Q1 2023 Financial Highlights (vs. Q1 2022)
Revenue
- Total revenue was consistent at $88
million
- Fee revenue1 decreased 8% to $63 million, reflecting a decrease in
AUA2 and performance fees
- Interest revenue increased 179% due to higher benchmark
rates
- Insurance revenue increased 12% and represented 4% of total
revenue
- Corporate finance revenue decreased 54%, which was attributable
to slower new issue activity market-wide
Adjusted EBITDA1
- Increased 18% to $13 million,
driven by an 8% increase in gross margin
- Adjusted EBITDA margin1 was 14.9%, up from
12.5%
- Adjusted operating expenses1 increased 5%, as
Fidelity conversion cost savings were offset by inflationary
increases and share-based compensation
AUA1,2 of $36.0
billion
- Ending AUA was down 3% and average AUA was down 2% due to
capital markets volatility
- S&P/TSX Composite and the S&P 500 indices were down 8%
and 9%, respectively
Balance sheet
- Working capital1 of $88
million
- $200 million revolving credit
facility, $81 million drawn which is
consistent with year-end 2022
TORONTO, May 3, 2023
/CNW/ - RF Capital Group Inc. (RF Capital or the Company) (TSX:
RCG) today reported Adjusted EBITDA1 of $13 million for the first quarter of 2023, an
increase of 18% over last year. While fee and corporate finance
revenue declined due to capital market conditions, those factors
were partly offset by interest and insurance revenue, which were up
by 179% and 12% respectively. The 18% increase in Adjusted
EBITDA1 was the result of an 8% increase in gross margin
relative to a 5% increase in Adjusted operating
expenses1. While the Company is realizing inflationary
increases to certain operating expenses, savings from the
transition to the Fidelity platform have begun to take effect and
management remains vigilant towards cost containment.
_____________________________
|
1.
|
Considered to be
non-GAAP or supplemental financial measures, which do not have any
standardized meaning prescribed by GAAP under IFRS and are
therefore unlikely to be comparable to similar measures presented
by other issuers. For further information, please see the "Non-GAAP
and Supplemental Financial Measures" section at the end of this
press release.
|
2.
|
Assets under
administration (AUA) is a measure of client assets and is common in
the wealth management business. AUA represents the market value of
client assets managed and administered by Richardson Wealth from
which it earns commissions and fee revenue.
|
|
|
Kish Kapoor, President and Chief Executive Officer,
commented, "With most of the transformation of our digital
and physical footprint behind us, we are now focused on creating a
steady state for our advisors, so that they can provide exceptional
service to their clients and build their practices. We are also now
able to reinvigorate our recruiting efforts and aggressively pursue
opportunities in our recruiting pipeline. We remain well positioned
to achieve 10% growth in Adjusted EBITDA in 2023 as we benefit from
resilient fee-based revenue, diversifying revenue streams and
continued operating leverage."
Q1 2023 – Financial Performance
The following table presents the Company's financial results for
Q1 2023, Q4 2022 and Q1 2022.
|
|
|
|
|
|
|
As at or for the
three months ended
|
|
March
31,
|
December
31,
|
Increase/
|
March
31,
|
Increase/
|
($000s, except as
otherwise indicated)
|
2023
|
2022
|
(decrease)
|
2022
|
(decrease)
|
Key Performance
Drivers1:
|
|
|
|
|
|
AUA -
ending2 ($ millions)
|
35,965
|
34,948
|
3 %
|
37,084
|
(3 %)
|
Fee revenue
|
62,532
|
62,625
|
(0 %)
|
67,890
|
(8 %)
|
Fee based
revenue3 (%)
|
90
|
90
|
(35) bps
|
89
|
+71 bps
|
Adjusted operating
expense ratio4 (%)
|
74.7
|
68.1
|
+664
bps
|
76.9
|
(225)
bps
|
Adjusted EBITDA
margin5(%)
|
14.9
|
19.2
|
(432) bps
|
12.5
|
+244
bps
|
Asset yield6
(%)
|
0.86
|
0.87
|
(0) bps
|
0.85
|
+1 bps
|
Operating
Performance
|
|
|
|
|
|
Reported
Results:
|
|
|
|
|
|
Revenue
|
87,700
|
88,531
|
(1 %)
|
88,760
|
(1 %)
|
Variable advisor
compensation
|
36,095
|
35,276
|
2 %
|
40,839
|
(12 %)
|
Gross
margin7
|
51,605
|
53,255
|
(3 %)
|
47,921
|
8 %
|
Operating
expenses1,8
|
42,647
|
38,867
|
10 %
|
38,412
|
11 %
|
EBITDA1
|
8,958
|
14,388
|
(38 %)
|
9,509
|
(6 %)
|
Income (loss) before
income taxes
|
(5,649)
|
(1,391)
|
306 %
|
(3,177)
|
78 %
|
Net income
(loss)
|
(5,332)
|
(990)
|
439 %
|
(3,147)
|
69 %
|
Earnings per common
share - diluted9
|
(0.51)
|
(0.21)
|
145 %
|
(0.44)
|
17 %
|
Adjusting
Items10:
|
|
|
|
|
|
Transformation costs
and other provisions (pre-tax)
|
4,101
|
2,621
|
56 %
|
1,543
|
166 %
|
Amortization of
acquired intangibles (pre-tax)
|
3,263
|
3,263
|
—
|
3,263
|
—
|
Transformation costs
and other provisions (after-tax)
|
3,039
|
2,091
|
45 %
|
1,142
|
166 %
|
Amortization of
acquired intangibles (after-tax)
|
2,398
|
2,398
|
—
|
2,398
|
—
|
Adjusted
Results1:
|
|
|
|
|
|
Operating
expenses8
|
38,546
|
36,246
|
6 %
|
36,869
|
5 %
|
EBITDA
|
13,059
|
17,009
|
(23 %)
|
11,052
|
18 %
|
Income (loss) before
income taxes
|
1,715
|
4,493
|
(62 %)
|
1,629
|
5 %
|
Net income
(loss)
|
105
|
3,500
|
(97 %)
|
393
|
(73 %)
|
Adjusted earnings per
common share - diluted9
|
(0.08)
|
0.15
|
(151 %)
|
(0.07)
|
n/m
|
1.
|
Considered to be
non-GAAP or supplemental financial measures, which do not have any
standardized meaning prescribed by GAAP under IFRS and are
therefore unlikely to be comparable to similar measures presented
by other issuers. For further information, please see the "Non-GAAP
and Supplemental Financial Measures" section of this
MD&A.
|
2.
|
AUA is a measure of
client assets and is common in the wealth management business. It
represents the market value of client assets managed and
administered by us.
|
3.
|
Calculated as fee
revenue divided by commissionable revenue. Commissionable revenue
includes Wealth management revenue and commissions earned in
connection with the placement of new issues and the sale of
insurance products.
|
4.
|
Calculated as adjusted
operating expenses divided by gross margin
|
5.
|
Calculated as Adjusted
EBITDA divided by revenue
|
6.
|
Calculated as wealth
management revenue plus interest on cash divided by average
AUA
|
7.
|
Calculated as revenue
less advisor variable compensation. We use gross margin to measure
operating profitability on the revenue that accrues to the Company
after making advisor payments that are directly linked to
revenue.
|
8.
|
Operating expenses
include employee compensation and benefits, selling, general, and
administrative expenses, and transformation costs and other
provisions. Adjusted operating expenses are calculated as operating
expenses less transformation costs and other provisions.
|
9.
|
In 2022, we
consolidated our common shares at a 10:1 ratio. Prior period common
share information has been adjusted to reflect this
consolidation.
|
10.
|
For further
information, please see "Items of Note" of this press
release
|
|
|
Normal Course Issuer Bid
While the Company successfully executed its NCIB program
throughout 2022 and early 2023, it chose to not renew the NCIB
after March 8, 2023. While Management
and the Board still believe that the market may misprice RF
Capital's shares from time to time, they also believe that there
are other higher return options for deploying the Company's
capital.
Preferred Share Dividend
On May 3, 2023, the board of
directors approved a quarterly cash dividend of $0.233313 per Cumulative 5-Year Rate Reset
Preferred Share, Series B, payable on June
30, 2023, to preferred shareholders of record on
June 15, 2023.
Annual General Meeting
The Company will hold its annual meeting of shareholders (the
Meeting), in person, at the Toronto Region Board of Trade, on
Thursday, May 4, at 11:00 a.m. (EST). The Chair of RF Capital's Board
of Directors, Donald Wright, will
host the Meeting. President and Chief Executive Officer, Kish
Kapoor, will discuss the financial and strategic highlights of 2022
and provide an update on the financial results for first quarter
2023. A slide presentation and live audio webcast will be
accessible
at https://richardsonwealth.com/investor-relations/shareholder-meetings/.
Items of Note
The adjusted financial results presented in this document
exclude the impact of transformation program expenses and the
amortization of acquired intangibles.
Q1 2023 included the following $7.4
million of pre-tax adjusting items ($5.4 million after-tax):
- $4.1 million of pre-tax charges
for our ongoing transformation ($3.0
million after-tax). These charges related largely to
outsourcing our carrying broker operations to Fidelity.
- $3.3 million of pre-tax
amortization of intangible assets ($2.4
million after-tax). The amortization arose from intangible
assets created on the acquisition of Richardson Wealth. It will
continue through 2035.
Q4 2022 included the following $5.9
million of pre-tax adjusting items ($4.5 million after-tax):
- $2.6 million of pre-tax charges
for our ongoing transformation ($2.1
million after-tax). These charges related largely to
outsourcing our carrying broker operations to Fidelity,
revitalizing our real estate footprint, and realigning our
workforce.
- $3.3 million of pre-tax
amortization of intangible assets ($2.4
million after-tax).
Q1 2022 included the following $4.8
million of pre-tax adjusting items ($3.5 million after-tax):
- $1.5 million of pre-tax charges
for our ongoing transformation ($1.1
million after-tax). These charges related largely to
outsourcing our carrying broker operations to Fidelity.
- $3.3 million of pre-tax
amortization of acquired intangible assets ($2.4 million after-tax).
Non-GAAP and Supplemental Financial Measures
In addition to GAAP prescribed measures, we use a variety of
non-GAAP financial measures, non-GAAP ratios and supplemental
financial measures to assess our performance. We use these non-GAAP
financial measures and supplementary financial measures (SFM)
because we believe that they provide useful information to
investors regarding our performance and results of operations.
Readers are cautioned that non-GAAP financial measures, including
non-GAAP ratios, and supplemental financial measures often do not
have any standardized meaning and therefore may not be comparable
to similar measures presented by other issuers. Non-GAAP measures
are reported in addition to, and should not be considered
alternatives to, measures of performance according to IFRS.
Non-GAAP Financial Measures
A non-GAAP financial measure is a financial measure used to
depict our historical or expected future financial performance,
financial position or cash flow and, with respect to its
composition, either excludes an amount that is included in, or
includes an amount that is excluded from, the composition of the
most directly comparable financial measure disclosed in our 2022
Annual Financial Statements. A non-GAAP ratio is a financial
measure disclosed in the form of a ratio, fraction, percentage, or
similar representation and that has a non-GAAP financial measure as
one or more of its components.
The primary non-GAAP financial measures (including non-GAAP
ratios) used in this document are:
EBITDA
The use of EBITDA is common in the wealth management industry.
We believe it provides a more accurate measure of our core
operating results, is a proxy for operating cash flow, and is a
commonly used basis for enterprise valuation. EBITDA is used to
evaluate core operating performance by adjusting net income/(loss)
to exclude:
- Interest expense, which we record primarily in connection with
term debt;
- Income tax expense/(benefit);
- Depreciation and amortization expense, which we record
primarily in connection with intangible assets, leases, equipment,
and leasehold improvements; and
- Amortization in connection with investment advisor transition
and loan programs. We view these loans as an effective recruiting
and retention tool for advisors, the cost of which is assessed by
management upfront when the loan is provided rather than over its
term.
Operating Expenses
Operating expenses include:
- Employee compensation and benefits.
- Selling, general, and administrative expenses.
- Transformation costs and other provisions.
These are the expense categories that factor into the EBITDA
calculation discussed above.
Commissionable Revenue
Commissionable revenue includes Wealth management revenue,
commission revenue in connection with the placement of new issues
and revenue earned on the sale of insurance products. We use
commissionable revenue to evaluate advisor compensation paid on
that revenue.
Adjusted Results
In periods that we determine adjusting items have a significant
impact on a user's assessment of ongoing business performance, we
may present adjusted results in addition to reported results by
removing these items from the reported results. Management
considers the adjusting items to be outside of our core operating
performance. We believe that adjusted results can enhance
comparability across reporting periods and provide the reader with
a better understanding of how management views core performance.
Adjusted results are also intended to provide the user with results
that have greater consistency and comparability to those of other
issuers.
Adjusted EBITDA Margin
Adjusted EBITDA margin is a non-GAAP ratio defined as Adjusted
EBITDA as a percentage of revenue.
Adjusting items in this document include the following:
- Transformation costs and other provisions: charges in
connection with the ongoing transformation of our business and
other matters. These charges have encompassed a range of
transformation initiatives, including refining our ongoing
operating model, outsourcing our carrying broker operations,
realigning parts of our real estate footprint, and rolling out our
new strategy across the Company.
- Amortization of acquired intangible assets: amortization of
intangible assets created on the acquisition of Richardson
Wealth.
All adjusting items affect reported expenses.
Adjusted Operating Expenses
The following table reconciles our reported operating expenses
to adjusted operating expenses:
|
For the three
months ended
|
|
March
31,
|
December
31,
|
March
31,
|
($000s)
|
2023
|
2022
|
2022
|
Total expenses -
reported
|
57,254
|
54,646
|
51,098
|
Interest
|
3,511
|
3,294
|
2,140
|
Advisor loan
amortization
|
4,201
|
4,634
|
4,012
|
Depreciation and
amortization
|
6,895
|
7,851
|
6,534
|
Operating
expenses
|
42,647
|
38,867
|
38,412
|
Transformation costs
and other provisions1
|
4,101
|
2,621
|
1,543
|
Adjusted operating
expenses
|
38,546
|
36,246
|
36,869
|
1.
|
Excludes $3.3 million
of amortization of acquired intangibles, which are categorized as
transformation costs but do not factor into our definition of
operating expenses
|
|
|
Adjusted Operating Expense Ratio
Adjusted operating expense ratio is a non-GAAP ratio defined as
adjusted operating expenses divided by gross margin.
Adjusted Net Income
The following table provides a reconciliation of our reported
net income/(loss) to adjusted net income/(loss):
|
For the three
months ended
|
|
March
31,
|
December
31,
|
March
31,
|
($000s)
|
2023
|
2022
|
2022
|
Net income (loss) -
reported
|
(5,332)
|
(990)
|
(3,147)
|
After-tax adjusting
items:
|
|
|
|
Transformation costs
and other provisions
|
3,039
|
2,091
|
1,142
|
Amortization of
acquired intangibles
|
2,398
|
2,398
|
2,398
|
Adjusted net income
(loss)
|
105
|
3,500
|
393
|
Earnings per common
share:
|
|
|
|
Basic
|
(0.51)
|
(0.21)
|
(0.44)
|
Diluted
|
(0.51)
|
(0.21)
|
(0.44)
|
Adjusted earnings per
common share:
|
|
|
|
Basic
|
(0.08)
|
0.25
|
(0.07)
|
Diluted
|
(0.08)
|
0.15
|
(0.07)
|
Supplemental Financial Measures
A supplementary financial measure (SFM) is a financial measure
that is not reported in our 2022 Annual Financial Statements, and
is, or is intended to be, reported periodically to represent
historical or expected future financial performance, financial
position, or cash flows. The Company's key SFMs disclosed in this
document include AUA, recruiting pipeline, and net new and
recruited assets. Management uses these measures to assess the
operational performance of the Company. These measures do not have
any definition prescribed under IFRS and do not meet the definition
of a non-GAAP measure or non-GAAP ratio and may differ from the
methods used by other companies and therefore these measures may
not be comparable to other companies. The composition and
explanation of a SFM is provided in this document where the measure
is first disclosed if the SFM's labelling is not sufficiently
descriptive.
About RF Capital Group Inc.
RF Capital Group Inc. is a TSX-listed (TSX: RCG) wealth
management-focused company. Operating under the Richardson Wealth
brand, the Company is one of the largest independent wealth
management firms in Canada with
$36.3 billion in assets under
administration (as of April 30, 2023)
and 21 offices across the country. The firm's Advisor teams are
focused exclusively on providing strategic wealth advice and
innovative investment solutions customized for high net worth or
ultra-high net worth families and entrepreneurs. The Company is
committed to maintaining exceptional fiduciary standards and has
earned certification – determined annually – from the Center for
Fiduciary Excellence for its Separately Managed and Portfolio
Management Account platforms. Richardson Wealth has also been
recognized as a Great Place to Work™, a Best Workplace for Women, a
Best Workplace in Canada and
Ontario, a Best Workplace for
Mental Wellness, for Financial Services and Insurance, and for
Hybrid Work. For further information, please visit
www.rfcapgroup.com and
www.RichardsonWealth.com.
SOURCE RF Capital Group Inc.