Siebert Financial Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. This is an annual report, not a standalone fourth-quarter report. Filed May 10, 2024, after its scheduled due date.
Business context
Siebert is a diversified financial-services firm with retail brokerage, investment advisory, insurance, securities finance, market-making and technology activities. It reports one operating segment, with substantially all revenue and assets in the United States. Results depend substantially on market activity, interest rates and customer trading and financing balances.
Financial performance and position
| Metric | FY2023 / Dec. 31, 2023 | FY2022 / Dec. 31, 2022 |
|---|---|---|
| Total revenue | $71.5 million | $50.1 million |
| Operating income | $18.1 million | $0.4 million |
| Net income (loss) available to common shareholders | $7.8 million; $0.21 per diluted share | $(2.0) million; $(0.06) per diluted share |
| Operating margin | 25.3% | 0.9% |
| Net margin available to common shareholders | 10.9% | (4.0)% |
| Cash and cash equivalents | $5.7 million | $23.7 million |
| Total assets / total liabilities | $801.8 million / $731.1 million | $728.0 million / $678.1 million |
| Total equity | $70.7 million | $49.9 million |
| Long-term debt, including current portion | $4.3 million | $7.0 million |
Revenue growth was led by interest, marketing and distribution fees ($29.6 million, up $12.3 million) and principal transactions and proprietary trading ($13.1 million, up $9.4 million). The latter included a $3.8 million gain on the U.S. government securities portfolio, compared with a $3.9 million loss in 2022. Stock borrow/loan revenue rose to $16.2 million from $14.5 million. Market-making revenue fell to $1.3 million from $2.4 million.
Expenses totaled $53.4 million, up from $49.7 million. Compensation and benefits increased $3.2 million to $31.9 million; professional fees increased $1.3 million to $4.5 million; and depreciation and amortization increased $1.0 million to $2.0 million, including a $990,000 technology-asset impairment. The effective tax rate was 30.4%.
Cash flow: Operating activities used $30.3 million, compared with $24.6 million used in 2022; investing activities used $2.6 million; and financing activities provided $13.0 million, principally reflecting the Kakaopay share issuance. Cash and cash equivalents plus cash and securities segregated for regulatory purposes totaled $280.1 million at year-end, down from $299.8 million. A substantial portion of this combined amount is segregated for customer protection and is not equivalent to unrestricted corporate cash.
Debt and liquidity: The company had a $4.3 million mortgage on its Miami office building and paid off a separate $2.7 million East West Bank loan during 2023. It reported compliance with debt covenants and had an unused $25 million overnight credit line. MSCO reported regulatory net capital of $56.1 million, $54.3 million above its requirement; RISE reported $1.3 million, $1.0 million above its requirement. Regulatory capital and customer-reserve requirements constrain the availability of subsidiary funds.
Material changes and unusual items
- Revenue increased 42.7% year over year, and the company returned to profitability, with operating income of $18.1 million versus $0.4 million in 2022.
- The proposed Kakaopay transaction’s second tranche, which would have given Kakaopay 51% ownership, was terminated in December 2023. Siebert recognized $5.9 million in transaction termination costs, including a $5 million fee payable in ten quarterly installments beginning March 29, 2024, plus legal and consulting costs. Kakaopay retains 8.1 million shares, approximately 20% of the company.
- The first Kakaopay tranche raised approximately $14.8 million net of issuance costs. The company also repurchased 1 million shares for $2.5 million in its July 2023 transaction with the former Tigress investment; it recorded a $185,000 impairment related to that investment before exiting it.
- The company’s $30.3 million operating cash outflow was affected by working-capital movements, including changes in securities borrowed and loaned and customer balances.
- Retail customer accounts increased to 153,727 from 122,394, while customer net worth rose to $15.9 billion from $13.5 billion. Margin debit balances declined to $0.3 billion from $0.4 billion.
Outlook, risks and contingencies
Management states that available cash, credit facilities, capital-market access and operating cash flows are expected to meet current liquidity needs for the foreseeable future. It provides no numerical earnings or revenue guidance. Priorities include developing a retail trading platform and enhanced equity-management solutions; the company changed technology personnel and vendors after terminating earlier platform-development arrangements. Management cites customer-account growth, NFS partnership activity and potential opportunities in an underserved corporate-services market.
Key risks include sensitivity to securities-market activity and interest rates, intense competition and fee pressure, regulatory and net-capital requirements, customer and counterparty credit exposure, dependence on technology and third-party service providers, and cybersecurity threats. The company reported no known cybersecurity incident since the start of 2023 that materially affected or was reasonably likely to materially affect it. Ordinary-course legal claims were not expected to have a material financial impact.
Controls and filing status: Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end due to a material weakness in IT general controls, specifically user-access and segregation-of-duties controls over financial systems. No financial-statement adjustment resulted. Management expects remediation before the end of 2024, subject to successful operation and testing of controls. The auditor issued an unqualified opinion on the financial statements but did not audit internal control effectiveness. Following the late filing, the company said it no longer qualified to use Form S-3 registration statements, including its shelf and at-the-market program; it also received a Nasdaq notice related to the overdue report and expected to regain compliance upon filing.
On January 1, 2024, MSCO and SNXT changed to LLC tax treatment. In January 2024, the company also acquired a mobile self-directed trading app for $385,000, partly paid in restricted shares. No dividends were paid in 2023 or 2022.
Important facts for investors to verify
- Whether the IT-access-control material weakness is remediated and independently tested, and whether reporting timeliness and Nasdaq listing compliance remain in good standing.
- The schedule and funding of the $5 million Kakaopay settlement payments, and any effects of Kakaopay’s approximately 20% stake, director rights or potential share sales.
- How much of reported cash and regulatory-segregated funds is available for corporate use, and how working-capital and securities-financing movements affect cash flow.
- Whether revenue gains tied to interest rates and securities gains are sustainable, and whether account growth translates into recurring revenue after compensation and technology investment.
- Progress, remaining costs and expected launch timing for the retail platform and equity-management projects, alongside the $25 million unused credit line and mortgage obligations.