Matrix Asset Management Inc.
TSX : MTA

Matrix Asset Management Inc.

August 15, 2011 21:14 ET

Matrix Asset Management Inc. Reports Second Quarter Results and Declares Dividend

HALIFAX, NOVA SCOTIA--(Marketwire - Aug. 15, 2011) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the second quarter ended June 30, 2011 and announced the next regular quarterly dividend of $0.015 per share would be payable on September 13, 2011 to shareholders of record on August 30, 2011.

Highlights

Financial results during the second quarter were very substantially impacted by one-time expenses, primarily associated with staff reductions (which will significantly reduce future expenses) and expenses associated with pursuing management of additional assets. During the quarter, the Company generated $(2.4) million in EBITDA, $0.7 million in recurring EBITDA, and $(3.1) million in Free Cash Flow. Net income was $(2.4) million.

Matrix focused on planning significant expense reductions during the quarter, expected to reduce annual recurring expenses by approximately $4.1 million per annum going forward. These reductions reflect on-going integration synergies and right-sizing of expenses to current levels of assets under management ("AUM"). A major continuing initiative in the GrowthWorks venture capital and private equity unit focused on pursuing management of a group of retail venture capital funds managed by VenGrowth Asset Management ("VenGrowth funds"). This special project has seen the GrowthWorks Canadian Fund Ltd. directly seek support from shareholders of the VenGrowth funds for a merger proposal. Successful completion of a merger would bring substantial new assets under management to the venture capital/private equity division. It has also involved substantial, non-recurring expenses included in merger, acquisition and other special project costs. Success on this project would be accretive to future financial results. So far, GrowthWorks has garnered a high level of support from VenGrowth fund shareholders. Definitive votes are expected in Q3 and Q4.

David Levi, President and CEO of Matrix, commented: "We are pleased to have identified such a sizeable cost reduction package. These cost savings of approximately $4.1 million per annum will flow right to the Company's bottom line and enhance its financial position. During the second quarter of 2011, we also continued to work on a number of initiatives to grow our business through acquisitions, new investment mandates and new products."

Corporate Overview

Matrix is a diversified asset and wealth management company with offices across Canada. The Company manages approximately $2.3 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.
  • Retail fund management, operated through Matrix Funds Management (a division of GrowthWorks Capital Ltd.) which manages the "Matrix Funds", a family of mutual funds and specialty funds, 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.

This diversified set of operations delivers multiple sources of revenue across several asset and client groups.

Summary of Second Quarter Financial Results – Unaudited

Results of operations for Matrix for the second quarter consolidate the results of Matrix and its subsidiaries. Due to the January 15, 2010 effective date of the business combination of GrowthWorks and SEAMARK, the financial performance of the Company for the 2010 comparative does not include contributions from SEAMARK for the first 15 days from January 1, 2010 to January 15, 2010. Matrix reports is 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 and six months ended June 30, 2011 compared with financial information for Matrix for the same period in 2010.

For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
(in $ thousands ) (in $ thousands ) (in $ thousands ) (in $ thousands )
Revenue
$ $ $ $
Management and administration fees 6,973 8,043 14,182 16,374
Additional administration fees 356 403 724 842
Incentive participation dividends 915 1,211 1,268 1,211
Interest income 11 6 25 15
Other income 378 180 538 396
Total Revenue 8,633 9,843 16,737 18,838
Expenses
Selling, general and administrative 8,110 7,248 14,103 13,590
Share-based compensation 132 119 228 153
Trailer fees 709 602 1,417 1,225
Amortization - capital assets 72 111 142 214
Amortization - deferred sales commissions 573 710 1,207 1,423
Amortization - asset management contracts 287 315 574 630
Interest 204 305 432 672
Accelerated option vesting costs - - - 948
10,087 9,410 18,103 18,855
(Loss) income before merger, acquisition and other special project costs (1,454 ) 433 (1,366 ) (17 )
Merger, acquisition and other special project costs 2,201 454 3,593 553
Loss before taxes (3,655 ) (21 ) (4,959 ) (570 )
Income tax recovery (1,230 ) (99 ) (3,902 ) (99 )
$ $ $ $
Net (Loss) Income (2,425 ) 78 (1,057 ) (471 )
Basic earnings (loss) per share (in $) (0.06 ) - (0.03 ) (0.01 )
Diluted earnings (loss) per share (in $) (0.06 ) - (0.03 ) (0.01 )
NON-GAAP MEASURES
EBITDA(1) (2,387 ) 1,539 (2,376 ) 3,470
Add (deduct) non-recurring items, net(2) 3,118 787 5,243 1,111

Recurring EBITDA(3)
731 2,326 2,867 4,581
Free Cash Flow (5) (3,066 ) 4,018 (2,088 ) 5,194
Loss before taxes (3,655 ) (21 ) (4,959 ) (570 )
Add (deduct) non-recurring items, net(2) 3,118 787 5,243 2,059
Recurring (loss) income before taxes(4) (537 ) 766 284 1,489
Dividends declared and paid 714 73 1,425 144
As at As at As at
June 30, 2011 June 30, 2010 December 31, 2010
(in $ thousands ) (in $ thousands ) (in $ thousands )
Cash, cash equivalents and investments $ 2,462 $ 13,868 $ 14,482
Total assets 35,510 43,444 41,140
Total long-term liabilities 8,292 8,469 8,388
Total assets under management 2,300,000 2,700,000 2,600,000
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, income taxes paid or received, and changes in income taxes payable or refundable for the quarter) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends. The Company's definition of Free Cash Flow has been amended as compared to its use in previous quarters by replacing net taxes refunded (paid) with income taxes paid or received and changes in income taxes payable or refundable for the quarter.

Outlook

The asset management industry is affected by economic and market conditions which strongly correlate with asset inflows / outflows and changes in asset market values, both of which affect assets under management (AUM), which drive the Company's fee revenues. For the year-to-date 2011, economic and market conditions were initially positive but deteriorated in May and June, with a number of macroeconomic concerns working to diminish confidence in future economic growth. In particular, concerns over sovereign debt levels in Europe and United States contributed to a significant equity market correction that began in the second quarter and has continued subsequent to the end of the reporting period.

The Bank of Canada and U.S. Federal Reserve continue to provide monetary stimulus to the economy. With the unemployment rate in the U.S. higher than similar points in past recovery cycles, the U.S. Federal Reserve is keeping interest rates low to spur investment and economic activity. Low interest rate environments typically result in positive corporate earnings growth and encourage investors to seek returns from equity investments, which provides a positive backdrop for equity markets. We expect the economy to continue on a modest growth path and for markets to remain volatile and cautious in the near term. On the positive side, corporate earnings remain impressive and large corporations have record high cash balances. Strong public equity markets from June 2010 through to the spring of 2011 have also improved M&A and IPO exit markets for venture capital backed companies, bolstered by high cash levels among many senior technology companies. Strong M&A markets support high value exit activity by funds managed by the Company's venture capital division, increasing prospects for carried interest payments/IPA Dividends. Overall, these trends present a mixed near term, but favourable longer term outlook 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 continue to seek to attract additional AUM through competing for new investment mandates and through positioning and re-positioning its investment fund offerings to meet the current needs of investors. Strategic assessment and planning to strengthen our mandates and offerings will be a particular focus for the year. In particular, the Company sees further demand and strength in innovative new growth, resource-oriented and income investment products that can provide value-added features for investors and utilize our best portfolio management resources to attract additional assets for management. The Company also expects to realize additional operating efficiencies over the course of the year as it continues to integrate its diversified asset management platform.

Matrix has determined not to proceed with the private placement of convertible debentures previously announced on June 20, 2011 due to current market conditions.

Matrix's second quarter financial statements and MD&A are available on the SEDAR website at www.sedar.com, as are the financial statements of GrowthWorks Ltd. for the year ended December 31, 2010.

About Matrix (www.matrixasset.ca)

Matrix (TSX:MTA) is a diversified asset and wealth management company with approximately $2.3 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, market conditions and profitability, prospects, priorities, goals, strategies 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, expenses, portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning economic and market conditions and the impact of such conditions and other factors on 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 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, they 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 and in turn 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 targeted acquisitions, 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 otherwise.

Non-GAAP Measures

"EBITDA", "recurring EBITDA", "Free Cash Flow" and "recurring income before taxes" are not measures recognized under Canadian generally accepted accounting principles ("GAAP"). 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-GAAP measures do not have any standard meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-GAAP measures are not alternatives to measures determined in accordance with GAAP and should not, on their own, be construed as indicators of performance, cash flow or profitability, or a measure of liquidity. These Non-GAAP measures should be read in conjunction with the financial statements of Matrix posted on SEDAR. For additional information regarding Matrix's use of non-GAAP measures, including reconciliations of these measures to the nearest GAAP measures, please refer to the "Non-GAAP Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.

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