Gleacher & Company Reports Second Quarter 2012 Financial Results

Gleacher & Company, Inc. (Nasdaq: GLCH) today reported net revenues of $44.6 million, net loss from continuing operations of ($60.8) million, or ($7.6) million on a non-GAAP basis, and diluted loss per share of ($0.51), or ($0.06) on a non-GAAP basis for the quarter ended June 30, 2012. A reconciliation of the Company’s GAAP results to these non-GAAP results is discussed below under “Non-GAAP Financial Results.”

Highlights
  • Continued actions consistent with previously announced long term strategic plan
  • Substantially rebuilt MBS & Rates business unit
  • Added experienced professionals to Credit Products unit
  • Reduced balance sheet usage including adjustments to repo book

Thomas Hughes, Chief Executive Officer, said, “One year ago, after my arrival, we announced a strategic plan to better position Gleacher & Company for profitability and meaningful returns for all stakeholders.  We described the major building blocks of the plan, including: a cultural shift to foster coordination among business units; growing our Investment Banking capabilities to include additional industry verticals; assembling best in class content and problem solving skills in particular business units; and achieving significant expense reductions, especially regarding our compensation to revenue ratio.  We stated that the plan would take time to implement, and that the roadmap for implementation included critical mileposts.  One year later, we have effected a great deal of change against that roadmap: we have recruited new leadership for two business units who are experienced professionals, aligned with our cultural values; we have upgraded our staff, and we are delivering more relevant content and a deeper skill set to our clients; we have reduced expenses by exiting unprofitable activities, and through adjustments to our compensation practices; and we have repositioned our balance sheet so that it is more easily understood. That said, we still have work to do regarding our Investment Banking division, and we continue to analyze our ClearPoint options.

This undertaking has not been without pain.  As we have said previously, when rebuilding, one must invest the time and capital before reaping results. To that end, we have taken charges, in this and prior quarters, for write downs of goodwill, deferred tax assets, and so forth.  These charges were necessary elements of the cleansing required for long term growth.”

Mr. Hughes continued, “Today, Gleacher & Company is staffed by professionals sharing a common vision, and we continue to recruit actively.  We have assembled a deeply experienced management team tasked with orchestrating change and building best in class businesses.  While we are making progress against the roadmap we designed a year ago, we have a great deal of work left to do, and a number of challenges to overcome; our efforts remain a work in progress, and our results will continue to be impacted by the natural cost of change and early stage business building efforts.  We believe our strategic plan is well suited for the current market environment, and our team can deliver against that plan, creating value for all of our stakeholders.”
       

Three Months Ended

Six Months Ended
June   March   June June   June
(In thousands, except for per share amounts) 2012 2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net revenues $ 44,647 $ 64,743 $ 56,379 $ 109,390 $ 145,768
Pre-tax (loss)/income from continuing operations (31,751 ) (5,282 ) 2,416 (37,033 ) 17,144
Net (loss)/income from continuing operations (60,809 ) (4,716 ) 1,252 (65,525 ) 9,851
Discontinued operations, net of taxes (23 ) 32 (11,672 ) 9 (13,066 )
 
Non-GAAP pre-tax (loss)/income from continuing operations* (10,655 ) (3,632 ) 4,101 (14,287 ) 16,499
Non-GAAP net (loss)/income from continuing operations* (7,639 ) (3,769 ) 2,219 (11,408 ) 8,488
 
Earnings per share:
Diluted - continuing operations $ (0.51 ) $ (0.04 ) $ 0.01 $ (0.55 ) $ 0.08
Diluted - continuing operations (Non-GAAP)* (0.06 ) (0.03 ) 0.02 (0.10 ) 0.06
 

*Designates non-GAAP financial results. A reconciliation of the Company’s GAAP results to non-GAAP financial results is set forth below under the caption “Non-GAAP Financial Results.”
 

The Company has included in this press release “non-GAAP financial results.” A non-GAAP financial result is a numerical measure of financial position or results of operations that includes amounts that are excluded, or excludes amounts that are included, in the most directly comparable result calculated and presented in accordance with generally accepted accounting principles (“GAAP”). In the financial data included in this press release, the items for which the Company adjusted its GAAP results consist of the following:

- impairment of goodwill recorded during the second quarter of 2012,

- valuation allowance on deferred tax assets recorded during the second quarter of 2012,

- severance expense recorded during the first quarter of 2012,

- compensation expense related to the resignation of the former interim CEO in the second quarter of 2011, and

- the bargain purchase gain related to the ClearPoint acquisition in the first quarter of 2011.

Impairment of Goodwill

During the second quarter of 2012, the Company recorded a $21.1 million impairment of goodwill relating to both the MBS & Rates (previously captioned MBS/ABS & Rates) and Investment Banking reporting units. The evaluation was performed and the impairment was recognized as a result of the Company’s market capitalization remaining significantly below its book value for an extended period of time.

Deferred Tax Asset – Valuation Allowance

During the second quarter of 2012, the Company provided for a valuation allowance of $32.1 million on its net deferred tax assets, as the Company entered into a cumulative loss in the most recent three-year period, inclusive of the current quarter operating results. Such an assessment generally weighs the Company’s recent financial reporting losses to a greater extent than its projections of future taxable income.

The impairment of goodwill and the valuation allowance on the Company’s deferred tax assets are non-cash charges and had no impact to the Company’s liquidity or the net capital of the Company’s broker-dealer subsidiary.

For detailed information on the adjustments made, and a reconciliation of the non-GAAP financial results included in this press release to the most directly comparable GAAP financial metrics, refer to “Non-GAAP Financial Results” below. While the Company believes that the non-GAAP financial results included herein are instructive, they should only be considered together with their corresponding GAAP financial metrics.
 
Business Segment Results (including Non-GAAP results)
             

Three Months Ended

Six Months Ended
June March June June June
(In thousands of dollars) 2012 2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net revenues:
Investment Banking $ 8,730 $ 4,533 $ 8,956 $ 13,263 $ 16,600

MBS & Rates1
5,282 20,331 23,770 25,613 75,476

Credit Products2
17,872 21,717 14,851 39,589 35,316
ClearPoint   11,316     15,545     7,008     26,861     13,366  
Net revenues - operating segments 43,200 62,126 54,585 105,326 140,758
Other   1,447     2,617     1,794     4,064    

2,680

*
Total $ 44,647   $ 64,743   $ 56,379   $ 109,390   $

143,438

*
 
Pre-tax (loss)/income from continuing operations:
Investment Banking $ 2,195 $ 579 $ 3,728 $ 2,774 $ 4,991
MBS & Rates (1,746 ) 5,487 6,542 3,741 25,407
Credit Products 1,285

962

*
631

2,247

*
2,843
ClearPoint   (2,512 )  

(2,853
)   (1,451 )   (5,365 )   (2,571 )
Pre-tax (loss)/income - operating segments (778 )

4,175

*
9,450 3,397 30,670
Other  

(9,877

)*
  (7,807 )  

(5,349

)*
 

(17,684

)*
 

(14,171

)*
Total $

(10,655

)*
$

(3,632

)*
$

4,101

*
$

(14,287

)*
$

16,499

*
 
*Designates non-GAAP financial results. A reconciliation of the Company’s GAAP results to its non-GAAP financial results is set forth below under the caption “Non-GAAP Financial Results.”
 

________________________________

1 This business segment was formerly referred to as “MBS/ABS & Rates.”

2 This business segment was formerly referred to as “Corporate Credit.”

Investment Banking

Net revenues were $8.7 million for the quarter ended June 30, 2012, an improvement of $4.2 million compared to the first quarter of 2012 and relatively flat compared to the second quarter of 2011. Net revenues were $13.3 million for the six-months ended June 30, 2012, a decline of $3.3 million compared to the prior-year period. Investment banking revenue for the three and six months ended June 30, 2012 benefitted from advisory fees of $7.5 million relating to an engagement on a transaction that closed during the quarter.

The composition of the division’s investment banking revenues was as follows:
       
Three Months Ended Six Months Ended
June   March   June June   June
(In thousands) 2012 2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Advisory $ 8,251 $ 2,530 $ 8,203 $ 10,781 $ 11,835
Capital Markets   479   2,003   753   2,482   4,765
Total: $ 8,730 $ 4,533 $ 8,956 $ 13,263 $ 16,600
 

MBS & Rates (formerly referred to as “MBS/ABS & Rates”)

Net revenues were $5.3 million for the quarter ended June 30, 2012, a decline of $15.0 million compared to the first quarter of 2012 and $18.5 million compared to the second quarter of 2011. The decrease in net revenues was primarily attributable to a leadership transition within the division accompanied by significant employee turnover during the current quarter. During this period, the segment’s headcount fell to a low of 35 compared to headcount of approximately 70 at April 1, 2012. New leadership, which was announced in the beginning of May 2012, has substantially rebuilt the division, and headcount stood at approximately 50 at June 30, 2012, which is 80% of the division’s target. This turnover led to a disruption in sales and trading activities and a re-positioning of inventory, resulting in a decline in net revenues. Net interest income also declined approximately $5.5 million, compared to the first quarter of 2012 and $3.8 million compared to the second quarter of 2011, due primarily to lower inventory levels. Partially offsetting these declines were approximately $1.5 million of other revenue recorded in the second quarter of 2012, related to the clawback of certain stock-based compensation grants subject to non-competition provisions.

Net revenues of $25.6 million for the six months ended June 30, 2012, declined by $49.9 million compared to the prior-year period. This was largely attributable to non-agency asset-backed securities gains of approximately $40.4 million in the prior-year period.

Credit Products (formerly referred to as “Corporate Credit”)

Net revenues were $17.9 million for the quarter ended June 30, 2012, a decline of $3.8 million compared to the first quarter of 2012. This decrease was due to the recognition of investment banking revenues of $1.9 million in the first quarter of 2012, coupled with lower trading volumes, partially offset by higher spreads. Revenues improved by $3.0 million compared to the second quarter of 2011 due to an expanded product profile.

Net revenues of $39.6 million for the six months ended June 30, 2012 improved by $4.3 million compared to the prior-year period, due to an expanded product profile.

ClearPoint

Net revenues were $11.3 million for the quarter ended June 30, 2012, a decline of $4.2 million compared to the first quarter of 2012 and an improvement of $4.3 million compared to the second quarter of 2011. Net revenues declined compared to the first quarter of 2012 as a result of limiting ClearPoint’s daily average loan commitments to a level aligned with its distribution capabilities. Revenues resulting from prior loan commitment levels were not commercially sustainable and resulted in previously reported liquidity constraints.

Net revenues for the six months ended June 30, 2012 were $26.9 million, an improvement of $13.5 million compared to the prior-year period. This increase was due to lower daily average loan commitments in the prior-year period as the division’s operations had commenced on January 3, 2011, offset in part by the loan commitment limits implemented in the second quarter of 2012.

The division reported a pre-tax loss of $2.5 million and $5.4 million, respectively, for the quarter and six months ended June 30, 2012. The pre-tax losses were primarily due to the limits placed on loan origination activities as a result of the liquidity constraints experienced in the first quarter of 2012. In late May 2012, the division implemented a rightsizing plan in order to better align compensation with distribution capabilities. In connection with this plan, the division incurred approximately $0.4 million of severance expense during the second quarter of 2012.

Other

Net revenues were $1.4 million for the quarter ended June 30, 2012, a decline of $1.2 million compared to the first quarter of 2012 and $0.3 million compared to the second quarter of 2011. The reduction in net revenues when compared to the first quarter of 2012 is due to lower net interest income. Net revenues were lower when compared to the second quarter of 2011, primarily due to the changes in value of the Company’s FATV investment.

Consolidated Compensation and Benefits Expenses (including Non-GAAP results)

Compensation and benefits expense was $32.6 million for the second quarter of 2012, a decline of $11.1 million ($9.5 million on a non-GAAP basis) compared to compensation and benefits expense in the first quarter of 2012, and a decline of $4.7 million ($3.0 million on a non-GAAP basis) compared to compensation and benefits expense in the second quarter of 2011.

Compensation and benefits expense as a percentage of net revenues was 73.0% for the second quarter of 2012, compared to 67.5% (65.0% on a non-GAAP basis) for the first quarter of 2012 and 66.1% (63.1% on a non-GAAP basis) for the second quarter of 2011. The adverse period-to-period changes in the Company’s compensation as a percentage of revenue was impacted during the second quarter of 2012, by the decline in revenues of the MBS & Rates division, driven by lower net interest income on lower inventory levels, as well as the disruption in sales and trading activities previously described. To a lesser extent, the ratio was also affected by the lower net revenues of ClearPoint when compared to the first quarter of 2012.

The Company’s compensation and benefits as a percentage of net revenues was 69.8% (68.3% on a non-GAAP basis) for the six months ended June 30, 2012, compared to 66.1% for the prior-year period.

Consolidated Non-Compensation Expenses (including Non-GAAP results)

Non-compensation expenses were $43.8 million ($22.7 million on a non-GAAP basis) for the second quarter of 2012, compared to $26.3 million for the first quarter of 2012 and $16.7 million for the second quarter of 2011. Non-GAAP results for the second quarter of 2012 exclude the $21.1 million goodwill impairment charge. Non-compensation expenses include ClearPoint broker fees and loan processing fees of $8.1 million, $12.9 million and $4.6 million for the second quarter of 2012, first quarter of 2012 and second quarter of 2011, respectively, driven by the level of ClearPoint loan commitment volumes in each respective period. Non-compensation expenses for the second quarter of 2012 were also impacted by higher legal, consulting and advisory fees when compared to the first quarter of 2012 and second quarter of 2011.

Provision for Income Taxes

Second Quarter 2012

The Company’s effective income tax rate from continuing operations for the three months ended June 30, 2012 was negative 91.5%, resulting in income tax expense of approximately $29.1 million. The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of a valuation allowance against substantially all of the Company’s deferred tax assets (negative 101%) as well as a non-deductible discrete item attributable to the write-off of goodwill (negative 25%).

The Company provided for a valuation allowance of $32.1 million on its net deferred tax assets, as the Company entered into a cumulative loss in the most recent three-year period, inclusive of the current quarter operating results. Such an assessment generally weighs the Company’s recent financial reporting losses to a greater extent than its projections of future taxable income.

Six Months Ended 2012

The Company’s effective income tax rate from continuing operations for the six months ended June 30, 2012 of negative 76.9% resulted in income tax expense of approximately $28.5 million. The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of the previously mentioned valuation allowance against substantially all of the Company’s deferred tax assets during the three months ended June 30, 2012 (negative 87%), as well as the previously mentioned non-deductible discrete item attributable to the write-off of goodwill recorded during the three months ended June 30, 3012 (negative 21%) and tax expense associated with stock-based compensation shortfalls (negative 5%).

Discontinued Operations

Second Quarter 2012 vs. 2011

The Company has classified the results of its Equities segment as discontinued operations due to the Company’s decision to exit this business on August 22, 2011. Results of these discontinued operations for the three and six months ended June 30, 2012 and 2011 are presented in the following table:
       

Three Months Ended

Six Months Ended
June   March   June June   June
(In thousands) 2012 2012 2011* 2012 2011*
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net revenues $ 6 $ 37 $ 4,929 $ 43 $ 10,200
Total expenses (excluding interest)   (31 )   (73 )   19,675     (104 )   27,408  
Income/(loss) from discontinued operations before income taxes 37 110 (14,746 ) 147 (17,208 )
Provisions for income taxes   60     78     (3,074 )   138     (4,142 )
(Loss)/income from discontinued operations, net of taxes $ (23 ) $ 32   $ (11,672 ) $ 9   $ (13,066 )
 
*Included within the table above for the three and six months ended June 30, 2011 is a goodwill and intangible impairment charge of approximately $14.3 million.
 

Non-GAAP Financial Results

The Company has included in this press release certain financial metrics that were not prepared in accordance with accounting principles generally accepted in the United States. These non-GAAP financial results, which include presentations of net revenues, compensation and benefits, non-compensation expenses, income before income taxes from continuing operations, provision for income taxes, net income from continuing operations, compensation expense ratios, pre-tax margin, return on average tangible equity and diluted earnings per share, are presented as an additional aid in understanding and analyzing the Company’s financial results for the quarters ended June 30, 2012, March 31, 2012, and June 30, 2011 and the six months ended June 30, 2012 and 2011. Specifically, the Company believes that the non-GAAP results provide useful information by excluding certain items that may not be indicative of the Company’s core operating results or business outlook and also to emphasize information that is critical to understanding the Company’s performance. These non-GAAP amounts exclude items reflected as adjustments within the “Reconciliation of GAAP to Non-GAAP Income from Continuing Operations” table below. The Company believes these non-GAAP results will allow for a better evaluation of the operating performance of the Company’s business and facilitate a meaningful comparison of the Company’s results in the current period to those in prior periods and future periods. References to these non-GAAP results should not be considered a substitute for results that are presented in a manner consistent with GAAP.

A limitation of utilizing these non-GAAP financial results is that the GAAP accounting effects of these excluded items do in fact reflect the underlying financial results of the Company’s business, and these effects should not be ignored in evaluating and analyzing its financial results. Therefore, the Company believes that non-GAAP results should always be considered together with their corresponding GAAP results.

 
Reconciliation of GAAP to Non-GAAP Loss from Continuing Operations
               

Three Months Ended June 30, 2012

Three Months Ended June 30, 2011
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
 
Net revenues: $ 44,647   $ -   $ 44,647   $ 56,379   $ -   $ 56,379  
 
Expenses (excluding interest):
Compensation and benefits 32,606 - 32,606 37,286

(1,685

)1
35,601
Non-compensation expenses   43,792    

(21,096

)2
  22,696     16,677     -     16,677  
Total expenses (excluding interest)   76,398    

(21,096

)
  55,302     53,963     (1,685 )   52,278  
 
Loss from continuing operations before income taxes (31,751 ) 21,096 (10,655 ) 2,416 1,685 4,101
Provision for income taxes   29,058    

(32,074

)3
  (3,016 )   1,164    

718

4
  1,882  
Net (loss)/income from continuing operations $ (60,809 ) $ 53,170   $ (7,639 ) $ 1,252   $ 967   $ 2,219  
 
Earnings per share:
Diluted - continuing operations $ (0.51 ) $

(0.06

)5
$ 0.01 $

0.02

5
As a percentage of net revenues:
Compensation and benefits 73.0 % 73.0 % 66.1 % 63.1 %
(Loss)/income from continuing operations before income taxes (71.1 %) (23.9 %) 2.2 % 7.3 %
 

________________________________

1 Compensation related to the resignation of the former interim CEO in the second quarter of 2011.

2 Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.

3 Adjustment to remove the effects of the valuation allowance on the Company’s deferred tax assets (note: the goodwill impairment charge is non-deductible for tax purposes).

4 Non-GAAP adjustments multiplied by the Company’s statutory rate of 42.6%.

5 Non-GAAP net (loss)/income from continuing operations divided by 119.6 million and 130.6 million dilutive shares for the three months ended June 30, 2012 and 2011, respectively.
 

Reconciliation of GAAP to Non-GAAP Loss from Continuing Operations (Continued)
               

Three Months Ended June 30, 2012

Three Months Ended March 31, 2012
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
 
Net revenues: $ 44,647   $ -   $ 44,647   $ 64,743   $ -   $ 64,743  
 
Expenses (excluding interest):
Compensation and benefits 32,606 - 32,606 43,719

(1,650

)1
42,069
Non-compensation expenses   43,792    

(21,096

)2
  22,696     26,306     -     26,306  
Total expenses (excluding interest)   76,398     (21,096 )   55,302     70,025     (1,650 )   68,375  
 
Loss from continuing operations before income taxes (31,751 ) 21,096 (10,655 ) (5,282 ) 1,650 (3,632 )
Provision for income taxes   29,058    

(32,074

)3
  (3,016 )   (566 )  

703

4
  137  
Net loss from continuing operations $ (60,809 ) $ 53,170   $ (7,639 ) $ (4,716 ) $ 947   $ (3,769 )
 
Earnings per share:
Diluted - continuing operations $ (0.51 ) $

(0.06

)5
$ (0.04 ) $ (0.03 )5
As a percentage of net revenues:
Compensation and benefits 73.0 % 73.0 % 67.5 % 65.0 %
Loss from continuing operations before income taxes (71.1 %) (23.9 %) (8.2 %) (5.6 %)
 

________________________________

1 Represents severance expense (of which $1.0 million is non-cash stock-based compensation).

2 Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.

3 Adjustment to remove the effects of the valuation allowance on the Company’s deferred tax assets (note: the goodwill impairment charge is non-deductible for tax).

4 Non-GAAP adjustments multiplied by the Company’s statutory tax rate of approximately 42.6%.

5 Non-GAAP net loss from continuing operations divided by 119.6 million and 119.5 million dilutive shares for the three months ended June 30, 2012 and March 31, 2012, respectively.
 

Reconciliation of GAAP to Non-GAAP Loss from Continuing Operations (Continued)
               

Six Months Ended June 30, 2012

Six Months Ended June 30, 2011
(Dollars in thousands, except per share amounts) (Unaudited) (Unaudited)
GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
 
Net revenues: $ 109,390   $ -   $

109,390
  $ 145,768   $

(2,330

)1
$ 143,438  
 
Expenses (excluding interest):
Compensation and benefits 76,325

(1,650

)2
74,675 96,374

(1,685

)3
94,689
Non-compensation expenses   70,098    

(21,096

)4
  49,002     32,250     -     32,250  
Total expenses (excluding interest)   146,423     (22,746 )   123,677     128,624     (1,685 )   126,939  
 
(Loss)/income from continuing operations before income taxes (37,033 ) 22,746 (14,287 ) 17,144 (645 ) 16,499
Provision for income taxes   28,492    

(31,371

)5
  (2,879 )   7,293    

718

6
  8,011  
Net (loss)/income from continuing operations $ (65,525 ) $ 54,117   $ (11,408 ) $ 9,851   $ (1,363 ) $ 8,488  
 
Earnings per share:
Diluted - continuing operations $ (0.55 ) $

(0.10

)7
$ 0.08 $

0.06

7
As a percentage of net revenues:
Compensation and benefits 69.8 % 68.3 % 66.1 % 66.0 %
(Loss)/income from continuing operations before income taxes (33.9 %) (13.1 %) 11.8 % 11.5 %

________________________________

1 Represents the bargain purchase gain related to the ClearPoint acquisition on January 3, 2011

2 Represents severance expense (of which $1.0 million is non-cash stock-based compensation).

3 Compensation related to the resignation of the former interim CEO in the second quarter of 2011.

4 Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.

5 Represents the compensation and benefits adjustment of $1.7 million multiplied by the Company’s statutory tax rate of 42.6%, plus the removal of the effects of the valuation allowance on the Company’s deferred tax assets (note: the goodwill impairment charge is non-deductible for tax).

6 Non-GAAP adjustments (excluding the bargain purchase gain which is non-taxable) multiplied by the Company’s statutory rate of 42.6%.

7 Non-GAAP net (loss)/income from continuing operations divided by 119.2 million and 130.7 million dilutive shares for the six months ended June 30, 2012 and 2011, respectively.
 

Reconciliation of GAAP to Non-GAAP Pre-Tax (Loss)/Income from Continuing Operations – by Segment
 
Three Months Ended June 30, 2012 Three Months Ended June 30, 2011
               
Other Other
   
(In thousands) (In thousands)
 
Revenues - GAAP $ 1,447   Revenues - GAAP $ 1,794  
 
Expenses - GAAP 32,420 Expenses - GAAP 8,828
 
Adjustments  

(21,096

)1
Adjustments  

(1,685

)2
 
Expenses - non GAAP   11,324   Expenses - non GAAP   7,143  
 
Pre-tax loss from continuing operations - non GAAP $ (9,877 ) Pre-tax loss from continuing operations - non GAAP $ (5,349 )
 
 
Three Months Ended March 31, 2012
       
Credit Products
 
(In thousands)
 
Revenues - GAAP $ 21,717  
 
Expenses - GAAP 22,405
 
Adjustments  

(1,650

)3
 
Expenses - non GAAP   20,755  
 
Pre-tax income from continuing operations - non GAAP $ 962  

________________________________

1 Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.

2 Compensation expense related to the resignation of the former interim CEO in the second quarter of 2011.

3 Represents severance expense (of which $1.0 million is non-cash stock-based compensation).
 

Reconciliation of GAAP to Non-GAAP Pre-Tax (Loss)/Income from Continuing Operations – by Segment (Continued)
 
Six Months Ended June 30, 2012
                 
Credit Products Other
   
(In thousands) (In thousands)
 
Revenues - GAAP $ 39,589   Revenues - GAAP $ 4,064  
 
Expenses - GAAP 38,992 Expenses - GAAP 42,844
 
Adjustments  

(1,650

)1
Adjustments  

(21,096

)2
 
Expenses - non GAAP   37,342   Expenses - non GAAP   21,748  
 
Pre-tax income from continuing operations - non GAAP $ 2,247   Pre-tax loss from continuing operations - non GAAP $ (17,684 )
 
 
 
Six Months Ended June 30, 2011
       
Other
 
(In thousands)
 
Revenues - GAAP $ 5,010
 
Adjustments  

(2,330

)3
 
Revenues - non GAAP   2,680  
 
Expenses - GAAP 18,536
 
Adjustments  

(1,685

)4
 
Expenses - non GAAP   16,851  
 
Pre-tax loss from continuing operations - non GAAP $ (14,171 )

________________________________

1 Represents severance expense (of which $1.0 million is non-cash stock-based compensation).

2 Represents the goodwill impairment charge recognized during the three months ended June 30, 2012.

3 Represents the bargain purchase gain related to the ClearPoint acquisition on January 3, 2011.

4 Compensation related to the resignation of the former interim CEO in the second quarter of 2011.
       
Return on Tangible Equity – Annualized (Non-GAAP Unaudited)
 

Presented below is information on the Company’s annualized return on average tangible stockholders’ equity (Non-GAAP)
 

Three Months Ended

Six Months Ended
June   March   June June   June
(Dollars in thousands) 2012 2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net (loss)/income from continuing operations (non-GAAP) $

(7,639

)1
$

(3,769

)1
$

2,219

1
$ (11,408 )1 $

8,488

1
Plus: Amortization of intangibles, net of tax   70     70     418     141     871  
Net (loss)/income from continuing operations, adjusted (non-GAAP) (7,569 ) (3,699 ) 2,637 (11,267 ) 9,359
Net (loss)/income from continuing operations, adjusted (non-GAAP) - annualized $ (30,276 ) $ (14,796 ) $ 10,548   $ (22,534 ) $ 18,718  
 
Average total stockholders’ equity (GAAP) $ 224,150 $ 257,560 $ 350,568 $ 235,808 $ 349,098
Less: Average intangible assets   (14,674 )   (25,345 )   (113,746 )   (18,251 )   (116,250 )
Average tangible stockholders’ equity (non-GAAP) $ 209,476   $ 232,215   $ 236,822   $ 217,557   $ 232,848  
Annualized return on tangible equity (non-GAAP)   (14.4 %)   (6.4 %)   4.5 %   (10.4 %)   8.0 %
 
       
Return on Average Stockholders’ Equity - Annualized (GAAP)
 

Presented below is information on the Company’s annualized return on average stockholders’ equity, which is the most directly comparable GAAP metric to the Non-GAAP metric above:
 

Three Months Ended

Six Months Ended
June   March   June June   June
(Dollars in thousands) 2012 2012 2011 2012 2011
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
 
Net (loss)/income from continuing operations $ (60,809) $ (4,716) $ 1,252 $ (65,525) $ 9,851
Net (loss)/income from continuing operations - annualized $

NM2
$ (18,864) $ 5,008 $ NM2 $ 19,702
 
Average total stockholders' equity $ 224,150 $ 257,560 $ 350,568 $ 235,808 $ 349,098
Annualized return on stockholders’ equity  

NM2
  (7.3%)   1.4%   NM2   5.6%
 

________________________________

1 Designates non-GAAP financial results. A reconciliation of the Company’s GAAP results to non-GAAP financial results is set forth above under the caption “Reconciliation of GAAP to Non-GAAP Income from Continuing Operations.”

2 Not meaningful
       

Summary Results of Operations
 

Three Months Ended

Six Months Ended
(In thousands, except for per share amounts) June   March   June June   June
2012 2012 2011 2012 2011
Revenues: (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Principal transactions $ 7,891 $ 21,320 $ 16,460 $ 29,211 $ 61,801
Commissions 16,197 19,151 16,339 35,348 34,798
Investment banking 9,115 6,678 10,042 15,793 20,364
Investment (losses)/gains, net (139 ) 132 368 (7 ) (318 )
Interest income 11,558 19,204 14,884 30,762 29,952
Gain from bargain purchase - ClearPoint Funding, Inc. acquisition - - - - 2,330
Fees and other   3,527     2,877     1,341     6,404     2,465  
Total revenues 48,149 69,362 59,434 117,511 151,392
Interest expense   3,502     4,619     3,055     8,121     5,624  
Net revenues   44,647     64,743     56,379     109,390     145,768  
Non-interest expenses
Compensation and benefits 32,606 43,719 37,286 76,325 96,374
Impairment of goodwill 21,096 - - 21,096 -
Clearing, settlement and brokerage 8,695 12,993 5,284 21,688 10,071
Communications and data processing 3,160 3,319 3,279 6,479 6,494
Occupancy, depreciation and amortization 2,236 2,134 2,159 4,370 4,071
Business development 981 1,018 1,236 1,999 2,344
Other   7,624     6,842     4,719     14,466     9,270  
Total non-interest expenses   76,398     70,025     53,963     146,423     128,624  
(Loss)/income from continuing operations before income taxes and discontinued operations (31,751 ) (5,282 ) 2,416 (37,033 ) 17,144
Income tax expense/(benefit)   29,058     (566 )   1,164     28,492     7,293  
(Loss)/income from continuing operations (60,809 ) (4,716 ) 1,252 (65,525 ) 9,851
(Loss)/income from discontinued operations, net of taxes   (23 )   32     (11,672 )   9     (13,066 )
Net loss $ (60,832 ) $ (4,684 ) $ (10,420 ) $ (65,516 ) $ (3,215 )
 
Earnings per share:
Basic (loss)/income per share
Continuing operations $ (0.51 ) $ (0,04 ) $ 0.01 $ (0.55 ) $ 0.08
Discontinued operations   -     (0.00 )   (0.09 )   -     (0.11 )
Net (loss)/income per share $ (0.51 ) $ (0.04 ) $ (0.08 ) $ (0.55 ) $ (0.03 )
 
Diluted (loss)/income per share
Continuing operations $ (0.51 ) $ (0,04 ) $ 0.01 $ (0.55 ) $ 0.08
Discontinued operations   -     (0.00 )   (0.09 )   -     (0.10 )
Net (loss)/income per share $ (0.51 ) $ (0.04 ) $ (0.08 ) $ (0.55 ) $ (0.02 )
 
Weighted average number of shares of common stock:
Basic 119,564 119,510 124,061 119,176 123,825
Diluted 119,564 119,510 130,606 119,176 130,698
 
         

Consolidated Statement of Financial Condition (Unaudited)
 
(In thousands, except for share and per share amounts) June 30, March 31, December 31,
2012 2012 2011
Assets:
Cash and cash equivalents $ 52,733 $ 32,688 $ 36,672
Cash and securities segregated for regulatory and other purposes 1,150 2,000 9,612
Securities purchased under agreements to resell 1,879,740 2,984,884 1,523,227
Receivables from
Brokers, dealers and clearing organizations 31,582 89,834 58,776
Related parties 1,362 1,337 1,337
Other 16,218 15,364 16,161
Financial instruments owned, at fair value 763,550 1,457,273 1,554,660
Investments 19,090 18,440 18,310
Office equipment and leasehold improvements, net 6,164 6,608 6,735
Goodwill - 21,096 21,096
Intangible assets 4,064 4,187 4,311
Income taxes receivable 4,623 9,094 12,102
Deferred tax assets, net 581 27,193 30,766
Other assets   9,896     9,843     9,791  
Total Assets $ 2,790,753   $ 4,679,841   $ 3,303,556  
Liabilities and Stockholders' Equity
Liabilities
Payables to:
Brokers, dealers and clearing organizations $ 500,882 $ 1,054,028 $ 1,108,664
Related parties 594 4,956 4,939
Other 3,676 3,773 3,243
Securities sold under agreements to repurchase 1,904,807 2,979,606 1,478,081
Securities sold, but not yet purchased, at fair value 110,333 233,499 184,996
Secured borrowings 46,718 117,195 213,611
Accrued compensation 15,540 10,596 26,274
Accounts payable and accrued expenses 11,536 13,562 18,223
Income taxes payable 3,770 4,082 3,979
Deferred tax liabilities - 1,746 1,622
Subordinated debt   595     801     801  
Total Liabilities   2,598,451     4,423,844     3,044,433  
Stockholders' Equity
Common stock ($.01 par value; authorized 200,000,000 shares) 1,337 1,337 1,337
Additional paid-in capital 452,299 455,540 463,497
Deferred compensation 124 161 161
Accumulated deficit (251,403 ) (190,571 ) (185,887 )
Treasury stock, at cost   (10,055 )   (10,470 )   (19,985 )
Total Stockholders' Equity   192,302     255,997     259,123  
Total Liabilities and Stockholders' Equity $ 2,790,753   $ 4,679,841   $ 3,303,556  
 

Common stock (in shares)
Shares issued: 133,769,219   133,769,219   133,714,786  
Shares outstanding: 125,731,141   127,072,570   120,883,601  
 
Treasury stock (in shares): 8,038,078   6,696,649   12,831,185  
 

Conference Call Information

The Company will hold a conference call today, August 7, 2012, at 8:30 A.M. (EDT). This event can be accessed on the Investor Relations portion of the Gleacher & Company website at www.gleacher.com, as well as through the Thomson StreetEvents Network. Individual investors can listen to the call at www.earnings.com, Thomson’s individual investor portal, powered by StreetEvents. Institutional investors can access the call via Thomson StreetEvents ( www.streetevents.com), a password protected event management site. To participate on the call, please dial 888.771.4384 (domestic) or 847.585.4409 (international), participant passcode 9810870#, or request the Gleacher & Company earnings call.

Pre-registration is available at any time prior to and during the call, which provides immediate entry into the call. Pre-registration can be accessed at the following website:

www.yourconferencecenter.com/confcenter/PinCode/Pin_Code.aspx?100374&o=UXkEvkyIcSUzXB

For those who cannot listen to the live broadcast, a recording of the call will be available for seven days following the call by dialing 888.843.7419 (domestic) or 630.652.3042 (international), participant passcode 9810870#.

About Gleacher & Company

Gleacher & Company, Inc. (Nasdaq: GLCH) is an independent investment bank that provides corporate and institutional clients with strategic and financial advisory services, including merger and acquisition, restructuring, recapitalization, and strategic alternative analysis, as well as capital raising, research based investment analysis, and securities brokerage services, and, through a new subsidiary, engages in residential mortgage lending. For more information, please visit www.gleacher.com.

Forward Looking Statements

This press release contains “forward-looking statements.” These statements are not historical facts but instead represent the Company’s belief or plans regarding future events, many of which are inherently uncertain and outside of the Company's control. The Company often, but not always, identifies forward-looking statements by using words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “target,” “expect,” “continuing,” “ongoing,” “believe” and “intend.” The Company’s forward-looking statements are based on facts as the Company understands them at the time the Company makes any such statement as well as estimates and judgments based on these facts. The Company’s forward-looking statements may turn out to be inaccurate for a variety of reasons, many of which are outside of its control. Factors that could render the Company’s forward-looking statements subsequently inaccurate include the conditions of the securities markets, generally, and demand for the Company’s services within those markets, the risk of further credit rating downgrades of the U.S. government by major credit rating agencies, the impact of international and domestic sovereign debt uncertainties, the possibilities of localized or global economic recession and other risks and factors identified from time to time in the Company’s filings with the Securities and Exchange Commission. Moreover, the Company is implementing a strategic plan designed to improve its operating results, and this plan may not be successful. It is possible that future events will differ materially from those suggested by the Company’s forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. The Company does not undertake to update any of its forward-looking statements.

Copyright Business Wire 2010

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