Siebert Financial Corp. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited consolidated results. Siebert operates a retail discount brokerage business and investment-advisory subsidiary. Its former 49% investment in Siebert Brandford Shank Financial (SBSF) was sold in November 2015 and is presented as discontinued operations in the 2015 comparison.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $2.498 million | $2.624 million |
| Expenses | $2.999 million | $3.414 million |
| Loss from continuing operations | $501,000 | $790,000 |
| Loss from discontinued operations | None reported | $744,000 |
| Net loss | $501,000 | $1.534 million |
| Basic and diluted loss per share | $0.02 | $0.07 |
| Net cash used in operating activities | $1.256 million | $1.161 million |
- Revenue fell 4.8% year over year. Commissions and fees declined 12.6% to $2.078 million; investment banking rose to $12,000, trading profits increased 56.8% to $265,000, and interest and dividends increased to $143,000.
- Total expenses declined 12.2%. Lower compensation, clearing, professional, communications and occupancy costs were partly offset by higher general and administrative expenses. The continuing-operations loss margin was approximately 20% of revenue, versus 30% in Q1 2015.
- At March 31, 2016, total assets were $16.678 million, including $8.639 million in cash and cash equivalents. Total liabilities were $1.496 million, consisting of accounts payable and accrued liabilities; stockholders’ equity was $15.182 million. The balance sheet reports no debt payable.
- Cash declined $781,000 during the quarter. Investing activities provided $475,000, including a $493,000 collection from the former affiliate, partially offset by capital expenditures.
- Siebert reported regulatory net capital of approximately $7.977 million, about $7.727 million above its $250,000 minimum. Management described assets as highly liquid; cash represented 51.8% of total assets.
Material changes and management commentary
- Retail commission-producing trades fell 23.1% to 52,697, while average commission per trade increased to $21.68 from $21.41. Customer accounts with positions declined to 30,396 from 32,483; customer net worth was $6.8 billion versus $7.3 billion.
- Management attributed lower commission revenue to reduced retail trade counts. Trading profits benefited from higher customer trading volume in debt markets. Interest income included accrued interest on amounts due from the former affiliate.
- The former affiliate-related assets include a $1.658 million discounted receivable from the sale of the capital-markets business and $4.127 million of other receivables, including accrued interest. The $4 million SBSF junior note from the 2015 investment sale bears 8% compound interest, matures in November 2020, and is subordinated to SBSF senior debt.
- No tax benefit was recognized for the quarterly loss because a full valuation allowance offsets deferred tax assets. No share repurchases occurred in Q1; the filing reports 170,863 shares remaining under the repurchase authorization.
Outlook, risks and contingencies
- The filing provides no numerical guidance or specific forecast. Management cautioned that results vary with market activity and are not necessarily indicative of full-year results; reduced trading activity can hurt revenue while some expenses remain relatively fixed.
- Risks cited include market and interest-rate changes, trading volume and securities prices, competition and commission pricing, customer nonpayment, trading errors, technology or telephone failures, expense increases and regulatory capital requirements.
- A current employee’s FINRA arbitration alleges retaliation under the Dodd-Frank Act. Management considers the claim without merit and does not expect a significant financial effect. The company also reports ordinary-course claims it believes will not materially affect its financial position.
- Management reported disclosure controls as effective and no material change in internal control over financial reporting during the quarter. It reported no material losses on unsettled customer transactions.
Important facts for investors to verify
- Collectability, payment timing and subordination risks for the receivables and SBSF junior note, which together are significant relative to Siebert’s assets.
- Whether retail trading activity and commission revenue stabilize, given the sharp decline in trade count.
- Cash burn and liquidity trends, including the effect of future operating losses and affiliate-related collections.
- Developments in the employee arbitration and any change to management’s assessment of its potential impact.
- The filing’s description of repurchase activity: management states no Q1 purchases, while the table shows 129,137 shares purchased cumulatively and 170,863 remaining under the authorization.