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Press release content from Globe Newswire. The AP news staff was not involved in its creation.

National Holdings Corporation Reports Financial Results for the 2019 Fiscal Fourth Quarter and 2019 Fiscal Year

December 31, 2019 GMT

NEW YORK, Dec. 31, 2019 (GLOBE NEWSWIRE) -- National Holdings Corporation (NASDAQ: NHLD) (“National” or the “Company”), a leading full service independent brokerage, investment banking, trading and asset management firm providing diverse services including tax preparation, today announced its financial results for the 2019 fiscal year.

Financial Highlights:

# Revenue of $57.4 million in Q4 2019, up $12.9 million, or 29%, from $44.5 million recognized in Q4 2018. # Net Income attributable to common shareholders of $0.8 million in Q4 2019, up $2.8 million, from ($2.0) million in Q4 2018. # Record revenue of $212.9 million in fiscal 2019, up $1.8 million, from $211.1 million recognized in fiscal 2018. # Investment banking continued to produce record results, generating $69.7 million of revenue in fiscal 2019, versus a then record of $57.2 million in fiscal 2018. # Investment advisory also contributed record results, with total revenue of $34.4 million in fiscal 2019 versus $21.5 million in fiscal 2018. # Net loss attributable to common shareholders of ($0.8) million in fiscal 2019 compared to a net loss attributable to common shareholders of ($11.5) million in fiscal 2018. # Record adjusted EBITDA increased to $12.4 million in fiscal 2019 from $12.2 million recorded in fiscal 2018. # Cash and cash equivalents of $41.0 million and no debt as of September 30, 2019 versus $33.6 million and no debt as of September 30, 2018. # Total stockholders’ equity of $51.6 million as of September 30, 2019, versus $46.9 million as of September 30, 2018.

Management Commentary

Michael Mullen, Chief Executive Officer of National stated, “2019 was another record year for National as our revenue continued to reach record highs, and we continued to grow our assets under management, while keeping our balance sheet debt-free. We remain focused on the long-term success of National and believe our rebuilt enterprise risk management team and processes, as well as the addition of high caliber financial advisors, will help shepherd us toward our goals, while avoiding issues that have weighed negatively on our Company in years past. I am incredibly proud of the team we have built and have confidence in the future of our business and the value that will generate for our stakeholders.”

Mr. Mullen continued, “Supporting our long-term goals, I am pleased to announce we have successfully executed two liquidation events in our Private Shares business which produced positive returns for our investors while also supporting our revenue for the fiscal year-end. One of the liquidation events occurred in Q4 2019 and helped drive a strong close to our fiscal year. Additionally, we have also successfully recruited 30+ high quality financial advisors in the latter half of fiscal 2019, representing over $12 million in revenue and more than $1.9 billion in AUM. The magnitude and volume of talent interested in joining our team is a testament to the hard work and dedication of our leadership team to rebuilding/transforming National. We believe this is just the beginning and we are confident we will continue to add quality financial advisors with significant contributory revenue and AUM in 2020. Lastly, we are pleased to announce that we expect the pending Winslow Evans and Crocker acquisition to close today, following which we will have approximately $15 billion in assets under management.”

Fiscal 2019 Summarized Financial Results

National reported fiscal 2019 revenue of $212.9 million, up 1% from the $211.1 million recorded in fiscal 2018. Increases in Investment Banking, Investment Advisory, Interest and Dividends, Transfer Fees and Clearing Services, and Tax Preparation and Accounting revenues were offset by a material decline in Commissions revenues. The decline in Commissions is attributable to various factors including the U.S. government shutdown early in 2019 fiscal year, the re-allocation of a portion of transactional revenues to our investment banking business, the targeted effort to re-allocate some client assets to investment advisory, and enhanced enterprise risk management policies and procedures. We are quite confident that our client centric and quality product approach to business is increasingly providing enhanced results.

Total expenses increased $2.4 million (1%) to $210.8 million from $208.4 million in the prior fiscal year. While our fixed salaries and benefits increased during the current fiscal year, the increase was disproportionally focused on revenue generating personnel as we increase recruiting and our geographic footprint. These expenses in addition to higher legal and arbitration expenses were partially offset by the continuing improvement in our variable cost of generating revenue.

The result of the revenue and expense increases was a net loss attributable to common shareholders for the year of ($819,000), versus a net loss attributable to common shareholders in the prior year of ($11,510,000), or ($316,000) adjusted for the change in the fair value of the Company’s warrant liability. Adjusted EBITDA (“AEBITDA”) increased to $12.4 million, from $12.2 million in fiscal 2018.

Revenue

As noted above, our revenue categories performed well and as expected in the current year, with growth in investment banking and investment advisory, offset by declines in commissions as previously noted.

-- Commissions and related revenue were down 19% in fiscal 2019 to $95.0 million, from $117.2 million in the prior year period. This decline in transactional revenue is partially offset by the continuing increase in our investment banking and private shares business, and the re-allocation of a portion of our clients’ assets to our investment advisory business. Early fiscal 2019 Fed interest rate concerns and shutdown contributed to a slow first quarter in this fiscal year, adding to the overall year over year decline. Further, the continuing enhancements to our enterprise risk management team and associated policies and procedures has had an effect on commissions and related revenue. We expect that our continued focus on risk management will result in a lower portion of our business being generated in this revenue category, and a smaller percentage of our growth as we increase revenues in succeeding fiscal years. -- Investment banking produced record revenues of $69.7 million, up $12.5 million (22%) over the $57.2 million recorded in the prior fiscal year. We saw strength across the board in our traditional and private shares businesses, even though the early year federal government shutdown resulted in the loss of two deals in this fiscal year. Carried interest earned on the successful liquidation of two positions in our private shares business this year also contributed to these positive results. -- Revenue from investment advisory increased to $34.4 million, a 60% increase over the revenue recorded in the 2018 fiscal year. This category also produced record results as assets under management (AUM) attributable to investment advisory continue to grow; the positive impact from carried interest due to the liquidation of two positions in our private shares business contributed heavily in this category as well. We expect continuing growth in AUM in investment advisory due to the previously announced acquisition of Winslow, Evans and Crocker, as well as the addition of registered representatives acquired through enhanced recruiting that began earlier in fiscal 2019. -- Net dealer inventory revenue results produced a loss for the year totaling ($1.5) million versus gains of $3.3 million in fiscal 2018. As we have noted in previous releases, we have scaled back our trading business to concentrate on client facilitation and investment banking support; in addition however, this category was negatively impacted by an unrealized loss on carried interest shares held through our fiscal year end. -- Our tax preparation and accounting revenue increased to $8.8 million, up $1.0 million or 13% from fiscal 2018. We continue to invest in this business where appropriate in providing more holistic services to our clients, and to introduce new clients to all of the other financial services and products that we offer.

Expenses

Total expenses increased to $210.8 million in the current fiscal year, up $2.4 million, or 1%, over fiscal 2018. A mix of increases and decreases in certain expense categories contributed to these results.

Commissions, compensation and fees decreased $4.3 million as the Company’s variable cost of generating revenue across our various businesses declined year over year due to a favorable mix of business in the current year and focus on gross margin efficiency. Fixed employee compensation and benefits increased partially offsetting that decline due to the continuing amortization of restricted share unit compensation, which the Company grants to management and vests based on various factors including AEBITDA and market cap benchmarks, and due to the continuing focus on hiring revenue generating personnel when and where appropriate.

Communications expenses declined $0.4 million to $2.8 million as the Company’s cost optimization program continues to identify vendor efficiencies across our platform.

Occupancy expenses increased $0.5 million to $4.3 million, primarily due to the termination of a lease commitment associated with the restructuring of office space in our main Florida location.

Professional fees increased $3.0 million to $7.3 million, due to legal advice for several corporate matters that occurred in fiscal 2019, and legal work associated with continuing litigation and arbitration claims.

Other administrative expenses increased $3.2 million to $11.3 million, primarily due to legacy arbitration and litigation expense recorded in the current fiscal year.

Earnings

Income before income taxes totaled $2.2 million, versus a loss of ($8.3) million in fiscal 2018. The loss in fiscal 2018 was due to an $11.2 million change in the fair value of the Company’s warrant liability recorded in 2018.

The net loss attributable to common shareholders was ($0.8) million in fiscal 2019, compared to a loss of ($11.5) million recorded in fiscal 2018. As disclosed previously, the change in the fair value of the Company’s warrant liability drove the majority of the loss in fiscal 2018.

The net loss per share, both basic and fully diluted, was ($0.06) in the current fiscal year, versus the net loss per share, both basic and fully diluted, of ($0.92) in fiscal 2018.

Net income attributable to non-controlling interest in fiscal 2019 is due to National Asset Management Inc.’s (“NAM”) majority voting interest in Innovation X Management, LLC (“Innovation”), which together serve as the investment manager of an investment fund. Because NAM has the majority voting interest in Innovation, the results of operations of Innovation are included in the Company’s consolidated financial statements, and the amount attributable to the other investor is recorded as a non-controlling interest. During fiscal 2019, Innovation recognized net carried interest earned from the investment fund of $6.7 million, of which $2.7 million was attributable to the non-controlling interest.

Adjusted EBITDA increased to $12.4 million in the current fiscal year, an increase of $0.2 million from the $12.2 million recorded in fiscal 2018.

Balance Sheet

As of September 30, 2019, National had $41.0 million of cash and cash equivalents, versus $33.6 million as of September 30, 2018. Total Stockholders’ Equity increased to $51.6 million versus $46.9 million as of September 30, 2018. The Company’s balance sheet remains debt free.

Non-GAAP Measures

The Non-GAAP measures shown in this release exclude various items detailed further below.

-- National defines non-GAAP adjusted EBITDA as GAAP net income (loss) excluding: interest expense, income taxes, depreciation and amortization, stock-based compensation, the change in the fair value of the Company’s warrant liability, forgivable loan amortization, unrealized gains/losses on the firm’s warrant portfolio, real estate restructuring costs, business acquisition related costs, legal and arbitration costs associated with pre-fiscal 2017 lawsuits not covered by insurance and gain on disposal of National Tax branches.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included with the financial information included in this press release. These measures are not in accordance with, or an alternative for, GAAP and may be different from non-GAAP measures used by other companies. Management believes that the presentation of non-GAAP results, when shown in conjunction with corresponding GAAP measures, provides useful information to management and investors regarding financial and business trends related to the Company’s operating results.

About National Holdings Corporation

National Holdings Corporation (NHLD) is a full-service investment banking and asset management firm that, through its affiliates, provides a range of services, including independent retail brokerage and advisory services, investment banking, institutional sales and trading, equity research, financial planning, market making, tax preparation, insurance, to corporations, institutions, high net-worth and retail investors. With over 900 advisors, registered reps, traders, sales associates and corporate staff, National Holdings operates through various subsidiaries including National Securities Corporation, National Asset Management, Inc., National Insurance Corporation, National Tax and Financial Services, Inc. (formerly Gilman Ciocia, Inc.) and GC Capital Corporation. Formed as a holding company in 1999, National Holdings’ largest subsidiary National Securities Corporation has been in business since 1947. National Holdings is headquartered in New York and Florida. For more information, visit www.yournational.com.

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this press release, including, but not limited to, the statements regarding our intentions, beliefs or current expectations concerning, among other things, our financial performance; financial condition; operations and services; prospects; growth and strategies, are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Any such statements, other than statements of historical fact, are based on management’s current expectations, estimates, projections, beliefs and assumptions about the Company, its current and prospective portfolio investments, and its industry. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Company’s control, difficult to predict and could cause actual results to differ materially from those expected or forecasted in such forward-looking statements. Actual developments and results are likely to vary materially from these estimates and projections as a result of a number of factors, including investor confidence may weaken, negatively affecting brokerage services revenue, investment banking revenue may be negatively affected if market conditions worsen, the value of our carried interest may decline prior to being recognized and other risks described from time to time in National’s filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and National undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

CONTACT:

Investor Relations:

Email: ir@yournational.com

Telephone: +1 212 417 3638

NATIONAL HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

September 30, 2019 2018 -------------- -------------- ASSETS Cash $ 30,443,000 $ 27,920,000 Restricted cash 960,000 1,353,000 Cash deposits with clearing organizations 436,000 336,000 Securities owned, at fair value 12,481,000 7,786,000 Receivables from broker dealers and clearing organizations 3,490,000 3,967,000 Forgivable loans receivable 1,834,000 1,567,000 Other receivables, net 5,672,000 4,265,000 Prepaid expenses 3,639,000 4,065,000 Fixed assets, net 5,067,000 2,671,000 Intangible assets, net 5,441,000 4,730,000 Goodwill 5,153,000 5,153,000 Deferred tax asset, net 4,560,000 4,192,000 Other assets 2,031,000 444,000 ------------ - ------------ - Total Assets $ 81,207,000 $ 68,449,000 - ---------- - - ---------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Accrued commissions and payroll payable 18,590,000 12,862,000 Accounts payable and other accrued expenses 10,263,000 8,019,000 Deferred clearing and marketing credits 367,000 576,000 Other 388,000 57,000 ------------ - ------------ - Total Liabilities 29,608,000 21,514,000 Commitments and Contingencies Stockholders’ Equity Preferred stock, $0.01 par value, 10,000,000 shares authorized; none — — outstanding Common stock $0.02 par value, authorized 75,000,000 shares at September 30, 2019 and 2018; 13,158,441 shares issued and outstanding at September 30, 2019 and 263,000 250,000 12,541,890 shares issued and outstanding at September 30, 2018 Additional paid-in-capital 90,354,000 86,510,000 Accumulated deficit (40,779,000 ) (39,825,000 ) ------------ - ------------ - Total National Holdings Corporation Stockholders’ Equity 49,838,000 46,935,000 Non-controlling interest 1,761,000 — ------------ - ------------ - Total Stockholders’ Equity 51,599,000 46,935,000 ------------ - ------------ - Total Liabilities and Stockholders’ Equity $ 81,207,000 $ 68,449,000 - ---------- - - ---------- -

NATIONAL HOLDINGS CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended September 30, 2019 2018 2017 -------------- --------------- ------------- Revenues Commissions $ 86,929,000 $ 109,984,000 $ 96,807,000 Net dealer inventory (losses) gains (1,466,000 ) 3,329,000 15,108,000 Investment banking 69,656,000 57,201,000 44,385,000 Investment advisory 34,400,000 21,483,000 14,738,000 Interest and dividends 5,822,000 3,233,000 2,764,000 Transfer fees and clearing services 8,092,000 7,200,000 7,393,000 Tax preparation and accounting 8,807,000 7,772,000 7,439,000 Other 701,000 913,000 1,236,000 ------------ - ------------- - ------------ Total Revenues 212,941,000 211,115,000 189,870,000 ------------ - ------------- - ------------ Operating Expenses Commissions, compensation and fees 177,824,000 182,127,000 155,187,000 Clearing fees 2,437,000 2,400,000 2,343,000 Communications 2,816,000 3,260,000 2,767,000 Occupancy 4,301,000 3,755,000 4,286,000 Licenses and registration 2,960,000 2,735,000 1,726,000 Professional fees 7,306,000 4,306,000 4,531,000 Interest 32,000 97,000 14,000 Depreciation and amortization 1,832,000 1,551,000 1,229,000 Other administrative expenses 11,333,000 8,165,000 9,819,000 ------------ - ------------- - ------------ Total Operating Expenses 210,841,000 208,396,000 181,902,000 ------------ - ------------- - ------------ Income before Other Income (Expense) and Income Taxes 2,100,000 2,719,000 7,968,000 Other Income (Expense) Gain on disposal of Gilman branches — 57,000 137,000 Change in fair value of warrants — (11,194,000 ) 8,458,000 Other income 60,000 96,000 16,000 ------------ - ------------ Total Other Income (Expense) 60,000 (11,041,000 ) 8,611,000 ------------ - ------------- - ------------ Income (Loss) before Income Taxes 2,160,000 (8,322,000 ) 16,579,000 Income tax expense 319,000 3,188,000 4,051,000 Net Income (Loss) $ 1,841,000 $ (11,510,000 ) $ 12,528,000 - ---------- - - ----------- - - ---------- Net income attributable to non-controlling interest (2,660,000 ) — — Net income (loss) attributable to National Holdings Corporation $ (819,000 ) $ (11,510,000 ) $ 12,528,000 common shareholders - ---------- - - ----------- - - ---------- Net income (loss) per share attributable to National Holdings $ (0.06 ) $ (0.92 ) $ 1.01 Corporation common shareholders - Basic - ---------- - - ----------- - - ---------- Net income (loss) per share attributable to National Holdings $ (0.06 ) $ (0.92 ) $ 1.00 Corporation common shareholders - Diluted - ---------- - - ----------- - - ---------- Weighted average number of shares outstanding - Basic 12,821,581 12,474,753 12,437,916 ------------ - ------------- - ------------ Weighted average number of shares outstanding - Diluted 12,821,581 12,474,753 12,472,541 ------------ - ------------- - ------------

RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP* ADJUSTED EBITDA

Fiscal Year Ended 2019 2018 -------------- --------------- Net (loss) income attributable to common shareholders, as reported $ (819,000 ) $ (11,510,000 ) Interest expense 32,000 97,000 Income taxes 319,000 3,188,000 Depreciation and amortization 1,832,000 1,551,000 ------------ - ------------- - EBITDA 1,364,000 (6,674,000 ) Non-cash compensation expense 4,282,000 2,913,000 Change in fair value of warrant liability — 11,194,000 Forgivable loan amortization 680,000 630,000 Unrealized (gain) loss on the firm’s warrant portfolio 2,820,000 2,865,000 Real estate restructuring costs 315,000 — Business acquisition related costs 168,000 — Legal and arbitration costs associated with pre-fiscal 2017 lawsuits not 2,766,000 1,357,000 covered by insurance Gain on disposal of National Tax branches — (57,000 ) EBITDA, as adjusted $ 12,395,000 $ 12,228,000 - ---------- - - ----------- -

* National defines non-GAAP adjusted EBITDA as GAAP net income (loss) excluding: interest expense, income taxes, depreciation and amortization, stock-based compensation, the change in the fair value of the Company’s warrant liability, forgivable loan amortization, unrealized gains/losses on the firm’s warrant portfolio, real estate restructuring costs, business acquisition related costs, legal and arbitration costs associated with pre-fiscal 2017 lawsuits not covered by insurance and gain on disposal of National Tax branches.