 10 percent of our total expenses. These steps combined with a modestly improving environment should result in improved results in coming quarters.”
Composition of Revenues
Investment Banking
Investment banking revenue was $9.2 million for the third quarter of 2016, compared to $14.8 million for the third quarter of 2015 and $8.6 million for the second quarter of 2016. During the quarter, FBR completed 13 client engagements representing $1.6 billion in transaction value, compared to 9 engagements representing $1.2 billion in transaction value for the same period in 2015, and 18 engagements representing $1.7 billion in transaction value in the second quarter of 2016.
For the first nine months of 2016, investment banking revenue was $21.9 million compared to $57.2 million for the first nine months of 2015. The decline in the first nine month’s revenue versus the prior year primarily reflects contraction of the small cap IPO market as year-over-year activity declined by over 52 percent, through September 30, 2016.
Institutional Brokerage
Net revenue generated in institutional brokerage was $10.4 million for the third quarter of 2016, compared to $13.2 million for the third quarter of 2015, and $11.6 million for the second quarter of 2016. For the first nine months of 2016, institutional brokerage revenue was $36.4 million compared to $41.2 million for the same period in 2015. Lower industry-wide cash equities volume during 2016 led to the quarter-over-quarter and year-over-year decline in revenue.
Expenses
Non-compensation fixed expenses for the third quarter of 2016 totaled $10.5 million, including a $1.3 million goodwill impairment charge, compared to $10.6 million for the third quarter of 2015, and $10.4 million for the second quarter of 2016. Excluding the one-time goodwill charge, non-compensation fixed expense was down 12 percent quarter-over-quarter. For the first nine months of 2016, non-compensation fixed expenses were $29.3 million, excluding the goodwill impairment charge, compared to $30.2 million for the first nine months of 2015.
Compensation and benefits expense for the third quarter of 2016 totaled $16.5 million, including $630 thousand in severance costs, compared to $17.6 million for the third quarter of 2015 and $16.7 million for the second quarter of 2016. For the first nine months of 2016, compensation and benefits expenses were $51.2 million compared to $59.8 million for the first nine months of 2015.
Employees
At September 30, 2016, the Company had 273 full-time employees, compared to 290 at June 30, 2016, and 304 at September 30, 2015.
Share Repurchase Activity
During the quarter ended September 30, 2016, the Company repurchased approximately 28,000 shares of its common stock in the open market at an aggregate price of $385 thousand, or an average price of $13.81 per share. For the first nine months of 2016, the Company repurchased approximately 756 thousand shares of its common stock in the open market at an aggregate price of $13.1 million, or an average price of $17.34 per share.
Additionally, for the first nine months of 2016, FBR acquired 544 thousand shares outside of the share repurchase program as a result of netting of shares for tax withholding purposes on employee share vesting for $9.2 million.
Quarterly Dividend
On October 25, 2016, the Company announced that the Board of Directors declared a quarterly cash dividend of $0.20 per common share to be paid November 25, 2016 to all shareholders of record as of the close of business on November 14, 2016.
Balance Sheet
As of September 30, 2016, FBR continued to maintain an unlevered and highly-liquid balance sheet, with cash and cash equivalents of $53.5 million, compared to $51.3 million as of June 30, 2016. Over the last twelve months, FBR has significantly reduced its investment and trading desk positions in order to fund repurchase activity and add to overall firm liquidity. The Company ended the third quarter of 2016 with net investment positions of approximately $39 million, down from $87 million at the end of 2015.
Shareholders’ equity as of September 30, 2016 was $114 million, and tangible book value per share was $15.00, based on 7.26 million shares outstanding, compared to shareholders’ equity of $173 million and tangible book value per share of $22.89 as of June 30, 2016. The decline in shareholders’ equity and tangible book value per share is primarily driven by the recording of a full valuation allowance against the Company’s deferred tax assets.
Conference Call
Investors wishing to listen to the earnings call at 9:00 A.M. U.S. EDT, Friday, November 4, 2016, may do so via the Web or conference call at:
Webcast link: http://edge.media-server.com/m/p/3wvo5sk7
Conference call dial-in number (domestic, toll-free): 855.425.4204
Conference call dial-in number (international): 484.756.4245
Access code: 85333394
About FBR
FBR & Co. (Nasdaq:FBRC) provides investment banking, merger and acquisition advisory, institutional brokerage, and research services through its subsidiaries FBR Capital Markets & Co. and MLV & Co. FBR focuses capital and financial expertise on the following industry sectors: consumer; energy & natural resources; financial institutions; healthcare; industrials; insurance; real estate; and technology, media & telecom. FBR is headquartered in the Washington, D.C. metropolitan area with offices throughout the United States. For more information, please visit www.fbr.com.
Statements in this release concerning future performance, developments, events, market forecasts, revenues, expenses, earnings, run rates and any other guidance on present or future periods constitute forward-looking statements. These forward-looking statements are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the effect of demand for public and private securities offerings, activity in the secondary securities markets, interest rates, the risks associated with merchant banking investments, the realization of gains and losses on principal investments, available technologies, competition for business and personnel, and general economic, political and market conditions. Financial results may fluctuate substantially from quarter-to-quarter depending on the number, size and timing of completed transactions. We have experienced, and expect to experience in the future, significant variations in our revenues and results of operations and, as a result, are unlikely to achieve steady and predictable earnings on a quarterly basis. For a discussion of these and other risks and important factors that could affect FBR's future results and financial condition, see "Risk Factors" in Part I, Item 1A and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015; and other items throughout the Company's Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Financial data follows.
| FBR & CO. | ||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
| Quarter Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||||
| REVENUES: | ||||||||||||||||||
| Investment banking: | ||||||||||||||||||
| Capital raising | $ | 9,105 | $ | 14,626 | $ | 18,431 | $ | 51,737 | ||||||||||
| Advisory | 53 | 150 | 3,511 | 5,442 | ||||||||||||||
| Institutional brokerage | 8,106 | 11,176 | 29,840 | 35,860 | ||||||||||||||
| Interest | 8,180 | 8,394 | 23,926 | 23,387 | ||||||||||||||
| Net investment (loss) income | (416 | ) | 777 | (855 | ) | 7,806 | ||||||||||||
| Dividends & other | 190 | 168 | 502 | 631 | ||||||||||||||
| Total revenues | 25,218 | 35,291 | 75,355 | 124,863 | ||||||||||||||
| Interest expense | 5,898 | 9,711 | 17,248 | 27,932 | ||||||||||||||
| Revenues, net of interest expense | 19,320 | 25,580 | 58,107 | 96,931 | ||||||||||||||
| NON-INTEREST EXPENSES: | ||||||||||||||||||
| Compensation and benefits | 16,510 | 17,604 | 51,197 | 59,835 | ||||||||||||||
| Occupancy and equipment | 2,998 | 3,169 | 9,509 | 9,330 | ||||||||||||||
| Communications | 2,239 | 2,532 | 7,007 | 8,119 | ||||||||||||||
| Professional services | 2,584 | 2,835 | 6,882 | 9,647 | ||||||||||||||
| Business development | 2,050 | 2,293 | 5,990 | 6,824 | ||||||||||||||
| Clearing and brokerage fees | 1,392 | 1,438 | 3,947 | 3,997 | ||||||||||||||
| Impairment of goodwill | 1,259 | - | 1,259 | - | ||||||||||||||
| Other operating expenses | 1,921 | 2,018 | 5,224 | 4,933 | ||||||||||||||
| Total non-interest expenses | 30,953 | 31,889 | 91,015 | 102,685 | ||||||||||||||
| Loss before income taxes | (11,633 | ) | (6,309 | ) | (32,908 | ) | (5,754 | ) | ||||||||||
| Income tax provision (benefit) | 45,698 | (2,881 | ) | 38,085 | (2,703 | ) | ||||||||||||
| Net loss | $ | (57,331 | ) | $ | (3,428 | ) | $ | (70,993 | ) | $ | (3,051 | ) | ||||||
| Basic loss per share | $ | (7.88 | ) | $ | (0.43 | ) | $ | (9.49 | ) | $ | (0.37 | ) | ||||||
| Diluted loss per share | $ | (7.88 | ) | $ | (0.43 | ) | $ | (9.49 | ) | $ | (0.37 | ) | ||||||
| Weighted average shares - basic | 7,274 | 7,899 | 7,479 | 8,266 | ||||||||||||||
| Weighted average shares - diluted | 7,274 | 7,899 | 7,479 | 8,266 | ||||||||||||||
| Cash dividends per common share | $ | 0.20 | $ | - | $ | 0.60 | $ | 0.20 | ||||||||||
| FBR & CO. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| September 30, | December 31, | ||||||||||
| ASSETS | 2016 | 2015 | |||||||||
| Cash and cash equivalents | $ | 53,499 | $ | 70,067 | |||||||
| Receivables: | |||||||||||
| Securities borrowed | 819,259 | 685,037 | |||||||||
| Due from brokers, dealers and clearing organizations | 5,477 | 5,513 | |||||||||
| Customers | 5,878 | 1,429 | |||||||||
| Other | 3,644 | 5,895 | |||||||||
| Financial instruments owned, at fair value | 44,398 | 94,923 | |||||||||
| Other investments, at cost | - | 6,539 | |||||||||
| Goodwill and intangibles | 4,622 | 6,273 | |||||||||
| Furniture, equipment, software and leasehold improvements, net | 13,277 | 15,071 | |||||||||
| Deferred tax assets, net of valuation allowance | - | 37,497 | |||||||||
| Prepaid expenses and other assets | 3,508 | 5,172 | |||||||||
| Total assets | $ | 953,562 | $ | 933,416 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Liabilities: | |||||||||||
| Securities loaned | $ | 819,920 | $ | 687,443 | |||||||
| Financial instruments sold, not yet purchased, at fair value | - | 1,934 | |||||||||
| Accrued compensation and benefits | 5,330 | 13,325 | |||||||||
| Accounts payable, accrued expenses and other liabilities | 14,776 | 19,947 | |||||||||
| Total liabilities | 840,026 | 722,649 | |||||||||
| Shareholders' equity: | |||||||||||
| Common stock | 7 | 7 | |||||||||
| Additional paid-in capital | 253,461 | 259,011 | |||||||||
| Restricted stock units | 14,728 | 35,929 | |||||||||
| Accumulated deficit | (154,660 | ) | (84,180 | ) | |||||||
| Total shareholders' equity | 113,536 | 210,767 | |||||||||
| Total liabilities and shareholders' equity | $ | 953,562 | $ | 933,416 | |||||||
| Book Value per Share | $ | 15.63 | $ | 28.69 | |||||||
| Tangible Book Value per Share | $ | 15.00 | $ | 27.83 | |||||||
| Shares Outstanding (in thousands) | 7,263 | 7,347 | |||||||||
| FBR & CO. | |||||||||||||||||||||||
| Financial & Statistical Supplement - Operating Results | |||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Q-3 16 | Q-2 16 | Q-1 16 | Q-4 15 | Q-3 15 | |||||||||||||||||||
| Revenues, net of interest expense | $ | 19,320 | $ | 20,887 | $ | 17,900 | $ | 23,464 | $ | 25,580 | |||||||||||||
| Expenses: | |||||||||||||||||||||||
| Variable | 6,964 | 6,728 | 6,436 | 7,467 | 5,712 | ||||||||||||||||||
| Fixed | 23,989 | 23,349 | 23,549 | 26,001 | 26,178 | ||||||||||||||||||
| Income (loss) before income taxes | (11,633 | ) | (9,190 | ) | (12,085 | ) | (10,004 | ) | (6,309 | ) | |||||||||||||
| Income tax (benefit) provision | 45,698 | (982 | ) | (6,631 | ) | (5,594 | ) | (2,881 | ) | ||||||||||||||
| Net (loss) income | $ | (57,331 | ) | $ | (8,208 | ) | $ | (5,454 | ) | $ | (4,410 | ) | $ | (3,428 | ) | ||||||||
| Return on equity (trailing twelve months) | -44.8 | % | -10.6 | % | -4.8 | % | -3.2 | % | -0.9 | % | |||||||||||||
| Fixed expenses | $ | 23,989 | $ | 23,349 | $ | 23,549 | $ | 26,001 | $ | 26,178 | |||||||||||||
| Less: Non-cash expenses1 | 1,510 | 582 | - | 1,701 | 2,373 | ||||||||||||||||||
| Corporate transaction costs2 | - | - | - | - | 691 | ||||||||||||||||||
| Core fixed costs3 | $ | 22,479 | $ | 22,767 | $ | 23,549 | $ | 24,300 | $ | 23,114 | |||||||||||||
| Statistical Data | |||||||||||||||||||||||
| Revenues per employee (annualized) | $ | 283 | $ | 288 | $ | 249 | $ | 310 | $ | 337 | |||||||||||||
| Employee count | 273 | 290 | 287 | 303 | 304 | ||||||||||||||||||
| 1 Non-cash expenses include compensation costs associated with stock-based awards, amortization of intangibles and impairment of goodwill. | |||||||||||||||||||||||
| 2 Corporate transaction costs in Q3 2015 include non-recurring costs related to a business combination. | |||||||||||||||||||||||
| 3 Core fixed costs is a non-GAAP measurement used by management to analyze and assess the Company’s fixed operating | |||||||||||||||||||||||
| costs. Management believes that this non-GAAP measurement assists investors in understanding the impact of the items noted in | |||||||||||||||||||||||
| footnotes 1 and 2 on the performance of the Company. | |||||||||||||||||||||||
| A limitation of utilizing this non-GAAP measure is that the GAAP accounting effects of these items do in fact reflect the | |||||||||||||||||||||||
| underlying financial results of the Company and these effects should not be ignored in evaluating and analyzing the | |||||||||||||||||||||||
| Company's financial results. Therefore, management believes fixed expenses on a GAAP basis and core fixed costs | |||||||||||||||||||||||
| on a non-GAAP basis should be considered together. | |||||||||||||||||||||||