Siebert Financial Corp. — Q2 2017 Form 10-Q
Business and period: Unaudited results for the three and six months ended June 30, 2017. Siebert operates a retail discount brokerage through Muriel Siebert & Co. and an investment advisory business through Siebert Investment Advisors.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $2.689 million | $2.462 million | $5.068 million | $4.960 million |
| Expenses | $2.324 million | $3.190 million | $4.644 million | $6.189 million |
| Net income (loss) | $365,000 | $(728,000) | $424,000 | $(1.229) million |
| Basic and diluted EPS | $0.02 | $(0.03) | $0.02 | $(0.06) |
Revenue increased 9.2% in Q2 and 2.2% in the first half year over year; lower expenses drove the swing to profitability. Margin interest, marketing and distribution fees rose 61.4% in Q2 and 43.8% for the six months, which management attributed principally to higher interest rates and matching margin debits with free credit balances. Commission and fee revenue declined 15.8% and 9.1%, respectively, amid lower average commissions per trade. Trading profits and interest and dividends also declined.
Cash flow and balance sheet: First-half operating cash flow was $(198,000), versus $(2.032) million in 2016; investing cash flow was $(268,000), including $268,000 of equipment and leasehold purchases. Cash declined $466,000 from year-end to $2.264 million. At June 30, total assets were $3.809 million, liabilities $329,000, and stockholders’ equity $3.480 million. The balance sheet reports no debt. Management described working capital as sufficient; $2.3 million, or 59.4% of assets, was considered highly liquid. Regulatory net capital was approximately $2.9 million, $2.6 million above the $250,000 minimum.
Changes, outlook and risks
- Retail trades rose to 50,769 in Q2 from 49,316, while average commission per trade fell to $19.56 from $25.57. For the first half, trades increased to 110,139 from 102,013, but average commission declined to $19.80 from $23.56.
- Management cited streamlined operations, lower headcount, reduced legal and consulting fees, and relocation of the call center and office as drivers of lower expenses. Q2 included approximately $110,000 of non-recurring expenses; first-half results included approximately $342,000, primarily relocation and staff-reduction costs.
- The control entity contributed $803,000 by paying Company obligations; this was recorded as a capital contribution. A former employee’s arbitration was settled in February 2017 for $825,000, paid by the control entity.
- The Company had approximately $23.799 million of NOL carryforwards, fully reserved, and stated that a change in control limits annual utilization to $895,000. It used NOLs to offset first-half income. Management provided no specific earnings or revenue guidance and cautioned that results vary with market activity, interest rates, trading volumes, competition, and demand for brokerage services.
- Risks include customer or counterparty failures on unsettled transactions, market and interest-rate changes, competition, operational system failures, and regulatory capital requirements. No material unsettled-transaction losses were reported. Management said there were no material changes to the risk factors in its 2016 Form 10-K; disclosure controls were considered effective.
Important facts to verify
- Whether margin-related revenue growth can offset declining commissions and trading profits.
- Whether reduced operating costs and reported profitability are sustainable given the non-recurring charges and market-sensitive business.
- The effect of the change-in-control limit on NOL utilization and future cash taxes.
- Liquidity and regulatory net capital levels, and any developments in customer, legal, or affiliate-related exposures.