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IFMI Reports Third Quarter 2011 Financial Results

Forward-looking Statements

This communication contains certain statements, estimates and forecasts with respect to future performance and events. These statements, estimates and forecasts are “forward-looking statements.” In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “seek” or “continue” or the negatives thereof or variations thereon or similar terminology. All statements other than statements of historical fact included in this communication are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied in the forward-looking statements including, but not limited to, those discussed under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition” in our filings with the Securities and Exchange Commission (“SEC”), which are available at the SEC’s website at www.sec.gov and our website at www.IFMI.com/sec-filings. Such risk factors include the following: (a) a decline in general economic conditions or the global financial markets, (b) losses caused by financial or other problems experienced by third parties, (c) losses due to unidentified or unanticipated risks, (d) a lack of liquidity, i.e., ready access to funds for use in our businesses, (e) the ability to attract and retain personnel, (f) litigation and regulatory issues, (g) competitive pressure, and (h) a potential Ownership Change under Section 382 of the Internal Revenue Code. As a result, there can be no assurance that the forward-looking statements included in this communication will prove to be accurate or correct. In light of these risks, uncertainties and assumptions, the future performance or events described in the forward-looking statements in this communication might not occur. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Cautionary Note Regarding Quarterly Financial Results

General

Due to the nature of our business, our revenue and operating results may fluctuate materially from quarter to quarter. Accordingly, revenue and net income in any particular quarter may not be indicative of future results. Further, our employee compensation arrangements are in large part incentive-based and therefore will fluctuate with revenue. The amount of compensation expense recognized in any one quarter may not be indicative of such expense in future periods. As a result, we suggest that annual results may be the most meaningful gauge for investors in evaluating our business performance.

INSTITUTIONAL FINANCIAL MARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
           
Three Months Ended Nine Months Ended
09/30/11   09/30/10 09/30/11 09/30/10
Revenues
 
Net trading $ 14,008 $ 14,025 $ 57,522 $ 56,483
Asset management 5,296 6,036 16,521 19,050
New issue and advisory 705 30 1,945 2,103
Principal transactions and other income   869     3,013     661     23,012  
Total revenues   20,878     23,104     76,649     100,648  
 
Operating expenses
 
Compensation and benefits 19,399 13,787 62,820 64,190
Business development, occupancy, equipment 1,942 1,392 5,216 4,113
Subscriptions, clearing, and execution 3,500 3,354 9,042 6,562
Professional services and other operating 3,237 4,494 12,389 13,481
Depreciation and amortization 612 628 1,585 1,899
Impairment of goodwill   -     5,607     -     5,607  
Total operating expenses   28,690     29,262     91,052     95,852  
 
Operating income / (loss)   (7,812 )   (6,158 )   (14,403 )   4,796  
 
Non-operating income (expense)
 
Interest expense, net (1,282 ) (2,345 ) (4,211 ) (6,167 )
Gain / (loss) on repurchase of debt - 1,632 - 2,518
Gain on sale of management contracts - - - 971
Income / (loss) from equity method affiliates   838     6,112     5,368     6,004  
Income / (loss) before income taxes (8,256 ) (759 ) (13,246 ) 8,122
Income tax expense / (benefit)   (571 )   (622 )   (917 )   501  
Net income / (loss) (7,685 ) (137 ) (12,329 ) 7,621
Less: noncontrolling interest   (3,640 )   (138 )   (5,288 )   2,645  
Net income / (loss) attributable to IFMI $ (4,045 ) $ 1   $ (7,041 ) $ 4,976  
 
INSTITUTIONAL FINANCIAL MARKETS, INC.
EPS AND ADJUSTED OPERATING INCOME CALCULATION
(in thousands, except per share data)
         
Three Months Ended Nine Months Ended
        09/30/11   09/30/10   09/30/11   09/30/10
Earnings per share

Basic

Net income / (loss) attributable to IFMI $ (4,045 ) $ 1 $ (7,041 ) $ 4,976
Basic shares outstanding   10,595     10,428     10,772     10,392  
Net income / (loss) attributable to IFMI per share $ (0.38 ) $ 0.00   $ (0.65 ) $ 0.48  
 

Fully Diluted

Net income / (loss) attributable to IFMI $ (4,045 ) $ 1 $ (7,041 ) $ 4,976
Add: Net income / (loss) attributable to the noncontrolling interest (3,640 ) (138 ) (5,288 ) 2,645
Add: Net loss attributable to the non controlling interest that is not convertible 1,335 - 1,388 -
Add / (deduct): Additional tax benefit / (expense) if converted   247     139     440     (104 )
Enterprise net income (loss) $ (6,103 ) $ 2   $ (10,501 ) $ 7,517  
 
Basic shares outstanding 10,595 10,428 10,772 10,392
Unrestricted Operating LLC membership units exchangeable into IFMI shares   5,258     5,284     5,275     5,284  
Fully diluted shares outstanding   15,853     15,712     16,047     15,676  
       
Fully diluted net income / (loss) per share $ (0.38 ) $ 0.00   $ (0.65 ) $ 0.48  
                     
Reconciliation of adjusted operating income (loss) to operating income (loss) and calculation of per share amounts
 
Operating income / (loss) $ (7,812 ) $ (6,158 ) $ (14,403 ) $ 4,796
Deduct: Net loss attributable non controlling interest that is not convertible 1,335 - 1,388 -
One time compensation charge related to former CEO of capital markets segment - - 3,000 -
Depreciation and amortization 612 628 1,585 1,899
Impairment of goodwill - 5,607 - 5,607
Share-based compensation 1,543 593 6,969 2,414
IFMI share of incentive fees included in income from equity method affiliates   -     5,965     4,359     5,965  
Adjusted operating income / (loss) $ (4,322 ) $ 6,635   $ 2,898   $ 20,681  
 
Fully diluted net income / (loss) per share   15,853     15,712     16,047     15,676  
Adjusted operating income / (loss) per share $ (0.27 ) $ 0.42   $ 0.18   $ 1.32  
 
INSTITUTIONAL FINANCIAL MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
     
September 30, 2011
(unaudited) December 31, 2010
Assets
Cash and cash equivalents $ 25,633 $ 43,946
Restricted cash 891 3,714
Receivables from brokers, dealers, and clearing agencies 38,434 793
Due from related parties 395 966
Other receivables 4,999 6,033
Investments-trading 136,564 189,015
Other investments, at fair value 44,601 46,551
Receivables under resale agreements 39,189 -
Goodwill 11,176 3,231
Other assets   19,158     12,498  
Total assets $ 321,040   $ 306,747  
 
Liabilities
 
Payables to brokers, dealers, and clearing agencies $ 39,779 $ 45,469
Due to related parties 7 34
Accounts payable and other liabilities 16,136 13,165
Accrued compensation 10,905 17,358
Trading securities sold, not yet purchased 66,937 17,820
Securities sold under agreements to repurchase 42,761 69,816
Deferred income taxes 7,819 8,889
Debt   40,784     44,688  
Total liabilities   225,128     217,239  
 
Temporary Equity:
Redeemable non-controlling interest 14,138 -
 
Permanent Equity:
Series B voting non convertible preferred stock 5 5
Common stock 10 10
Additional paid-in capital 62,793 58,954
Accumulated other comprehensive loss (564 ) (665 )
Retained earnings (2,262 ) 6,382
Treasury stock, at cost; 50,400 shares of common stock   (328 )   (328 )
Total IFMI stockholders' equity 59,654 64,358
Non-controlling interest   22,120     25,150  
Total permanent equity   81,774     89,508  
Total liabilities and equity $ 321,040   $ 306,747  
 

Non-GAAP Measures

Adjusted operating income / (loss) and Adjusted operating income / (loss) per diluted share

Adjusted operating income / (loss) is not a financial measure recognized by GAAP. Adjusted operating income / (loss) represents operating income, computed in accordance with GAAP, before a one-time cash compensation charge related to the former CEO of the Capital Markets segment, depreciation and amortization, impairments of intangible assets, share-based compensation expense, and the non-convertible non-controlling interest’s share of operating income plus the Company’s share of any incentive fees earned included in income from equity method affiliates. The one-time cash compensation charge related to the former CEO of the Capital Markets segment is excluded due to the non-recurring nature of the expense. Depreciation, amortization, impairments, and share based compensation expenses that have been excluded from adjusted operating income / (loss) are non-cash items. Incentive fees earned as a component of income from equity method affiliates is included so that all incentive fees earned are treated in a consistent manner as part of adjusted operating income / (loss). Adjusted operating income / (loss) per diluted share is calculated, by dividing adjusted operating income / (loss) by diluted shares outstanding calculated in accordance with GAAP.

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