Matrix Asset Management Inc.
TSX : MTA

Matrix Asset Management Inc.

March 29, 2011 18:14 ET

Matrix Asset Management Inc. Reports Year End Results of $6.9 Million EBITDA & $8.2 Million Free Cash Flow, Declares Dividend and Announces Proposed Share Consolidation

HALIFAX, NOVA SCOTIA--(Marketwire - March 29, 2011) - Matrix Asset Management Inc. (TSX:MTA) (the "Company" or "Matrix") reported today its financial and operating results for the year and fourth quarter ended December 31, 2010 and announced that the next regular quarterly dividend of $0.015 per share would be payable on April 18, 2011 to shareholders of record on April 7, 2011. The details of the proposed share consolidation are set out following the earnings results.

Highlights

For the year ended December 31, 2010, EBITDA was $6.9 million, or $8.8 million on a recurring basis, and Free Cash Flow was $8.2 million. Net income for the year was $0.4 million, and recurring income before taxes was $2.9 million.

Financially during the fourth quarter of 2010, the Company continued to generate significant cash flow from operating activities and maintained healthy capital resources. For the quarter, EBITDA was $1.5 million, or $1.9 million on a recurring basis, and Free Cash Flow was $1.3 million. Net income for the quarter was $0.5 million, and recurring income before taxes was $0.6 million.

Management efforts in the fourth quarter were focused on preparations for the 2011 RSP season for sales of its now well diversified array of retail investment funds. Management also continued to focus on integration, rebranding and reorganization activities to attain synergies, raise the bar on quality and set the stage for future assets under management ("AUM") growth and new product introductions. To that end, the Matrix 2011-I National and Québec Resource Flow Through LP filed its prospectus in the fourth quarter and had its first closing in March 2011.

David Levi, President and CEO of Matrix, commented: "2010 was a year of development and accomplishments for Matrix. We have put in place a solid national asset management platform while realizing strong operating efficiencies. The brands within the Matrix group of companies have benefited from the business combination between GrowthWorks Ltd. and SEAMARK Asset Management Ltd. In July 2010, the mutual funds distributed by subsidiaries of Matrix were re-organized and re-branded as the "Matrix Funds". Since the re-organizing and re-branding, Matrix Funds total AUM has increased from $334.1 million as at July 31, 2010 to $400.6 million as at December 31, 2010. Moreover, SEAMARK won new mandates, the first time since 2008 and representing the largest amount since 2004. Over the next year, we will continue to focus on marketing, new mandates and products, and realizing additional operating efficiencies within the Matrix platform."

Corporate Overview

Matrix is a diversified, asset and wealth management company with offices across Canada. The Company manages approximately $2.6 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.
  • Retail fund management, through "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 year and fourth quarter ended 2010 Financial Results – Audited

Results of operations for Matrix for the fourth quarter and year ended 2010 consolidate the results of Matrix and its subsidiaries, including GrowthWorks Ltd. and Mavrix Fund Management Inc. from January 1, 2010 and SEAMARK from January 16, 2010. The business combination among Matrix, GrowthWorks and SEAMARK in January 2010 constituted a reverse takeover and, in accordance with applicable GAAP and securities law requirements, 2009 comparative results included in Matrix's financial statements and MD&A, and presented below, are those of GrowthWorks, not Matrix.

The following table sets out selected consolidated financial information about Matrix for the year ended December 31, 2010 and about GrowthWorks for the year ended December 31, 2009.

  For the twelve
months ended
December 31, 2010
(in $ thousands)
For the twelve
months ended
December 31, 2009
(in $ thousands)
 
 
 
     
Revenue    
  Management and administration fees $ 31,402 $ 27,713
  Additional administration fees 1,630 1,714
  Incentive participation dividends 2,517 -
  Interest income 81 13
  Other income 851 576
Total Revenue 36,481 30,016
     
Expenses    
  Selling, general and administrative 25,949 21,752
  Share-based compensation 393 421
  Trailer fees 2,402 1,070
  Amortization - capital assets 433 518
  Amortization - deferred sales commissions 2,728 1,930
  Amortization - asset management contracts 1,435 1,260
  Interest 910 921
  Accelerated option vesting costs 948 -
  Fund merger, special projects and other acquisition costs 1,239 6,808
Total Expenses 36,437 34,680
     
Income (loss) before taxes 44 (4,664)
  Income tax recovery (390) (102)
Net Income (loss) 434 (4,562)
     
Basic earnings (loss) per share (in $) 0.01 (0.20)
Diluted earnings (loss) per share (in $) 0.01 (0.20)
     
NON-GAAP MEASURES    
     
EBITDA(1) 6,891 386
Add (deduct) non-recurring items, net(2) 1,896 7,539
Recurring EBITDA(3) 8,787 7,925
     
Free Cash Flow(5) 8,185 (1,987)
     
Income (loss) before taxes 44 (4,664)
Add (deduct) non-recurring items, net(2) 2,844 7,539
Recurring income (loss) before taxes(4) 2,888 2,875
     
Dividends declared and paid 929 142
  As at
December 31, 2010
(in $ thousands)
As at
December 31, 2009
(in $ thousands)
 
 
     
Cash, cash equivalents and investments $ 14,482 $ 9,494
Total assets 42,745 37,640
Total long-term liabilities 8,347 14,881
Total assets under management 2,600,000 1,048,000
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 general 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 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 paid/refunded) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends.

The following table sets out selected consolidated financial information about Matrix for the quarter ended December 31, 2010 compared with financial information for GrowthWorks for the same period in 2009, as well as the non-GAAP measures referenced above.

  For the three
months ended
December 31, 2010
(in $ thousands)
For the three
months ended
December 31, 2009
(in $ thousands)
 
 
 
     
Revenue    
  Management and administration fees $ 7,425 $ 7,654
  Additional administration fees 391 443
  Incentive participation dividends - -
  Interest income 52 -
  Other income 294 368
Total Revenue 8,162 8,465
     
Expenses    
  Selling, general and administrative 5,689 6,732
  Share-based compensation 120 48
  Trailer fees 614 560
  Amortization - capital assets 94 159
  Amortization - deferred sales commissions 600 772
  Amortization - asset management contracts 490 381
  Interest 12 543
  Accelerated option vesting costs - -
  Fund merger, special projects and other acquisition costs 344 4,279
Total Expenses 7,963 13,474
     
Income (loss) before taxes 199 (5,009)
  Income tax recovery (303) (854)
Net Income (loss) 502 (4,155)
     
Basic earnings (loss) per share (in $) 0.01 (0.18)
Diluted earnings (loss) per share (in $) 0.01 (0.18)
     
NON-GAAP MEASURES    
     
EBITDA(1) 1,515 (3,106)
Add (deduct) non-recurring items, net(2) 362 5,321
Recurring EBITDA(3) 1,877 2,215
     
Free Cash Flow(5) 1,298 (3,863)
     
Income (loss) before taxes 199 (5,009)
Add (deduct) non-recurring items, net(2) 362 5,321
Recurring income (loss) before taxes(4) 561 312
     
Dividends declared and paid 708 71
     
Notes  see notes to annual table above.

Outlook

The asset management industry is particularly affected by economic and market conditions which strongly correlate with both asset inflows / outflows and asset values, both of which drive Company fee revenues. Until May 2010, the economy and markets strengthened as the rebound off the financial crisis lows continued. However, starting in May, Canadian and international equity markets staged a significant downward correction. This had a negative impact on AUM levels, as equities and, in particular natural resource equities, fell significantly in value. In the third quarter, sentiment shifted away from concern about a double dip recession and investors displayed a greater preference for risk and equity investments. This more positive sentiment, along with continuing strong supports from monetary authorities and improving outlooks for economic growth, fueled a strong rally in equity markets through year end. The current crisis in the Middle East and the recent tragic events in Japan may have a short term effect on markets but we expect markets to recover over the course of the year.

We expect the economy to continue on a growth path and for markets to remain steady to higher as low interest rates drive greater investor demand for equities and higher return investments. Corporate earnings remain impressive as does the strength of corporate balance sheets. Strengthening public equity markets and economic confidence have also improved M&A and IPO exit markets for venture capital backed companies, bolstered by high cash levels among many senior technology companies. This is expected to support high value exit activity by funds managed by the Company's venture capital division, increasing prospects for carried interest payments / incentive participation dividends. Overall, these trends present a favourable 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 also 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 focus over the next year. In particular, the Company sees further demand and strength in innovative new growth 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 national asset management platform.

Matrix's fourth quarter and year end 2010 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, 2009.

Proposed Share Consolidation

Matrix announced today that its shareholders (the "Shareholders") will vote on a resolution to consolidate the Matrix common shares (the "Common Shares") on the basis of one (1) new Common Share for each five (5) outstanding Common Shares on the date of the consolidation (the "Consolidation") at its upcoming Annual and Special Meeting of Shareholders to be held May 11, 2011 (the "Meeting").

Currently there are 46,890,486 Common Shares of Matrix issued and outstanding. On a post-consolidated basis, Matrix expects that there will be approximately 9,378,097 Common Shares issued and outstanding.

Matrix will be mailing to Shareholders an information circular (the "Circular") in connection with the Meeting. At the Meeting, Shareholders will be asked to approve the Consolidation. This approval must be granted by at least two-thirds of the votes cast by Shareholders, present in person or represented by proxy and entitled to vote at the Meeting.

No fractional Common Shares created as a result of the Consolidation will be maintained, with all fractional Common Shares being cancelled. The Consolidation is expected to have the effect of raising, on a proportionate basis, the trading price of the Company's Common Shares, though there can be no assurance that the increase in trading price will be proportionate with the one-for-five Consolidation ratio.

The Consolidation is subject to the approval of the TSX. Matrix does not intend to seek a new stock trading symbol from the TSX in connection with the Consolidation. Further details concerning the Consolidation and the procedures to be followed by holders of the Common Shares will be contained in the Circular. This press release should be read together with, and is qualified in its entirety by the more detailed information contained in the Circular, which will be mailed to shareholders and available on SEDAR at www.sedar.com. There can be no assurance that the Consolidation will be completed on the terms proposed or at all.

About Matrix (www.matrixasset.ca)

Matrix (TSX:MTA) is a diversified asset and wealth management company with approximately $2.6 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, market conditions and profitability, prospects, priorities, goals, strategies and estimates and outlook of Matrix for the current fiscal year and subsequent periods and the impact of the Consolidation on the trading price of Common Shares. 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, 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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