SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Siebert Financial Corp. for the period ended June 30, 2012. The Company operates as a broker-dealer and investment banking firm, primarily through its subsidiary Muriel Siebert & Co., Inc. ("Siebert"). The Company is classified as a Smaller Reporting Company. As of August 3, 2012, there were 22,101,098 shares of Common Stock outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 |
|---|---|---|
| Total Revenues | $12,178,000 | $10,001,000 |
| Net Income (Loss) | $1,072,000 | $(3,794,000) |
| Net Income Per Share (Basic/Diluted) | $0.05 | $(0.17) |
| Net Cash Provided by Operating Activities | $454,000 | $149,000 |
| Total Assets | $35,559,000 | $34,823,000 (Dec 31, 2011) |
| Cash and Cash Equivalents | $21,402,000 | $21,167,000 (Dec 31, 2011) |
| Regulatory Net Capital | $18,440,000 | N/A |
Revenue Breakdown (Six Months 2012): Commissions and fees ($9.0M), Investment banking ($1.7M), Trading profits ($1.4M), and Interest/dividends ($40k).
Expense Breakdown (Six Months 2012): Employee compensation ($5.1M), Professional fees ($1.6M), Clearing fees ($1.6M), and a one-time write-off of software development costs ($433k).
Material Changes vs. Prior Period
- Profitability Turnaround: The Company reported a net income of $1.072 million for the six months ended June 30, 2012, compared to a net loss of $3.794 million in the same period in 2011. This reversal was driven by increased revenues and a significant improvement in equity investee income.
- Revenue Growth: Total revenues increased 21.8% year-over-year. Investment banking revenue rose 195.1% in the quarter and 8.2% for the six months, attributed to participation in larger new issues. Trading profits increased 54.4% for the six months due to higher debt market volume.
- Equity Investee Performance: Income from equity investees turned from a loss of $1.376 million in the prior year to income of $685,000. This was primarily due to the recovery of Siebert, Brandford, Shank & Co., L.L.C. ("SBS"), which generated $1.432 million in net income for the six months, compared to a $2.784 million loss in 2011.
- Expense Reduction: Total expenses decreased 5.4% year-over-year. Professional fees dropped 42.8% due to reduced legal fees regarding a former employee dispute. Occupancy costs fell 12.2% following the closure of two Florida branches.
- Unusual Items: The Company recorded a $433,000 non-cash write-off of software development costs in Q2 2012 after discontinuing a relationship with a software vendor.
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management notes that the stock market has improved, positively affecting revenues. However, they caution that results for interim periods are not necessarily indicative of full-year results due to the nature of the business.
- Liquidity: The Company maintains high liquidity with $22.8 million (64% of total assets) in cash and cash equivalents. Regulatory net capital of $18.44 million significantly exceeds the $250,000 minimum requirement.
- Legal Contingencies:
- Lehman Brothers Litigation: A class action settlement regarding Lehman Brothers Holdings, Inc. notes was approved by the court on May 2, 2012. Siebert paid $1 million into escrow. While the settlement resolves claims against Siebert, additional liability is possible from plaintiffs who opted out or brought separate claims.
- Employee Arbitration: An unresolved arbitration proceeding with a former employee continues to incur legal defense costs, which are included in professional fees.
- Risks: Key risks include market volatility, interest rate changes, competition from electronic discount brokers, and the potential for losses from customer non-payment on unsettled transactions (though no material losses were reported).
- Capital Transactions: The Company continues a share repurchase program authorized in 2008. During the six months ended June 30, 2012, 4,302 shares were purchased at an average price of $1.67.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the single customer who accounted for approximately 19% of total revenue and 26% of commission/fee revenue during the period.
- Equity Investee Distributions: Confirm the availability of the $8.5 million in undistributed earnings from SBS, as these funds may not be immediately distributable due to regulatory capital requirements.
- Legal Exposure: Monitor the status of the Lehman Brothers litigation for any additional claims from plaintiffs who opted out of the class action settlement.
- Software Transition: Assess the operational impact and cost savings of transitioning website services to the clearing broker effective July 1, 2012.
- Net Operating Losses: Review the utilization of net operating loss carryforwards, which currently offset federal income tax provisions but rely on future profitability to realize deferred tax assets.