Q3 2023 Financial Highlights (vs. Q3 2022)
Revenue
- Revenue increased 2% to $88
million
- Wealth management revenue increased 5% to $70 million
- Fee revenue1 was 91% of commissionable revenue,
unchanged from the comparative period
- Interest revenue contributed $12
million to revenue, consistent with Q3 2022
- Insurance revenue increased to $3.1
million, up 55%
Profitability and Cash Flow
- Adjusted EBITDA1 was flat at $17 million
- Free cash flow available for growth1 decreased by
$1.1 million to $11.3 million
- Free cash flow1 was up by $7.3 million to $5.9
million
Assets Under Administration1,2 of $34.7 billion
- Ending AUA1,2 and average AUA1,2 were
both up 3%
Balance sheet
- Net working capital1 of $91
million
- $200 million revolving credit
facility; $81 million drawn, which is
unchanged
TORONTO, Nov. 2, 2023
/CNW/ - RF Capital Group Inc. (RF Capital or the Company)
(TSX: RCG) today reported revenue of $88
million, up $1.9 million or 2%
from Q3 2022 on 3% growth in AUA. Revenue has been consistent
across each quarter of 2023, as AUA2 has tracked closely
with the TSX Index and has remained around $35 to $36 billion.
Net income before taxes was up $1.5
million from Q3 2022 and Adjusted EBITDA1 of
$17 million was unchanged.
Kish Kapoor, President, and Chief Executive Officer,
commented, "Our third quarter results are primarily
attributable to the strength of our fee-based revenues amid
challenging markets. AUA2 increased year-over-year
resulting in a bump in overall revenues. Since June and after
extensive due diligence processes, we extended offers to several
advisor teams to join Richardson Wealth, and believe that many of
them will choose to join us in the coming months. This, along with
Richardson Wealth being recognized as a Great Place to Work® for
the sixth consecutive year, gives us confidence we are moving the
business in the right direction."
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.
|
Great Place to Work
Although the Company's digital transformation has proved to be
more challenging than expected, the constructive feedback
it has received from its people, both anecdotally and formally,
through a Great Place to Work® survey is encouraging. This survey,
conducted in September, captured the engagement levels of employees
and advisors. Notably, 78% of employees participated, a very
positive indicator.
80% of respondents agreed with the statement – Taking
everything into account, I would say this is a Great Place to
Work – and 84% agreed with the statement – I am proud to
tell others I work here. This contributed to the Company being
recognized as a Great Place to Work® for the sixth consecutive
year. The survey results also indicated that management needs to
continue working closely with Fidelity, Envestnet and advisor teams
to identify and address gaps, improve service, and simplify
processes to ensure an extraordinary experience.
New Performance Metrics
The Company introduced two new financial performance metrics in
Q3, in part due to feedback from the investment community. These
two metrics are Free cash flow available for growth and Free cash
flow.
Free cash flow available for growth is the cash flow that the
Company generates before any investments in growth or
transformation initiatives. Free cash flow is the net cash flow
that the Company generates from its continuing operations after
considering its investments in growth and transformation.
In the third quarter we generated Free cash flow available for
growth of $11.3 million, down
$1.1 from last year primarily because
of higher interest costs. Free cash flow was $5.9 million, up $7.3
million from Q3 2022 mainly due to lower capital
expenditures for office build outs.
Outlook
We have reduced our 2023 outlook slightly based on recent equity
market weakness, and now expect that full-year Adjusted EBITDA will
be slightly below last year's level.
Release of Escrowed Shares
On October 20, 2023, we celebrated
Richardson Wealth's third anniversary. In accordance with the
terms of the Richardson Wealth share purchase and related escrow
agreements, the final 30% of the RF Capital common shares subject
to the original escrow have been released and were delivered to the
vendor shareholders on November 11,
2023. Of the released escrowed shares, 1.5 million will be
delivered to Richardson Financial Group Limited and its wholly
owned affiliate, and 1.4 million will be released to Richardson
Wealth advisors and employees and other shareholders. With
this release, the Company's public float now represents 56% of its
total common shares outstanding.
Preferred Share Dividend
On November 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
December 29, 20231, to
preferred shareholders of record on December
15, 2023.
______________________________________
|
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.
|
Q3 2023 – Select Financial Information
The following table presents the Company's financial results for
Q3 2023, Q2 2023 and Q3 2022.
|
As at or for the three
months ended
|
As at or for the nine
months ended
|
|
September
30,
|
June
30,
|
Increase/
|
September
30,
|
Increase/
|
September
30,
|
September
30,
|
Increase/
|
($000s, except as
otherwise indicated)
|
2023
|
2023
|
(decrease)
|
2022
|
(decrease)
|
2023
|
2022
|
(decrease)
|
Key Performance
Drivers1:
|
|
|
|
|
|
|
|
|
AUA -
ending2 ($ millions)
|
34,726
|
35,788
|
(3 %)
|
33,604
|
3 %
|
34,726
|
33,604
|
3 %
|
AUA -
average2 ($ millions)
|
35,630
|
35,880
|
(1 %)
|
34,679
|
3 %
|
35,793
|
35,631
|
0 %
|
Fee revenue
|
65,505
|
64,047
|
2 %
|
61,974
|
6 %
|
192,084
|
192,176
|
(0 %)
|
Fee revenue3
(%)
|
91
|
90
|
+107 bps
|
92
|
(83)
bps
|
90
|
87
|
+288 bps
|
Adjusted operating
expense ratio4 (%)
|
67.3
|
70.9
|
(357) bps
|
66.9
|
+40
bps
|
71.0
|
70.4
|
+54
bps
|
Adjusted EBITDA
margin5 (%)
|
19.3
|
16.9
|
+240 bps
|
19.8
|
(50)
bps
|
17.0
|
16.8
|
+20
bps
|
Asset yield6
(%)
|
0.87
|
0.86
|
+1 bps
|
0.86
|
+1 bps
|
0.86
|
0.84
|
+2 bps
|
Advisory
teams7 (#)
|
159
|
158
|
1
|
161
|
(2)
|
159
|
161
|
(2)
|
Operating
Performance
|
|
|
|
|
|
|
|
|
Reported
Results:
|
|
|
|
|
|
|
|
|
Revenue
|
87,836
|
88,832
|
(1 %)
|
85,928
|
2 %
|
264,366
|
265,441
|
(0 %)
|
Operating
expenses1,8
|
34,892
|
36,947
|
(6 %)
|
36,435
|
(4 %)
|
114,486
|
112,340
|
2 %
|
EBITDA1
|
16,932
|
14,580
|
16 %
|
14,938
|
13 %
|
40,468
|
38,629
|
5 %
|
Income (loss) before
income taxes
|
2,092
|
217
|
863 %
|
606
|
245 %
|
(3,341)
|
(1,720)
|
94 %
|
Net income (loss) from
continuing operations
|
(189)
|
(1,425)
|
(87 %)
|
(724)
|
n/m
|
(6,946)
|
(3,813)
|
82 %
|
Net income (loss) from
discontinued operations9
|
—
|
(2,064)
|
(100 %)
|
—
|
n/m
|
(2,064)
|
—
|
n/m
|
Earnings per common
share from continuing operations - diluted10
|
(0.10)
|
(0.20)
|
(49 %)
|
(0.19)
|
(47 %)
|
(0.82)
|
(0.73)
|
11 %
|
Adjusted
Results1:
|
|
|
|
|
|
|
|
|
Operating
expenses8
|
34,892
|
36,533
|
(4 %)
|
34,380
|
1 %
|
109,971
|
106,327
|
3 %
|
EBITDA
|
16,932
|
14,993
|
13 %
|
16,993
|
(0 %)
|
44,983
|
44,642
|
1 %
|
Income (loss) before
income taxes
|
5,355
|
3,892
|
38 %
|
5,924
|
(10 %)
|
10,961
|
14,082
|
(22 %)
|
Net income
(loss)
|
2,388
|
1,279
|
n/m
|
3,197
|
(25 %)
|
3,771
|
7,600
|
(50 %)
|
Adjusted earnings per
common share - diluted10
|
0.08
|
0.01
|
541 %
|
0.13
|
(38 %)
|
0.03
|
0.28
|
(87 %)
|
Select balance sheet
information:
|
|
|
|
|
|
|
|
|
Total assets
|
1,390,770
|
1,518,918
|
(8 %)
|
2,050,638
|
(32 %)
|
1,390,770
|
2,050,638
|
(32 %)
|
Debt
|
110,922
|
110,922
|
—
|
110,922
|
—
|
110,922
|
110,922
|
—
|
Shareholders'
equity
|
335,513
|
336,310
|
(0 %)
|
348,866
|
(4 %)
|
335,513
|
348,866
|
(4 %)
|
Net working
capital1
|
90,949
|
90,019
|
1 %
|
101,980
|
(11 %)
|
90,949
|
101,980
|
(11 %)
|
Common share
information:
|
|
|
|
|
|
|
|
|
Book value per common
share ($)
|
14.15
|
14.20
|
(0 %)
|
14.93
|
(5 %)
|
14.15
|
14.92
|
(5 %)
|
Closing share price
($)
|
5.13
|
9.44
|
(46 %)
|
14.46
|
(65 %)
|
5.13
|
14.46
|
(65 %)
|
Common shares
outstanding (millions)
|
15.8
|
15.8
|
—
|
15.8
|
(0 %)
|
15.8
|
15.9
|
(1 %)
|
Common share market
capitalization ($ millions)
|
81
|
149
|
(46 %)
|
229
|
(65 %)
|
81
|
229
|
(65 %)
|
Cash
flow1:
|
|
|
|
|
|
|
|
|
Free cash flow
available for growth
|
11,300
|
8,561
|
32 %
|
12,357
|
(9 %)
|
27,028
|
29,438
|
(8 %)
|
Free cash
flow
|
5,932
|
6,558
|
(10 %)
|
(1,405)
|
(522 %)
|
4,986
|
(7,008)
|
(171 %)
|
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.
|
Prior year has been
revised to reflect the internal consolidation of certain
teams
|
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
a provision for a legacy employment litigation matter related to
the 2019 sale of our capital markets business to Stifel Nicolaus
Canada Inc. See Note 14 to the Third 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.
|
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.
Q3 2023
The third quarter did not include any transformation costs and
other provisions.
Q2 2023
The second quarter included $0.4
million of pre-tax transformation costs and other
provisions:
- $0.8 million of pre-tax charges
related to outsourcing our carrying broker operations to Fidelity
($0.4 million after-tax).
- $0.4 million of pre-tax
recoveries related to legacy legal and other transformation matters
($0.3 million after-tax).
Q3 2022
The third quarter of 2022 included $2.1
million of pre-tax charges for our ongoing transformation
($1.5 million after-tax). These
charges are related largely to developing our growth strategy and
outsourcing our carrying broker operations.
Each quarter noted above also included $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 and will continue through 2035.
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 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
fact that the revenue tends to be less volatile than other types of
revenue such as trading commissions.
Commissionable Revenue
Commissionable revenue is revenue on which our advisors earn
variable commissions and other performance incentive awards. It
includes Wealth management revenue, commission revenue in
connection with the placement of new issues and revenue earned on
the sale of insurance products.
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 nine months
ended
|
|
September
30,
|
June
30,
|
September
30,
|
September
30,
|
September
30,
|
($000s)
|
2023
|
2023
|
2022
|
2023
|
2022
|
Total expenses -
reported
|
49,732
|
51,310
|
50,767
|
158,295
|
152,689
|
Interest
|
3,527
|
3,675
|
3,015
|
10,712
|
7,503
|
Advisor loan
amortization
|
4,457
|
3,884
|
4,381
|
12,542
|
12,633
|
Depreciation and
amortization
|
6,856
|
6,805
|
6,936
|
20,555
|
20,213
|
Operating
expenses
|
34,892
|
36,947
|
36,435
|
114,486
|
112,340
|
Transformation costs
and other provisions
|
—
|
413
|
2,055
|
4,515
|
6,013
|
Adjusted operating
expenses
|
34,892
|
36,533
|
34,380
|
109,971
|
106,327
|
Adjusted Operating Expense Ratio
Adjusted operating expense ratio is a non-GAAP ratio defined as
adjusted operating expenses divided by gross margin.
Free Cash Flow Available for Growth
Free cash flow available for growth is the cash flow that the
Company generates from its continuing operations before any
investments in growth or transformation initiatives. It is
calculated as cash provided by (used in) operating activities per
the Consolidated Statement of Cash Flows before any changes
in non-cash operating items, less lease payments and
maintenance capital expenditures. It does not consider
transformation charges, the income (loss) from discontinued
operations, or dividends.
Free Cash Flow
Free cash flow is the net cash flow that the company generates
from its operations after funding its growth and transformation
initiatives, including building out new offices to accommodate its
growth. It is calculated as Free cash flow available for growth
plus the income (loss) from discontinued operations and
leasehold inducements less cash outlays to recruit new
advisors to the firm, capital expenditures on growth initiatives,
transformation costs, and the net change in balance sheet
provisions.
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 nine months
ended
|
|
September
30,
|
June
30,
|
September
30,
|
September
30,
|
September
30,
|
($000s)
|
2023
|
2023
|
2022
|
2023
|
2022
|
Net income (loss) from
continuing operations - reported
|
(189)
|
(1,425)
|
(724)
|
(6,946)
|
(3,813)
|
After-tax adjusting
items:
|
|
|
|
|
|
Transformation costs
and other provisions
|
179
|
306
|
1,522
|
3,523
|
4,219
|
Amortization of
acquired intangibles
|
2,398
|
2,398
|
2,398
|
7,194
|
7,194
|
Adjusted net income
(loss)
|
2,388
|
1,279
|
3,197
|
3,771
|
7,600
|
Earnings per common
share from continuing operations:
|
|
|
|
|
|
Basic
|
(0.10)
|
(0.20)
|
(0.19)
|
(0.82)
|
(0.73)
|
Diluted
|
(0.10)
|
(0.20)
|
(0.19)
|
(0.82)
|
(0.73)
|
Adjusted earnings per
common share:
|
|
|
|
|
|
Basic
|
0.11
|
0.02
|
0.22
|
0.04
|
0.46
|
Diluted
|
0.08
|
0.01
|
0.13
|
0.03
|
0.28
|
Supplemental Financial Measures
A supplementary financial measure (SFM) is a financial measure
that is not reported in our 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 MD&A include
AUA, recruiting pipeline, net new and recruited assets, and working
capital. 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 MD&A 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
$34.4 billion in assets under
administration (as of October 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.