Matrix Asset Management Inc.
TSX : MTA

Matrix Asset Management Inc.

November 10, 2010 22:25 ET

Matrix Asset Management Reports Third Quarter Results of $1.9 Million EBITDA & $1.7 Million Free Cash Flow

HALIFAX, NOVA SCOTIA--(Marketwire - Nov. 10, 2010) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the third quarter ended September 30, 2010.

Highlights

Financially during the third quarter, the Company continued to generate significant cash flow from operations and maintained healthy capital resources. For the quarter, net income was $0.4 million, and recurring income before taxes climbed to $0.8 million. EBITDA was $1.9 million for the quarter, or $2.2 million on a recurring basis, and $5.4 million year to date, or $6.3 million on a recurring basis. Free Cash Flow was $1.7 million for the quarter and $6.9 million year to date.

Operationally during the third quarter, management continued to focus on integration, rebranding and reorganization activities to attain synergies, raise the bar on quality and set the stage for future AUM growth and new product introductions. The reorganization and expansion of the re-branded "Matrix Funds" (formerly Mavrix Funds and SEAMARK Mutual Funds) was completed during the quarter. The expanded fund family offers more mainstream "core" investment mandates, most of which use SEAMARK Asset Management Ltd., one of the Company's subsidiaries, as sub-advisor. This enables Canadian retail investors to access SEAMARK's proven, steady, institutional portfolio management style.

David Levi, President and CEO of Matrix, commented: "With a lot of the heavy reorganization work completed we can now focus more on marketing and new mandates and products. Work will continue on realizing additional operating efficiencies within the Matrix platform over the next year."

Corporate Overview

Matrix is a diversified, asset and wealth management company with offices across Canada. The Company manages approximately $2.7 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 Second Quarter Financial Results – Unaudited

Results of operations for Matrix for the third quarter 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.

    For the three
months ended
September 30, 2010
(in $ thousands)
  For the three
months ended
September 30, 2009
(in $ thousands)
  For the six
months ended
September 30, 2010
(in $ thousands)
  For the six
months ended
September 30, 2009
(in $ thousands)
Revenue        
Management and administration fees   $ 8,000    8,470    25,216    21,331
Incentive participation dividends   1,306   -   2,517   -
Interest income   14   -   29   12
Other Income   161   88   557   208
Total Revenue   9,481   8,558   28,319   21,551
         
Expenses        
Selling, general and administrative   7,223   6,008   22,048   15,529
Option Vesting Costs   -   -   948   -
Share-based compensation   120   40   273   374
Interest   227   293   899   378
Amortization   1,143   1,234   3,410   2,396
Fund merger costs and special projects   343   612   896   2,529
Total Expenses   9,066   8,187   28,474   21,206
         
Income (loss) before taxes   415   371   (155)   345
Income tax expense (recovery)   12   734   (87)   752
Net Income (loss)   403   (363)   (68)   (407)
         
Basic earnings (loss) per share (in $)   0.01   (0.02)   -   (0.02)
Diluted earnings (loss) per share (in $)   0.01   (0.02)   -   (0.02)
         
NON-GAAP MEASURES        
         
EBITDA(1)   1,905   1,938   5,375   3,493
Add (deduct) non-recurring items, net(2)   343   656   896   2,726
Recurring EBITDA(3)   2,248   2,594   6,271   6,219
         
Free Cash Flow(5)   1,691   1,656   6,886   1,877
         
Income (loss) before taxes   415   371   (155)   345
Add (deduct) non-recurring items, net(2)   343   656   1,844   2,726
Recurring income (loss) before taxes(4)   758   1,027   1,689   3,071
         
    As at
September 30, 2010
(in $ thousands)
  As at
March 31, 2010
(in $ thousands)
  As at
December 31, 2010
(in $ thousands)
       
Cash, cash equivalents and investments   $ 15,219   $ 13,288   $ 9,494
Total assets   43,798   45,605   37,640
Total long-term liabilities   8,416   11,388   14,881
Total assets under management   2,700,000   3,000,000   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 refunded (paid) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends.

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. Starting in early May, Canadian and international equity markets staged a significant downward correction. This had a negative impact on AUM levels, as equities fell significantly in value. This also drove some modest net redemptions that continued into the third quarter as some investors sought to de-risk their portfolios or adopt new investment strategies in reaction to the correction. In the latter part of the third quarter, sentiment shifted away from concern about a double dip recession and investors displayed a greater preference for risk and equity investments.

Management expects the economy to continue on a muted growth path and markets to remain robust as extraordinarily 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 also bode well for an improved M&A and IPO environment for venture capital backed companies. This is also supported by high cash levels among many senior technology companies. This can drive high value exit activity by funds managed by the Company's venture capital division, increasing prospect 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. This trend presents an ongoing opportunity for Matrix as it has proven experience in mergers and acquisitions.

The Company, through its operating subsidiaries, will also continue to seek to attract additional AUM through competing for new investment mandates and through positioning its investment fund offerings to meet the current needs of investors. Strategic assessment and planning to strengthen mandates and offerings will be a particular focus over the next year.

Matrix's third quarter 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.

About Matrix (www.matrixasset.ca)

Matrix (TSX:MTA) is a diversified asset and wealth management company with approximately $2.7 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 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", "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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