MORGAN GROUP HOLDING CO. Unless indicated otherwise, or the context otherwise requires, references in this report to the "Company," "Morgan Group ," "Morgan," "we," "us," and "our" or similar terms are toMorgan Group Holding Co. and its subsidiary.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this Form 10-Q contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will," "should," "may," and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.
OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Form 10-Q. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking statements as discussed under "Cautionary Statement Regarding Forward-Looking Statements" appearing elsewhere in this Form 10-Q.Morgan Group (OTC Pink®: MGHL), throughG.research , acts as an underwriter and provides institutional research services. Institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis or direct payments from institutional clients as well as underwriting profits, selling concessions and management fees associated with underwriting activities. Commission revenues vary directly with the perceived value of the research provided, as well as account activity and new account generation. In light of the dynamics created by COVID-19 and its impact on the global supply chain and banks, oil, travel and leisure including the temporary closure of businesses deemed non-essential acrossthe United States , we anticipate lower transaction volumes from our institutional clients. As a result of this pandemic, the majority of our employees are working remotely, including our order execution services. However, there has been no material impact of remote work arrangements on our operations, including our financial reporting systems, internal control over financial reporting, and disclosure controls and procedures, and there has been no material challenge in implementing our business continuity plan. The sponsored conferences are taking place as planned using virtual service providers. While at the present time, the Company is unable to estimate the potential impact of COVID-19 on its financial condition, a significant prolonged disruption in the financial markets leading to materially lower trading activity of the Company's clients would have a material adverse effect on the Company's revenue, operating results and financial position. Any potential impact to our results of operations and financial condition will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain COVID-19 or treat its impact, all of which are beyond our control. We will continue to monitor the virus' impact on our customers, clients, and financial results. 15
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RESULTS OF OPERATIONS
The following table (in thousands, except per share data) and discussion of our
results of operations are based upon data derived from the Condensed
Consolidated Statements of Income contained in our condensed consolidated
financial statements and should be read in conjunction with those statements
included in Part I, Item 1 of this Form 10-Q:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenues
Commissions $ 492 $ 1,066 $ 1,714 $ 3,205
Fees earned from affiliated entities pursuant to
research services agreements - - - -
Principal transactions (21 ) (3 ) (26 ) (6 )
Dividends and interest 4 7 16 55
Underwriting fees - - 6 30
Sales manager fees - - - 335
Other revenues (2 ) 12 25 15
Total revenues 473 1,082 1,736 3,635
Expenses
Compensation and related costs 277 750 1,591 2,730
Clearing charges 207 276 556 894
General and administrative 274 264 993 922
Occupancy and equipment 63 117 226 274
Total expenses 820 1,407 3,366 4,820
Loss before income tax benefit (347 ) (325 ) (1,631 ) (1,186 )
Income tax benefit - (61 ) - (329 )
Net loss $ (347 ) $ (264 ) $ (1,631 ) $ (857 )
Net loss per share
Basic and diluted $ (0.58 ) $ (0.44 ) $ (2.72 ) $ (1.43 )
Three Months Ended
Revenues
Institutional research service revenues were$0.5 million for the three months endedSeptember 30, 2021 ,$0.6million , or 53.8%, lower than total revenues of$1.1 million for the three months endedSeptember 30, 2020 . Institutional research services revenues by revenue component, excluding principal transactions and dividends and interest, were as follows (dollars in thousands): Three Months Ended September 30, Increase (Decrease) 2021 2020 $ % Commissions$ 441 $ 979$ (538 ) -54.9 % Hard dollar payments 51 87 (36 ) -41.3 % 492 1,066$ (574 ) -53.8 % Research services - - - n/a Underwriting fees - - - n/a Sales manager fees - - - n/a Total$ 492 $ 1,066$ (574 ) -53.8 % 16
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Commissions and hard dollar payments for the three months endedSeptember 30, 2021 were$0.5 million , a$0.6 million , or 53.8%, decrease from$1.1 million in the comparable 2020 period. The decrease was primarily due to lower brokerage commissions from securities transactions executed on an agency basis. For the three months endedSeptember 30, 2021 and 2020, respectively,G.research earned$0.3 million and$0.7 million , or approximately 57% and 69%, of its commission revenue from transactions executed on behalf of funds advised byGabelli Funds, LLC ("Gabelli Funds") and clients advised by GAMCO Asset Management Inc. ("GAMCO Asset"). Principal Transactions
During the three months ended
Interest and dividend income declined to negligible levels from$0.01 for the three months endedSeptember 30, 2021 primarily due to the drop in short-term interest rates and lower cash and cash equivalents balances.
Expenses
Total expenses were$0.8 million for the three months endedSeptember 30, 2021 , a decrease of$0.6 million , or 41.7%, from$1.4 million in the comparable 2020 period. The decrease results primarily from lower compensation and related costs. Compensation costs, which includes salaries, bonuses, and benefits, were$0.3 million for the three months endedSeptember 30, 2021 , a decrease of$0.5 million from$0.8 million for the three months endedSeptember 30, 2020 . The decrease was due to headcount reductions.
Income Tax Benefit
For the three months endedSeptember 30, 2021 and 2020, we recorded income tax benefits of$0.0 million and$0.1 million , respectively, and the effective tax rate ("ETR") was 0.0% and 18.8%, respectively. The ETR decrease was primarily related to a net operating loss increase offset by the recording of a valuation allowance against the net deferred tax assets.
Net Loss
Net loss for the three months ended
Nine Months Ended
Revenues
Institutional research service revenues were$1.7 million for nine months endedSeptember 30, 2021 ,$1.9 million , or 51.8%, lower than total revenues of$3.6 million for the nine months endedSeptember 30, 2020 . Institutional research services revenues by revenue component, excluding principal transactions and dividends and interest, were as follows (dollars in thousands): 17
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Nine Months Ended September 30, Increase (Decrease)
2021 2020 $ %
Commissions $ 1,525 $ 2,916 $ (1,390 ) -47.7 %
Hard dollar payments 189 290 (101 ) -34.8 %
1,714 3,205 $ (1,491 ) -46.5 %
Research services - - - n/a
Underwriting fees 6 30 (24 ) -79.3 %
Sales manager fees - 335 (335 ) -100.0 %
Total $ 1,721 $ 3,571 $ (1,850 ) -51.8 %
Commissions and hard dollar payments in the 2021 period were $1.7 million , a
$1.4 million , or 46.5%, decrease from $3.2 million in the comparable 2020
period. The decrease was primarily due to lower brokerage commissions from
securities transactions executed on an agency basis. For the nine months ended
September 30, 2021 , respectively, G.research earned $0.9 million and $2.2
million , or approximately 55% and 68%, of its commission revenue from
transactions executed on behalf of funds advised by Gabelli Funds and clients
advised by GAMCO Asset.
The Company participated as agent in the secondary offerings of GGN. Pursuant to
sales agreements between the parties, the Company earned sales manager fees
related to this offering of $0.0 million and $0.3 million for the nine months
ended September 30, 2021 and 2020, respectively.
Principal Transactions
During the nine months ended
Interest and dividend income declined$0.04 million to$0.01 million in the nine months endedSeptember 30, 2021 from$0.05 million in the comparable 2020 period primarily due to lower short-term interest rates and lower cash and cash equivalents balances.
Expenses
Total expenses were$3.3 million for the nine months endedSeptember 30, 2021 , a decrease of$1.5 million , or 30.2%, from$4.8 million in the comparable 2020 period. The decrease results primarily from lower compensation and related costs and clearing expenses. Compensation costs, which includes salaries, bonuses, and benefits, were$1.6 million for the nine months endedSeptember 30, 2021 , a decrease of$1.1 million from$2.7 million for the nine months endedSeptember 30, 2020 . The decrease was due to headcount reductions.
Clearing expenses decreased by
Income Tax Benefit
For the nine months endedSeptember 30, 2021 and 2020, we recorded income tax benefits of$0.0 million and$0.3 million , respectively, and the ETR was 0.0% and 27.7%, respectively. The ETR decrease was primarily related to a net operating loss increase offset by the recording of a valuation allowance against the net deferred tax assets. 18
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Net Loss
Net loss for the nine months ended
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