JMP Group LLC (NYSE: JMP), an investment banking and alternative
asset management firm, reported financial results today for the
quarter ended March 31, 2020.
A summary of JMP Group’s operating results for the quarter ended
March 31, 2020, and for comparable prior periods, is set forth
below.
Quarter Ended (in thousands, except per share amounts) Mar. 31,
2020 Dec. 31, 2019 Mar. 31, 2019 Total net revenues
$5,267
$23,822
$27,167
Net income/(loss) attributable to JMP Group
($11,748)
($6,445)
$5,069
Net income/(loss) attributable to JMP Group per share
($0.60)
($0.33)
$0.24
Operating net income/(loss)
($537)
$140
$1,669
Operating net income/(loss) per share
($0.03)
$0.01
$0.08
Book value per share
$2.64
$3.16
$4.08
Adjusted book value per share
$3.45
$3.96
$4.77
For more information about operating net income, including a
reconciliation to net income, and adjusted book value per share,
including a reconciliation to book value per share, see the section
below titled “Non-GAAP Financial Measures.”
“The March quarter started
well, driven by investment banking momentum that continued from the
December quarter, until the U.S. equities market collapsed over the
course of a four-week period in reaction to the COVID-19 pandemic,”
said Chairman and Chief Executive Officer Joe Jolson.
“Consequently, investment banking transactions expected to close in
March were pushed out into the future, postponing revenues that
otherwise would have resulted before quarter-end. On the other
hand, the first quarter delivered a material pickup in our
institutional equities business, as brokerage clients turned to us
for insight into an extraordinarily challenging market environment.
Excluding an unrealized trading loss on a single convertible
security, net brokerage revenues for the quarter were up 9% year
over year.
“Our operating loss of $0.03
per share was better than feared, given the dramatic market
selloff, but does exclude a large unrealized loss taken on the fair
value of our CLO securities at period-end. We expect that the
valuation of our CLO securities could remain volatile until the
depth and duration of the current recession is better understood.
In the short term, our book value has been negatively affected, but
the commercial loans backing our securities are match-funded with
long-term debt, and the cash collected over their duration will
ultimately determine their value.
“Looking ahead, much of the
country remains locked down, making the future cloudy. We are
fortunate that the nature of our business allows us to successfully
conduct investment banking, trading, and asset management
activities, even though our employees have been working remotely
for over six weeks now. As with most market dislocations, buyers
and sellers need some time to adjust to the new environment, which
can especially delay strategic advisory transactions and sometimes
leads to reduced outcomes. Additionally, companies looking toward
IPOs or follow-on offerings will ordinarily postpone their plans
until market volatility normalizes. While we continue to be
actively engaged with our clients and customers in finding the best
available opportunities and solutions, we expect that delayed
closings will weigh on second quarter investment banking
revenues.
“We are optimistic that things
will improve by summer, as the economy starts to reopen and the
unprecedented amount of Federal stimulus spending targeted at
employees of small businesses, strategically important industries,
and healthcare starts to positively impact the U.S. economy. Even
before the market upheaval, we were focused on cutting our
non-compensation costs materially during 2020, and progress on that
front should help soften the blow in the second quarter and
beyond.”
Segment Results of Operations
A summary of JMP Group’s operating net income per share by
segment for the quarter ended March 31, 2020, and for comparable
prior periods, is set forth below.
Quarter Ended ($ as shown) Mar. 31, 2020 Dec. 31, 2019 Mar. 31,
2019 Broker-dealer
($0.01)
($0.10)
($0.05)
Asset management: Asset management fee income
(0.02)
0.03
(0.03)
Investment income
0.07
(1)
0.11
0.23
(2)
Total asset management
0.05
0.14
0.20
Corporate costs
(0.07)
(0.03)
(0.07)
Operating EPS (diluted)
($0.03)
$0.01
$0.08
(1)
Includes a mark-to-market loss of $0.03
per share on a non-controlling interest in Medalist Partners
Corporate Finance LLC.
(2)
Includes a gain of $0.08 per share on the
sale of a controlling interest in JMP Credit Advisors LLC to
Medalist Partners LP.
Note: Due to rounding, numbers in
columns above may not sum to totals presented.
For more information about operating net income, including a
reconciliation to net income, see the section below titled
“Non-GAAP Financial Measures.”
Composition of Revenues
Investment Banking
Investment banking revenues were $14.6 million, an increase of
23.1% from $11.9 million for the quarter ended March 31, 2019.
A summary of the company’s investment banking revenues and
transaction counts for the quarter ended March 31, 2020, and for
comparable prior periods, is set forth below.
Quarter Ended
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
($ in thousands)
Count
Revenues
Count
Revenues
Count
Revenues
Equity and debt origination
17
$8,556
19
$14,557
17
$6,789
Strategic advisory and private placements
4
6,069
3
6,316
6
5,090
Total
21
$14,625
22
$20,873
23
$11,879
Brokerage
Net brokerage revenues were $4.2 million, a decrease of 7.7%
from $4.5 million for the quarter ended March 31, 2019. Excluding a
net realized and unrealized loss of $0.7 million related to the
trading of convertible securities, net brokerage revenues would
have been $4.9 million for the quarter ended March 31, 2020, a
year-over-year increase of 8.8%.
Total capital markets revenues, which consist of net brokerage
revenues produced by the institutional equities division in
addition to equity and debt origination revenues generated by the
investment banking division, were $12.7 million for the quarter
ended March 31, 2020, compared to $11.3 million for the quarter
ended March 31, 2019. Excluding the aforementioned trading loss of
$0.7 million, total capital markets revenues would have been $13.5
million for the quarter ended March 31, 2020.
Asset Management
Asset management fees were $1.7 million, in line with $1.7
million for the quarter ended March 31, 2019.
A summary of the company’s client assets under management for
the quarter ended March 31, 2020, and for comparable prior periods,
is set forth below.
(in millions) Mar. 31, 2020 Dec. 31, 2019 Mar. 31, 2019 Client
assets under management (1)
$549
$595
$517
Assets under management by sponsored funds (2)
5,136
5,381
4,932
Client assets under management, including sponsored funds
$5,685
$5,976
$5,449
(1)
Includes assets managed by Harvest Capital
Strategies, JMP Asset Management, and HCAP Advisors on behalf of
third parties.
(2)
Sponsored funds are asset management
strategies in which JMP Group owns an economic interest. Includes
assets managed by Medalist Partners Corporate Finance, the former
JMP Credit Advisors.
Principal Transactions
Principal transactions generated a net realized and unrealized
loss of $17.6 million, of which $18.7 million was unrealized as of
March 31, 2020, compared to a net realized and unrealized gain of
$5.3 million for the quarter ended March 31, 2019. The difference
is largely due to the recent impairment of CLO equity owned by JMP
Group. A reduction in the net present value of forecasted cash
flows through the end of the expected life of the CLOs required an
impairment charge in the amount of $13.5 million for the quarter
ended March 31, 2020. In addition, the difference is in part due to
a gain of $3.4 million on the sale of a majority interest in JMP
Credit Advisors for the quarter ended March 31, 2019.
Net Interest Income
Net interest income was $0.4 million, a decrease of 87.7% from
$3.5 million for the quarter ended March 31, 2019. The difference
is primarily due to a change in the recognition of income from
investments in collateralized loan obligations following the sale
of a majority interest in JMP Credit Advisors to Medalist Partners
in March 2019.
Expenses
Compensation and Benefits
Compensation and benefits expense was $16.2 million, compared to
$17.2 million for the quarter ended March 31, 2019. As a percentage
of net revenues, compensation and benefits expense was 307.8%,
compared to 63.4% for the quarter ended March 31, 2019. With regard
to annually awarded compensation, a non-GAAP measure that adjusts
compensation expense related to share-based awards and deferred
compensation, compensation and benefits expense was 297.5% of net
revenues, compared to 60.3% for the quarter ended March 31,
2019.
For more information about compensation ratios, see the section
below titled “Non-GAAP Financial Measures.”
Non-Compensation Expense
Non-compensation expense was $8.1 million, compared to $8.9
million for the quarter ended March 31, 2019.
Personnel
At March 31, 2020, the company had 192 full-time employees,
compared to 209 at December 31, 2019, and 197 at March 31,
2019.
Other Corporate Actions
JMP Group did not repurchase any outstanding common shares
during the quarter ended March 31, 2020. In February 2020, the
company filed a tender offer for up to three million of its common
shares, equal to approximately 15% of its total outstanding capital
stock. The company subsequently withdrew the offer in March 2020
upon the onset of the novel coronavirus, in the interest of
preserving liquidity and equity capital.
Non-GAAP Financial Measures
In addition to the GAAP financial results presented in this
press release, JMP Group presents the non-GAAP financial measures
discussed below. These non-GAAP measures are provided to enhance
investors’ overall understanding of the company’s current financial
performance. Furthermore, company management believes that this
presentation enables a more meaningful comparison of JMP Group’s
financial performance across various periods. However, the non-GAAP
financial results presented should not be considered a substitute
for results that are presented in a manner consistent with GAAP. A
limitation of the non-GAAP financial measures presented is that the
adjustments concern gains, losses or expenses that JMP Group
generally expects to continue to recognize. The adjustment of these
non-GAAP items should not be construed as an inference that these
gains or expenses are unusual, infrequent or non-recurring.
Therefore, both GAAP measures of JMP Group’s financial performance
and the respective non-GAAP measures should be considered together.
The non-GAAP measures presented herein may not be comparable to
similarly titled measures presented by other companies.
Compensation Ratio
A compensation ratio expresses compensation expense as a
percentage of net revenues in a given period. As presented by JMP
Group, an adjusted compensation ratio is a non-GAAP financial
measure that utilizes adjusted compensation and benefits expense as
the numerator. This adjusted ratio excludes certain
compensation-related expenses that are or are not recognized under
GAAP. In particular, the adjusted compensation ratio reverses
compensation expense and unrealized mark-to-market gains or losses
related to share-based awards and deferred compensation (so that
the compensation expenses used in the numerator correspond to the
adjusted net revenues generated in the periods presented).
A statement of JMP Group’s compensation ratio for the quarter
ended March 31, 2020, and for comparable prior periods, is set
forth below.
Quarter Ended ($ in thousands) Mar. 31, 2020 Dec. 31, 2019 Mar. 31,
2019 Total net revenues
$5,267
$23,822
$27,167
Compensation and benefits
$16,213
$22,641
$17,222
Subtract/(add back): Share-based awards and deferred
compensation
546
1,895
844
Adjusted compensation and benefits
$15,667
$20,746
$16,378
Ratio of compensation expense to net revenues
307.8%
95.0%
63.4%
Ratio of adjusted compensation expense to net revenues
297.5%
87.1%
60.3%
Operating Net Income
Operating net income is a non-GAAP financial measure that (i)
reverses compensation expense related to share-based awards and
deferred compensation, (ii) excludes the impact of the early
retirement of debt issued by JMP Group and a CLO, (iii) excludes
transaction costs related to a CLO, (iv) excludes amortization
expense related to a CLO, (v) reverses unrealized gains or losses
related to real estate investment properties, (vi) reverses net
unrealized gains and losses on strategic equity investments and
warrants, and (vii) assumes an effective tax rate. In particular,
operating net income adjusts for:
- the grant of restricted stock units and options;
- net deferred compensation, which consists of (a) deferred
compensation awarded in a given period but recognized as a GAAP
expense over the subsequent three years, less (b) GAAP expense
recognized in a given period but already reflected in the operating
income of a prior period; the purpose of this adjustment is to
fully reflect compensation awarded in a given year, notwithstanding
the timing of GAAP expense;
- the impairment of CLO equity recorded among principal
transactions, as the company believes that the forecasted reduction
in future cash flows will be mitigated by a change in the interest
rate environment and that distributions will be larger than
currently projected;
- one-time expenses associated with the redemption of senior
notes due 2023 in the third quarter of 2019 and the resulting
acceleration of the amortization of remaining capitalized issuance
costs;
- one-time transaction costs related to the refinancing of notes
issued by JMP Credit Advisors CLO III;
- amortization expense related to an intangible asset resulting
from the repurchase of a portion of the management fees from JMP
Credit Advisors CLO III;
- unrealized gains or losses on commercial real estate
investments, adjusted for non-cash expenditures, including
depreciation and amortization;
- unrealized mark-to-market gains or losses on the company’s
strategic equity investments as well as certain warrant positions;
and
- a combined federal, state and local income tax rate of 26% at
the consolidated taxable parent company, JMP Group.
A reconciliation of JMP Group’s net income to its operating net
income for the quarter ended March 31, 2020, and for comparable
prior periods is set forth below.
Quarter Ended (in thousands, except per share amounts) Mar. 31,
2020 Dec. 31, 2019 Mar. 31, 2019 Net income/(loss)
attributable to JMP Group
($11,748)
($6,445)
$5,069
Add back/(subtract): Income tax expense/(benefit)
(7,239)
(988)
(4,102)
Income/(loss) before taxes
(18,987)
(7,433)
967
Add back/(subtract): Share-based awards and deferred
compensation
546
1,895
844
Impairment of CLO equity
13,523
4,204
-
Early retirement of debt
89
-
-
Amortization of intangible asset – CLO III
-
-
277
Unrealized (gain)/loss – real estate-related depreciation and
amortization
338
354
557
Unrealized mark-to-market (gain)/loss – strategic equity
investments and warrants
3,766
1,169
(390)
Operating income/(loss) before taxes
(725)
189
2,255
Income tax expense/(benefit)
(189)
49
586
Operating net income/(loss)
($537)
$140
$1,669
Operating net income/(loss) per share: Basic
($0.03)
$0.01
$0.08
Diluted (1)
($0.03)
$0.01
$0.08
Weighted average shares outstanding: Basic
19,532
19,402
21,288
Diluted (1)
19,654
19,661
21,429
(1)
On a GAAP basis, the weighted average
number of diluted shares outstanding for the quarter ended March
31, 2020, was 19,531,824, equivalent to the weighted average number
of basic shares outstanding, due to the company’s net loss for the
period. Under GAAP, in a period of net loss, dilutive securities
are disregarded in the calculation of earnings per share.
Book Value per Share
At March 31, 2020, JMP Group’s book value per share was $2.64.
Adding back accumulated depreciation and amortization expense
related to commercial real estate investments that is recognized by
JMP Group as a result of equity method accounting reflects the
reversal of that expense in the calculation of operating net
income. The add-back includes a tax provision related to the
expense reversed in a given period, due to the company’s election
to be taxed as a C corporation as of January 1, 2019. Likewise,
adding back the accumulated general loan loss provision related to
collateralized loan obligations reflects the reversal of that
provision in the calculation of operating net income, an adjustment
not made subsequent to the sale of a majority interest in JMP
Credit Advisors in March 2019. As a result, adjusted book value per
share was $3.45 for the quarter ended March 31, 2020, as set forth
below.
(in thousands, except per share amounts) Mar. 31, 2020 Dec. 31,
2019 Mar. 31, 2019 Shareholders' equity
$51,629
$61,688
$86,633
Accumulated unrealized loss – real estate-related
depreciation and amortization
$15,750
$15,500
$14,596
Accumulated general loan loss provision – collateralized loan
obligations
-
-
-
Adjusted shareholders' equity
$67,379
$77,188
$101,229
Book value per share
$2.64
$3.16
$4.08
Adjusted book value per share
$3.45
$3.96
$4.77
Basic shares outstanding
19,547
19,509
21,210
Quarterly operating ROE (1)
(3.8%)
0.8%
7.8%
LTM operating ROE (1)
(4.4%)
(1.1%)
10.6%
Quarterly adjusted operating ROE (1)
(3.0%)
0.7%
6.4%
LTM adjusted operating ROE (1)
(3.6%)
(0.9%)
8.7%
(1)
Operating return on equity (ROE) equals
operating net income divided by average shareholders’ equity.
Adjusted operating ROE equals operating net income divided by
average adjusted shareholders’ equity. For more information about
operating net income, including a reconciliation to net income
attributable to JMP Group, see the section above titled “Operating
Net Income.”
Conference Call
JMP Group will not hold a conference call in connection with the
release of the company’s financial results.
Cautionary Note Regarding Quarterly Financial Results
Due to the nature of its business, JMP Group’s quarterly
revenues and net income may fluctuate materially depending on many
factors, including: the size and number of investment banking
transactions on which it advises; the timing of the completion of
those transactions; the size and number of securities trades which
it executes for brokerage customers; the performance of its asset
management funds and inflows and outflows of assets under
management; gains or losses stemming from sales of or prepayments
on, or losses stemming from defaults on, loans underlying the
company’s collateralized loan obligations; and the effect of the
overall condition of the securities markets and economy as a whole.
Accordingly, revenues and net income in any particular quarter may
not be indicative of future results. Furthermore, JMP Group’s
compensation expense is generally based upon revenues and can
fluctuate materially in any quarter, depending upon the amount and
sorts of revenue recognized as well as other factors. The amount of
compensation and benefits expense recognized in a particular
quarter may not be indicative of such expense in any future period.
As a result, the company suggests that its annual results may be
the most meaningful gauge for investors in evaluating the
performance of its business.
Cautionary Note Regarding Forward-Looking Statements
This press release may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including, but not limited to, the anticipated effects of
COVID-19 on the company’s business, results of operations and
financial condition, and the potential timelines for reopening the
economy and its improvement. Forward-looking statements reflect JMP
Group’s current expectations or forecasts about future events,
including beliefs, plans, objectives, intentions, assumptions and
other statements that are not historical facts. The words “may,”
“could,” “should,” “anticipate,” “believe,” “estimate,” “expect,”
“intend,” “plan,” “predict” and similar expressions and their
variants, as they relate to JMP Group, may identify forward-looking
statements. Forward-looking statements are subject to known and
unknown risks and uncertainties that could cause actual results to
differ materially from those expected or implied by the
forward-looking statements. The company’s actual results could
differ materially from those anticipated in forward-looking
statements for many reasons, including the factors described in the
sections entitled “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the
company’s Form 10-K for the year ended December 31, 2019, as filed
with the U.S. Securities and Exchange Commission on March 30, 2020,
as well as in the similarly captioned sections of other periodic
reports filed by the company under the Exchange Act. The Form 10-K
for the year ended December 31, 2019, and all other periodic
reports are available on JMP Group’s website at www.jmpg.com and on
the SEC’s website at www.sec.gov. Any forward-looking statements
contained in this press release speak only as of the date hereof.
Unless required by law, JMP Group undertakes no obligation to
publicly update or revise any forward-looking statement to reflect
circumstances or events after the date of this press release.
Disclosure Information
JMP Group uses the investor relations section of its website as
a means of complying with its disclosure obligations under
Regulation FD. Accordingly, investors should monitor the company’s
website in addition to its press releases, SEC filings, and
webcasts.
About JMP Group
JMP Group LLC is a diversified capital markets firm that
provides investment banking, equity research, and sales and trading
services to corporate and institutional clients as well as
alternative asset management products and services to institutional
and high-net-worth investors. JMP Group conducts its investment
banking and research, sales and trading activities through JMP
Securities; its hedge fund, venture capital and private capital
activities through Harvest Capital Strategies and JMP Asset
Management; and the management of Harvest Capital Credit
Corporation (NASDAQ: HCAP), a business development company, through
HCAP Advisors. For more information, visit www.jmpg.com.
JMP GROUP LLC
Consolidated Statements of
Financial Condition
(Unaudited)
(in thousands)
Mar. 31, 2020
Dec. 31, 2019
Assets Cash and cash equivalents
$38,435
$49,630
Restricted cash and deposits
1,287
1,287
Marketable securities owned
56,024
73,101
Other investments
21,987
35,309
Loans held for investment, net of allowance for loan losses
1,181
1,210
Other assets
70,130
69,721
Total assets
$189,044
$230,257
Liabilities and Shareholders' Equity Liabilities:
Marketable securities sold, but not yet purchased
$1,959
$3,855
Accrued compensation
5,592
30,253
Bond payable, net of issuance costs
80,636
82,584
Note payable
6,812
6,812
Other liabilities
42,833
45,393
Total liabilities
137,832
168,896
Shareholders' Equity: Total JMP Group LLC shareholders'
equity
51,629
61,688
Non-redeemable non-controlling interest
(417)
(327)
Total equity
51,212
61,361
Total liabilities and shareholders' equity
$189,044
$230,257
JMP GROUP LLC
Consolidated Statements of
Operations
(Unaudited)
Quarter Ended
(in thousands, except per share
amounts)
Mar. 31, 2020
Mar. 31, 2019
Revenues: Investment banking
$14,625
$11,879
Brokerage
4,187
4,535
Asset management fees
1,716
1,703
Principal transactions
(17,552)
5,288
Gain/(loss) on sale and payoff of loans
-
(17)
Net dividend income
227
296
Other income
935
(35)
Non-interest revenues
4,138
23,649
Interest income
2,214
14,291
Interest expense
(1,782)
(10,773)
Net interest income
432
3,518
Gain/(loss) on repurchase or early retirement of debt
697
-
Total net revenues
5,267
27,167
Non-interest expenses: Compensation and benefits
16,213
17,222
Administration
2,222
1,929
Brokerage, clearing and exchange fees
634
701
Travel and business development
922
1,021
Managed deal expenses
588
533
Communications and technology
1,129
1,053
Occupancy
1,199
1,423
Professional fees
890
1,456
Depreciation
548
297
Other
-
495
Total non-interest expense
24,345
26,130
Net income/(loss) before income tax
(19,078)
1,037
Income tax expense/(benefit)
(7,239)
(4,102)
Net income/(loss)
(11,839)
5,139
Less: Net income/(loss) attributable to non-redeemable
non-controlling interest
(91)
70
Net income/(loss) attributable to JMP Group
($11,748)
$5,069
Net income/(loss) attributable to JMP Group per share: Basic
($0.60)
$0.24
Diluted
($0.60)
$0.24
Weighted average common shares outstanding: Basic
19,532
21,288
Diluted
19,532
21,429
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200429005706/en/
Investor Relations Contact JMP Group LLC Andrew Palmer
(415) 835-8978 apalmer@jmpg.com Media Relations Contacts
Dukas Linden Public Relations, Inc. Zach Leibowitz (646) 722-6528
zach@dlpr.com Michael Falco (646) 808-3611 michael@dlpr.com
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