RF CAPITAL GROUP INC. Report to Shareholders
RF Capital Group Inc. | For the quarter ended March 31, 2024
Management's Discussion & Analysis - Q1 2024
A Message from our President & CEO
2024 has started off strong with AUA1 reaching $37.0 billion at the end of Q1, up $1.8 billion or 5% over the quarter. This growth was driven by strength in equity markets, our advisors bringing in a seven-quarter high $415 million of net new assets, and our recent recruits onboarding a two-year high $477 million of AUA1. And it occurred despite four advisors representing $609 million of AUA1 choosing to leave in Q1. Over the long-term, the compounding of equity returns, along with net new assets from our existing advisor teams and recruiting, are powerful drivers of AUA1 growth.
During Q1, AUA1 growth drove a 5% increase in fee revenue, offsetting moderating interest revenue that we have experienced in the last two quarters and continued low levels of corporate finance revenue. Net loss was $1.1 million compared to $5.3 million in Q1 2023.
Other financial highlights for Q1 2024 include:
- Revenue was $89.4 million, up from $87.7 million in Q1 2023
- Adjusted EBITDA1 was $13.5 million, up from $13.1 million in Q1 2023
- Free cash flow1 for growth was $7.5 million, versus $7.2 million in Q1 2023
- Free cash1 flow was $3.9 million, up $10.2 million over Q1 2023
While adjusted EBITDA1 was up from the prior year, it was down by $1 million compared with last quarter. This trend was a function of a seasonal increase we experience in our statutory benefits costs in the first calendar quarter of each year. Q1 benefits costs are approximately $2 million higher than run-rate levels.
Deploying our free cash flow for growth1 into recruitment is a key priority for us going forward. We added several teams in the last two quarters and plan to build on that momentum with more announcements in the coming months.
Experienced leaders are also migrating to Richardson Wealth, attracted to the opportunity in the independent wealth management space and our unique advisor-centric culture. After Dave Kelly joined us as COO, we welcomed his former colleague from both TD Bank and Gluskin Sheff & Associates, Kevin Shubley as VP, Business Strategy & Analysis. In his last role at TD, Kevin oversaw a line of business that managed over $37 billion in AUM for high net worth and institutional clients. Furthermore, before the end of the first quarter of 2024, Steve Hunter joined us as Branch Manager for Southwestern Ontario. He comes from TD and most recently led two branches that grew to over $7 billion in AUA1 under his leadership. Today, more than ever, we feel we have the right people in place to grow revenue organically by doubling-down on advisor support.
With the recruits and the high-profile additions to our team, we are also garnering the attention of others in our industry including Investment Executive, Canada's news source for financial professionals.
In a recent article(March 2024), they interviewed Dave Kelly on why he and others are excited about joining Richardson Wealth at this stage of our growth journey.
Looking ahead in 2024, we are laser-focused on our three strategic growth pillars. We are confident that this focus and the foundation we have built to grow the brand of choice for Canada's top advisors - which includes our exceptional advisors, scale, and technology platforms - will translate into accelerated growth for Richardson Wealth.
Kish
1Considered to be non-GAAP or supplementary 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 Supplementary Financial Measures" section of this MD&A.
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Management's Discussion & Analysis - Q1 2024 | |
Contents | |
Management's Discussion and Analysis | 17 |
Unaudited Interim Condensed Consolidated Financial Statements | 24 |
Notes to Unaudited Interim Condensed Consolidated Financial Statements | 29 |
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Management's Discussion & Analysis - Q1 2024
About this Management's Discussion and Analysis
The purpose of this management's discussion and analysis (MD&A) is to help readers understand the consolidated financial condition and results of the consolidated operations of RF Capital Group Inc. (the Company) as at and for the three months ended March 31, 2024.
This MD&A, dated May 1, 2024, should be read in conjunction with the unaudited interim condensed consolidated financial statements and related notes as at and for the three months ended March 31, 2024 (First Quarter 2024 Financial Statements). This document as well as additional information relating to the Company, including our annual MD&A (2023 Annual MD&A), our audited consolidated financial statements and related notes as at and for the year ended December 31, 2023 (2023 Annual Financial Statements), and our latest annual information form (AIF), can be accessed at www.rfcapgroup.com and under our profile at www.sedarplus.com, and are incorporated by reference herein.
This MD&A refers to certain non-Generally Accepted Accounting Principles (GAAP) and supplementary financial measures (SFMs), including non-GAAP ratios, which we believe are useful in assessing our financial performance. Readers are cautioned that these measures do not have any standard meaning prescribed by GAAP under IFRS Accounting Standards (IFRS) and are therefore unlikely to be comparable to similar measures presented by other issuers. For further information related to adjusted results and a reconciliation to their nearest IFRS measures, please read the "Non-GAAP and Supplementary Financial Measures" section at the end of this MD&A.
Unless otherwise specified herein, financial results contained in this MD&A, including related historical comparatives, are based on our First Quarter 2024 Financial Statements, which we have prepared in accordance with IFRS.
Certain prior period amounts have been reclassified to correspond to the current period presentation. All numbers and discussion in this MD&A relate to continuing operations unless otherwise specified.
Our Board of Directors (Board) has approved this document.
Forward-Looking Information
This MD&A contains forward-looking information as defined under applicable Canadian securities laws. This information includes, but is not limited to, statements concerning objectives and strategies to achieve those objectives, as well as statements made with respect to management's beliefs, plans, estimates, projections and intentions and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events. Such forward-looking information reflects management's current beliefs and is based on information currently available to management. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.
The forward-looking statements included in this MD&A, including statements regarding our recruiting pipeline and the nature of our growth strategy and execution of any of our potential plans, are not guarantees of future results and involve numerous risks and uncertainties that may cause actual results to differ materially from the potential results discussed or anticipated in the forward-looking statements, including those described in this MD&A and our AIF. Such risks and uncertainties include, but are not limited to, strategic (including advisor retention and acquisitions), market, credit, liquidity, operational, legal and regulatory risks, and other risk factors, including variations in the market value of securities, dependence on key personnel, and sustainability of fees.
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Management's Discussion & Analysis - Q1 2024
Our results can also be influenced by other factors, such as general economic conditions, including interest rate and exchange rate fluctuations, and natural disasters or other unanticipated events. For a description of additional risks that could cause actual results to differ materially from current expectations, see the "Risk Management" section of our 2023 Annual MD&A.
Although we attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information.
Certain statements included in this MD&A may be considered a "financial outlook" for purposes of applicable Canadian securities laws. The financial outlook may not be appropriate for purposes other than this MD&A.
Forward-looking information contained in this MD&A is:
- Based on assumptions we consider reasonable; however, there can be no assurance that such expectations will prove correct. As such, readers should not place undue reliance on the forward-looking statements and information contained in this MD&A. When relying on forward-looking statements to make decisions, readers should carefully consider the foregoing factors, the list of which is not exhaustive.
- Made as of the date of this MD&A and should not be relied upon as representing our view as of any date subsequent to the date of this MD&A. Except as required by applicable law, our management and Board undertake no obligation to update or revise any forward-looking information publicly, whether as a result of new information, future events or otherwise.
- Expressly qualified in its entirety by the foregoing cautionary statements.
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Management's Discussion & Analysis - Q1 2024
Select Financial Information
As at or for the three months ended | ||||||
March 31 | December 31 | Increase/ | March 31 | Increase/ | ||
($000s, except as otherwise indicated) | 2024 | 2023 | (decrease) | 2023 | (decrease) | |
Key performanc e drivers 1 : | ||||||
AUA - ending2 ($ millions) | 37, | 010 | 35,236 | 5% | 35,965 | 3% |
AUA - average2 ($ millions) | 36, | 060 | 34,926 | 3% | 35,872 | 1% |
Fee revenue | 66, | 146 | 64,145 | 3% | 63,042 | 5% |
Fee revenue3 (%) | 92 | 89 | +310 bps | 88 | +356 bps | |
Adjusted operating expense ratio4 (%) | 74. 3 | 71.5 | +287 bps | 74.7 | (35) bps | |
Adjusted EBITDA margin5 (%) | 15. 2 | 16.7 | (159) bps | 14.9 | +26 bps | |
Asset yield6 (%) | 0. 88 | 0.87 | +1 bps | 0.87 | +1 bps | |
Advisory teams7 (#) | 154 | 157 | (2%) | 159 | (3%) | |
Operating Performanc e | ||||||
Reported results: | ||||||
Revenue | 89, | 361 | 86,752 | 3% | 87,700 | 2% |
Operating expenses1,8 | 39, | 229 | 36,368 | 8% | 42,647 | (8%) |
EBITDA1 | 13, | 539 | 14,518 | (7%) | 8,958 | 51% |
Income (loss) before income taxes | 63 | (2,169) | n/m | (5,649) | n/m | |
Net income (loss) from continuing operations | (1, | 127) | (2,882) | (61%) | (5,332) | (79%) |
Net loss per common share from continuing operations - diluted | (0. 14) | (0.26) | (45%) | (0.51) | (72%) | |
Adjusted results 1: | ||||||
Operating expenses8 | 39, | 229 | 36,368 | 8% | 38,546 | 2% |
EBITDA | 13, | 539 | 14,518 | (7%) | 13,059 | 4% |
Income (loss) before income taxes | 3, | 326 | 1,094 | 204% | 1,715 | 94% |
Net income (loss) | 1, | 271 | (483) | n/m | 105 | n/m |
Adjusted earnings (loss) per common share - diluted | 0. 01 | (0.10) | n/m | (0.08) | n/m | |
Select balanc e sheet information: | ||||||
Total assets | 1, 414, 804 | 1,379,983 | 3% | 1,640,757 | (14%) | |
Debt | 110, | 922 | 110,922 | - | 110,922 | - |
Shareholders' equity | 328, | 515 | 330,539 | (1%) | 340,443 | (4%) |
Net working capital1,9 | 88, | 282 | 81,208 | 9% | 88,235 | 0% |
Common share information: | ||||||
Book value per common share ($) | 13. 73 | 14.02 | (2%) | 14.45 | (5%) | |
Closing share price ($) | 7. 23 | 7.52 | (4%) | 12.33 | (41%) | |
Common shares outstanding (millions) | 15. 8 | 15.6 | 1% | 15.8 | (0%) | |
Common share market capitalization ($ millions) | 114 | 117 | (3%) | 195 | (42%) | |
Cash flow: | ||||||
Cash provided by (used in) operating activities | (11,826) | 2,834 | n/m | (313,698) | (96%) | |
Free cash flow available for growth1 | 7, | 455 | 8,312 | (10%) | 7,162 | 4% |
Free cash flow1 | 3, | 888 | (9,612) | n/m | (6,309) | n/m |
- Considered to be non-GAAP or supplementary 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 Supplementary Financial Measures" section of this MD&A.
- 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.
- Calculated as fee revenue divided by commissionable revenue. Commissionable revenue includes fee revenue, trading commissions, and commissions earned in connection with the placement of new issues and the sale of insurance products.
- Calculated as adjusted operating expenses divided by gross margin
- Calculated as Adjusted EBITDA divided by revenue
- Calculated as fee revenue, trading commissions, and interest on cash, divided by average AUA
- Prior periods have been revised to reflect the internal consolidation of certain teams
- 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.
- Calculated as current assets less current liabilities. For further information, please see the "Liquidity" section of this MD&A.
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Management's Discussion & Analysis - Q1 2024
Quarterly Results
The following table presents select quarterly financial information for our eight most recently completed financial quarters.
2024 | |
($000s, except as otherwise indicated) | Q1 |
Key performanc e drivers 1 : | |
AUA - ending2 ($ millions) | 37, 010 |
AUA - average2 ($ millions) | 36, 060 |
Fee revenue | 66, 146 |
Fee revenue3 (%) | 92 |
Adjusted operating expense ratio4 (%) | 74. 3 |
Adjusted EBITDA margin5 (%) | 15. 2 |
Asset yield6 (%) | 0. 88 |
Advisory teams7 (#) | 154 |
Operating Performanc e: | |
Reported results: |
2023 | |||
Q4 | Q3 | Q2 | Q1 |
35,236 | 34,726 | 35,788 | 35,965 |
34,926 | 35,630 | 35,880 | 35,872 |
64,145 | 66,046 | 64,581 | 63,042 |
89 | 92 | 90 | 88 |
71.5 | 67.3 | 70.9 | 74.7 |
16.7 | 19.3 | 16.9 | 14.9 |
0.87 | 0.87 | 0.86 | 0.87 |
157 | 159 | 158 | 159 |
2022 | ||
Q4 | Q3 | Q2 |
34,948 | 33,604 | 33,841 |
34,788 | 34,679 | 35,607 |
63,150 | 62,505 | 62,816 |
90 | 93 | 82 |
68.1 | 66.9 | 67.9 |
19.2 | 19.8 | 18.3 |
0.87 | 0.87 | 0.82 |
163 | 162 | 162 |
Revenue | 89, | 361 |
Variable advisor compensation | 36, | 593 |
Gross margin8 | 52, | 768 |
Operating expenses1,9 | 39, | 229 |
EBITDA1 | 13, | 539 |
Interest | 3, | 750 |
Depreciation and amortization | 6, | 565 |
Advisor award and loan amortization | 3, | 161 |
Income (loss) before income taxes | 63 | |
Net income (loss) from continuing operations | (1, | 127) |
Net income (loss) from discontinued operations10 | - | |
Adjusted results 1: | ||
Operating expenses9 | 39, | 229 |
EBITDA | 13, | 539 |
Income (loss) before income taxes | 3, | 326 |
Net income (loss) | 1, | 271 |
Cash flow: |
86,752 | 87,836 | 88,832 | 87,700 |
35,866 | 36,012 | 37,305 | 36,095 |
50,886 | 51,824 | 51,527 | 51,605 |
36,368 | 34,892 | 36,947 | 42,647 |
14,518 | 16,932 | 14,580 | 8,958 |
3,994 | 3,527 | 3,675 | 3,511 |
6,849 | 6,856 | 6,805 | 6,895 |
5,844 | 4,457 | 3,884 | 4,201 |
(2,169) | 2,092 | 217 | (5,649) |
(2,882) | (189) | (1,425) | (5,332) |
- | - | (2,064) | - |
36,368 | 34,892 | 36,533 | 38,546 |
14,518 | 16,932 | 14,993 | 13,059 |
1,094 | 5,355 | 3,892 | 1,715 |
(483) | 2,209 | 1,279 | 105 |
88,531 | 85,928 | 90,753 |
35,276 | 34,555 | 39,078 |
53,255 | 51,373 | 51,675 |
38,868 | 36,435 | 37,493 |
14,388 | 14,938 | 14,182 |
3,294 | 3,015 | 2,348 |
7,851 | 6,936 | 6,743 |
4,634 | 4,381 | 4,240 |
(1,391) | 606 | 851 |
(990) | (724) | 58 |
- | - | - |
36,246 | 34,380 | 35,078 |
17,009 | 16,993 | 16,597 |
4,493 | 5,924 | 6,529 |
3,500 | 3,197 | 4,010 |
Cash provided by (used in) operating activities | (11, | 826) | 2,834 | 16,624 | 25,741 | (313,698) | (93,752) | (283,619) | 213,248 | ||
Free cash flow available for growth1 | 7, | 455 | 8,312 | 11,180 | 8,746 | 7,162 | 10,761 | 12,357 | 11,511 | ||
Free cash flow1 | 3, | 888 | (9,612) | 6,151 | 7,206 | (6,309) | (4,011) | (1,148) | (3,591) |
- Considered to be non-GAAP or supplementary 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 Supplementary Financial Measures" section of this MD&A.
- 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.
- Calculated as fee revenue divided by commissionable revenue. Commissionable revenue includes fee revenue, trading commissions, and commissions earned in connection with the placement of new issues and the sale of insurance products.
- Calculated as adjusted operating expenses divided by gross margin
- Calculated as Adjusted EBITDA divided by revenue
- Calculated as fee revenue, trading commissions, and interest on cash, divided by average AUA
- Prior periods have been revised to reflect the internal consolidation of certain teams
- 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.
- 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.
- 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 25 to the 2023 Annual Financial Statements.
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Management's Discussion & Analysis - Q1 2024
Business Overview
Headquartered in Toronto, RF Capital is a public company listed on the Toronto Stock Exchange (TSX), and its common and preferred shares trade under the ticker symbols TSX: RCG and RCG.PR.B. Richardson Financial Group Limited owns 44% of the outstanding common shares of the Company, with advisors, other employees, and the public holding the remaining 56%. RF Capital's wholly owned subsidiary, Richardson Wealth, is one of the largest independent wealth management firms in Canada with 154 investment advisor teams serving almost 31,000 households out of 22 offices. It operates as Patrimoine Richardson in the francophone market. Richardson Wealth advisors collectively manage $37 billion in client assets and provide a comprehensive suite of wealth management services including investment, financial planning, insurance, and tax and estate planning services.
Richardson Wealth consistently ranks amongst the top firms in Canada in Investment Executive's Brokerage Report Card. In 2023, it ranked second among six banks and eight independents with a Net Promoter Score of 74, which is considered exceptional. For the fifth year in a row, Richardson Wealth was named on the 2023 list of Best Workplaces™ in Financial Services & Insurance by Great Place to Work®, a global authority on workplace culture.
To read more about the Company please visit the Company's website at www.RichardsonWealth.com.
Vision
To be the brand of
choice for Canada's top advisors and their high net-worth clients
$37B
AUA
154
Number of advisory
teams
$240MM
Average AUA
per team
92%
Recurring fee-based
revenue
22
Offices across
Canada
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Management's Discussion & Analysis - Q1 2024
Q1 2024 Financial Performance Summary
Our Q1 results reflected growing AUA, a continued shift towards higher yielding fee-based accounts, insurance revenue, and cost control. Rising equity markets provided a tailwind to our growth by driving both AUA and trading activity higher. We delivered these results even as market-wide corporate finance activity remained subdued. Results were also impacted by a seasonal increase in statutory benefits costs of approximately $2 million, which we experience in Q1 of every year.
vs Q1 2023
- AUA was up $1.0 billion with rising equity markets, recruiting, and net new asset gains being partly offset by losses from the departure of advisor teams
- Net loss improved by $4.2 million, primarily due to the absence of transformation costs this year
- Adjusted EBITDA was up $0.5 million or 4%, reflecting revenue growth and mark-to-market recoveries on restricted and deferred share units (RSUs and DSUs)
- Total revenue increased by $1.7 million, as higher fee and insurance revenues were partly offset by lower interest income (due to lower cash balances)
- Operating expenses were up $0.7 million or 2%, even in this inflationary environment, as costs were tightly managed and we recorded recoveries on RSUs and DSUs
- Free cash flow available for growth was $7.5 million, up $0.3 million or 4%. Free cash flow was $3.9 million, up $10.2 million primarily because of lower capital expenditures and transformation costs.
vs Q4 2023
- AUA was up $1.8 billion due to rising equity markets, recruited assets, the success that our advisors had bringing new assets into the firm, and despite advisor attrition
- Net loss improved by $1.8 million mainly due to lower advisor award and loan amortization
- Adjusted EBITDA was down $1.0 million as higher revenues and mark-to-market recoveries on RSUs and DSUs were offset by seasonally elevated operating expenses
- Total revenue rose $2.6 million due to higher AUA and increased trading activity in Q1
- Adjusted operating expenses increased $2.9 million mainly due to a seasonal increase in statutory benefits costs
- Free cash flow available for growth was down $0.9 million because of lower adjusted EBITDA. Free cash flow increased $13.5 million due to lower payments for advisor recruiting and legal settlements.
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Management's Discussion & Analysis - Q1 2024
Outlook and Key Performance Drivers
Our view with respect to the drivers of our financial performance and profitability in 2024 is as follows:
- AUA is highly correlated with equity market movements but will also be supported by growth in our existing advisors' client assets and by recruiting. We expect recruiting to accelerate over the coming quarters.
- Interest revenue is likely to follow prime rate trends, which many economists expect to decline from current levels starting in the middle of the year
- Transaction activity underlying our corporate finance revenue could rebound but is likely to remain subdued through the first half of the year
- Although we expect inflation to continue at elevated rates, we are committed to finding operating cost savings and efficiencies in our business as a partial offset
- Free cash flow for growth is expected to be deployed towards advisor recruitment
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RF Capital Group Inc. published this content on 01 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 May 2024 11:52:34 UTC.
