Oppenheimer Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Oppenheimer is a middle-market investment bank and full-service broker-dealer, with private client, asset management and capital markets businesses. At quarter-end, client assets under administration were $104.0 billion and assets under management were $37.1 billion.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $237.2 million | $340.3 million | $503.3 million | $713.6 million |
| Pre-tax income (loss) | $(6.2) million | $43.2 million | $8.0 million | $95.3 million |
| Net income (loss) attributable to Oppenheimer Holdings | $(3.9) million | $31.2 million | $5.4 million | $69.8 million |
| Basic diluted EPS | $(0.32) | $2.46 | $0.44 | $5.53 |
| Operating cash flow | Not separately reported for the quarter | $(231.4) million | $20.1 million |
Q2 expenses were $243.4 million, including $178.0 million of compensation expense. The filing does not provide a consolidated operating-margin measure; Q2 pre-tax margin was negative. Private Client and Asset Management reported Q2 pre-tax income of $38.8 million and $8.1 million, respectively, while Capital Markets reported a $17.9 million pre-tax loss.
At June 30, total assets were $2.921 billion, total liabilities $2.011 billion, and stockholders’ equity $781.4 million. Cash and cash equivalents were $36.6 million; restricted cash of $127.9 million is held in the OHAA SPAC trust and is not ordinary operating cash. Bank call loans were $177.3 million, up from $69.5 million at year-end 2021. Senior secured notes had $125.0 million principal outstanding, or $124.2 million net of issuance costs, and mature in 2025 at 5.50%. Operating lease liabilities were $187.5 million. The company reported compliance with debt covenants and applicable regulated-subsidiary capital requirements.
Material changes versus prior periods
- Q2 revenue fell 30.3% year over year; first-half revenue fell 29.5%. Q2 net loss attributable to the parent compared with prior-year net income.
- Capital Markets revenue declined 51.8% in Q2 and 52.8% for the first half. Q2 investment banking revenue fell 85.2%, including an 83.6% decline in advisory fees and a 93.0% decline in equity underwriting. Equity sales and trading revenue increased 22.9%.
- Private Client Q2 revenue decreased 13.4%, while pre-tax income rose to $38.8 million, reflecting lower compensation costs and higher bank sweep and interest income. Bank deposit sweep income increased to $14.8 million from $3.7 million.
- Asset Management Q2 revenue decreased 4.8%. AUM declined to $37.1 billion from $43.7 billion a year earlier, including market depreciation and net asset outflows.
- Six-month operating cash flow was negative $231.4 million, compared with positive $20.1 million a year earlier. The filing attributes cash movements to operating balance changes, including lower accrued compensation and repurchase-agreement balances, increased securities sold but not yet purchased, and increased customer receivables.
- Cash, cash equivalents and restricted cash declined $177.0 million during the first half. The company repurchased 1,262,543 Class A shares for $46.4 million; Q2 buybacks totaled 885,230 shares at an average $34.13 per share.
Outlook, risks and unusual items
- Management’s strategy emphasizes recruiting financial advisors and asset managers, expanding capital-markets capabilities, technology and compliance investment, and selective acquisitions and private-market investments. No quantified earnings or revenue guidance is provided.
- Management cited inflation, rising interest rates, market volatility, weaker equity and fixed-income issuance, reduced M&A and SPAC activity, and the Russia-Ukraine war as risks to markets and business results. Higher rates may benefit sweep and margin-interest revenue, but may also reduce economic activity and asset values.
- Management said it believes funds from operations, capital and available credit facilities are sufficient for foreseeable liquidity needs. Bank call loans are generally payable on demand; funding availability and collateral requirements may tighten during market stress. Six-month operating cash use and the distinction between unrestricted and restricted cash merit attention.
- Legal and regulatory matters include a Horizon-related class action and 24 FINRA arbitrations. Specific monetary claims in the arbitrations total approximately $41.3 million; the company estimates a possible aggregate loss range in excess of amounts accrued of $0 to $41.3 million where estimable, and says some matters cannot be estimated. The company disputes the claims.
- On June 30, 2022, the SEC issued a Wells Notice concerning municipal-note sales and Rule 15c2-12 and MSRB requirements. The company says it believes the claim is without merit and intends to defend itself; an administrative proceeding may follow.
- OHAA’s $127.8 million trust balance is reported as restricted cash and matched by redeemable noncontrolling interests. Auction-rate securities of approximately $32.0 million are Level 3 fair-value assets and remain sensitive to interest rates and limited liquidity.
- After quarter-end, the company declared a $0.15-per-share quarterly dividend and authorized repurchases of up to 536,500 additional shares, supplementing remaining authorization.
Most important facts for investors to verify
- Whether capital-markets and investment-banking activity recovers, and whether the pipeline converts into completed transactions.
- Whether negative operating cash flow and lower unrestricted cash persist; assess funding needs, on-demand bank borrowing and collateral availability.
- Changes in client assets, AUM, advisor headcount, and sweep and margin-interest income as rates and markets change.
- Developments in the Horizon litigation and arbitrations, including potential losses beyond the currently estimated range, and the SEC Wells Notice.
- Capital allocation after substantial first-half repurchases, including the new authorization, dividend, and the effect of buybacks on per-share measures.