Matrix Asset Management Inc.
TSX : MTA

Matrix Asset Management Inc.

May 11, 2011 17:24 ET

Matrix Asset Management Reports First Quarter Results of $1.4 Million Net Income After Tax, $1.5 Million Recurring EBITDA & $1.0 Million Free Cash Flow, and Declares Dividend

HALIFAX, NOVA SCOTIA--(Marketwire - May 11, 2011) - Matrix Asset Management Inc. (TSX:MTA) (the "Company" or "Matrix") reported today its financial and operating results for the first quarter ended March 31, 2011 and announced that the next regular quarterly dividend of $0.015 per share would be payable on June 7, 2011 to shareholders of record on May 24, 2011.

Highlights

Financially during the first quarter of 2011, the Company maintained healthy capital resources. For the quarter, net income after tax was $ 1.4 million, recurring EBITDA was $ 1.5 million, and Free Cash Flow was $ 1.0 million. As a result of substantial one-time special project expenses discussed below, EBITDA for the quarter was $ 11 thousand.

Operationally during the first quarter of 2011, focus was on sales of the Matrix Funds' family of mutual funds and its 2011 National and Quebec "flow-through" fund offering. The Matrix Funds continued to achieve net sales at above industry average rates during the quarter. A major initiative in the GrowthWorks venture capital and private equity unit focussed on pursuing management of a group of retail venture capital funds managed by VenGrowth Asset Management ("VenGrowth"). This special project saw the GrowthWorks Canadian Fund Ltd. directly seek support from VenGrowth fund shareholders for a merger proposal. This initiative could bring substantial new assets under management to the venture capital/private equity division. It also involved substantial, non-recurring expenses of approximately $1.4 million. Success on this project is expected to be accretive to future financial results. So far, GrowthWorks has garnered a high level of support from VenGrowth fund shareholders. Definitive shareholder votes are expected in Q2/Q3.

David Levi, President and CEO of Matrix, commented: "Operationally during the first quarter of 2011, our focus was on sales of the Matrix Funds' family of mutual funds and its 2011 National and Quebec "flow-through" fund offering. Our mutual funds sales continued to be strong with net sales for the 6th month in a row as of April. We are also working to grow our business through acquisitions, new investment mandates and new products."

In some reorganization of senior management duties, the Company announced that Alex Irwin has been appointed Chief Strategy Officer and David Balsdon has been appointed Chief Operating Officer ("COO"). Mr. Irwin, who had both been COO and involved in numerous strategic initiatives, will focus on strategic matters. Mr. Balsdon, who had been Chief Compliance Officer ("CCO") and Senior Vice-President, Retail Funds at Matrix Funds, will step into the COO role and retain the CCO function. Mr. Levi commented, "I am pleased to be able to have Alex focus fully on strategic transactions to help drive our next leg of growth, and to have David's extensive industry experience at work in the company's expanded national operations."

Corporate Overview

Matrix is a diversified, asset and wealth management company with offices across Canada. The Company manages approximately $2.4 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, 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 First Quarter Financial Results – Unaudited

Results of operations for Matrix for the first quarter 2011 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 15 days from January 1, 2010 to January 15, 2010. 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.

For the threeFor the three
months endedmonths ended
March 31, 2011March 31, 2010
(in $ thousands)(in $ thousands)
Revenue
Management and administration fees$ 7,209$ 8,331
Additional administration fees368439
Incentive participation dividends353-
Interest income149
Other income160216
Total Revenue8,1048,995
Expenses
Selling, general and administrative5,9936,342
Share-based compensation9634
Trailer fees708623
Amortization - capital assets70103
Amortization - deferred sales commissions634713
Amortization - asset management contracts287315
Interest228367
Accelerated option vesting costs-948
Fund merger, special projects and other acquisition costs1,39299
Total Expenses9,4089,544
Loss before taxes(1,304)(549)
Income tax recovery(2,671)-
Net Income (loss)$ 1,367$ (549)
Basic earnings (loss) per share (in $)0.03(0.01)
Diluted earnings (loss) per share (in $)0.03(0.01)
NON-GAAP MEASURES
EBITDA(1)111,931
Add (deduct) non-recurring items, net(2)1,501324

Recurring EBITDA(3)
1,5122,255
Free Cash Flow(5)9781,177
Loss before taxes(1,304)(549)
Add (deduct) non-recurring items, net(2)1,5011,272
Recurring income (loss) before taxes(4)197723
Dividends declared and paid71171
As atAs atAs at
March 31, 2011March 31, 2010December 31, 2010
(in $ thousands)(in $ thousands)(in $ thousands)
Cash, cash equivalents and investments$ 11,334$ 13,288$ 14,482
Total assets43,69644,80541,140
Total long-term liabilities8,27712,2108,347
Total assets under management2,400,0003,000,0002,600,000
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 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. From March 2009 to May 2010, the economy and markets strengthened as the rebound off the financial crisis lows continued. However, starting in May 2010, 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 of 2010, 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 of 2010. That rally and positive sentiment has generally so far continued into 2011. 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 2011.

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 industry 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 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.

In addition to economic and market conditions, the Company's future operating results are subject to a number of risks and uncertainties. See "Risks Factors".

Matrix's first quarter 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 $2.4 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, 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 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", "Reconciliation of Recurring Income before Taxes" and "Reconciliation of EBITDA, Recurring EBITDA and Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.

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