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

The following excerpt is from the company's SEC filing.

Adjusted Net Income of $10.6 Million, or $0.10 per Fully Diluted Share;

Net Loss of ($266.5) Million, or ($3.52) per Fully Diluted Share

Adjusted EBITDA of $22.9 Million;

Retail Adjusted EBITDA of $29.3 Million

Assets Under Administration (“AUA”) of $224.8 Billion; up 6% from Prior Year

9,476 Total Advisors at the End of the Third Quarter;

96.4% Annualized Advisor Retention

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

Net Annualized Recruited GDC of $6.7 Million

Board Elects R. Lawrence “Larry” Roth a s Chief Executive Officer of RCS Capital;

Michael Weil Steps Down as Chief Executive Officer Effective Immediately, Remains on Board of Directors

– RCS Capital Corporation (“RCS Capital” or the “Company”) (NYSE: RCAP) announced today operating results for the three and nine months ended September 30, 2015. Operating highlights are provided below. All per share results are expressed on a fully diluted basis.

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

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

3Q 2014 comparisons are on a pro forma basis

Based on trailing 12 month regrettable gross dealer concession

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

Highlights for the Third Quarter 2015

(Note: Includes only results from continuing operations which excludes RC Securities and American National Stock Transfer (“Transfer Agency”))

Revenue (GAAP)

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

Net Income/(Loss) (GAAP):

($266.5) million for the quarter, or ($3.52) per fully diluted share

Adjusted Net Income:

$10.6 million for the quarter, or $0.10 per fully diluted share

Adjusted EBITDA:

$22.9 million for the quarter

Retail Advice Assets Under Administration:

Up 6% from the year-ago quarter to $224.8 billion

Retail Advice Assets Under Management:

Up 13% from the year-ago quarter to $45.4 billion

Retail Advisors:

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

Retail Advisor Retention:

96.4% advisor retention for the quarter

Retail Advisor Recruitment:

254 financial advisors recruited representing $23.6 million in trailing 12-month GDC; $6.7 million in net recruited GDC

; GDC from advisors recruited in the third quarter 40% higher than GDC of advisors who left the platform

Net Debt:

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

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

Previously Announced Business Updates and Strategic Initiatives

Sale of Wholesale Division:

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

Liquidity:

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

Loan Modifications:

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

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

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

Sale of Hatteras Funds:

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

Board Changes:

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

Voting Rights:

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

Strategic Initiatives:

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

9,476 independent financial advisors servicing more than 2.5 million clients nationwide

$224.8 billion Assets Under Administration, up 6% from the year-ago quarter

$45.4 billion Assets Under Management, up 13% from the year-ago quarter

96.4% annualized advisor retention for the third quarter

254 financial advisors recruited representing $23.6 million in trailing 12-month gross GDC

Net recruited GDC was $6.7 million, compared to $21.5 million in the prior quarter

GDC from advisors recruited in the third quarter 40% higher than GDC of advisors who left the platform

64.7% recurring revenue; 32.6% fee-based revenue compared to 62.9% and 31.4% in the prior quarter, respectively

Retail Advice revenue for the third quarter was $503.5 million, essentially flat compared to the year-ago quarter

(which did not include VSR and Girard) and down 4.8% compared to the prior quarter.

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

Commission-Based

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

Advisory Fee and Services

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

Asset-Based Fee

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

Transaction-Based and Other

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

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

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

Wholesale Distribution

$868 million of equity capital raised for the third quarter

$756 million in non-traded direct investment sales;

$112 million in liquid alternatives sales, including Hatteras Funds and other income funds

$3.5 billion equity capital raised year-to-date as of the end of October 2015

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

Investment Banking and Capital Markets

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

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

Performance within the Investment Banking and Capital Markets...


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