RCS Capital Corp. (RCAP) executives worked to assure shareholders of the company’s stability during its third quarter earnings call Thursday, saying that its financials are solid and that several broker/dealers have lifted suspensions of products distributed through its wholesale b/d business.
“We take the perception issues surrounding RCS Capital very seriously, and we’re working tirelessly with our shareholders to set the record straight and communicate the competence that we, our advisors, broker/dealers and partners have in the long-term value of our platform,” said CEO Michael Weil.
As of 3:25 p.m. eastern time, RCAP’s stock price was up 1 percent. Since Oct. 29 (when sister company ARCP’s announced its accounting errors), the firm’s stock has declined 42 percent.
RCAP announced third quarter pro forma adjusted net income of $35.5 million, up 51 percent from a year ago, on pro forma revenue of $725 million, up 10 percent from a year ago. The company attributed the boost to higher retail and investment management segment revenue, offset by lower revenue in its wholesale distribution, investment banking and capital markets segments. The firm is still on track to achieve $57 million to $65 million in revenue synergies and cost savings by Jan. 1.
The retail advice business reported pro forma adjusted EBITDA of $37.2 million, up 61 percent year over year, on revenue of $504 million, up 16 percent. The firm has a total of 9,139 advisors, up from 9,000 in September 2013.
But the wholesale distribution results paint a dimmer picture. The segment posted pro forma adjusted EBITDA of $1.4 million, down 74 percent from the year-ago period, and revenue of nearly $211 million, down 7 percent from the third quarter 2013. Equity sales remained flat at about $2.3 billion.
At the end of October, RCAP’s sister company American Realty Capital Properties (ARCP) announced a $23 million accounting error. Of the 31 investment products that RCAP distributes through its wholesale broker/dealer, 14 of them are affiliated with American Realty.
Since the error was announced, several broker/dealers, including LPL Financial, AIG Advisor Group and Cambridge, have suspended sales of ARCP products. Fidelity, Schwab and Pershing have recently followed suit, according to published reports.
But RCAP expects the majority of the suspended selling agreements to be reinstated by year-end, Weil said.
“Our largest broker/dealer from an equity standpoint raised at RCS Capital was less than 7.5 percent, so as these broker/dealers lift their suspension, we will have immediate access to the larger pool of advisors,” Weil said. “No one broker/dealer represented such a significant amount of our business that we hinge on if and when they come back.”
To lift their suspensions, b/ds are looking for confirmation of the independence of each of these companies, reliability of their financials and that their 10Qs are being filed this week on time, said Bill Dwyer, CEO of Realty Capital Securities.
RCAP recently enlisted the help of external counsel and an outside forensic accounting firm to conduct a review of its own financials. The review found that its financials, accounting and internal controls for the nine-month period ending Sept. 30, 2013 are accurate. Financial statements for the fourth quarter 2013 are certified by the firm’s Chief Financial Officer Brian Jones.
American Realty filed a lawsuit against RCAP this week over RCAP’s termination of the deal to acquire Cole Capital.
“The RCS Capital board of directors, after appropriate deliberation, including consulting with and advice from legal counsel, and based upon their review of the facts and circumstances determined that the termination of the agreement was appropriate and in the best interest of our shareholders,” Weil said on the conference call.