Q2 2023 Financial Highlights (vs. Q2 2022)
Revenue
- Fee revenue1 increased 3% to $64 million
- Fee revenue1 represented 90% of commissionable
revenue, up from 81% last year
- Interest revenue increased 61% due to higher benchmark
rates
- Total revenue of $89 million was
down 2%
- Insurance revenue was lower because of a single large insurance
commission last year but remained high at 4% of total revenue
- Gross margin of $52 million was
consistent with the prior year
EBITDA1
- Adjusted EBITDA1 decreased 10% to $15 million, though would have been up by
$2 million without the large
insurance commission last year
- EBITDA was up by $0.4 million, as
transformation costs declined from $2.4
million to $0.4 million,
signaling the end of that phase of our journey
AUA1,2 of $35.8
billion
- Ending AUA1,2 was up 6% and average
AUA1,2 was up 1%
Balance sheet
- Net working capital1 of $90
million
- $200 million revolving credit
facility, $81 million drawn which is
unchanged
TORONTO, Aug. 2, 2023
/CNW/ - RF Capital Group Inc. (RF Capital or the Company) (TSX:
RCG) today reported revenue of $89
million for the second quarter of 2023, a decrease of 2%.
Excluding one large insurance commission in Q2 2022, revenue
increased 7% driven by a 3% increase in fee revenue and a 61%
increase in interest revenue. Adjusted EBITDA1 of
$15 million was 10% lower than Q2
2022 given our flat gross margin and a 4% increase in Adjusted
operating expenses1 over the period.
_________________________
|
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,
"Our transformation work has strengthened our platform, generated
interest in our story, and reduced the risk in our business. It has
made our business more profitable and valuable than when we started
our journey in 2020. While the share price is not yet aligned, we
expect the improving fundamentals of our business will translate
into meaningful long-term shareholder value and the share price to
follow. With transformation work complete, our story now centers
around growth, both within our advisors' practices and through
acquisition."
Mr. Kapoor also stated, "The optimism that is being felt across
our company is so inspiring. We have every reason to believe we
will become the destination for Canada's top advisors and their high-net worth
clients."
Q2 2023 – Select Financial Information
The following table presents the Company's financial results for
Q2 2023, Q1 2023 and Q2 2022.
|
As at or for the three
months ended
|
As at or for the six
months ended
|
|
June
30,
|
March
31,
|
Increase/
|
June
30,
|
Increase/
|
June
30,
|
June
30,
|
Increase/
|
($000s, except as
otherwise indicated)
|
2023
|
2023
|
(decrease)
|
2022
|
(decrease)
|
2023
|
2022
|
(decrease)
|
Key Performance
Drivers1:
|
|
|
|
|
|
|
|
|
AUA -
ending2 ($ millions)
|
35,788
|
35,965
|
(0 %)
|
33,841
|
6 %
|
35,788
|
33,841
|
6 %
|
AUA -
average2 ($ millions)
|
35,880
|
35,872
|
0 %
|
35,607
|
1 %
|
35,876
|
36,115
|
(1 %)
|
Fee revenue
|
64,047
|
62,532
|
2 %
|
62,312
|
3 %
|
126,579
|
130,202
|
(3 %)
|
Fee revenue3
(%)
|
90
|
90
|
(1) bps
|
81
|
+880
bps
|
90
|
85
|
+477
bps
|
Adjusted operating
expense ratio4 (%)
|
70.9
|
74.7
|
(379)
bps
|
67.9
|
+302
bps
|
72.8
|
72.2
|
+56
bps
|
Adjusted EBITDA
margin5 (%)
|
16.9
|
14.9
|
+199
bps
|
18.3
|
(141)
bps
|
15.9
|
15.4
|
+49
bps
|
Asset yield6
(%)
|
0.86
|
0.86
|
(1) bps
|
0.82
|
+4 bps
|
0.86
|
0.84
|
+2 bps
|
Operating
Performance
|
|
|
|
|
|
|
|
|
Reported
Results:
|
|
|
|
|
|
|
|
|
Revenue
|
88,832
|
87,700
|
1 %
|
90,753
|
(2 %)
|
176,532
|
179,513
|
(2 %)
|
Variable advisor
compensation
|
37,305
|
36,095
|
3 %
|
39,078
|
(5 %)
|
73,400
|
79,917
|
(8 %)
|
Gross
margin7
|
51,527
|
51,605
|
(0 %)
|
51,675
|
(0 %)
|
103,132
|
99,596
|
4 %
|
Operating
expenses1,8
|
36,947
|
42,647
|
(13 %)
|
37,493
|
(1 %)
|
79,594
|
75,905
|
5 %
|
EBITDA1
|
14,580
|
8,958
|
63 %
|
14,182
|
3 %
|
23,538
|
23,691
|
(1 %)
|
Income (loss) before
income taxes
|
217
|
(5,649)
|
(104 %)
|
851
|
(74 %)
|
(5,430)
|
(2,326)
|
133 %
|
Net income (loss) from
continuing operations
|
(1,425)
|
(5,332)
|
(73 %)
|
58
|
n/m
|
(6,756)
|
(3,089)
|
119 %
|
Net income (loss) from
discontinued operations9
|
(2,064)
|
—
|
n/m
|
—
|
n/m
|
(2,064)
|
—
|
n/m
|
Earnings per common
share from continuing operations - diluted10
|
(0.20)
|
(0.51)
|
(61 %)
|
(0.11)
|
82 %
|
(0.71)
|
(0.55)
|
31 %
|
Adjusting
Items11:
|
|
|
|
|
|
|
|
|
Transformation costs
and other provisions (pre-tax)
|
413
|
4,101
|
(90 %)
|
2,415
|
(83 %)
|
4,514
|
3,958
|
14 %
|
Amortization of
acquired intangibles (pre-tax)
|
3,263
|
3,263
|
—
|
3,263
|
—
|
6,525
|
6,525
|
—
|
Transformation costs
and other provisions (after-tax)
|
306
|
3,039
|
(90 %)
|
1,554
|
(80 %)
|
3,345
|
2,695
|
24 %
|
Amortization of
acquired intangibles (after-tax)
|
2,398
|
2,398
|
—
|
2,398
|
—
|
4,796
|
4,797
|
(0 %)
|
Adjusted
Results1:
|
|
|
|
|
|
|
|
|
Operating
expenses8
|
36,533
|
38,546
|
(5 %)
|
35,078
|
4 %
|
75,080
|
71,947
|
4 %
|
EBITDA
|
14,993
|
13,059
|
15 %
|
16,597
|
(10 %)
|
28,052
|
27,649
|
1 %
|
Income (loss) before
income taxes
|
3,892
|
1,715
|
127 %
|
6,529
|
(40 %)
|
5,607
|
8,158
|
(31 %)
|
Net income
(loss)
|
1,279
|
105
|
n/m
|
4,010
|
(68 %)
|
1,385
|
4,403
|
(69 %)
|
Adjusted earnings per
common share - diluted10
|
0.01
|
(0.08)
|
(117 %)
|
0.19
|
(93 %)
|
(0.06)
|
0.14
|
(143 %)
|
Select balance sheet
information:
|
|
|
|
|
|
|
|
|
Total assets
|
1,518,918
|
1,640,757
|
(7 %)
|
2,474,722
|
(39 %)
|
1,518,918
|
2,474,722
|
(39 %)
|
Term debt
|
110,922
|
110,922
|
—
|
110,922
|
—
|
110,922
|
110,922
|
—
|
Shareholders'
equity
|
336,310
|
340,443
|
(1 %)
|
350,521
|
(4 %)
|
336,310
|
350,521
|
(4 %)
|
Net working
capital1
|
90,019
|
88,407
|
2 %
|
103,646
|
(13 %)
|
90,019
|
103,646
|
(13 %)
|
Common share
information:
|
|
|
|
|
|
|
|
|
Book value per common
share ($)
|
14.20
|
14.45
|
(2 %)
|
15.01
|
(5 %)
|
14.20
|
15.01
|
(5 %)
|
Closing share price
($)
|
9.44
|
12.33
|
(23 %)
|
14.37
|
(34 %)
|
9.44
|
14.37
|
(34 %)
|
Common shares
outstanding10 (millions)
|
15.8
|
15.8
|
(0 %)
|
15.9
|
(1 %)
|
15.8
|
15.9
|
(1 %)
|
Common share market
capitalization ($ millions)
|
149
|
195
|
(24 %)
|
228
|
(35 %)
|
149
|
228
|
(35 %)
|
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 press
release.
|
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 Q2 2023 we recorded
an increase in legal provision related to the 2019 sale of our
capital markets business to Stifel Nicolaus Canada Inc. See Note 14
to the Second Quarter 2023 Financial Statements.
|
10.
|
In 2022, we
consolidated our common shares at a 10:1 ratio. Prior period common
share information has been adjusted to reflect this
consolidation.
|
11.
|
For further
information, please see "Items of Note" of this press
release.
|
Preferred Share Dividend
On August 2, 2023, the board of
directors approved a cash dividend of $0.233313 per Series B Preferred Share for a
total of $1,073, payable on
September 30, 20231, to
preferred shareholders of record on September 15, 2023.
Items of Note
The adjusted financial results presented in this MD&A
exclude the impact of transformation program expenses, costs
associated with legacy legal matters, and the amortization of
acquired intangibles.
Q2 2023 included $0.4 million of
pre-tax transformation costs and other provisions:
- $0.8 million of pre-tax charges
($0.4 million after-tax) related to
outsourcing our carrying broker operations to Fidelity.
- $0.4 million of pre-tax
recoveries related to legacy legal and other transformation matters
($0.3 million after-tax).
Q1 2023 included $4.1 million of
pre-tax transformation costs and other provisions:
- $4.1 million of pre-tax charges
for our ongoing transformation ($3.0
million after-tax). These charges are related largely to
outsourcing our carrying broker operations to Fidelity.
Q2 2022 included $2.4 million of
pre-tax transformation costs and other provisions:
- $2.4 million of pre-tax charges
for our ongoing transformation ($1.6
million after-tax). These charges are related largely to
developing our growth strategy and outsourcing our carrying broker
operations.
Each quarter also includes:
- $3.3 million of pre-tax
amortization of acquired 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.
____________________
|
1 In the
event that the payment date is not a business day, such dividend
shall be paid on the next succeeding day that is a business
day.
|
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 and preferred share liability;
- 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.
Fee Revenue
Fee revenue represents the fees that our advisors generate for
providing holistic wealth management services and investment advice
to their clients. The fees are charged to clients as a percentage
of AUA. We often refer to the fees as recurring fee revenue
because of the nature of the charges and the fact that the revenue
tends to be less volatile than other types of revenue such as
commissions for trading or placing new issues.
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
|
For the six months
ended
|
|
June
30,
|
March
31,
|
June
30,
|
June
30,
|
June
30,
|
($000s)
|
2023
|
2023
|
2022
|
2023
|
2022
|
Total expenses -
reported
|
51,310
|
57,254
|
50,823
|
108,563
|
101,922
|
Interest
|
3,675
|
3,511
|
2,348
|
7,185
|
4,488
|
Advisor loan
amortization
|
3,884
|
4,201
|
4,240
|
8,085
|
8,252
|
Depreciation and
amortization
|
6,805
|
6,895
|
6,743
|
13,699
|
13,277
|
Operating
expenses
|
36,947
|
42,647
|
37,493
|
79,594
|
75,905
|
Transformation costs
and other provisions
|
413
|
4,101
|
2,415
|
4,514
|
3,958
|
Adjusted operating
expenses
|
36,533
|
38,546
|
35,078
|
75,080
|
71,947
|
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
|
For the six months
ended
|
|
June
30,
|
March
31,
|
June
30,
|
June
30,
|
June
30,
|
($000s)
|
2023
|
2023
|
2022
|
2023
|
2022
|
Net income (loss) from
continuing operations -
reported
|
(1,425)
|
(5,332)
|
58
|
(6,756)
|
(3,089)
|
After-tax adjusting
items:
|
|
|
|
|
|
Transformation costs
and other provisions
|
306
|
3,039
|
1,554
|
3,345
|
2,695
|
Amortization of
acquired intangibles
|
2,398
|
2,398
|
2,398
|
4,796
|
4,797
|
Adjusted net income
(loss)
|
1,279
|
105
|
4,010
|
1,385
|
4,403
|
Earnings per common
share from continuing
operations:
|
|
|
|
|
|
Basic
|
(0.20)
|
(0.51)
|
(0.11)
|
(0.71)
|
(0.55)
|
Diluted
|
(0.20)
|
(0.51)
|
(0.11)
|
(0.71)
|
(0.55)
|
Adjusted earnings per
common share:
|
|
|
|
|
|
Basic
|
0.02
|
(0.08)
|
0.31
|
(0.06)
|
0.24
|
Diluted
|
0.01
|
(0.08)
|
0.19
|
(0.06)
|
0.14
|
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
$36.0 billion in assets under
administration (as of July 31, 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™ for the past three years, 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.