10-Q 1 ladenburgthalmann2019q310-q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ______

Commission File Number 001-15799

Ladenburg Thalmann Financial Services Inc.
(Exact name of registrant as specified in its charter)
Florida
65-0701248
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)
 
 
4400 Biscayne Boulevard, 12th Floor
 
Miami, Florida
33137
(Address of principal executive offices)
(Zip Code)
(305) 572-4100
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:    

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.0001 per share
LTS
NYSE American
8.00% Series A Cumulative Redeemable Preferred Stock, Liquidation Preference $25.00 per share
LTS PrA
NYSE American
6.50% Senior Notes due 2027
LTSL
NYSE American
7% Senior Notes due 2028
LTSF
NYSE American
7.25% Senior Notes due 2028
LTSK
NYSE American
7.75% Senior Notes due 2029
LTSH
NYSE American
    
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 Yes  X    No       

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).



Yes__X__ No___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[ ]
 
 
Accelerated filer
[x]
 
 
 
 
 
 
 
 
Non-accelerated filer
[ ]
 
 
Smaller reporting company
[ ]
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
[ ]
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ___ No  X 
        
As of October 31, 2019 there were 148,744,079 shares of the registrant's common stock outstanding.




   

LADENBURG THALMANN FINANCIAL SERVICES INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

 
 
Page
PART I. FINANCIAL INFORMATION
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART  II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADENBURG THALMANN FINANCIAL SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in thousands, except share and per share amounts)
 
September 30, 2019 
 (Unaudited)
 
December 31, 2018
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
251,033

 
$
182,693

Securities owned, at fair value
4,601

 
10,923

Receivables from clearing brokers
27,835

 
24,068

Receivables from other broker-dealers
5,597

 
7,078

Notes receivable from financial advisors, net
7,459

 
5,809

Other receivables, net
67,419

 
68,942

Insurance trailing commissions receivable
67,290

 
64,300

Fixed assets, net
32,068

 
29,994

Right-of-use assets
31,815

 

Restricted cash
771

 
6,588

Intangible assets, net
62,896

 
73,064

Goodwill
126,079

 
126,079

Contract acquisition costs, net
86,520

 
80,726

Cash surrender value of life insurance
13,934

 
11,406

Income taxes receivable

 
2,156

Other assets
32,807

 
47,078

      Total assets
$
818,124

 
$
740,904



 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
LIABILITIES:
 
 
 
Securities sold, but not yet purchased, at fair value
$
35

 
$
2,575

Accrued compensation
36,871

 
39,264

Commissions and fees payable
106,004

 
105,306

Accounts payable and accrued liabilities
37,197

 
48,741

Deferred rent

 
2,956

Lease liabilities
34,798

 

Deferred income taxes
13,945

 
14,068

Deferred compensation liability
24,602

 
20,622

Accrued interest

 
123

Notes payable, net of unamortized discount of $5,881 and $6,372 in 2019 and 2018, respectively and net of debt issuance costs of $8,660 and $7,086 in 2019 and 2018, respectively.
315,898

 
254,072

      Total liabilities
569,350

 
487,727

Commitments and contingencies (Note 10)


 


SHAREHOLDERS' EQUITY:
 
 
 
Preferred stock, $.0001 par value; authorized 50,000,000 shares: 8% Series A cumulative redeemable preferred stock; designated 23,844,916 shares in 2019 and 2018; shares issued and outstanding 17,401,282 in 2019 and 17,012,075 in 2018 (liquidation preference $435,032 and $425,302 in 2019 and 2018, respectively)
2

 
2

Common stock, $.0001 par value; authorized 1,000,000,000 shares in 2019 and 2018; shares issued and outstanding, 148,710,781 in 2019 and 146,535,796 in 2018
15

 
14

   Additional paid-in capital
317,735

 
344,356

   Accumulated deficit
(68,971
)
 
(91,246
)
      Total shareholders’ equity of the Company
248,781

 
253,126

Noncontrolling interest
(7
)
 
51

      Total shareholders' equity
248,774

 
253,177

      Total liabilities and shareholders' equity
$
818,124

 
$
740,904

See accompanying notes.

1




LADENBURG THALMANN FINANCIAL SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Commissions
 
$
180,395

 
$
172,108

 
$
527,076

 
$
515,775

Advisory fees
 
132,763

 
124,550

 
372,664

 
361,571

Investment banking
 
18,692

 
9,982

 
40,060

 
38,201

Principal transactions
 
(258
)
 
45

 
1,271

 
445

Interest and dividends
 
1,474

 
1,434

 
4,018

 
3,301

Service fees
 
31,137

 
28,702

 
95,727

 
81,189

Other income
 
10,329

 
12,054

 
32,751

 
35,533

Total revenues
 
374,532

 
348,875

 
1,073,567

 
1,036,015

Expenses:
 
 
 
 
 

 

Commissions and fees
 
260,072

 
249,672

 
749,522

 
735,388

Compensation and benefits
 
54,026

 
44,905

 
154,514

 
140,727

Non-cash compensation
 
1,536

 
1,380

 
4,474

 
4,442

Brokerage, communication and clearance fees
 
3,392

 
3,734

 
10,956

 
11,994

Rent and occupancy, net of sublease revenue
 
2,648

 
2,566

 
7,962

 
7,446

Professional services
 
4,810

 
4,531

 
14,514

 
14,860

Interest
 
6,218

 
3,206

 
16,840

 
7,226

Depreciation and amortization
 
5,246

 
5,845

 
17,057

 
17,416

Acquisition-related expenses
 

 

 
24

 
913

Amortization of retention and forgivable loans
 
139

 
97

 
391

 
280

Amortization of contract acquisition costs
 
2,988

 
2,488

 
8,639

 
7,059

Other
 
18,067

 
17,740

 
58,746

 
53,922

Total expenses
 
359,142

 
336,164

 
1,043,639

 
1,001,673

Income before item shown below
 
15,390

 
12,711

 
29,928

 
34,342

Change in fair value of contingent consideration
 
(93
)
 
(54
)
 
(290
)
 
(165
)
Income before income taxes
 
15,297

 
12,657

 
29,638

 
34,177

Income tax expense
 
4,020

 
3,207

 
7,421

 
9,953

Net income
 
11,277

 
9,450

 
22,217

 
24,224

Net (loss) income attributable to noncontrolling interest
 
(79
)
 
13

 
(58
)
 
22

Net income attributable to the Company
 
$
11,356

 
$
9,437

 
$
22,275

 
$
24,202

Dividends declared on preferred stock
 
(8,702
)
 
(8,507
)
 
(25,987
)
 
(25,523
)
Net income (loss) available to common shareholders
 
$
2,654

 
$
930

 
$
(3,712
)
 
$
(1,321
)
 
 
 
 
 
 
 
 
 
Net income (loss) per common share available to common shareholders (basic)
 
$
0.02

 
$
0.00

 
$
(0.03
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
 
Net income (loss) per common share available to common shareholders (diluted)
 
$
0.02

 
$
0.00

 
$
(0.03
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
 
Weighted average common shares used in computation of per share data:
 
 
 
 
 
 
 
 
Basic
 
143,092,912

 
196,381,910

 
143,281,873

 
196,281,283

Diluted
 
147,960,009

 
208,387,236

 
143,281,873

 
196,281,283

See accompanying notes.

2



LADENBURG THALMANN FINANCIAL SERVICES INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share amounts)
(Unaudited)
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Noncontrolling Interest
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance - June 30, 2018
17,012,075

 
$
2

 
201,271,034

 
$
20

 
$
501,348

 
$
(110,239
)
 
$
32

 
$
391,163

Issuance of common stock under employee stock purchase plan

 

 
32,891

 

 
84

 

 

 
84

Exercise of stock options

 

 
778,234

 

 
1,304

 

 

 
1,304

Stock-based compensation granted to advisory board, consultants and independent financial advisors

 

 

 

 
7

 

 

 
7

Stock-based compensation to employees

 

 

 

 
1,373

 

 

 
1,373

Unvested restricted stock forfeitures

 

 
(106,250
)
 

 

 

 



Repurchase and retirement of common stock

 

 
(1,724,113
)
 

 
(5,318
)
 

 

 
(5,318
)
Preferred stock issued, net of underwriting discount and expense of $91

 

 

 

 
(91
)
 

 

 
(91
)
Preferred stock dividends declared and paid

 

 

 

 
(8,507
)
 

 

 
(8,507
)
Common stock dividends declared and paid

 

 

 

 
(2,448
)
 

 

 
(2,448
)
Net income

 

 

 

 

 
9,437

 
13

 
9,450

Balance - September 30, 2018
17,012,075

 
$
2

 
200,251,796

 
$
20

 
$
487,752

 
$
(100,802
)
 
$
45

 
$
387,017


Balance - June 30, 2019
17,401,282

 
$
2

 
148,501,131

 
$
15

 
$
326,928

 
$
(80,327
)
 
$
72

 
$
246,690

Issuance of common stock under employee stock purchase plan

 

 
40,869

 

 
92

 

 

 
92

Exercise of stock options, net of 120,129 shares tendered in payment of exercise price

 

 
324,352

 

 
218

 

 

 
218

Stock-based compensation to employees

 

 

 

 
1,536

 

 

 
1,536

Repurchase and retirement of common stock

 

 
(155,571
)
 

 
(526
)
 

 

 
(526
)
Preferred stock issued, net of underwriting discount and expense of $18

 

 

 

 
(18
)
 

 

 
(18
)
Preferred stock dividends declared and paid

 

 

 

 
(8,702
)
 

 

 
(8,702
)
Common stock dividends declared and paid

 

 

 

 
(1,793
)
 

 

 
(1,793
)
Net income

 

 

 

 

 
11,356

 
(79
)
 
11,277

Balance - September 30, 2019
17,401,282

 
$
2

 
148,710,781

 
$
15

 
$
317,735

 
$
(68,971
)
 
$
(7
)
 
$
248,774



See accompanying notes.

3




LADENBURG THALMANN FINANCIAL SERVICES INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share amounts)
(Unaudited)
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Noncontrolling Interest
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance - December 31, 2017
 
17,012,075

 
$
2

 
198,583,941

 
$
20

 
$
520,135

 
$
(149,778
)
 
$
12


$
370,391

Cumulative effect of adoption of ASC 606 (See Note 2)
 

 

 

 

 

 
24,774

 
11


24,785

Balance - January 1, 2018
 
17,012,075

 
2

 
198,583,941

 
20

 
520,135

 
(125,004
)
 
23

 
395,176

Issuance of common stock under employee stock purchase plan
 

 

 
122,192

 

 
365

 

 

 
365

Exercise of stock options, net of 203,132 shares tendered in payment of exercise price
 

 

 
2,285,314

 

 
3,636

 

 

 
3,636

Stock-based compensation granted to advisory board, consultants and independent financial advisors
 

 

 

 

 
34

 

 

 
34

Stock-based compensation to employees
 

 

 

 

 
4,408

 

 

 
4,408

Issuance of restricted stock
 

 

 
2,115,000

 

 

 

 

 

Restricted stock forfeitures
 

 

 
(106,250
)
 

 

 

 

 

Repurchase and retirement of common stock, including 247,379 shares surrendered for tax withholdings and 19,294 shares tendered in payment of exercise price
 

 

 
(2,748,401
)
 

 
(8,746
)
 

 

 
(8,746
)
Preferred stock issued, net of underwriting discount and expense of $180
 

 

 

 

 
(180
)
 

 

 
(180
)
Preferred stock dividends declared and paid
 

 

 

 

 
(25,523
)
 

 

 
(25,523
)
Common stock dividends declared and paid
 

 

 

 

 
(6,377
)
 

 

 
(6,377
)
Net income
 

 

 

 

 

 
24,202

 
22

 
24,224

Balance - September 30, 2018
 
17,012,075

 
$
2

 
200,251,796

 
$
20

 
$
487,752

 
$
(100,802
)
 
$
45

 
$
387,017


Balance - December 31, 2018
 
17,012,075

 
$
2

 
146,535,796

 
$
14

 
$
344,356

 
$
(91,246
)
 
$
51

 
$
253,177

Issuance of common stock under employee stock purchase plan
 

 

 
127,507

 

 
342

 

 

 
342

Exercise of stock options, net of 663,979 shares tendered in payment of exercise price
 

 

 
2,529,429

 

 
1,372

 

 

 
1,372

Stock-based compensation granted to consultants and independent financial advisors
 

 

 

 

 
15

 

 

 
15

Stock-based compensation to employees
 

 

 

 

 
4,459

 

 

 
4,459

Issuance of restricted stock
 

 

 
2,785,000

 
1

 

 

 

 
1

Unvested restricted stock forfeitures
 

 

 
(82,500
)
 

 

 

 

 

Repurchase and retirement of common stock, including 1,002,460 shares surrendered for tax withholdings and 12,673 shares tendered in exercise of options
 

 

 
(3,184,451
)
 

 
(10,873
)
 

 

 
(10,873
)
Preferred stock issued, net of underwriting discount and expense of $1
 
389,207

 

 

 

 
9,431

 

 

 
9,431

Preferred stock dividends declared and paid
 

 

 

 

 
(25,987
)
 

 

 
(25,987
)
Common stock dividends declared and paid
 

 

 

 

 
(5,380
)
 

 

 
(5,380
)
Net income
 

 

 

 

 

 
22,275

 
(58
)
 
22,217

Balance - September 30, 2019
 
17,401,282

 
$
2

 
148,710,781

 
$
15

 
$
317,735

 
$
(68,971
)
 
$
(7
)
 
$
248,774


4



See accompanying notes.

5

LADENBURG THALMANN FINANCIAL SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
22,217

 
$
24,224

      Adjustments to reconcile net income to
 
 
 
          net cash provided by operating activities:
 
 
 
Change in fair value of contingent consideration
290

 
165

Adjustment to deferred rent

 
819

Amortization of right-of-use assets
5,717

 

Amortization of intangible assets
10,173

 
11,552

Amortization of debt discount
491

 
428

Amortization of debt issue cost
636

 
401

Amortization of retention and forgivable loans
391

 
280

Amortization of contract acquisition costs
8,639

 
7,059

Depreciation and other amortization
6,884

 
5,864

Deferred income taxes
(123
)
 
6,056

Non-cash compensation expense
4,474

 
4,442

Gain on forgiveness of accrued interest under forgivable loans

 
(79
)
Gain on forgiveness of principal of note payable under forgivable loans

 
(2,143
)
Loss on write-off of furniture, fixtures and leasehold improvements, net
4

 
18

 
 
 
 
(Increase) decrease in operating assets
 
 
 
Securities owned, at fair value
6,322

 
(1,570
)
Receivables from clearing brokers
(3,767
)
 
21,893

Receivables from other broker-dealers
1,481

 
1,350

Other receivables, net
1,523

 
(11,151
)
Insurance trailing commissions receivable
(2,990
)
 

Contract acquisition costs, net
(14,433
)
 
(23,522
)
Notes receivable from financial advisors, net
(2,041
)
 
3

Cash surrender value of life insurance
(2,528
)
 
(767
)
Income taxes receivable
2,156

 

Other assets
14,271

 
(8,786
)
 
 
 
 
Increase (decrease) in operating liabilities
 
 
 
Securities sold, but not yet purchased, at fair value
(2,540
)
 
(165
)
Accrued compensation
(2,393
)
 
(1,220
)
Accrued interest
(123
)
 
(153
)
Commissions and fees payable
698

 
12,631

Deferred compensation liability
3,980

 
3,802

Lease liabilities
(5,787
)
 

Accounts payable and accrued liabilities
(11,655
)
 
9,932

      Net cash provided by operating activities   
41,967

 
61,363

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of fixed assets
(9,044
)
 
(10,503
)
Purchase of intangible assets
(5
)
 
(6
)
Acquisition of certain assets of Kestler Financial Group

 
(1,683
)
      Net cash used in investing activities   
(9,049
)
 
(12,192
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Issuance of Series A preferred stock
9,431

 
(180
)
Issuance of common stock
1,715

 
4,001

Issuance of senior notes
55,291

 
106,081

Series A preferred stock dividends paid
(25,987
)
 
(25,523
)
Common stock dividends paid
(5,380
)
 
(6,377
)
Repurchase and retirement of common stock
(10,873
)
 
(8,746
)
Borrowings on term loan
7,000

 

Bank loan and revolver repayments
(1,361
)
 
(6,658
)
Principal payments on notes payable
(231
)
 
(15,209
)
      Net cash provided by financing activities   
29,605

 
47,389

Net increase in cash and cash equivalents
62,523

 
96,560

      Cash and cash equivalents including restricted cash, beginning of period
189,281

 
172,863

      Cash and equivalents at end of period:
 
 
 
      Cash and cash equivalents
251,033

 
262,834

      Restricted cash
771

 
6,589

      Cash and cash equivalents including restricted cash, end of period   
$
251,804

 
$
269,423

 
 
 
 
Supplemental cash flow information:
 
 
 
Interest paid
$
15,836

 
$
6,551

Taxes paid
1,940

 
2,786

 
 
 
 
Acquisition of certain assets of Kestler Financial Group:
 
 
 
Assets acquired
$

 
$
7,917

Liabilities assumed

 
(784
)
Net assets acquired

 
7,133

Promissory note

 
(5,450
)
Net cash paid in acquisition
$

 
$
1,683



See accompanying notes.

6



LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Amounts in thousands, except share and per share amounts)

1. Description of Business and Basis of Presentation

Ladenburg Thalmann Financial Services Inc. (the “Company” or “LTS”) is a holding company. Its principal operating subsidiaries are Securities America, Triad Advisors (‘‘Triad’’), Investacorp, KMS Financial Services (“KMS”), Securities Service Network (“SSN”), Ladenburg Thalmann & Co. (‘‘Ladenburg’’), Ladenburg Thalmann Asset Management (‘‘LTAM’’), Premier Trust (‘‘Premier Trust’’) and Highland Capital Brokerage (“Highland”).

Securities America, Triad, Investacorp, KMS and SSN are registered investment advisors and broker-dealers that serve the independent financial advisor community. The independent financial advisors of these independent advisory and brokerage firms primarily serve retail clients. Such entities derive revenue from advisory fees and commissions, primarily from the sale of mutual funds, variable annuity products and other financial products and services.

Ladenburg is a full service registered broker-dealer that has been a member of the New York Stock Exchange since 1879. Broker-dealer activities include sales and trading and investment banking. Ladenburg provides its services principally to middle-market and emerging growth companies and high net worth individuals through a coordinated effort among corporate finance, capital markets, brokerage and trading professionals.

LTAM is a registered investment advisor. It offers various asset management products utilized by Ladenburg and Premier Trust’s clients, as well as clients of the Company's independent financial advisors.

Premier Trust, a Nevada trust company, provides wealth management services, including administration of personal trusts and retirement accounts, estate and financial planning and custody services.

Highland is an independent insurance broker that delivers life insurance, fixed and equity indexed annuities and long-term care solutions to investment and insurance providers. Highland provides specialized point-of-sale support along with advanced marketing and estate and business planning techniques, delivering customized insurance solutions to both institutional clients and independent producers. Highland also provides marketing strategies, product expertise, and back-office processing for fixed and equity-indexed annuities.

Securities America's, Triad's, Investacorp's, KMS's, SSN's and Ladenburg's customer transactions are cleared through clearing brokers on a fully-disclosed basis and such entities are subject to regulation by, among others, the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”) and the Municipal Securities Rulemaking Board. Each entity is a member of the Securities Investor Protection Corporation. Highland is subject to regulation by various regulatory bodies, including state attorneys general and insurance departments. Premier Trust is subject to regulation by the Nevada Department of Business and Industry Financial Institutions Division.

Basis of Presentation

The condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented. Because of the nature of the Company’s business, interim period results may not be indicative of full year or future results.

The unaudited condensed consolidated financial statements do not include all information and notes required in annual audited financial statements in conformity with GAAP. The statement of financial condition at December 31, 2018 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statement presentation. Please refer to the notes to the audited consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2018 for additional disclosures and a description of accounting policies.
 
Certain amounts in the prior period financial statements were reclassified to conform with the current period financial statement presentation.

New Accounting Standards Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The Company adopted the provisions of Topic 842 on January 1, 2019, using the modified retrospective approach and the option presented under ASU 2018-11 to transition only active leases as of January 1, 2019. All comparative periods prior to January 1, 2019 are not adjusted and continue to be reported in accordance with Topic 840.

The Company elected to utilize the transition package of practical expedients permitted within the new standard, which among other things, allowed the Company to carryforward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the Company’s Consolidated Statements of Financial Condition which resulted in recognizing those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. The Company did not elect the hindsight practical expedient when determining the lease terms.

Adoption of the new standard resulted in the recording of right-of-use assets and corresponding lease liabilities of $36,522 and $39,483, respectively, as of January 1, 2019. The difference between the right-of-use assets and the lease liabilities was recorded to eliminate existing deferred rent balances recorded under Topic 840. The adoption of the new standard did not materially impact the Company's Consolidated Statements of Operations and had no impact on the Company's Consolidated Statements of Cash Flows. The Company's current lease arrangements expire through 2030. See Note 4 for further information.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees by aligning the accounting with the requirements for employee share-based compensation. ASU 2018-07 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The adoption of ASU 2018-07 was effective January 1, 2019 and did not have any impact on the consolidated financial statements.

Accounting Standards Issued, But Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU amends the requirement on the measurement and recognition of expected credit losses for financial assets held.  The ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. Early adoption is permitted, but not earlier than annual and interim periods beginning after December 15, 2018. This amendment should be applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. As amended, an entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative test for a reporting unit to determine if the quantitative impairment test is necessary. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and applies prospectively. Early adoption is permitted, including in an interim period, for impairment tests performed after January 1, 2017. The Company has not elected to early adopt ASU 2017-04. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements.


7

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



The update eliminates the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and introduces a requirement to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company plans to adopt this new accounting standard on January 1, 2020. Adoption is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

2. Revenue from Contracts with Customers

The Company adopted ASU 2014-09 and all related amendments ("ASC 606"), effective January 1, 2018, using the modified retrospective method by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of shareholders' equity and applied its provisions to all uncompleted contracts using the modified retrospective method. The Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to increase the opening balance of retained earnings by $24,109. During the fourth quarter of 2018, the Company determined that the deferred tax liability recorded on adoption of ASC 606 with respect to Highland was overstated, and the Company made an additional retained earnings adjustment of $665 to correct this item as of January 1, 2018.

Performance Obligations

Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring promised goods or services to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services. Revenues are also analyzed to determine whether the Company acts as the principal (i.e. reports revenue on a gross basis) or agent (i.e. reports revenue on a net basis) in the arrangement with the customer. Principal or agent designations depend primarily on the control an entity has over the product or service before control is transferred to a customer. The indicators of which party exercises control include primary responsibility over performance obligations, inventory risk before the good or service is transferred and discretion in establishing the price.

The following provides detailed information on the recognition of the Company's revenue from contracts with customers:

Broker-Dealer Commissions

The Company’s broker-dealer subsidiaries earn commissions by executing client transactions in stocks, mutual funds, variable annuities and other financial products and services as well as from trailing commissions which are variable. Commissions revenue is recognized at the point of sale on the trade date when the performance obligation is satisfied. Commissions revenue is paid on settlement date, which is generally two business days after trade date for equities securities and corporate bond transactions and one business day for government securities and commodities transactions. The Company records a receivable on the trade date and receives a payment on settlement date. For trailing commissions, the performance obligation is satisfied at the time of the execution of the investments but the amount to be received for trailing commissions is uncertain, as it is dependent on the value of the investments at future points in time as well as the length of time the investor holds the investments, both of which are highly susceptible to variable factors outside the Company's influence. The Company does not believe that it can overcome this constraint until the market value of the investment and the investor activities are known, which are usually monthly or quarterly. The Company's Consolidated Statements of Operations reflects trailing commissions for services performed and performance obligations satisfied in previous periods and are recognized in the period that the constraint is overcome, when clients' investment holdings and their market values become known.

The Company's broker-dealer subsidiaries act as principal in satisfying the performance obligations that generate commissions revenue and maintain relationships with the product sponsors.



8

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



The Company's independent financial advisors assist the Company in performing its obligations. Accordingly, broker-dealer commissions revenue are presented on a gross basis.

Insurance Commissions

The Company’s performance obligation with respect to each contract with its customer, the insurance carriers, is the sale of the insurance policies to clients. Insurance commissions revenue is received from insurance carriers and includes an initial up-front (first year) commission as well as annual trailing commission payments for each policy renewal. Commissions on insurance renewal premiums are considered variable consideration.

ASC 606 requires that, at the time of the initial sale of a policy, the Company must estimate the variable consideration (future renewal commissions) and determine the transaction price as the undiscounted sum of expected future renewal commissions to be received from the insurance carriers.

Therefore, the transaction price includes the first-year fixed commission and the variable consideration for the trailing commissions, estimated using the expected value method and a portfolio approach. The Company also estimates a reduction of the transaction price for possible future chargebacks from the carriers. The Company acts as principal in its relationship with the insurance carriers and receives commissions revenue for the sale of insurance products for the insurance carriers. The Company's financial advisors assist the Company in performing its obligations and act as an agent for the Company. Accordingly, the Company presents the first-year and trailing commissions revenue on a gross basis when each policy is bound as an enforceable contract.

Advisory Fees

Advisory fee revenue represents fees charged by registered investment advisors (“RIAs”) to their clients based upon the value of client assets under management (“AUM”). The Company records fees charged to clients as advisory fees where the Company considers itself to be the primary RIA. The Company determined that the primary RIA firm is the principal in providing advisory services to clients and will therefore recognize the corresponding advisory fee revenues on a gross basis when the advisory services are conducted using the Company's corporate RIA platform.

As a result, the portion of the advisory fees paid to the client's independent financial advisor are classified as commissions and fees expense in the consolidated statements of operations.

Certain independent financial advisors conduct their advisory business through their own RIA firm, rather than using one of the Company's corporate RIA subsidiaries. These independent entities, or Hybrid RIAs, engage the Company for clearing, regulatory and custody services, as well as for access to investment advisory platforms. The advisory fee revenue generated by these Hybrid RIAs is earned by the independent financial advisors, and is not included in the Company's advisory fee revenues. However, the Company charges separate fees to Hybrid RIAs for technology, custody and administrative services based on the AUM within the client’s accounts. These fees are recognized on a net basis and classified as advisory fees in the consolidated statements of operations. Accordingly, reported advisory revenue growth may lag behind the overall growth rate of advisory assets.

Investment Banking

Investment banking revenues consist of underwriting revenue, strategic advisory revenue and private placement fees.

Underwriting
The performance obligation is the consummation of the sale of securities for each contract with a customer. The transaction price includes fixed management fees and is recognized as revenue when the performance obligation is satisfied, generally the trade date. Where Ladenburg is the lead underwriter, revenue and expenses are first allocated to other members of a syndicate because Ladenburg is acting as an agent for the syndicate. Accordingly, the Company records revenue on a net basis. When Ladenburg is not the lead underwriter, Ladenburg recognizes its share of revenue and expenses on a gross basis, because Ladenburg is acting as the principal.

Strategic Advisory Services
Performance obligations in these arrangements vary dependent on the contract, but are typically satisfied upon


9

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



completion of the arrangement. Transaction fees may include retainer, management, and/or success fees, which are recognized upon completion of a deal. Ladenburg controls the service as it is transferred to the customer, and is therefore acting as a principal. Accordingly, the Company records revenues and out-of-pocket reimbursements on a gross basis.

Private Placement
The performance obligation is the consummation of the sale of securities for each contract with a customer. The transaction price includes fixed management fees and is recognized as revenue when the performance obligation is satisfied, generally the trade date. Ladenburg controls the service as it is transferred to the customer, and is therefore acting as a principal. Accordingly, the Company records revenues and out-of-pocket reimbursements on a gross basis.

Service Fees

Service fees primarily include (1) amounts charged to independent financial advisors for securities trades and for providing administrative and compliance services; and (2) fees earned for arranging the cash sweep programs between the customers and the third-party banks, in which customers' cash deposits in their brokerage accounts at the customers' direction are swept into interest-bearing FDIC-insured deposit accounts at various third-party banks.

The service fees charged to independent financial advisors are recognized when the Company satisfies its performance obligations. Transaction revenues for the processing of securities trades are recognized at the point-in-time that a transaction is executed, which is generally the trade date. Fees charged to advisors for providing administrative and compliance services are either recognized at a point-in-time to over time depending on whether the service is provided at an identifiable point-in-time or if the service is provided continually over the the year. The cash sweep fees are earned and recognized over the period of the clients' participation in these programs.

Other Income

The Company receives fees from distributors of certain products sold by financial advisors affiliated with the Company's independent advisory and brokerage subsidiaries. These fees are for marketing support and sales force education and training efforts. Compensation for these performance obligations is generally calculated as a fixed fee, as a percentage of the average annual amount of product sponsor assets held in advisors' clients' accounts, as a percentage of new sales, or a combination. As the value of product sponsor assets held in advisor's clients' accounts is susceptible to unpredictable market changes, fees based on asset levels or sales include variable consideration and are constrained until the date that the fees are determinable. The Company is the principal in these arrangements as it is responsible for and determines the level of servicing and marketing support it provides to the product sponsors. 

In addition, the Company's independent advisory and brokerage subsidiaries host certain advisor conferences that serve as training, education, sales, and marketing events, for which a fee may be charged for attendance to advisors and product sponsors.  Recognition is at a point-in-time when the conference is held and the Company satisfies its performance obligations. 

Disaggregation of Revenue

In the following table, revenue is disaggregated by service line and segment:








10

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



For the Three Months Ended September 30, 2019
 
Independent Advisory and Brokerage Services
 
Ladenburg
 
Insurance Brokerage
 
Corporate
 
Total
Commissions
 
$
133,904

 
$
2,087

 
$
44,404

 
$

 
$
180,395

Advisory fees
 
130,464

 
2,299

 

 

 
132,763

Investment banking
 
238

 
18,454

 

 

 
18,692

Principal transactions
 
7

 
(237
)
 

 
(28
)
 
(258
)
Interest and dividends
 
650

 
263

 

 
561

 
1,474

Service fees
 
30,318

 
551

 

 
268

 
31,137

Other income
 
9,623

 
102

 
510

 
94

 
10,329

Total revenues
 
$
305,204

 
$
23,519

 
$
44,914

 
$
895

 
$
374,532



For the Three Months Ended September 30, 2018
 
Independent Advisory and Brokerage Services
 
Ladenburg
 
Insurance Brokerage
 
Corporate
 
Total
Commissions
 
$
137,054

 
$
2,590

 
$
32,464

 
$

 
$
172,108

Advisory fees
 
122,848

 
1,644

 

 
58

 
124,550

Investment banking
 
129

 
10,038

 

 
(185
)
 
9,982

Principal transactions
 
(2
)
 
48

 

 
(1
)
 
45

Interest and dividends
 
700

 
185

 

 
549

 
1,434

Service fees
 
27,868

 
635

 

 
199

 
28,702

Other income
 
11,418

 
40

 
496

 
100

 
12,054

Total revenues
 
$
300,015

 
$
15,180

 
$
32,960

 
$
720

 
$
348,875



For the Nine Months Ended September 30, 2019
 
Independent Brokerage and Advisory Services
 
Ladenburg
 
Insurance Brokerage
 
Corporate
 
Total
Commissions
 
$
396,949

 
$
7,161

 
$
122,966

 
$

 
$
527,076

Advisory fees
 
366,916

 
5,748

 

 

 
372,664

Investment banking
 
584

 
39,476

 

 

 
40,060

Principal transactions
 
19

 
1,403

 

 
(151
)
 
1,271

Interest and dividends
 
1,964

 
789

 

 
1,265

 
4,018

Service fees
 
93,237

 
1,716

 

 
774

 
95,727

Other income
 
30,355

 
470

 
1,723

 
203

 
32,751

Total revenues
 
$
890,024

 
$
56,763

 
$
124,689

 
$
2,091

 
$
1,073,567




11

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



For the Nine Months Ended September 30, 2018
 
 Independent Brokerage and Advisory Services
 
Ladenburg
 
Insurance Brokerage
 
Corporate
 
Total
Commissions
 
$
407,159

 
$
8,739

 
$
99,877

 
$

 
$
515,775

Advisory fees
 
356,051

 
5,352

 

 
168

 
361,571

Investment banking
 
558

 
38,497

 

 
(854
)
 
38,201

Principal transactions
 
5

 
433

 

 
7

 
445

Interest and dividends
 
1,854

 
420

 

 
1,027

 
3,301

Service fees
 
78,780

 
1,822

 

 
587

 
81,189

Other income
 
30,608

 
351

 
2,068

 
2,506

 
35,533

Total revenues
 
$
875,015

 
$
55,614

 
$
101,945

 
$
3,441

 
$
1,036,015



Contract Balances

For each of its insurance policies, the Company receives an initial up-front (first year) commission as well as annual trailing commission payments for each policy renewal. The Company will incur commission expenses related to the trailing commission payments for each policy renewal as well. The timing of revenue recognition, cash collections, and commission expense on the insurance policies results in contract assets and contract liabilities.
The following table provides information about contract assets and contract liabilities from contracts with customers. Estimated trailing commissions are included in insurance trailing commissions receivable, net while estimated expenses on trailing commissions are included in commissions and fees payable on the condensed consolidated statement of financial condition:
 
 
As of September 30, 2019
As of December 31, 2018
Contract assets - Insurance trailing commissions
 
$
67,290

$
64,300

Contract liabilities - Insurance trailing commissions
 
32,630

31,854



Performance obligations related to insurance brokerage revenue are considered satisfied when the sale of the initial insurance policies are completed, including expected future trailing commissions due to the Company each year upon customer renewals of the policies sold. Upon receipt of the annual trailing commission, the Company pays a corresponding commission expense. Based on historical data, customer renewal periods are estimated at approximately eight years from the sale of the initial policy.
Increases to the contract asset were a result of $7,461 and $20,256 in estimated trailing commissions from new policies during the three and nine months ended September 30, 2019, respectively, while decreases were driven by $5,541 and $17,266 in actual commissions received during the three and nine months ended September 30, 2019, respectively. Increases to the contract liability were a result of $3,276 and $9,583 in estimated commission expense from new policies during the three and nine months ended September 30, 2019, respectively, while decreases were driven by $2,812 and $8,807 in actual commissions paid during the three and nine months ended September 30, 2019, respectively.







12

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



Costs to Obtain a Contract with a Customer

The Company capitalizes the incremental costs of obtaining a contract with a customer (independent financial advisor) if the costs (1) relate directly to an existing contract or anticipated contract, (2) generate or enhance resources that will be used to satisfy performance obligations in the future, and (3) are expected to be recovered. These costs are included in contract acquisition costs, net in the condensed consolidated statements of financial condition and are amortized over the estimated customer relationship period.
 
The Company uses an amortization method that is consistent with the pattern of transfer of goods or services to its customers. Any costs that are not incremental costs of obtaining a contract with a customer, such as costs of onboarding, training and support of independent financial advisors, would not qualify for capitalization.
 
The Company pays fees to third-party recruiters and bonuses to employees for recruiting independent financial advisors, and thereby bring their customers’ accounts to the Company, which generates ongoing advisory fee revenue, commissions revenue, and monthly service fee revenue to the Company.

An additional cost to obtain an independent financial advisor may include forgivable loans. Forgivable loans take many forms, but they are differentiated by the fact that at inception the loan is intended to be forgiven over time by the Company. The loans are given as an inducement to attract independent financial advisors to become affiliated with the Company's independent advisory and brokerage subsidiaries. Each of the Company’s independent advisory and brokerage subsidiaries may offer new independent financial advisors a forgivable loan as part of his/her affiliation offer letter. These amounts are paid upfront and are capitalized, then amortized over the expected useful lives of the independent financial advisor’s relationship period with the independent advisory and brokerage firm.

The balance of contract acquisition costs, net, was $86,520 as of September 30, 2019, an increase of $5,794 compared to December 31, 2018. Amortization on these contract acquisition costs was $8,639 during the nine months ended September 30, 2019. There were no impairments or changes to underlying assumptions related to contract acquisition costs, net, for the period.
Transaction Price Allocated to Remaining Performance Obligation

Contract liabilities represent accrued commission expense associated with the accrued insurance trailing commission contract assets. The Company does not have any contract liabilities representing revenues that will be recognized in future periods upon the satisfaction of any remaining performance obligations.
3. Fair Value of Assets and Liabilities

Authoritative accounting guidance defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market or income approach are used to measure fair value.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3 — Unobservable inputs which reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.


13

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



The following tables present the carrying values and estimated fair values at September 30, 2019 and December 31, 2018 of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy. Such instruments are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.
 
 
 
September 30, 2019
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
Total Estimated Fair Value
Cash and cash equivalents
 
$
251,033

 
$
251,033

 
$

 
$
251,033

Receivables from clearing brokers
 
27,835

 

 
27,835

 
27,835

Receivables from other broker-dealers
 
5,597

 

 
5,597

 
5,597

Notes receivables, net (1)
 
7,459

 

 
7,459

 
7,459

Other receivables, net
 
67,419

 

 
67,419

 
67,419

Insurance trailing commissions receivable
 
67,290

 

 
67,290

 
67,290

 
 
$
426,633

 
$
251,033

 
$
175,600

 
$
426,633

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Accrued compensation
 
$
36,871

 
$

 
$
36,871

 
$
36,871

Commissions and fees payable
 
106,004

 

 
106,004

 
106,004

Accounts payable and accrued liabilities (2)
 
34,677

 

 
34,677

 
34,677

Accrued interest
 

 

 

 

Notes payable, net (3)
 
315,898

 

 
333,145

 
333,145

 
 
$
493,450

 
$

 
$
510,697

 
$
510,697


(1) Carrying value approximates fair value, which is determined based on a valuation technique to convert future cash payments or forgiveness transactions to a single discounted preset value amount.
(2) Excludes contingent consideration liabilities of $2,520.
(3) Estimated fair value based on then current rates at which similar amounts of debt could be borrowed.





14

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



 
 
December 31, 2018
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
Total Estimated Fair Value
Cash and cash equivalents
 
$
182,693

 
$
182,693

 
$

 
$
182,693

Receivables from clearing brokers
 
24,068

 

 
24,068

 
24,068

Receivables from other broker-dealers
 
7,078

 

 
7,078

 
7,078

Notes receivables, net (1)
 
5,809

 

 
5,809

 
5,809

Other receivables, net
 
68,942

 

 
68,942

 
68,942

Insurance trailing commissions receivable
 
64,300

 

 
64,300

 
64,300

 
 
$
352,890

 
$
182,693

 
$
170,197

 
$
352,890

 
 

 

 

 

Liabilities
 

 

 

 

Accrued compensation
 
$
39,264

 
$

 
$
39,264

 
$
39,264

Commissions and fees payable
 
105,306

 

 
105,306

 
105,306

Accounts payable and accrued liabilities (2)
 
46,511

 

 
46,511

 
46,511

Accrued interest
 
123

 

 
123

 
123

Notes payable, net (3)
 
254,072

 

 
266,844

 
266,844

 
 
$
445,276

 
$

 
$
458,048

 
$
458,048


(1) Carrying value approximates fair value, which is determined based on a valuation technique to convert future cash payments or forgiveness transactions to a single discounted preset value amount.
(2) Excludes contingent consideration liabilities of $2,230.
(3) Estimated fair value based on then current rates at which similar amounts of debt could be borrowed.
The following tables present the financial assets and liabilities measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018:

 
 
September 30, 2019
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
 Level 3
 
Total Estimated Fair Value
Certificates of deposit
 
$
289

 
$
289

 
$

 
$

 
$
289

Debt securities
 
627

 

 
627

 

 
627

U.S. treasury notes
 
711

 

 
711

 

 
711

Common stock and warrants
 
2,974

 
326

 
2,648

 

 
2,974

Total
 
$
4,601

 
$
615

 
$
3,986

 
$

 
$
4,601

 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
Contingent consideration payable
 
$
2,520

 
$

 
$

 
$
2,520

 
$
2,520

Debt securities
 
29

 

 
29

 

 
29

Common stock and warrants
 
6

 
6

 

 

 
6

Total
 
$
2,555

 
$
6

 
$
29

 
$
2,520

 
$
2,555





15

LADENBURG THALMANN FINANCIAL SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited; Amounts in thousands, except share and per share amounts)



 
 
December 31, 2018
Assets
 
Carrying Value
 
 Level 1
 
 Level 2
 
 Level 3
 
Total Estimated Fair Value
Certificates of deposit
 
$
426

 
$
426

 
$

 
$

 
$
426

Debt securities
 
1,447

 

 
1,447

 

 
1,447

U.S. treasury notes
 
794

 

 
794

 

 
794

Common stock and warrants
 
8,256

 
7,070

 
1,186

 

 
8,256

Total
 
$
10,923

 
$
7,496

 
$
3,427

 
$

 
$
10,923

 
 
 
 
 
 
 
 
 
 
 
Liabilities