Business & Finance
Business and Finance
Business and Finance
Wed, May 16, 2012
Tue, May 15, 2012 Matrix Asset Management Inc. Reports First Quarter Results and Declares Dividend
May 15, 2012 17:40 ET
Matrix Asset Management Inc. Reports First Quarter Results and Declares Dividend
VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 15, 2012) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the first quarter ended March 31, 2012 and announced the next regular quarterly dividend of $0.015 per share would be payable on June 12, 2012 to shareholders of record on May 29, 2012. The Company has a dividend reinvestment plan in place for which details are available on Matrix's website ([ www.matrixasset.ca ]).
Highlights
Revenues compared to the first quarter in the prior year are down, mainly due to decreases in AUM, but did increase by 4% relative to the last quarter of 2011, primarily due to incentive participation dividends being paid or becoming payable during the first quarter of 2012 to the Company in connection with successful divestments by managed retail venture capital funds. Total expenses before merger, acquisition and other special project costs were down from the first quarter in the prior year by 7% and down by 14% relative to the last quarter of 2011. Non-recurring expenses for mergers, acquisitions and terminations also decreased compared to the first quarter of 2011.
For the quarter ended March 31, 2012, EBITDA was $0.5 million, or $0.6 million on a recurring basis, and Free Cash Flow was $0.3 million. Net income for the quarter was $(0.5) million, and recurring (loss) income before taxes was also $(0.5) million.
David Levi, President and CEO of Matrix, commented: "In many respects, the first quarter of 2012 was a continuation of a difficult 2011 fiscal year. AUM, and in turn revenue, has not yet grown to targeted levels as we continue to develop and refine our asset management platform. We seek to continue to build on our national asset and wealth management platform in 2012 through financed acquisitions, new investment mandates and new products. Finally, we are pleased to report that since the announcement of SEAMARK acquiring LeeSide, we have experienced 100% client retention."
Corporate Overview
Matrix is a diversified, asset and wealth management company with offices across Canada. The Company manages approximately $1.6 billion in assets through three operating divisions:
- Institutional asset management, operated through SEAMARK, which offers portfolio management to institutional and high net worth private clients, including through managed portfolio advisory ("wrap") programs of leading Canadian investment dealers.
- Fund management, operated through Matrix Funds Management (a division of GrowthWorks Capital Ltd.), which manages the Matrix family of mutual funds and specialty funds (formerly Mavrix Funds and SEAMARK Mutual Funds) and distributed through investment dealers and financial planners across Canada.
- Venture capital and private equity, operated through GrowthWorks, which manages funds in the venture capital and private equity sector. With seven offices located in major and regional centres across Canada, GrowthWorks has a true national investment presence and manages venture capital funds for individual and institutional investors.
Summary of First Quarter Financial Results - Unaudited
Results of operations for Matrix for the first quarter consolidate the results of Matrix and its subsidiaries. Matrix reports its consolidated statement of financial position, statement of income (loss), statement of comprehensive income (loss), statement of shareholders' equity and cash flows in accordance with International Financial Reporting Standards ("IFRS" or also referred to as generally accepted accounting principles or "GAAP") in Canadian dollars.
The following table sets out selected consolidated financial information about Matrix for the three months ended March 31, 2012 compared with financial information for Matrix for the same period in 2011.
| For the three | For the three | ||||||
| months ended | months ended | ||||||
| March 31, 2012 | March 31, 2011 | ||||||
| (in $ thousands) | (in $ thousands) | ||||||
| Revenue | |||||||
| Management and administration fees | $ | 5,879 | $ | 7,209 | |||
| Additional administration fees | 343 | 368 | |||||
| Incentive participation dividends | 584 | 353 | |||||
| Interest income | 9 | 14 | |||||
| Other income | 92 | 160 | |||||
| Total Revenue | 6,907 | 8,104 | |||||
| Expenses | |||||||
| Selling, general and administrative | 5,727 | 5,993 | |||||
| Share-based compensation | 144 | 96 | |||||
| Servicing commissions | 618 | 708 | |||||
| Amortization - property and equipment | 82 | 70 | |||||
| Amortization - deferred sales commissions | 491 | 634 | |||||
| Amortization - asset management contracts | 192 | 287 | |||||
| Interest | 187 | 228 | |||||
| 7,441 | 8,016 | ||||||
| (Loss) income before merger, acquisition and other special project costs | (534 | ) | 88 | ||||
| Merger, acquisition and other special project costs | 82 | 1,392 | |||||
| (Loss) income before taxes | (616 | ) | (1,304 | ) | |||
| Income tax recovery | (81 | ) | (2,671 | ) | |||
| Net (Loss) Income | $ | (535 | ) | $ | 1,367 | ||
| Basic earnings (loss) per share (in $) | (0.01 | ) | 0.03 | ||||
| Diluted earnings (loss) per share (in $) | (0.01 | ) | 0.03 | ||||
| NON-GAAP MEASURES | |||||||
| EBITDA(1) | 480 | 11 | |||||
| Add (deduct) non-recurring items, net(2) | 82 | 1,501 | |||||
| Recurring EBITDA(3) | 562 | 1,512 | |||||
| Free Cash Flow (5) | 345 | 978 | |||||
| (Loss) income before taxes | (616 | ) | (1,304 | ) | |||
| Add (deduct) non-recurring items, net(2) | 82 | 1,501 | |||||
| Recurring (loss) income before taxes(4) | (534 | ) | 197 | ||||
| Dividends declared and paid | 17 | 711 | |||||
| As at | As at | As at | ||||
| March 31, 2012 | March 31, 2011 | December 31, 2011 | ||||
| (in $ thousands) | (in $ thousands) | (in $ thousands) | ||||
| Cash, cash equivalents and investments | $ | 2,162 | $ | 11,334 | $ | 1,767 |
| Total assets | 28,593 | 43,696 | 28,133 | |||
| Total long-term liabilities | 10,263 | 8,277 | 11,799 | |||
| Total assets under management(6) | 1,600,000 | 2,400,000 | 1,600,000 | |||
| Notes: | |
| (1) | EBITDA (defined by Matrix as earnings before interest, taxes, depreciation and amortization and other non-cash items) is a measure used by many investors to compare issuers on the basis of their ability to generate cash from operations. Management believes EBITDA is a useful supplemental measure of operating performance as it provides an indication as to cash available for working capital needs, capital expenditures and dividends. |
| (2) | Non-recurring items are described in Matrix's Management's Discussion & Analysis posted on SEDAR. |
| (3) | Management believes "recurring EBITDA" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate EBITDA generating capacity of the business may be by adjusting EBITDA for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on EBITDA. |
| (4) | Management believes "recurring income (loss) before taxes" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate income before taxes generating capacity of the business may be by adjusting income before taxes for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on income before taxes. |
| (5) | Management believes "Free Cash Flow" (defined by Matrix as EBITDA less interest paid, commissions paid and net taxes (payable/refundable as filed)). |
| (6) | Assets under management or "AUM" means the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which fees are earned. |
Outlook
The asset management industry is affected by economic and market conditions which strongly correlate with asset inflows/outflows and asset values, both of which drive Company fee revenues. For the quarter ended March 31, 2012, economic and market conditions were volatile. While the S&P/TSX Composite Index gained 3.66% over the period, it lagged behind the major US indices (Dow, NASDAQ, and S&P 500) significantly which rose 8.14%, 18.67%, and 12.00%, respectively. The markets rose amidst uneven economic growth. While Europe's economy faces austerity induced recession, North America, Asia, and other emerging markets had growth albeit at lower levels at similar points in past economic cycles. For the month of February, Canada's economy shrank which surprised economists. The world economy is dealing with a number of issues, including fears of European sovereign debt default and banking system solvency, signs of an economic slowdown in China, and government austerity measures negatively affecting economic output.
Central banks around the world continue to apply monetary stimulus to the economy. Unemployment rates remain stubbornly high in many countries and productive capacity is not fully utilized. As a result, central banks are keeping interest rates low to spur investment and economic activity. While the Bank of Canada has made statements that interest rates will begin to rise later this year, recent weakness in the Canadian economy might delay that move. The US Federal Reserve is on record that it won't raise interest rates until 2014 at the earliest. The Bank of Canada is also concerned about Canadian housing prices. The low interest rate environment has pushed Canadian housing prices and consumer debt levels to record levels and sparked concerns of an asset bubble. On a positive note, low interest rate environments typically cause investors to seek returns in higher risk equity investments with greater return potential, which generally provides positive momentum for equity markets.
While monetary policy is accommodative around the world, accommodative fiscal policy is complicated by high sovereign debt levels. Governments in Japan, many western European countries, and the United States have record debt levels, resulting in governments having to balance fiscal initiatives aimed at promoting growth with demands from the bond market for tighter spending controls. Austerity measures have already pushed many European countries into recession and many analysts believe most of Europe will be in recession for the balance of 2012, including countries like Germany which to date have avoided the worst of the economic malaise.
Despite the problems already outlined, we are cautiously optimistic on the economy and equity markets. Many of Canada's trading partners, including the US, Asia, and South America are growing and the European banking crisis to date has been contained. Corporate earnings remain impressive as does the strength of corporate balance sheets which should support higher equity market levels and, in turn, drive higher management fees. Large corporations have record cash balances which should bode well for M&A exit market activity for venture capital backed companies. High value M&A exit activity in funds managed by the Company's venture capital division increases the prospect for incentive participation dividends. Overall, should these industry trends develop and be sustained, then this should present favourable opportunities for the Company's asset management business.
The asset management industry in Canada continues to experience a consolidation trend. Many small players realize they need to attain greater scale in the current environment. Firms with less than $1 billion in AUM are the most challenged to achieve sustainability and profitability. This trend presents an ongoing opportunity for Matrix as it has proven experience in mergers and acquisitions. It also has a desire to work with other organizations to create greater value through suitable strategic transactions.
The Company, through its operating units, will also continue to seek to attract additional AUM through competing for new investment management mandates and through positioning and re-positioning its investment fund offerings to meet the current needs of investors. The recent addition of the three former principals of LeeSide to the SEAMARK operating division strengthens Matrix's institutional management capabilities. Strategic assessment and planning to strengthen the Company's mandates and offerings will continue to be a focus. The Company also expects to realize additional operating efficiencies over the coming quarters as it continues to integrate its diversified asset management platform.
Matrix's first quarter financial statements and year end 2011 financial statements and MD&A are available on the SEDAR website at [ www.sedar.com ]
About Matrix ([ www.matrixasset.ca ])
Matrix (TSX:MTA) is a diversified asset and wealth management company with approximately $1.6 billion in assets under management and offices across Canada. The Company's mission is to provide a diverse array of investment choices and the best possible investment management service to Canadian investors and institutions. The Company delivers its services through three main operating subsidiaries serving institutional, high net worth, and retail investors.
Forward-Looking Statements
Certain statements in this press release are forward-looking statements, including statements regarding the operations, business, financial condition, expected financial results and profitability, dividends, dividend policies, performance, targeted acquisitions, prospects, opportunities, new products, priorities, goals, strategies, accounting policies and estimates and outlook of Matrix for the current fiscal year and subsequent periods. Forward-looking statements are predictive in nature and are not based upon historical fact. Forward-looking statements are based upon beliefs and assumptions, including with respect to levels of Matrix's AUM and expenses and related assumptions as to levels of portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning prevailing and future economic and market conditions and the impact of such conditions and other factors on Matrix's AUM, the continuation of portfolio and fund management and advisory engagements, the extent and effectiveness of cost-saving measures and the impact of such measures and other factors on earnings, tax rates and laws, performance of managed venture capital investments relative to performance fee return thresholds, and the absence of extraordinary or one-time expenses not currently known to management. While management considers these beliefs and assumptions to be reasonable based on information currently available to it, these statements are subject to numerous risks and uncertainties and no assurance can be given that such beliefs and assumptions will prove to be correct. Accordingly, actual results may differ significantly from those expressed or implied by forward-looking statements due to many factors including, but not limited to, risks associated with institutional, mutual fund and venture capital fund management sectors generally, market, economic, political and other risks affecting portfolio performance, interest and foreign exchange rates, managed fund sales and redemptions, demand for financial products offered by Matrix and the impact of a lack of demand on Matrix's AUM, revenues and earnings, changes to regulatory requirements, accounting and reporting policies (including the adoption of IFRS) and tax laws, Matrix's ability to effectively respond to competition and technological change and recruit and retain key management personnel, uninsured losses, risks associated with completing proposed financings and targeted acquisitions, introducing new products, accessing needed capital resources from internal and external sources and Matrix's ability to successfully integrate acquired operations and implement cost savings measures and growth strategies. Many of these risks are beyond the control of Matrix.
Readers are cautioned to consider these and other risks, uncertainties and potential events carefully and not place undue reliance on forward-looking statements. Other than as specifically required by law, Matrix undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results or other factors.
Non-IFRS Measures
"EBITDA", "recurring EBITDA", "Free Cash Flow" and "recurring income (loss) before taxes" are not measures recognized under International Financial Reporting Standards ("IFRS"). However, management of Matrix believes that most shareholders, creditors, other stakeholders and investment analysts prefer to have these measures included as reported measures of operating performance, a proxy for cash flow, and to facilitate valuation analysis. These non-IFRS measures do not have any standard meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-IFRS measures are not alternatives to measures determined in accordance with IFRS and should not, on their own, be construed as indicators of performance, cash flows or profitability or measures of liquidity. These non-IFRS measures should be read in conjunction with the financial statements of Matrix posted on SEDAR. For additional information regarding Matrix's use of non-IFRS measures, including reconciliations of these measures to the nearest IFRS measures, please refer to the "Non-IFRS Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at [ www.sedar.com ].
