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Item 2. Management’s Discussion and Analysis

2024-08-15 compared with 2024-05-24 · 79 added, 62 removed, 276 unchanged (34% of the section changed)

25 unchanged sentences

Financial Highlights

Results for the period ended March 31, 2024 included a net loss of approximately $1.6 million and total revenue of approximately $41.0, which compares to net income and total revenue of $1.1 million and approximately $43.0 million, respectively, for the period ended March 31, 2023.

Total advisory and brokerage assets served were $24.9 billion at March 31, 2024, compared to $22.8 at March 31, 2023.

Total net new assets were $(1.5) billion for the period ended March 31, 2024, compared to $(1.1) billion for the same period in 2023.

Net new advisory assets were $(0.1) billion for the period ended March 31, 2024, compared to $(0.1) billion in 2023.

Advisory assets were $2.2 billion at March 31, 2024, which is consistent with the $2.2 billion at March 31, 2023.

Net new brokerage assets were $(1.4) billion for the period ended March 31, 2024, compared to $(1.0) in 2023.

Brokerage assets were $22.7 billion at March 31, 2024, up 10% from $20.6 billion at March 31, 2023.

Results for the three and six-month period ended June 30, 2024 included a net loss of approximately $(0.7) million and $(2.3) million and total revenue of approximately $40.6 million and $82.1 million, respectively, which compares to net income and total revenue of $0.1 million and $1.2 million and approximately $40.4 million and $83.8 million, respectively, for the three and six month period ended June 30, 2023.

Total advisory and brokerage assets served were $25.1 billion at June 30, 2024, compared to $23.1 billion at June 30, 2023.

Total net new assets were $(0.8) billion and $(2.2) billion for the three and six-month period ended June 30, 2024, compared to $(1.0) billion and $(2.1) billion for the same period in 2023.

Net new advisory assets were $0.0 billion and $(0.1) billion for the three and six-month period ended June 30, 2024, compared to $(0.3) billion and $(0.4) billion for the same period in 2023.

Advisory assets were $2.3 billion at June 30, 2024, which is approximately a 13% increase from the $2.0 billion at June 30, 2023.

Net new brokerage assets were $(0.8) billion and $(2.1) billion for the three and six-month period ended June 30, 2024, compared to $(0.7) billion and $(1.7) billion for the same period in 2023.

Brokerage assets were $22.8 billion at June 30, 2024, up approximately 8% from $21.1 billion at June 30, 2023.

Gross Profit Trend

Gross profit, a non-GAAP financial measure, was $7.8 million for the period ended March 31, 2024, a decrease of 6% from $8.3 million for the period ended March 31, 2023.

Gross profit, a non-GAAP financial measure, was $7.3 million and $15.1 million for the three and six-month period ended June 30, 2024, a decrease of 3% from $7.5 million for the three months ended June 30, 2023 and a decrease of 5% from $15.8 million for the six months ended June 30, 2023.

See the “Key Performance Metrics and Non-GAAP Financial Measures” section for additional information on gross profit.

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Our key operating, business and financial metrics are as follows:

As of and for the Three Months Ended March 31,

As of and for the Periods Ended June 30,

Operating Metric (dollars in billions)

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Total Advisory and Brokerage Assets

Three Months Ended June 30,

Six Months Ended June 30,

Net New Assets

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Total Net New Assets

For the three months ended

For the six months ended

Financial Metrics (dollars in millions)

Total revenue

Net income (loss)

Non-GAAP Financial Metrics (dollars in millions)

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Below is a calculation of gross profit for the periods presented (in millions):

As of and for the Three Months Ended March 31,

For the three months ended June 30,

For the six months ended June 30,

Total revenue

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Below is a reconciliation of net income to EBITDA for the periods presented (in millions):

As of and for the Three Months Ended March 31,

For the three months ended June 30,

For the six months ended June 30,

EBITDA Reconciliation

Net income (loss)

Interest expense

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Bureau of Economic Analysis, the U.S.

economy grew at an annualized pace of 1.6% in the first quarter of 2024, after growing at an annualized pace of 3.4% in the fourth quarter of last year.

economy grew at an annualized pace of 2.8% in the second quarter of 2024, after growing at an annualized pace of 1.6% in the first quarter of this year.

Although inflation, rising interest rates and volatile global markets were all headwinds the U.S.

economy added roughly 829,000 jobs in the first quarter of 2024, while the unemployment rate averaged 3.8% in the first quarter of 2024, up slightly from the average in the prior quarter.

economy added roughly 503,000 jobs in the second quarter of 2024, while the unemployment rate averaged 4.0% in the second quarter of 2024, up slightly from the average in the prior quarter.

Our business is also sensitive to current and expected short-term interest rates, which are largely driven by Fed policy.

During the first quarter of 2024, Fed policymakers maintained the target range for the federal funds rate to 5.25% to 5.50%.

The equity markets rebounded resulting in the S&P 500 returning 10.6% during the first quarter of 2024.

During the second quarter of 2024, Fed policymakers maintained the target range for the federal funds rate from 5.25% to 5.50%.

The equity markets rebounded resulting in the S&P 500 returning 4.3% during the second quarter of 2024.

Please consult the Factors Affecting Our Financial Condition and Results of Operations, including those described in the section titled “ Risk Factors .”

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Results of Operations

The following presents an analysis of our results of operations for the period ended March 31, 2024 and 2023 ( in thousands ):

For the periods ended March 31,

The following presents an analysis of our results of operations for the three and six-month periods ended June 30, 2024 and 2023 ( in thousands ):

For the three months ended June 30,

For the six months ended June 30,

Revenue from Contracts with Customers:

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Total revenues

For the periods ended March 31,

For the three months ended June 30,

For the periods ended June 30,

Commissions and fees

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Income (loss) before provision (benefit) for income taxes

Provision for income taxes

Provision ( benefit) for income taxes

Net income (loss)

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Accordingly, total commission revenue is reported on a gross basis.

See Note 4 — Revenues From Contracts with Customers within the notes to the condensed consolidated financial statements for the period ended March 31, 2024, and 2023 for further details regarding our commission revenue by product category.

The following table sets forth the components of our commission revenue for the period ended March 31, 2024 and 2023 (in thousands):

For the period ended March 31,

See Note 4 - Revenues From Contracts with Customers within the notes to the condensed consolidated financial statements for the three and six-month periods ended June 30, 2024, and 2023 for further details regarding our commission revenue by product category.

The following tables sets forth the components of our commission revenue for the three and six-month periods ended June 30, 2024 and 2023 (in thousands):

For the three-month period ended June 30,

Total commission revenue

Sales-based revenue increased by approximately $0.5 million or 3% for the period ended March 31, 2024 as compared to 2023.

Trailing based revenue decreased by approximately $1.4 million or 7% for the period ended March 31, 2024 as compared to 2023.

The increase in sales-based revenue for the period ended March 31, 2024 as compared to 2023 is attributable to an increase in the generation of transactional based products.

The decrease in the trailing based revenues is primarily due to the net outflows of brokerage assets.

Commission revenue is generated from brokerage assets.

The following tables summarize the brokerage assets for the periods ended March 31, 2024 and 2023 (in billions):

Three Months Ended March 31,

For the six-month period ended June 30,

Total commission revenue

Sales-based revenue decreased by approximately $6.2 million and $5.6 million or 28% and 15% for the three and six-month period ended June 30, 2024, respectively, as compared to 2023.

Trailing based revenue increased by approximately $6.4 million and $5.0 million or 57% and 16% for the three and six-month periods ended June 30, 2024, respectively, as compared to 2023.

The decrease in sales-based revenue for the three and six-month periods ended June 30, 2024 as compared to 2023 is attributable to a decrease in the generation of transactional based products.

The increase in the trailing based revenues is primarily due to the net increase in trailing based assets and increase in the market performance Commission revenue is generated from brokerage assets.

The following tables summarize the brokerage assets for the three and six-month periods ended June 30, 2024 and 2023 (in billions):

As of June 30,

Brokerage Assets

Included in the brokerage assets above are trail-eligible assets as follows (in billions):

Three Months Ended March 31,

As of June 30,

Trail-Eligible Assets

The following table summarizes activity impacting brokerage assets for the periods ended (in billions):

Three Months Ended March 31,

For the three month ended June 30,

For the six months ended June 30,

Net Flows-Brokerage Assets

Balance – beginning of period

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The advisory fees generated from the Company’s corporate advisory platform are based on a percentage of the market value of the eligible assets in the clients’ advisory accounts.

Advisory fees increased by approximately 3% for the period ended March 31, 2024 as compared to March 31, 2023, due to positive returns in the market offset by outflows of advisory assets.

The following tables summarizes the advisory assets for the periods ended March 31, 2024 and 2023 (in billions):

Advisory fees increased by approximately 20.2% and 10.3% for the three and six-month periods ended June 30, 2024, respectively, as compared to the same periods in June 30, 2023, due to positive returns in the market offset by outflows of advisory assets.

The following tables summarizes the advisory assets for the three and six-month periods ended June 30, 2024 and 2023 (in billions):

As of June 30 ,

Advisory Assets

The following table summarizes activity impacting advisory assets for the periods ended (in billions):

Three Months Ended March 31,

For the three month ended June 30,

For the six months ended June 30,

Net Flows-Advisory Assets

Balance – beginning of period

Net new advisory assets (1)

Net new brokerage assets

Market impact

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Other income primarily includes amounts earned by the Company related to marketing and incentives earned from the sales of certain investment products by the financial advisors to its clients, primarily alternative investments, as well as sponsorship income.

The decrease in interest and other income for the period ended March 31, 2024, compared to 2023 is primarily related to a non-recurring income item that was earned in March 2023.

The decrease in interest and other income for the period ended June 30, 2024, compared to 2023 is primarily related to a non-recurring income item that was earned in March 2023.

Operating Expenses

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The following table sets forth our payout rate, which is a statistical or operating measure and monitored to review that such costs of revenue remain consistent on a period over period basis:

For the three months ended March 31,

For the period ended March 31, 2024, the payout rate decreased as compared to 2023 as a result of in the prior year there was a non-recurring commissionable product that carried a payout at 90%.

For the three months ended June 30,

For the six months ended June 30,

For the three and six-month periods ended June 30, 2024, the payout rate decreased as compared to 2023 as a result of in the prior year there was a non-recurring commissionable product that carried a payout at approximately 90%.

Employee compensation and benefits

Employee compensation and benefits includes salaries, wages, benefits and related taxes for our employees.

Employee compensation and benefits for the period ended March 31, 2024 remained consistent as compared to March 31, 2023, decreasing slightly by 1.3%.

Employee compensation and benefits for the three-month period ended June 30, 2024 as compared to June 30, 2023, increased by approximately 9%.

Employee compensation and benefits for the six-month period ended June 30, 2024 as compared to June 30, 2023, increased by approximately 4%.

Rent and occupancy

Rent and occupancy remained relatively consistent for the period ended March 31, 2024 as compared to March 31, 2023 decreasing slightly by 2.9%.

Rent and occupancy for the three-month period ended June 30, 2024 as compared to June 30, 2023 decreasing by approximately 7%.

Rent and occupancy for the six-month period ended June 30, 2024 as compared to June 30, 2023 decreasing by approximately 5%.

Professional fees

Professional fees includes costs incurred related to legal and accounting services.

Professional fees for the period ended March 31, 2024 as compared to 2023 increased by $3.5 million, which is directly related to transaction costs associated with the Business Combination.

Professional fees includes costs incurred related primarily to legal and accounting services.

Professional fees for the three months ended June 30, 2024 decreased by $.4 million as compared to the 2023 resulting from a decrease in professional fees related to the Business Combination that occurred in March 2024.

Professional fees for the six months ended June 30, 2024 increased by $3.2 million as compared to the 2023 which is directly related to transaction costs associated with the Business Combination.

Technology fees

Technology fees primarily represent infrastructure costs that support the Company’s technology and communications costs.

Technology fees decreased by $0.18 million for the period ended March 31, 2024 as compared to 2023.

Technology fees increase by $0.1 million for the three months ended June 30, 2024 as compared 2023 and decreased by $0.1 million for six months ended June 30, 2024, respectively, as compared to 2023.

Interest expense

Interest expense primarily includes interest associated with the Company’s credit facility and other debt obligations.

Interest expense decreased by $0.11 million for the period ended March 31, 2024 as compared to 2023 resulting from the repayment and restructuring of the related party debt obligations of Wentworth.

Interest expense decreased by $0.7 million and $0.8 million for the three and six-month periods ended June 30, 2024, respectively, as compared to 2023 resulting from the repayment and restructuring of the related party debt obligations of Wentworth.

Depreciation and amortization

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Provision for Income Taxes

Our effective income tax rate was (7.0)% and 21.0% for the periods ended March 31, 2024 and 2023, respectively.

The decrease in our effective tax rate was related to the transaction expenses related to the Reverse Recapitalization.

Our effective income tax rate was (29.0)% and (15.2)% for the three and six-month periods ended June 30, 2024, as compared to 187.8% and 44.2% for the same periods in 2023, respectively.

The difference in our effective tax rate was related to the transaction expenses related to the Reverse Recapitalization.

Liquidity and capital resources

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Sources of Liquidity

As of March 31, 2024, we had $20.2 million outstanding under our Senior Credit Facility with Oak Street Funding, LLC, net of debt issuance costs.

As of June 30, 2024, we had $19.7 million outstanding under our Senior Credit Facility with Oak Street Funding, LLC, net of debt issuance costs.

The associated debt facilities are as follows:

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On April 2, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Oak Street Funding LLC (“Oak Street”) in the amount of $25 million.

This note payable bears interest at the prime rate (“Prime”) (8.50% as of March 31, 2024) plus 2.25% and has a 10-year term and a 3-month interest only repayment provision.

As of March 31, 2024 and December 31, 2023, the outstanding balance of the Oak Street note, net of unamortized debt issuance costs was $17.2 million and $17.6 million, respectively.

This note payable bears interest at the prime rate (“Prime”) (8.50% as of June 30, 2024) plus 2.25% and has a 10-year term and a 3-month interest only repayment provision.

As of June 30, 2024 and December 31, 2023, the outstanding balance of the Oak Street note, net of unamortized debt issuance costs was $16.7 million and $17.6 million, respectively.

On April 25, 2021, the Company entered into an additional promissory note with Oak Street in the amount of $4.1 million related to the acquisition of WEG (“WEG Note”).

This note payable bears interest at Prime plus 2.25% and has a 10-year term.

As of March 31, 2024 and December 31, 2023, the outstanding balance of this note, net of unamortized debt issuance costs was $3.1 million and $3.2 million, respectively.

As of June 30, 2024 and December 31, 2023, the outstanding balance of this note, net of unamortized debt issuance costs was $3.0 million and $3.2 million, respectively.

Under the Oak Street notes, the Company is subject to certain covenants as defined in the agreements.

As of March 31, 2024 and December 31, 2023, the Company was in compliance with all financial related covenants.

The minimum payments and maturities of the Oak Street notes as of March 31, 2024 were as follows (in thousands):

As of June 30, 2024 and December 31, 2023, the Company was in compliance with all financial related covenants.

The minimum payments and maturities of the Oak Street notes as of June 30, 2024 were as follows (in thousands):

Redeemable Convertible Preferred Stock

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As of December 31, 2023, the amount of principal and accrued interest related to these promissory notes was approximately $12.2 million.

Related interest expense was approximately $0 million and $0.2 million for the periods ended March 31, 2024 and 2023, respectively.

Related interest expense was approximately $0 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.

In connection with the closing of the Business Combination, the Company paid approximately $3.5 million on these notes.

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The terms of these new promissory notes provide for maturity on May 15, 2027 and carries an interest rate of Prime plus 1.00%, but no less than 7.50% per annum.

Related interest expense was approximately $0.1 and $0 for the six months ended June 30, 2024 and 2023, respectively.

Other commitments

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In connection with the closing of the Business Combination, the noteholders agreed to satisfy all outstanding obligations, including the payment of principal and interest, in exchange for an amount of cash equal to approximately $0.9 million, forgiveness of certain other obligations owed to a noteholder and the issuance of 357,000 shares of Common Stock of Binah Capital Group, Inc.

The following table sets forth a summary of cash flows for the period ended March 31, 2024 and 2023:

The following table sets forth a summary of cash flows for the six month period ended June 30, 2024 and 2023:

(in thousands)

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Cash Flows from Operating Activities .

Net cash used in operating activities was $3.1 million for the period ended March 31, 2024 compared to net cash provided by of $0.4 million for the period ended March 31 2023, representing a decrease of approximately $3.5 million or 921 %.

Net cash used in operating activities was $2.1 million for the six-month period ended June 30, 2024, compared to net cash provided by of $0.2 million for the six-month period ended June 30 2023, representing a decrease of approximately $2.3 million.

The decrease was primarily attributable to the decrease in net income of approximately $1.2 million to a net loss of $2.2 million or a change of $3.4 million.

Cash Flows from Investing Activities .

Net cash used in investing activities was $0.01 million for the period ended March 31, 2024 compared to $0.09 million for the period ended March 31, 2023.

Net cash used in investing activities was $0.0 million for the six-month period ended June 30, 2024, compared to $0.1 million for the six-month period ended June 30, 2023.

The decrease was primarily related to the decrease in the purchases of property and equipment.

Cash Flows from Financing Activities .

Net cash provided by financing activities was approximately $1.7 million for the period ended March 31, 2024 compared to cash used in financing activities of approximately $0.8 million for the period ended March 31, 2023.

Net cash provided by financing activities was approximately $1.3 million for the six-month period ended June 30, 2024 compared to cash used in financing activities of approximately $1.3 million for the six-month period ended June 30, 2023.

The change is primarily related to the proceeds received from the Redeemable Convertible Preferred Financing offset by the repayments of the Wentworth related party debt obligations.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and other commitments as of March 31, 2024:

The following table summarizes our contractual obligations and other commitments as of June 30, 2024:

Payments Due by period

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(2) Represents the obligations under the amounts due to certain sellers of the PKSH entities.

(3) Represents future minimum lease payments as of March 31, 2024, under non-cancelable office leases.

(3) Represents future minimum lease payments as of June 30, 2024, under non-cancelable office leases.

Critical Accounting Policies and Estimates

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Management exercises judgment in determining whether the Company is the principal (i.e., reports revenues on a gross basis) or agent (i.e., reports revenue on a net basis).

For additional information see Note 4 in the consolidated financial statements as of and for the periods ended March 31, 2024 and 2023.

For additional information see Note 4 in the consolidated financial statements as of and for the three and six-months periods ended June 30, 2024 and 2023.

Goodwill and Other Intangible Assets

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis