RF Capital Reports Fourth Quarter and Fiscal 2023 Results

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2023 Financial Highlights
(as compared with 2022)

AUA1,2 and Revenue

Ending AUA1,2 increased to $35.2 billion, up 1% or $288 million
Total revenue was consistent with 2022, declining 1% to $351 million

Profitability and Cash Flow

Gross margin increased 1% to $206 million, partly due to revenue mix
Net income from continuing operations declined to $(9.8) million, due to higher interest expense
Adjusted EBITDA1 decreased 3% to $59.5 million, reflecting 2.6% growth in adjusted operating expenses
Cash used in operating activities was $268 million, reflecting the fact that Fidelity now custodies our clients’ cash and it is no longer reported as cash on our balance sheet
Free cash flow available for growth1 decreased 12% to $35.4 million, mainly because of higher interest expense
Free cash flow1 was up by $7.3 million to $(2.6) million, due to lower capital expenditures for office build outs

Balance sheet

Net working capital1 was $81.2 million, down $14.0 million

TORONTO, Feb. 29, 2024 /CNW/ – RF Capital Group Inc. (RF Capital or the Company) (TSX:RCG) today reported revenue of $351 million in fiscal year 2023, consistent with the prior year. Revenue was supported by AUA of $35.2 billion at December 31, 2023, which was up $288 million from the prior year. AUA increased as recruiting, net new assets, and strong markets in the fourth quarter offset the departure of advisor teams that managed $2.5 billion in AUA.  Adjusted EBITDA 1 decreased 3% to $59.5 million, because of the revenue change and a 2.6% increase in adjusted operating expenses.

In the fourth quarter of 2023, the Company generated revenue of $86.7 million, down $1.8 million or 2% from the prior year. Revenue benefited from a 1% increase in wealth management fees, but interest income declined by $1.8 million due to lower client cash and margin balances. Although adjusted operating expenses were flat, the decrease in revenue led to a $2.5 million decline in Adjusted EBITDA1 to $14.5 million. Similarly, Adjusted EBITDA was down $2.4 million quarter-over-quarter, primarily as a result of $3.5 million of RSU and DSU mark-to-market recoveries recorded in Q3 2023.

There were no adjusting items to EBITDA in Q3 or Q4 of 2023, reflecting the end of our transformation journey.

For more details on our results, please refer to our 2023 MD&A.

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 Supplementary Financial Measures” section of this 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.

Kish Kapoor, President and Chief Executive Officer, commented, “Our results reflect the challenges of transforming our business during a period of uncertainty. But with the hard work of building the foundation largely behind us, we finished the year strongly with AUA increasing $800 million in the last two months of the year. That trend, together with three advisor teams that manage $800 million of AUA joining our Victoria office in November, position us for a good start to 2024.”

Mr. Kapoor continued, “Looking forward, we are embarking on a journey focused squarely on our three-pillar growth strategy ‒ driving organic, recruiting, and inorganic growth – and we are doing so with modern digital tools and a platform built for scale. I am confident that we can now begin to unlock the long-term value of the investments we have made to pursue opportunities in an industry that is expected to double in size in the next decade.”

Deepening Our Capabilities

Dave Kelly joined the Company as Chief Operating Officer of our operating subsidiary, Richardson Wealth. Mr. Kelly’s career spans more than 25 years of progressively senior roles in financial services. Most recently, he was Head, Gluskin Sheff & Associates, a prominent independent Canadian advisory firm. Prior to that, he spent 14 years in wealth management at Toronto-Dominion Bank, culminating in the role of SVP & Head, Private Wealth Management & Financial Planning. In choosing Richardson Wealth after interviewing 50 industry professionals, he said “with the significant investments Richardson Wealth made to dramatically scale the business now in place, I am drawn to the firm’s advisor-centric culture, the rich history of the name on the door, and the vision to become the brand of choice for Canada’s top advisors and their clients.” Alongside Neil Bosch and James King, the recently appointed Regional Heads of Advisor Experience & Growth, Dave will have primary responsibility for enhancing the overall experience for advisors and driving profitable organic growth.

2026 Recognition Payments

As the Company’s success is dependent on retaining and attracting advisors, management was encouraged that in a recent Great Place to Work® survey 85% of advisors who responded to the survey said they are proud to tell others that they work at Richardson Wealth. To recognize them for their continued loyalty and pursuant to an agreement reached during our 2020 reorganization, advisors who were with the firm in 2020 and are still here were granted a second tranche of recognition awards with a value of $15.2 million. The awards will pay out in November 2026, to advisors who remain with Richardson Wealth until that time.

New Cash Flow Metrics

In Q3 2023, the Company introduced two new financial metrics to enhance disclosure of its operating performance: free cash flow available for growth and free cash flow. These new cash flow disclosures were developed in part due to feedback we received from the investment community. Free cash flow available for growth demonstrates the cash flow that we have available to invest in growth initiatives such as recruiting, and free cash flow highlights the residual after growth investments and transformation costs. In 2023, we generated free cash flow available for growth of $35.4 million. Free cash flow improved from 2022 but was still negative $2.6 million. It was negative primarily because of $18.8 million of recruiting payments and transformation related costs, including payments to resolve legacy legal matters. For a definition of these non-GAAP terms and a reconciliation against cash provided by / (used in) operating activities (the most comparable GAAP measure), please see the “Non-GAAP and Supplementary Financial Measures” section of this press release and our 2023 MD&A.

Outlook and Key Performance Drivers

Due to the wide range of viewpoints on market growth next year, we will not be communicating our expectations for EBITDA1 going forward. We believe that this approach is consistent with industry practice.

With respect to the drivers of our financial performance and profitability:

AUA1,2 will be supported by growth in our existing advisors’ client assets and recruiting. AUA1,2 is also highly correlated with equity market movements;
The 2023 departure of advisors who managed $2.5 billion of AUA1,2 will impact average AUA1,2 and revenue growth rates in 2024;
Interest revenue is likely to follow prime rate trends, which are expected to decline from current levels;
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; and
The $4.9 million of RSU and DSU mark-to-market recoveries that reduced our operating expenses in 2023 (compared to $2.3 million in 2022) may not repeat in the future.

Preferred Share Dividend

On February 29, 2024, the board of directors approved a cash dividend of $0.233313 per Series B Preferred Share for a total of $1,073, payable on March 29, 20243, to preferred shareholders of record on March 15, 2024.

Q4 and Fiscal 2023 Conference Call

A conference call and live audio webcast to discuss RF Capital’s fourth quarter and fiscal 2023 financial results will be held on Friday, March 1, 2024 at 10:00 a.m. (EST). Interested parties are invited to access the conference call on a listen-only basis by dialing 416-406-0743 or 1-800-898-3989 (toll free) and entering participant passcode 8122652#, or via live audio webcast at https://www.richardsonwealth.com/investor-relations/financial-information. A recording of the conference call will be available until Thursday, April 4, 2024, by dialing 905-694-9451 or 1-800-408-3053 and entering access code 5042186#. The audio webcast will be archived at https://www.richardsonwealth.com/investor-relations/financial-information

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 Supplementary Financial Measures” section of this 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.

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.

Fiscal 2023 – Select Financial Information

The following table presents the Company’s financial results for fiscal 2023 and the two preceding periods.

2023 vs 2022   2022 vs 2021

($000s, except as otherwise indicated)

2023

2022

2021

Increase/(decrease)

Key performance drivers1:

AUA – ending2 ($ millions)

35,236

34,948

36,847

1 %

(5 %)

AUA – average2 ($ millions)

35,574

35,419

33,925

0 %

4 %

Fee revenue

255,707

254,802

242,916

0 %

5 %

Fee revenue3 (%)

89

88

86

        +177 bps

        +178 bps

Adjusted operating expense ratio4 (%)

71.1

69.8

72.7

        +128 bps

        (289) bps

Adjusted EBITDA margin5  (%)

16.9

17.4

15.4

          (47) bps

        +197 bps

Asset yield6 (%)

0.86

0.85

0.82

             +1 bps

             +3 bps

Advisory teams7 (#)

157

162

162

(3 %)

Operating Performance

Reported results:

Revenue

351,119

353,972

328,519

(1 %)

8 %

Operating expenses1,8

150,854

151,207

156,543

(0 %)

(3 %)

EBITDA1

54,988

53,017

29,365

4 %

81 %

Income (loss) before income taxes

(5,509)

(3,111)

(19,805)

77 %

(84 %)

Net income (loss) from continuing operations

(9,828)

(4,803)

(20,152)

105 %

(76 %)

Net income (loss) from discontinued operations9

(2,064)

 n/a 

 n/a 

Net loss per common share from continuing operations – diluted10

(0.93)

(0.95)

(3.33)

(2 %)

(72 %)

Full story available on Benzinga.com


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