RCS Capital Corporation Announces Third Quarter 2015 Operating Results From Continuing Operations

Adjusted Net Income of $10.6 Million, or $0.10 per Fully Diluted Share; Net Loss of ($266.5) Million, or ($3.52) per Fully Diluted Share

Adjusted EBITDA of $22.9 Million; Retail Adjusted EBITDA of $29.3 Million

Assets Under Administration ("AUA") of $224.8 Billion; up 6% from Prior Year [1]

9,476 Total Advisors at the End of the Third Quarter; 96.4% Annualized Advisor Retention [2]

254 Advisors Recruited in the Third Quarter Representing $23.6 Million in Gross Annualized GDC; Net Annualized Recruited GDC of $6.7 Million

Board Elects R. Lawrence "Larry" Roth as Chief Executive Officer of RCS Capital; Michael Weil Steps Down as Chief Executive Officer Effective Immediately, Remains on Board of Directors

16 Nov, 2015, 20:34 ET from RCS Capital Corporation

NEW YORK, Nov. 16, 2015 /PRNewswire/ -- RCS Capital Corporation ("RCS Capital" or the "Company") (NYSE: RCAP) announced today operating results for the three and nine months ended September 30, 2015. Operating highlights are provided below. All per share results are expressed on a fully diluted basis.

"This was a transitional quarter as we continued to strategically reposition the Company to focus on our independent retail advice business, Cetera Financial Group ("CFG"), and strengthen our balance sheet and financial position," said Mark Auerbach, Non-Executive Chairman RCS Capital. "While asset based revenues, including cash sweep and strategic partner revenues, and advisor retention remain strong within CFG, we continue to face a challenging overall environment characterized by volatility in the equity markets and historically low interest rates."

Mr. Auerbach continued, "As we previously announced, the transition of RCS Capital to a retail-focused entity is underway and we view the developments announced over the past couple of weeks as incrementally positive. The additional cash and lender modifications will allow time for the Company to complete its work with Lazard in the exploration of options to raise additional capital and make asset divestitures. Additionally, the sale of Hatteras and the sale of the wholesale distribution division, including Realty Capital Securities and Strategic Capital, pursuant to the amended agreement, once consummated, will help further rationalize the business model to refocus the business as a Cetera-only organization, while the addition of Michael Conboy of Luxor Capital Group on our board brings a long-time stakeholder into a more active role. Finally, by granting the independent RCS Capital board members a proxy to vote the single outstanding Class B share, RCAP Holdings has cleared a path to the recapitalization process. As we look ahead, we are focused on our core retail business and recognize the earnings potential of Cetera Financial Group."

RCS Capital also announced that the Board of Directors has elected R. Lawrence "Larry" Roth as Chief Executive Officer of RCS Capital Corporation effective November 17, 2015. In conjunction with Mr. Roth, the executive committee will lead day to day operations of the business. The Company also announced that Michael Weil has stepped down as the Company's Chief Executive Officer effective immediately and will remain as a member of the Board of Directors.

Highlights for the Third Quarter 2015 (Note: Includes only results from continuing operations which excludes RC Securities and American National Stock Transfer ("Transfer Agency"))

Revenue (GAAP): $589.6 million for the quarter, or $540.9 million, excluding $48.7 million non-cash revenue from fair market value accounting of embedded derivatives in securities issues in conjunction with the Cetera financing (non-GAAP), down 3.3% over the year-ago quarter primarily due to decreased investment banking revenue, offset by higher retail ticket charges based on higher trading volumes.

Net Income/(Loss) (GAAP): ($266.5) million for the quarter, or ($3.52) per fully diluted share

Adjusted Net Income: $10.6 million for the quarter, or $0.10 per fully diluted share

Adjusted EBITDA: $22.9 million for the quarter

Retail Advice Assets Under Administration: Up 6% from the year-ago quarter to $224.8 billion

Retail Advice Assets Under Management: Up 13% from the year-ago quarter to $45.4 billion3

Retail Advisors: 9,476 independent retail financial advisors as of September 30, 2015 servicing more than 2.5 million clients

Retail Advisor Retention: 96.4% advisor retention for the quarter2

Retail Advisor Recruitment: 254 financial advisors recruited representing $23.6 million in trailing 12-month GDC; $6.7 million in net recruited GDC2; GDC from advisors recruited in the third quarter 40% higher than GDC of advisors who left the platform2

Net Debt: Net secured debt decreased by $8 million during the quarter as a result of decreased cash and increased principle amortization payment

Cash4: $173.5 million of cash and equivalents at the end of the third quarter, inclusive of regulatory capital

Previously Announced Business Updates and Strategic Initiatives

Sale of Wholesale Division: The previously announced sale of the wholesale distribution division and certain related entities to an affiliate of Apollo was amended by mutual agreement. As amended, the Company agreed to sell the wholesale distribution business, including Realty Capital Securities and Strategic Capital, to Apollo for $6 million in cash, subject to certain purchase price adjustments, of which $5.0 million is the purchase price for Strategic Capital, and retain the transfer agent and transaction management businesses

Liquidity: Completed $27 million issuance of new senior unsecured promissory notes to provide incremental liquidity; $12 million issued to an affiliate of American Realty Capital; $15 million issued to affiliates of Luxor Capital Group

Loan Modifications: Company and lenders agreed to certain modifications to its senior secured credit facilities to provide covenant relief, including permission for the issuance of the senior unsecured promissory notes to affiliates of American Realty Capital and Luxor Capital Group, among other things

Sale of Hatteras Funds: Company entered into a non-binding letter of intent to sell Hatteras Liquid Alternative Platform to the Hatteras Funds management group for $5.5 million and the extinguishment of earn outs and deferred payments worth up to $20.8 million

Board Changes: Company announced changes to the Board of Directors: Luxor's Michael Conboy joins board and executive committee effective immediately; Apollo's Marc Rowan and Anthony Civale resigned effective November 6, 2015

Voting Rights: Independent Board members of RCS Capital given Proxy to vote the Class B share and Series D-1 preferred shares in connection with certain strategic initiatives and the recapitalization process; Company given right to purchase the Class B share for $1 until July 31, 2016 upon repayment or exchange of the senior unsecured promissory note held by an affiliate of American Realty Capital and the release of certain affiliates of American Realty Capital from their obligations under the Company's secured credit facilities

Strategic Initiatives: Engaged Lazard to assist in the exploration of options to raise additional capital and to make asset divestitures

Retail Advice 

  • 9,476 independent financial advisors servicing more than 2.5 million clients nationwide
  • $224.8 billion Assets Under Administration, up 6% from the year-ago quarter
  • $45.4 billion Assets Under Management, up 13% from the year-ago quarter3
  • 96.4% annualized advisor retention for the third quarter2
  • 254 financial advisors recruited representing $23.6 million in trailing 12-month gross GDC
  • Net recruited GDC was $6.7 million, compared to $21.5 million in the prior quarter2
  • GDC from advisors recruited in the third quarter 40% higher than GDC of advisors who left the platform2
  • 64.7% recurring revenue; 32.6% fee-based revenue compared to 62.9% and 31.4% in the prior quarter, respectively

Retail Advice revenue for the third quarter was $503.5 million, essentially flat compared to the year-ago quarter (which did not include VSR and Girard) and down 4.8% compared to the prior quarter.

Adjusted EBITDA for the third quarter was $29.3 million, down 21.4% compared to the year-ago quarter and up 10.4% compared to the prior quarter. The quarter-over-quarter increase was primarily due to modestly higher asset based revenues including cash sweep and strategic partner revenues and lower conference expenses, offset by lower retail commission volumes.

Commission-Based revenue, which includes transactional commissions and trails, was $283.0 million for the third quarter, down 4.4% from the year ago quarter and down 6.7% from the prior quarter. The quarter-over-quarter decrease was primarily due to lower transaction volume, particularly within non-traded REITs, and other alternatives.

Advisory Fee and Services revenue, which includes client advisory fees and administrative fees, was $166.4 million for the third quarter, up 15.3% from the year-ago quarter and essentially flat from the prior quarter as advisory fees are generally billed in advance, reflecting asset levels at the beginning of the quarter.

Asset-Based Fee revenue, which includes strategic partner fees, cash sweep, and mutual fund networking fees, was $12.4 million for the third quarter, up 24.8% from the year-ago quarter and up 17.8% from the prior quarter, reflecting higher cash sweep and strategic partner asset-based revenues

Transaction-Based and Other revenue, was $41.7 million for the third quarter, down 23.2% from the year-ago quarter and down 14.5% from the prior quarter primarily due to a $6.2 million deferred compensation hedge adjustment. Excluding this adjustment, transaction-based and other revenues were down 1.6% from the prior quarter and down 13.6% from the year-ago quarter, which included a one-time accounting adjustment to move to a "gross" as opposed to "net" treatment for certain advisor fees.

Cetera Financial Group's ending cash sweep balance for the third quarter was $8.4 billion, up 12% from the year-ago quarter and up 5% from the prior quarter.

"We believe Cetera Financial Group remains a strong franchise, and we are confident in our core business as we continue to see opportunities to gain market share and capitalize on the growing need for independent, high quality retail advice," said R. Lawrence "Larry" Roth, Chief Executive Officer of Cetera Financial Group. "We have had continued success recruiting and retaining advisors as a result of the size, scale and resources we offer through our platform, and we remain optimistic on recruiting and advisor retention for the balance of 2015 as well as the coming year. Despite market headwinds, which included market volatility and a continuing low interest rate environment, we saw encouraging trends within the business as retention and net new asset trends remained strong. Moving forward, we are continuing to focus on driving growth in our advisory business, both through traditional and digital channels, particularly in response to pending industry reforms led by the Department of Labor. We expect to see continued earnings improvement within the Retail Advice division as our ongoing initiatives take hold while we continue to implement new cost management procedures to improve our bottom line performance."

Wholesale Distribution

  • $868 million of equity capital raised for the third quarter5
    • $756 million in non-traded direct investment sales;
    • $112 million in liquid alternatives sales, including Hatteras Funds and other income funds
  • $3.5 billion equity capital raised year-to-date as of the end of October 20155

Wholesale Distribution revenue for the third quarter was $21.6 million, on $756 million in total direct investment sales. Adjusted EBITDA for the third quarter was $1.8 million compared to $2.4 million in the year-ago-quarter and $0.7 million in the prior quarter, an improvement of $1.1 million over the prior quarter, primarily due to higher equity raised.6

Investment Banking and Capital Markets

(Note: Excludes results from Transfer Agency business which are included in Discontinued Operations for the third fiscal quarter; it is anticipated that results from the Transfer Agency business may not be accounted for as Discontinued Operations in future quarters in light of the amended and restated purchase agreement between the company and affiliates of Apollo)

Investment Banking and Capital Markets revenues were $9.2 million for the third quarter compared to $22.5 million for the year-ago quarter and $16.2 million in the prior quarter. Adjusted EBITDA for the third quarter was $0.1 million, compared to $14.6 million in the year-ago-quarter and $8.5 million in the prior quarter.

Performance within the Investment Banking and Capital Markets segment was as follows:

  • Investment Banking revenue was $0.9 million for the third quarter versus $7.0 million in the prior quarter driven primarily by lower investment banking advisory services due to the listing of Global Net Lease on the New York Stock Exchange in the second quarter.
  • Transaction Management revenue was $6.2 million for the third quarter versus $7.5 million in the prior quarter

Investment Management

  • Investment platform manages ten open-end mutual funds and three closed-end funds as of the end of the third quarter
  • Hatteras Funds Assets Under Management was $1.8 billion as of September 30, 2015, compared to $2.0 billion as of June 30, 2015

Investment Management Revenue and Adjusted EBITDA were $9.0 million and $0.1 million, respectively for the third quarter, compared to $17.0 million and $3.4 million for the year ago period and $12.3 million and $0.8 million for the prior quarter.

About RCS Capital

RCS Capital Corporation (NYSE: RCAP) is a full-service investment firm expressly focused on the individual retail investor. With operating subsidiaries including retail advice services, wholesale distribution, investment banking, capital markets, investment research, investment management and crowdfunding, RCS Capital's business is designed to capitalize, support, grow and maximize value for the investment programs it distributes and the independent advisors and clients it serves. Additional information about RCS Capital can be found on its website at www.rcscapital.com. RCS Capital may disseminate information about itself, including the results of its operations and financial information, via social media platforms such as Facebook, LinkedIn and Twitter

Financial and Operating Highlights

Third quarter 2015 results shown below are on an actual basis. In addition, RCS Capital reports certain non-GAAP financial metrics, including pro forma Adjusted EBITDA and Adjusted Net Income. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section and the accompanying tables titled, "Reconciliation of GAAP to Non-GAAP ("Adjusted") Measures." RCS Capital uses a 40% tax rate to estimate the tax impact in its earnings. RCS Capital believes Adjusted Net Income remains a useful indicator of its performance. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand and manage our business and forecast future periods; as such, we believe it is useful for investors to understand the effects of these items on our results of operations.

Important Notice

The statements in this press release include statements regarding the intent, belief or current expectations of RCS Capital and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should," "look forward" or similar expressions. The statements in this press release also include statements regarding the projections of RCS Capital that were based on estimates. These projections were not prepared in accordance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections. This information is not fact and should not be relied upon as being necessarily indicative of future results. The projections were prepared in good faith by management and are based on numerous assumptions that may prove to be wrong. The estimates also reflect assumptions as to certain business decisions that are subject to change. This press release also contains estimates and information concerning our industry, including market position, market size, and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these projections. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. Actual results may differ materially from those contemplated by such forward-looking statements and projections due to certain factors,  including RCS Capital's ability to satisfy the NYSE minimum share price requirement and RCS Capital's ability to successfully accomplish sufficient capital raising and asset divestitures to meet ongoing liquidity needs, and therefore the risk of continuing as a going concern. Additional factors that may affect future results are contained in RCS Capital's filings with the Securities and Exchange Commission (the "SEC"), including its Annual Report on Form 10-K filed with the SEC on April 2, 2015, which are available at the SEC's website at www.sec.gov. Further, forward-looking statements, estimates or projections speak only as of the date they are made, and RCS Capital undertakes no obligation to update or revise forward-looking statements or estimates to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. 

Contacts

Jonathan Keehner

Mahmoud Siddig

Joele Frank, Wilkinson Brimmer Katcher

Brian D. Jones, CFO

RCS Capital Corporation

bjones@rcscapital.com

jkeehner@joelefrank.com

(646) 937-6903

msiddig@joelefrank.com

 (212) 355-4449

Andrew G. Backman, Managing Director

Investor Relations / Public Relations

RCS Capital Corporation

abackman@rcscapital.com

 (917) 475-2135

1 3Q 2014 comparisons are on a pro forma basis

2 Based on trailing 12 month regrettable gross dealer concession

3 Internal / proprietary programs only, does not include third-party advisory platforms

4 Cash includes restricted cash, segregated under federal and other regulations and cash equivalents, and excludes discontinued operations

5 Equity raised includes Strategic Capital, Hatteras, and ARC Income Funds distributed through Realty Capital Securities

6 Wholesale Distribution revenue and EBITDA includes only Strategic Capital

 

 

RCS Capital Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Revenues:

Retail commissions

$               282,016

$             292,473

$             878,696

$             543,458

Selling commissions

12,316

2,138

39,411

2,138

Dealer manager fees

5,557

1,106

17,743

1,106

Investment banking fees

768

12,911

12,671

65,695

Advisory and asset-based fees

178,715

152,839

512,749

283,357

Services revenue

8,994

10,144

27,962

26,699

Reimbursable expenses

150

369

675

6,703

Investment fee revenue

9,838

15,577

32,930

15,577

Transaction fees

48,077

50,706

149,149

86,133

Other revenue

43,150

(26,467)

104,010

32,378

    Total revenues

589,581

511,796

1,775,996

1,063,244

Expenses:

Retail commissions and advisory

384,316

378,312

1,179,294

699,914

Wholesale commissions

11,401

2,138

36,880

2,138

Wholesale reallowance

2,065

343

6,432

343

Investment fee expense

6,753

8,682

24,839

8,682

Internal commissions, payroll and benefits

62,870

57,568

187,665

113,672

Conferences and seminars

2,903

3,671

16,824

9,140

Travel

2,949

2,672

9,356

5,416

Marketing and advertising

1,616

1,517

4,762

2,760

Professional fees

16,419

12,141

41,900

24,428

Data processing

9,730

8,185

25,850

15,368

Quarterly fee

-

-

-

1,677

Acquisition and related integration costs

4,176

842

11,832

14,105

Interest expense

21,204

17,939

58,249

30,868

Occupancy

7,153

6,108

21,445

13,045

Depreciation and amortization

25,236

25,275

83,634

42,727

Goodwill and intangible assets impairment charge

331,704

-

488,505

-

Clearing and exchange fees

12,102

6,664

33,083

13,771

Outperformance bonus

-

-

-

9,709

Change in fair value of contingent consideration

(22,990)

3,959

(73,357)

4,109

Other expenses

34,993

14,950

63,444

21,385

Total expenses

914,600

550,966

2,220,637

1,033,257

Income (loss) before taxes from continuing operations

(325,019)

(39,170)

(444,641)

29,987

Provision for (benefit from) income taxes

(58,481)

(6,872)

(104,579)

3,184

Net (loss) income from continuing operations

(266,538)

(32,298)

(340,062)

26,803

Discontinued operations

Income (loss) before taxes from discontinued operations

(31,419)

(468)

(52,437)

4,738

Provision for (benefit from) income taxes

(6,863)

(497)

(19,875)

3,189

Net (loss) income from discontinued operations

(24,556)

29

(32,562)

1,549

Net (loss) income

(291,094)

(32,269)

(372,624)

28,352

Less: net income (loss) attributable to non-controlling interests

(9,146)

-

(11,374)

9,120

Less: preferred dividends and deemed dividend

24,820

4,725

38,422

202,802

Net loss attributable to Class A common stockholders

$           (306,768)

$           (36,994)

$         (399,672)

$         (183,570)

Per Share Data

Net loss per share attributable to Class A common stockholders

Basic

Net loss from continuing operations

$                   (3.52)

$                 (0.59)

$                 (4.89)

$                 (4.19)

Net loss

$                   (3.83)

$                 (0.59)

$                 (5.32)

$                 (4.15)

Diluted

Net loss from continuing operations

$                   (3.52)

$                 (0.59)

$                 (5.10)

$                 (4.19)

Net loss

$                   (3.83)

$                 (0.59)

$                 (5.49)

$                 (4.15)

Weighted-average basic shares

80,135,509

62,906,270

75,123,655

44,388,158

Weighted-average diluted shares

80,135,509

62,906,270

84,235,507

44,388,158

Cash dividend declared per common share

$                         -

$                       -

$                       -

$                   0.36

 

RCS Capital Corporation and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

(Dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

EBITDA and Adjusted EBITDA from continuing operations:

Net income (loss) from continuing operations (Non-GAAP)

$          (266,538)

$             (32,298)

$          (340,062)

$              26,803

Add back: Interest

21,204

17,939

58,249

30,868

Add back: Provision (benefit) for (from) income taxes

(58,481)

(6,872)

(104,579)

3,184

Add back: Depreciation and amortization expense

25,236

25,275

83,634

42,727

EBITDA (Non-GAAP)

$          (278,579)

$                 4,044

$          (302,758)

$            103,582

Add back: Non-cash equity compensation(1)

3,221

3,760

8,860

10,458

Add back: Acquisition and integration related expenses(2)

9,070

6,908

25,353

21,698

Add back: Amortization of capitalized advisor compensation(3)

3,991

1,770

10,647

5,255

Add back: Change in contingent consideration(4)

(22,990)

3,959

(73,357)

4,109

Add back: Change in the fair value of embedded derivative contracts(5)

(48,663)

27,862

(105,056)

(30,590)

Add back: Goodwill and intangible assets impairment charge(6)

331,704

-

488,505

-

Add back: Professional fees(7)

2,962

3,044

12,939

4,031

Add back: Other(8)

22,147

2,207

25,497

13,195

Adjusted EBITDA from continuing operations (Non-GAAP)

$              22,863

$              53,554

$              90,630

$            131,738

EBITDA and Adjusted EBITDA from discontinued operations:

Net income (loss) from discontinued operations (Non-GAAP)

$             (24,556)

$                      29

$             (32,562)

$                 1,549

Add back: Interest

-

-

-

-

Add back: Provision (benefit) for (from) income taxes

(6,863)

(497)

(19,875)

3,189

Add back: Depreciation and amortization expense

21

51

124

147

EBITDA (Non-GAAP)

$             (31,398)

$                  (417)

$             (52,313)

$                 4,885

Add back: Non-cash equity compensation(1)

3,551

3,054

9,506

7,578

Add back: Acquisition and integration related expenses(2)

55

190

210

190

Add back: Impairment charge on assets held for sale

17,978

-

17,978

-

Add back: Amortization of capitalized advisor compensation(3)

-

-

-

-

Add back: Change in contingent consideration(4)

-

-

-

-

Add back: Change in the fair value of embedded derivative contracts(5)

-

-

-

-

Add back: Goodwill and intangible assets impairment charge(6)

-

-

-

-

Add back: Professional fees(7)

300

-

321

-

Add back: Other(8)

1,721

22

4,048

2,281

Adjusted EBITDA from discontinued operations (Non-GAAP)

$               (7,793)

$                 2,849

$             (20,250)

$              14,934

 

RCS Capital Corporation and Subsidiaries

Reconciliation of GAAP to Non-GAAP Measures

(unaudited)

(Dollars in thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net income (loss) from continuing operations (Non-GAAP)

$          (266,538)

$             (32,298)

$          (340,062)

$              26,803

After-tax EBITDA adjustments:

Add back: Non-cash equity compensation

2,631

3,061

6,641

8,539

Add back: Acquisition and integration related expenses

7,407

5,624

19,005

17,716

Add back: Amortization of capitalized advisor compensation

3,259

1,441

7,981

4,291

Add back: Change in contingent consideration

(18,776)

3,223

(54,988)

3,355

Add back: Change in the fair value of embedded derivative contracts

(39,743)

22,682

(78,750)

(24,977)

Add back: Goodwill and intangible assets impairment charge

270,903

-

366,183

-

Add back: Professional fees

2,419

2,478

9,699

3,291

Add back: Other

18,087

1,797

19,113

10,774

Total EBITDA Adjustments

246,187

40,306

294,884

22,989

Amortization of intangible assets

22,896

24,112

76,936

39,643

Adjusted net income from continuing operations (Non-GAAP)

$                 2,545

$              32,120

$              31,758

$              89,435

Net income (loss) from discontinued operations (Non-GAAP)

$             (24,556)

$                      29

$             (32,562)

$                 1,549

After-tax EBITDA adjustments:

Add back: Non-cash equity compensation

2,900

2,486

7,126

6,187

Add back: Acquisition and integration related expenses

45

155

157

155

Add back: Impairment charge on assets held for sale

14,683

-

13,476

-

Add back: Amortization of capitalized advisor compensation

-

-

-

-

Add back: Change in contingent consideration

-

-

-

-

Add back: Change in the fair value of embedded derivative contracts

-

-

-

-

Add back: Goodwill and intangible assets impairment charge

-

-

-

-

Add back: Professional fees

245

-

241

-

Add back: Other

1,406

18

3,034

1,862

Total EBITDA Adjustments

19,279

2,659

24,036

8,204

Amortization of intangible assets

-

-

-

-

Adjusted net (loss) income from discontinued operations (Non-GAAP)

$               (5,277)

$                 2,688

$               (8,528)

$                 9,753

Average shares outstanding

Class A common stock

80,135,509

62,906,270

75,123,655

44,388,158

Class B common stock

-

-

-

3,604,395

Adjusted fully diluted shares (Non-GAAP) 

80,135,509

62,906,270

75,123,655

47,992,553

Adjusted net income from continuing operations per adjusted share (Non-GAAP)

$                    0.03

$                    0.51

$                    0.42

$                    1.86

Adjusted net (loss) income from discontinued operations per adjusted share (Non-GAAP)

$                   (0.07)

$                    0.04

$                   (0.11)

$                    0.20

Effective tax rate used in the reconciliation of net income to adjusted net income

18.33%

18.59%

25.04%

18.35%

 

RCS Capital Corporation and Subsidiaries

Pro Forma Condensed Consolidated Statements of Operations

(unaudited)

(Dollars in thousands)

Three Months Ended September 30, 

Nine Months Ended September 30,

2015

2014

2015

2014

Revenues

Retail commissions

282,016

293,464

$            878,696

$            887,138

Selling commissions

12,316

7,265

39,411

82,923

Dealer manager fees

5,557

3,690

17,743

35,341

Investment banking fees

768

12,911

12,671

66,520

Advisory and asset-based fees

178,715

155,572

512,749

443,959

Transfer agency revenue

-

-

-

-

Services revenue

8,994

10,078

27,962

28,592

Reimbursable expenses

150

369

675

6,721

Investment fee revenue

9,838

15,577

32,930

39,045

Other

91,227

32,861

253,159

179,055

    Total revenues

589,581

531,787

1,775,996

1,769,294

Expenses

Retail commissions and advisory

384,316

380,347

1,179,294

1,139,341

Wholesale commissions

11,401

7,265

36,880

82,923

Wholesale reallowance

2,065

1,324

6,432

14,783

Investment fee expense

6,753

8,687

24,839

24,074

Internal commissions, payroll and benefits

62,870

61,351

187,665

193,254

Conferences and seminars

2,903

3,859

16,824

9,819

Travel

2,949

2,960

9,356

6,537

Marketing and advertising

1,616

1,546

4,762

7,402

Professional fees

16,419

13,657

41,900

34,418

Data processing

9,730

8,104

25,850

23,863

Quarterly fee

-

-

-

8,298

Acquisition and related integration costs

4,176

842

11,832

34,820

Interest expense

21,204

17,939

58,249

55,198

Occupancy

7,153

6,302

21,445

17,321

Depreciation and amortization

25,236

27,729

83,634

83,707

Goodwill and intangible assets impairment charge

331,704

-

488,505

-

Clearing and exchange fees

12,102

6,667

33,083

13,377

Outperformance bonus

-

-

-

9,857

Change in fair value of contingent consideration

(22,990)

3,966

(73,357)

4,228

Other

34,993

20,862

63,444

49,988

Total expenses

914,600

573,407

2,220,637

1,813,208

Income (loss) before taxes from continuing operations

(325,019)

(41,620)

(444,641)

(43,914)

Provision for (benefit from) income taxes

(130,008)

(16,648)

(177,856)

(17,566)

Net (loss) income from continuing operations

(195,011)

(24,972)

(266,785)

(26,348)

Discontinued operations

Income (loss) from operations of discontinued operations

(31,419)

(440)

(52,437)

5,141

Benefit from income taxes

(12,568)

(176)

(20,975)

2,057

Net (loss) income on discontinued operations

(18,851)

(264)

(31,462)

3,085

Net (loss) income

$            (213,862)

$       (25,236)

$        (298,247)

$           (23,264)

 

RCS Capital Corporation and Subsidiaries

Reconciliation of Pro Forma GAAP to Non-GAAP ("Adjusted") Measures

(unaudited)

(Dollars in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

EBITDA and Adjusted EBITDA from continuing operations:

Net income (loss) from continuing operations (Non-GAAP)

$          (195,011)

$             (24,972)

$          (266,785)

$             (26,348)

Add back: Interest

21,204

17,939

58,249

55,198

Add back: Provision (benefit) for income taxes

(130,008)

(16,648)

(177,856)

(17,566)

Add back: Depreciation and amortization expense

25,236

27,729

83,634

82,429

EBITDA (Non-GAAP)

$          (278,579)

$                 4,048

$          (302,758)

$              93,713

Add back: Non-cash equity compensation(1)

3,221

5,013

8,860

24,693

Add back: Acquisition and integration related expenses(2)

9,070

-

25,353

41,898

Add back: Amortization of capitalized advisor compensation(3)

3,991

1,770

10,647

10,036

Add back: Change in fair value of contingent consideration(4)

(22,990)

3,966

(73,357)

4,228

Add back: Change in the fair value of embedded derivative contracts(5)

(48,663)

27,862

(105,056)

(30,591)

Add back: Goodwill and intangible assets impairment charge(6)

331,704

-

488,505

-

Add back: Professional fees(7)

2,962

3,011

12,939

4,184

Add back: Other(8)

22,147

9,205

25,497

30,187

Adjusted EBITDA from continuing operations (Non-GAAP)

$              22,863

$              54,875

$              90,630

$            178,348

EBITDA and Adjusted EBITDA from discontinued operations:

Net income (loss) from discontinued operations (Non-GAAP)

(18,851)

$                  (264)

$             (31,462)

$                 3,085

Add back: Interest

-

-

-

13

Add back: Provision (benefit) for income taxes

(12,568)

(176)

(20,975)

2,057

Add back: Depreciation and amortization expense

21

51

124

135

EBITDA (Non-GAAP)

$             (31,398)

$                  (389)

$             (52,313)

$                 5,290

Add back: Non-cash equity compensation(1)

3,551

3,054

9,506

9,379

Add back: Acquisition and integration related expenses(2)

55

190

210

190

Add back: Impairment charge on assets held for sale

17,978

-

17,978

-

Add back: Amortization of capitalized advisor compensation(3)

-

-

-

611

Add back: Change in fair value of contingent consideration(4)

-

-

-

-

Add back: Change in the fair value of embedded derivative contracts(5)

-

-

-

-

Add back: Goodwill and intangible assets impairment charge(6)

-

-

-

-

Add back: Professional fees(7)

300

-

321

-

Add back: Other(8)

1,721

22

4,048

(132)

Adjusted EBITDA from discontinued operations (Non-GAAP)

$               (7,793)

$                 2,877

$             (20,250)

$              15,338

 

 

 

RCS Capital Corporation and Subsidiaries

Reconciliation of Pro Forma GAAP to Non-GAAP ("Adjusted") Measures

(unaudited)

(Dollars in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net income (loss) from continuing operations (Non-GAAP)

$          (195,011)

$             (24,972)

$          (266,785)

$             (26,348)

After-tax EBITDA adjustments:

Add back: Non-cash equity compensation

1,932

3,008

5,316

14,816

Add back: Acquisition and integration related expenses

5,442

-

15,212

25,139

Add back: Amortization of capitalized advisor compensation

2,395

1,062

6,388

6,022

Add back: Change in fair value of contingent consideration

(13,794)

2,380

(44,014)

2,537

Add back: Change in the fair value of embedded derivative contracts

(29,197)

16,717

(63,033)

(18,355)

Add back: Goodwill and intangible assets impairment charge

199,022

-

293,103

-

Add back: Professional fees

1,777

1,807

7,763

2,511

Add back: Other

15,163

7,274

20,831

23,954

Total EBITDA Adjustments

182,740

32,248

241,566

56,624

Amortization of intangible assets

22,897

26,565

76,910

76,785

Adjusted net income from continuing operations (Non-GAAP)

$              10,626

$              33,841

$              51,691

$            107,061

Adjusted fully diluted shares (Non-GAAP) 

110,938

88,678

100,652

87,628

Net loss (Income) per share (Non-GAAP)

$                 (1.76)

$                 (0.28)

$                 (2.65)

$                 (0.30)

EBITDA per adjusted share (Non-GAAP)

$                 (2.51)

$                   0.05

$                 (3.01)

$                   1.07

Adjusted EBITDA per adjusted share (Non-GAAP)

$                   0.21

$                   0.62

$                   0.90

$                   2.04

Adjusted net income per adjusted share (Non-GAAP) 

$                   0.10

$                   0.38

$                   0.51

$                   1.22

Net income (loss) from discontinued operations (Non-GAAP)

$             (18,851)

$                  (264)

$             (31,462)

$                 3,085

After-tax EBITDA adjustments:

Add back: Non-cash equity compensation

2,131

1,832

5,704

5,627

Add back: Acquisition and integration related expenses

33

114

126

114

Add back: Impairment charge on assets held for sale

10,787

-

10,787

-

Add back: Amortization of capitalized advisor compensation

-

-

-

367

Add back: Change in fair value of contingent consideration

-

-

-

-

Add back: Change in the fair value of embedded derivative contracts

-

-

-

-

Add back: Goodwill and intangible assets impairment charge

-

-

-

-

Add back: Professional fees

180

-

192

-

Add back: Other

1,032

13

2,429

(79)

Total EBITDA Adjustments

14,163

1,959

19,238

6,029

Amortization of intangible assets

-

-

-

-

Adjusted net income from discontinued operations (Non-GAAP)

$               (4,688)

$                 1,695

$             (12,224)

$                 9,114

Adjusted fully diluted shares (Non-GAAP) 

110,938

88,678

100,652

87,628

Net loss (Income) per share (Non-GAAP)

$                 (0.17)

$                 (0.00)

$                 (0.31)

$                   0.04

EBITDA per adjusted share (Non-GAAP)

$                 (0.28)

$                 (0.00)

$                 (0.52)

$                   0.06

Adjusted EBITDA per adjusted share (Non-GAAP)

$                 (0.07)

$                   0.03

$                 (0.20)

$                   0.18

Adjusted net income (loss) per adjusted share (Non-GAAP) 

$                 (0.04)

$                   0.02

$                 (0.12)

$                   0.10

 

 

 

RCS Capital Corporation and Subsidiaries

Consolidated Statements of Financial Condition

(Unaudited)

(Dollars in thousands, except shares and par value amounts)

September 30,

December 31,

2015

2014

ASSETS

Cash and cash equivalents

$        153,426

$        167,165

Cash and securities segregated under federal and other regulations

20,094

19,030

Available-for-sale securities

2,676

11,473

Trading securities

3,190

2,765

Accounts receivable

158,993

165,513

Prepaid expenses and other assets

91,377

85,892

Property and equipment (net of accumulated depreciation)

41,823

24,444

Deferred compensation plan investments

81,682

83,456

Notes receivable (net of allowance)

77,269

68,989

Deferred financing fees

35,159

27,808

Intangible assets (net of accumulated amortization)

1,059,301

1,243,525

Goodwill

237,054

519,361

Assets of businesses held for sale

13,242

49,161

Total assets

$  1,975,286

$   2,468,582

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

Payable to customers

$          14,973

$          13,832

Commissions payable

106,447

100,996

Accrued expenses and accounts payable

125,861

85,170

Derivative contracts

781

81,032

Other liabilities

45,680

37,471

Deferred compensation plan accrued liabilities

82,067

84,963

Net deferred tax liability

149,340

266,202

Contingent and deferred consideration

66,714

145,430

Debt

784,696

804,411

Liabilities of businesses held for sale

17,931

13,786

Total liabilities

1,394,490

1,633,293

MEZZANINE EQUITY

11% Series B Preferred Stock $0.001 par value, 100,000,000 shares authorized, 5,800,000 issued and outstanding as of September 30, 2015, and December 31, 2014

157,204

146,700

7% Series C Convertible Preferred Stock $0.001 par value, 100,000,000 shares authorized, 4,400,000 issued and outstanding as of September 30, 2015, and December 31, 2014

116,422

111,288

11% Series D-1 Preferred Stock $0.001 par value, 100,000,000 shares authorized, 1,000,000 issued and outstanding as of September 30, 2015, and no shares authorized, issued or outstanding as of December 31, 2014

25,000

-

11% Series D-2 Preferred Stock $0.001 par value, 100,000,000 shares authorized, 500,000 issued and outstanding as of September 30, 2015, and no shares authorized, issued or outstanding as of December 31, 2014

12,500

-

STOCKHOLDERS' EQUITY

Class A common stock, $0.001 par value, 300,000,000 shares authorized, 85,473,352 issued and outstanding as of September 30, 2015, and 100,000,000 shares authorized, 70,571,540 issued and outstanding as of December 31, 2014

85

71

Class B common stock, $0.001 par value, 100,000,000 shares authorized, 1 issued and outstanding as of September 30, 2015, and December 31, 2014

-

-

Additional paid-in capital

788,395

723,113

Accumulated other comprehensive income (loss)

41

(120)

Retained deficit

(541,054)

(179,804)

Total stockholders' equity

247,467

543,260

Non-controlling interest

22,203

34,041

Total liabilities, mezzanine equity and equity

$  1,975,286

$   2,468,582

 

Non-GAAP Measures

We use EBITDA, adjusted EBITDA and adjusted net income, which are non-GAAP measures, as supplemental measures of our performance that are not required by, or presented in accordance with GAAP. None of the non-GAAP measures should be considered as an alternative to any other performance measure derived in accordance with GAAP. We use EBITDA, adjusted EBITDA and adjusted net income as an integral part of our report and planning processes and as one of the primary measures to, among other things:

  • monitor and evaluate the performance of our business operations;
  • facilitate management's internal comparisons of the historical operating performance of our business operations;
  • facilitate management's external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels;
  • analyze and evaluate financial and strategic planning decisions regarding future operating investments;
  • provide useful information to investors regarding financial and business trends related to our results of operations; and
  • plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

We define EBITDA as earnings before taxes, depreciation and amortization and interest. We define adjusted EBITDA as earnings before taxes, depreciation and amortization, interest, adjusted to exclude equity-based compensation, acquisition and related integration costs (including integration-related employee compensation and related costs), amortization of capitalized advisor costs, change in the fair value of contingent and deferred consideration, impairment charges for goodwill and intangible assets and other items.

We define adjusted net income as net income attributable to the Company (using the effective tax rate) and adjusted to exclude equity-based compensation, acquisition related expenses, amortization of capitalized advisor compensation, change in contingent and deferred consideration, amortization of intangible assets and other items.

We believe similarly titled, but not necessarily similarly comprised, measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, many of which present EBITDA, adjusted EBITDA and adjusted net income and other similar metrics when reporting their financial results. Our presentation of EBITDA, adjusted EBITDA and adjusted net income should not be construed to imply that our future results will be unaffected by unusual or nonrecurring items.

The following table provides a reconciliation of net income (loss) attributable to us (GAAP) to our EBITDA (Non-GAAP) and adjusted EBITDA (Non-GAAP) for the three and nine months ended September 30, 2015 and 2014:

 

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

2015

2014

2015

2014

EBITDA and Adjusted EBITDA from continuing operations:

Net income (loss) from continuing operations (GAAP)

$

(266,538)

$

(32,298)

$

(340,062)

$

26,803

Add back: Provision (benefit) for (from) income taxes

(58,481)

(6,872)

(104,579)

3,184

Add back: Depreciation and amortization expense

25,236

25,275

83,634

42,727

Add back: Interest expense

21,204

17,939

58,249

30,868

EBITDA (Non-GAAP)

(278,579)

4,044

(302,758)

103,582

Add back: Non-cash equity compensation(1)

3,221

3,760

8,860

10,458

Add back: Acquisition and related integration costs(2)

9,070

6,908

25,353

21,698

Add back: Amortization of capitalized advisor   compensation(3)

3,991

1,770

10,647

5,255

Add back: Change in the fair value of contingent consideration(4)

(22,990)

3,959

(73,357)

4,109

Add back: Change in the fair value of embedded   derivative contracts(5)

(48,663)

27,862

(105,056)

(30,590)

Add back: Goodwill and intangible assets impairment   charge(6)

331,704

488,505

Add back: Professional Fees(7)

2,962

3,044

12,939

4,031

Add back: Other(8)

22,147

2,207

25,497

13,195

Adjusted EBITDA from continuing operations (Non-GAAP)

$

22,863

$

53,554

$

90,630

$

131,738

EBITDA and Adjusted EBITDA from discontinued operations:

Net income (loss) from discontinuing operations (GAAP)

$

(24,556)

$

29

$

(32,562)

$

1,549

Add back: Provision (benefit) for (from) income taxes

(6,863)

(497)

(19,875)

3,189

Add back: Depreciation and amortization expense

21

51

124

147

Add back: Interest expense

EBITDA (Non-GAAP)

(31,398)

(417)

(52,313)

4,885

Add back: Non-cash equity compensation(1)

3,551

3,054

9,506

7,578

Add back: Acquisition and related integration costs(2)

55

190

210

190

Add back: Impairment reserve on assets held for sale

17,978

17,978

Add back: Amortization of capitalized advisor   compensation(3)

Add back: Change in the fair value of contingent consideration(4)

Add back: Change in the fair value of embedded   derivative contracts(5)

Add back: ARCP settlement

Add back: Goodwill and intangible assets impairment   charge(6)

Add back: Professional Fees(7)

300

321

Add back: Other(8)

1,721

22

4,048

2,281

Adjusted EBITDA from discontinued operations (Non-GAAP)

$

(7,793)

$

2,849

$

(20,250)

$

14,934

________________

(1) Includes compensation expense related to restricted stock and other equity grants, which are amortized over the vesting period.

(2) Includes accounting, legal, consulting and other professional fees incurred in connection with completed or terminated acquisitions and integration-related expenses, which include allocated compensation and related costs of officers and employees of the Company based on estimated time engaged in integration-related activities. Third party acquisition and integration-related expenses comprise $9.0 million and $23.7 million of the adjustment and allocated employee compensation and related costs comprise $0.1 million and $1.8 million of the adjustment in the three and nine months ended September 30, 2015, respectively. For the third and fourth quarters of quarters of 2014, third party acquisition and integration-related expenses comprise $3.7 million and $11.4 million of the adjustment and allocated employee compensation and related costs comprise $3.4 million and $1.8 million of the adjustment. Allocated employee compensation and related costs include employees that were employed prior to such acquisitions and we expect will continue their employment following the integration.

These officers and employees may continue in the employ of the Company after completion of the acquisition and integration-related activities, and their compensation and related costs generally were not affected by their acquisition and integration related activities. The Company believes that it was required to incur additional expenses by having third party professionals and service providers perform tasks on behalf of the Company that could not be performed by such officers and employees due to the fact they were actively involved in these acquisition and integration related activities.

(3) Consists of amortization of the principal amount of forgivable promissory notes from financial advisors.

(4) See Note 3 of our consolidated financial statements.

(5) See Note 10 of our consolidated financial statements.

(6) See Note 3 and 8 of our consolidated financial statements.

(7) Consists of fees for professional services that the Company believes are outside the normal course of business and not indicative of the Company's ongoing operations, including legal costs for certain regulatory or internal examinations and investigations and certain litigations. The professional fees for the nine months ended September 30, 2015 also include matters relating to the Company's retail business that arose in connection with activities of prior owners in which the Company no longer engages, which the Company believes are not part of its normal business operations, consisting of (i) $0.3 million for legal fees and losses relating to claims associated with sale by prior owners of interests in certain venture capital funds (an activity in which the Company is no longer engaged) and $1.6 million for losses from impermissible trading activities of one trader. For the third and fourth quarters of quarters of 2014, the Company included $3.0 million and $62.5 million, respectively, of professional fees that it believed were outside the normal course of business as part of Other.

(8) Includes for the three and nine months ended September 30, 2015, $0.0 million and $0.4 million, respectively, of fees payable to our independent auditors relating to the Company's financial statements for 2014, which exceeded the original estimate. For the nine months ended September 30, 2015, Other also includes an additional $2.5 million of professional fees payable to our independent auditors for their year-end audit procedures resulting from complex accounting matters at the parent and additional substantive analyses, consultations and procedures at the parent and our broker-dealer subsidiaries related to financial reporting and Sarbanes-Oxley testing.

Also, includes $0.3 million of start-up costs for the three months ended September 30, 2015 and an additional $3.1 million for the nine months ended September 30, 2015 relating to the first quarter of 2015 relating to costs related to the development of new businesses ventures. These expenses consist of employee, travel and entertainment costs. For the third and fourth quarters of quarters of 2014, the Company included $2.0 million and $3.9 million, respectively, of start-up costs as part of Other.

Also includes for the nine months ended September 30, 2015, $0.1 million of costs incurred during the first quarter of 2015 for Sarbanes Oxley compliance relating to the establishment of systems required to meet certain Sarbanes Oxley requirements due to establishing systems for Sarbanes Oxley compliance with respect to acquired companies. The Company's external Sarbanes Oxley accountants establish the fee attributable to Sarbanes Oxley compliance allocable to the Company and certain of its subsidiaries and the Company has estimated the percentage of such fees that relates to establishing the systems needed to satisfy Sarbanes Oxley requirements.

Includes for the three and nine months ended June 30, 2014, the OPP bonus.

In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items or other items discussed herein, some of which may be the same or different from those described above.

The following table provides a reconciliation of net income (loss) attributable to us (GAAP) to our adjusted net income (Non-GAAP) and adjusted earnings per share (Non-GAAP) for the three and nine months ended September 30, 2015 and 2014:

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands, except per share data)

2015

2014

2015

2014

Net income (loss) from continuing operations (GAAP)

$

(266,538)

$

(32,298)

$

(340,062)

$

26,803

Adjusted net income (loss) adjustments:

   Add back: Non-cash equity compensation(1)

2,631

3,061

6,641

8,539

   Add back: Acquisition and related integration costs(2)

7,407

5,624

19,005

17,716

   Add back: Amortization of capitalized advisor       compensation(3)

3,259

1,441

7,981

4,291

   Add back: Change in the fair value of contingent       consideration(4)

(18,776)

3,223

(54,988)

3,355

   Add back: Change in the fair value of embedded       derivative contracts(5)

(39,743)

22,682

(78,750)

(24,977)

   Add back: Goodwill and intangible assets impairment       charge(6)

270,903

366,183

   Add back: Professional Fees(7)

2,419

2,478

9,699

3,291

   Add back: Other(8)

18,087

1,797

19,113

10,774

Total adjusted net income (loss) adjustments

246,187

40,306

294,884

22,989

   Amortization of intangible assets(9)

22,896

24,112

76,936

39,643

Adjusted net income from continuing operations (Non-    GAAP)

$

2,545

$

32,120

$

31,758

$

89,435

Net income (loss) from discontinued operations (GAAP)

$

(24,556)

$

29

$

(32,562)

$

1,549

Adjusted net income (loss) adjustments:

   Add back: Non-cash equity compensation(1)

2,900

2,486

7,126

6,187

   Add back: Acquisition and related integration costs(2)

45

155

157

155

   Add back: Impairment reserve on assets held for sale

14,683

13,476

   Add back: Amortization of capitalized advisor       compensation(3)

   Add back: Change in the fair value of contingent       consideration(4)

   Add back: Change in the fair value of embedded       derivative contracts(5)

   Add back: Goodwill and intangible assets impairment       charge(6)

   Add back: Professional Fees(7)

245

241

   Add back: Other(8)

1,406

18

3,034

1,862

Total adjusted net income (loss) adjustments

19,279

2,659

24,034

8,204

Adjusted net (loss) income from discontinued operations    (Non-GAAP)

$

(5,277)

$

2,688

$

(8,528)

$

9,753

Adjusted net income from continuing operations per       adjusted share (Non-GAAP)

$

0.03

$

0.51

$

0.42

$

1.86

Adjusted net (loss) income from discontinued operations per       adjusted share (Non-GAAP)

$

(0.07)

$

0.04

$

(0.11)

$

0.20

Adjusted share reconciliation:

   Weighted-average basic shares (GAAP)

80,135,509

62,906,270

75,123,655

44,388,158

   Weighted average of Class B common stock (January 1 to       February 10, 2014)

3,604,395

   Total adjusted weighted-average shares (GAAP and Non-       GAAP, respectively)

80,135,509

62,906,270

75,123,655

47,992,553

Effective tax rate used in the reconciliation of net income to    adjusted net income

18.33

%

18.59

%

25.04

%

18.35

%

 

 

________________

(1-8) Refer to the footnotes under the EBITDA and adjusted EBITDA table.

(9) Amount is not tax effected.

The non-GAAP measures have limitations as analytical tools, and you should not consider any of these measures in isolation or as a substitute for analyses of our income or cash flows as reported under GAAP.

Some of these limitations are:

  • they do not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;
  • they do not reflect changes in, or cash requirements for, our working capital needs;
  • they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and
  • depreciation and amortization and impairment charges are non-cash expense items that are reflected in our statements of cash flows.

In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. We compensate for these limitations by relying primarily on our GAAP results and using the non-GAAP measures only for supplemental purposes. Please see our consolidated financial statements and the related notes thereto.

The Bank Facilities and our convertible notes include covenants and other provisions based on a definition of EBITDA, which we refer to as "Covenant EBITDA," that differs from the definition of EBITDA described above. Furthermore, our Series B Preferred Stock, our Series C Preferred Stock and Series D Preferred Stock also include covenants and other provisions based on a definition of EBITDA that differs from both the definition of EBITDA described above and Covenant EBITDA, which is defined in the Series B COD, Series C COD, and Series D COD as LTM, or last twelve months, Adjusted EBITDA.

Covenant EBITDA is used, among other things, in calculating the Leverage Ratio, First Lien Leverage Ratio, Secured Leverage Ratio and Fixed Charge Covenant Ratio, as defined in the Bank Facilities, in calculating similar ratios in the indenture governing the convertible notes. These ratios are used under both agreements as part of covenants relating to, among other things, incurrence of debt and payment of dividends and distributions.

Covenant EBITDA is only generally comparable to EBITDA and adjusted EBITDA. Under the Bank Facilities and the indenture governing the convertible notes, Covenant EBITDA is similar to EBITDA, subject to certain additional adjustments, including further adjustments to add back (i) equity-based compensation and other non-cash charges and extraordinary, nonrecurring or unusual losses or expenses; (ii) fees and expenses incurred in connection with equity issuances and debt incurrences, and certain fees and expenses incurred in connection with the financing of the acquisition of Cetera, the acquisitions of Cetera, Hatteras, ICH, Summit and J.P. Turner and Permitted Acquisitions (as defined in the Bank Facilities), which, in the aggregate (other than fees and expenses for the financing of the acquisition of Cetera and the recent acquisitions to the extent scheduled), do not exceed 10% of Covenant EBITDA for the relevant period; (iii) certain projected net cost savings and synergies related to the acquisitions of Cetera, Hatteras, ICH, Summit and J.P. Turner and the financing of the acquisition of Cetera based on actions to be taken within 18 months; and (iv) projected net cost savings and synergies related to other acquisitions and asset sales permitted under the credit agreement based on actions to be taken within 12 months, which, in the aggregate and prior to giving effect to such net cost savings and synergies, do not exceed 10% of Covenant EBITDA for the four quarters preceding the relevant determination date. The adjustments made to EBITDA to derive adjusted EBITDA are similar to the adjustments made to EBITDA to derive Covenant EBITDA, but there are also differences that could lead the results to not be comparable under certain circumstances, such as the differences in adjustments made to add back acquisition related expenses.

In addition, LTM Adjusted EBITDA is used as part of the covenants relating to incurrence of debt in the Series B COD, the Series C COD and the Series D COD. LTM Adjusted EBITDA is similar to EBITDA, subject to certain differences in the adjustments, including adjustments for employee share-based compensation expense, acquisition and integration related expenses and equity issuance and related offering costs. The adjustments made to EBITDA to derive adjusted EBITDA are similar to the adjustments made to EBITDA to derive LTM Adjusted EBITDA, but there are also differences that could lead the results to not be comparable under certain circumstances.

We also use Core Earnings, a non-GAAP measure, to calculate the incentive fee payable to RCS Capital Management under our services agreement. While Core Earnings includes certain adjustments for non-cash items, it is based on after-tax GAAP net income and also includes adjustments for items such as unrealized gains or losses recorded for the period and the payment of incentive fees. Accordingly, Core Earnings is not comparable to EBITDA or adjusted EBITDA.

Logo - http://photos.prnewswire.com/prnh/20130522/NY19075LOGO

SOURCE RCS Capital Corporation



RELATED LINKS

http://www.rcscapital.com