VANCOUVER, BRITISH COLUMBIA--(Marketwired - Nov. 14, 2013) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the third quarter ended September 30, 2013.
A conference call to discuss the third quarter results is scheduled for November 15, 2013 at 9:00 a.m. Eastern Time. The dial in number is 1-800-698-0339 and web-cast is available at: https://cc.callinfo.com/r/1i31c15zyzo65&eom
President and CEO, David Levi commented, "Completing the $5.0 million debt financing, with the first $4.0 million tranche drawn in the third quarter, was a key step in our previously announced restructuring plans". Mr. Levi added, "Management is continuing to review options for reducing expenses".
Selected Third Quarter 2013 Highlights - Unaudited
- At the end of the third quarter, total AUM was $0.3 billion, compared to $1.0 billion as at June 30, 2013 and $1.1 billion as at September 30, 2012.
- Total revenue for the third quarter was $2.9 million compared to $4.1 million during the same period last year.
- Recurring expenses for the third quarter were $6.9 million compared to $4.3 million during the same period last year.
- EBITDA from continuing operations for the third quarter was $(2.1) million compared to $0.5 million during the same period last year.
- Free cash flow for the third quarter was $(3.1) million compared to $1.0 million during the same period last year.
- Working capital deficit improved over the quarter by $3.6 million to $(3.2) million. See "Liquidity and Capital Resources".
- On September 30, 2013, GrowthWorks Canadian Fund Ltd. ("the Canadian Fund") obtained an order for creditor protection under the Companies' Creditors Arrangement Act ("CCAA") and delivered notice to GrowthWorks WV Management Ltd. ("GWWV") purporting to terminate the Management Agreement between the Canadian Fund and GWWV ("the Management Agreement"), effective immediately.
- On September 30, 2013, Matrix announced that it had entered into financing arrangements for loan financing of up to $5 million (the "Debt") with an independent Canadian lender. This loan facility repaid and replaces the loan facility between the Lender and Matrix announced on August 8, 2013. The Debt is to be advanced over two tranches of $4 million and $1 million. The first tranche was advanced to GrowthWorks Capital Ltd. on September 30, 2013.
This release should be read in conjunction with Matrix's unaudited interim financial statements and Management Discussion & Analysis ("MD&A") for the third quarter ended September 30, 2013, which are available on the SEDAR website at www.sedar.com.
Subsequent Events:
- In October 2013, the term loans previously received from two shareholders were granted an extension of maturity. The previous maturity date of October 31, 2013 has been extended, at no additional consideration, to the earlier of 30-day written notice by the lenders and the date of closing of a transaction by Matrix or any of its subsidiaries resulting in cash proceeds to Matrix of $7 million or more.
Corporate Overview
Matrix is a venture capital asset management company with offices across Canada. As at September 30, 2013, the Company managed approximately $0.3 billion in assets operated through GrowthWorks Capital Ltd., which manages funds in the venture capital sector.
Summary of Third Quarter ended September 30, 2013 Financial Results - Unaudited
The following table sets out selected consolidated financial information about Matrix for the three and nine months ended September 30, 2013 compared with financial information for Matrix for the same periods in 2012.
The summary of financial results identifies expense items which are considered non-recurring. . Management believes that it is important to identify non-recurring items in order to fully understand Matrix's operating results. The intent of identifying these non-recurring items is to provide greater transparency as to what the core or run-rate capacity of the business may be. This is particularly important for Matrix given that Matrix, and GrowthWorks in particular, has during prior periods: (i) executed various initiatives and incurred various expenses to grow its business by mergers and acquisitions and (ii) implemented significant restructuring measures as a result of completed mergers and acquisitions. In specific circumstances, management considers these matters to be material, and therefore important to present as supplemental information. Further information regarding non-recurring expenses is contained in Table 3 of Matrix's MD&A for the third quarter.
| For the three | For the three | For the nine | For the nine | ||||||||||
| months ended | months ended | months ended | months ended | ||||||||||
| September 30, 2013 | September 30, 2012 | September 30, 2013 | September 30, 2012 | ||||||||||
| (in $ thousands) | (in $ thousands) | (in $ thousands) | (in $ thousands) | ||||||||||
| Revenue | |||||||||||||
| Management and administration fees | $ | 2,545 | $ | 3,446 | $ | 8,239 | $ | 10,825 | |||||
| Additional administration fees | 221 | 296 | 714 | 952 | |||||||||
| Incentive participation revenues | - | 144 | 390 | 1,127 | |||||||||
| Interest income | 67 | 188 | 431 | 349 | |||||||||
| Other income | 38 | 49 | 135 | 173 | |||||||||
| 2,871 | 4,123 | 9,909 | 13,426 | ||||||||||
| Expenses | |||||||||||||
| Selling, general and administrative | 5,144 | 3,523 | 12,738 | 12,483 | |||||||||
| Share-based compensation | 17 | 133 | 130 | 412 | |||||||||
| Servicing commissions | - | - | - | 2 | |||||||||
| Amortization and impairment - property and equipment | 398 | 60 | 508 | 181 | |||||||||
| Amortization - deferred sales commissions | 145 | 191 | 447 | 569 | |||||||||
| Amortization and impairment - asset management contracts | 1,077 | 191 | 1,569 | 575 | |||||||||
| Interest | 122 | 197 | 522 | 353 | |||||||||
| 6,903 | 4,295 | 15,914 | 14,575 | ||||||||||
| Loss before merger, acquisition and other special project | |||||||||||||
| (recoveries) costs and income taxes | (4,032 | ) | (172 | ) | (6,005 | ) | (1,149 | ) | |||||
| Merger, acquisition and other special project (recoveries) costs | (210 | ) | 87 | 1,014 | 324 | ||||||||
| Loss before income taxes | (3,822 | ) | (259 | ) | (7,019 | ) | (1,473 | ) | |||||
| Income tax recovery | (377 | ) | (974 | ) | (1,304 | ) | (1,050 | ) | |||||
| (Loss) income from continuing operations | (3,445 | ) | 715 | (5,715 | ) | (423 | ) | ||||||
| Loss from discontinued operations, net of tax | (1,652 | ) | (322 | ) | (2,437 | ) | (1,250 | ) | ||||
| Net (loss) income | $ | (5,097 | ) | $ | 393 | $ | (8,152 | ) | $ | (1,673 | ) | |
| Basic loss per share from continuing operations (in $) | (0.07 | ) | 0.01 | (0.11 | ) | (0.01 | ) | |||||
| Basic loss per share from discontinued operations (in $) | (0.03 | ) | (0.01 | ) | (0.05 | ) | (0.03 | ) | ||||
| Diluted loss per share from continuing operations (in $) | (0.07 | ) | 0.01 | (0.11 | ) | (0.01 | ) | |||||
| Diluted loss per share from discontinued operations (in $) | (0.03 | ) | (0.01 | ) | (0.05 | ) | (0.03 | ) | ||||
| NON-GAAP MEASURES | ||||||||||||
| EBITDA(1) | (2,063 | ) | 513 | (3,843 | ) | 617 | ||||||
| Add non-recurring items, net(2) | (210 | ) | 87 | 1,014 | 324 | |||||||
| Recurring EBITDA(3) | (2,273 | ) | 600 | (2,829 | ) | 941 | ||||||
| Free Cash Flow (5) | (3,052 | ) | 993 | (3,922 | ) | 1,494 | ||||||
| Loss before taxes | (3,822 | ) | (259 | ) | (7,019 | ) | (1,473 | ) | ||||
| Add non-recurring items, net(2) | (210 | ) | 87 | 1,014 | 324 | |||||||
| Recurring loss before taxes(4) | (4,032 | ) | (172 | ) | (6,005 | ) | (1,149 | ) | ||||
| Dividends declared and paid | - | 717 | - | 2,120 | ||||||||
| As at | As at | As at | |
| September 30, 2013 | September 30, 2012 | December 31, 2012 | |
| (in $ thousands) | (in $ thousands) | (in $ thousands) | |
| $ | $ | $ | |
| Cash, cash equivalents and investments | 3,301 | 368 | 2,353 |
| Total assets | 7,516 | 28,390 | 25,439 |
| Total long-term liabilities | 5,349 | 10,325 | 9,689 |
| Total assets under management(6) | 300,000 | 1,100,000 | 1,100,000 |
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 MD&A for the third quarter 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 and net taxes (payable/refundable as filed)) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends.
(6) Assets under management or "AUM" means the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which fees are earned.
(7) During the third quarter of 2013 no dividends were declared or paid. Dividends are described in Matrix's MD&A for the third quarter posted on SEDAR.
The unaudited interim financial statements of the Company for third quarter 2013, including comparative data, have been prepared in accordance with the International Accounting Standard 34 - Interim Financial Reporting as issued by the International Accounting Standards Board and are the responsibility of the Company's management. The Company's independent auditor has not performed a review of these financial statements.
Liquidity and Capital Resources
As at September 30, 2013, Matrix had total assets of $7.5 million, a decrease of $17.9 million from $25.4 million at December 31, 2012. During the first nine months of 2013, current assets decreased by $3.2 million while long term assets decreased $14.7 million. Total liabilities of $13.8 million as at September 30, 2013 decreased by $10.3 million compared to $24.1 million as at December 31, 2012. Current liabilities decreased by $6.0 million while long term liabilities decreased by $4.3 million.
The Company requires capital for operating purposes, including funding current and long term liabilities and current and future operations. Subsidiaries of the Company registered under securities laws must also maintain minimum levels of working capital in order to meet regulatory requirements under securities laws. If these minimum working capital requirements are not maintained, these registrations may be revoked. As a result of the September 2013 financing, the Company believes that it has rectified its previously announced working capital deficiency but securities regulators have not finalized their review of the matter and any confirmation of that rectification is still pending. There can be no assurance that these subsidiaries will restore and maintain compliance with working capital requirements to the satisfaction of regulatory authorities and a failure to do so would have a material adverse effect on the Company's ability to operate and its financial position and future operating results.
Matrix's liquidity position and capital resources are dependent on cash flows from operations which in turn are dependent on AUM. Matrix's AUM is subject to a number of risks and uncertainties and has declined significantly with the result of the dispositions related to the SEAMARK Sale and the Marquest Transaction. Matrix's working capital position has also deteriorated significantly over the past two years. Failing to meet payment obligations, including in respect of secured indebtedness or failing to maintain compliance with working capital requirements under securities laws, may have a material adverse effect on Matrix's financial condition, operating results and ability to carry on business (see "Risk Factors" in the Company's MD&A for the third quarter and current Annual Information Form).
As at September 30, 2013, Matrix had a working capital deficiency of $3.2 million, comprised of $5.3 million current assets and $8.5 million in current liabilities. Matrix's retained earnings deficit as at September 30, 2013 was $(30.9) million and the net loss from continuing operations for the nine months then ended was $(5.7) million. Significant items contributing to the working capital deficit are: (1) $6.0 million in trades payable and accrued liabilities; (2) $1.2 million of employment related obligations, primarily non-recurring lump sum payments due during the next 12 months; (3) $0.6 million of payments on account of two term loan to related parties payable, in full with interest, upon 30-day notice; and (4) $0.6 million in operating lease related obligations.
The financial statements and MD&A were prepared on a going concern basis, which assumes that Matrix will continue to realize its assets and discharge its liabilities as they become due.
Management's cash flow forecasts indicate that the Company is expected to have resources available to continue to operate as a going concern, however the forecasts are based on a number of assumptions with respect to future cash flows and the Company's ability to discharge its current liabilities during 2013, including $0.6 million of payments to related parties. There can be no assurance that Matrix will re-structure or re-finance these debt obligations in a manner that will allow Matrix to continue to operate. Uncertainties surrounding these assumptions may cast significant doubt on the ability of Matrix to discharge its liabilities in the normal course of business and continue to operate as a going concern. See Note 1 "Organization and Continuing Operations" in the condensed interim consolidated financial statements and see Note 9 "Corporate Debt" in the condensed interim consolidated financial statements for a description of terms and security on corporate debt.
There is material uncertainty surrounding Matrix's ability to generate positive cash flows to generate savings from cost reduction programs (and as to the quantum of such savings), to re-pay, re-finance and/or re-structure debt obligations, to collect fund management fees and incentive participation dividends from managed funds with poor liquidity, to collect tax refunds and as to the outcome of regulatory reviews and filings and prospects for future transactions. See "Forward- Looking Statements". If the Company is unable to re-pay or re-finance its debt obligations, the obligations and associated security may be enforced, which would have a material adverse effect on the Company's business, financial position and operating results and the Company's ability to continue to operate. The auditor's report in respect of Matrix's consolidated financial statements for the year ended December 31, 2012 was unqualified, however did contain and Emphasis of Matter notation with respect to Matrix's working capital deficit as at December 31, 2012, net loss for the year and Matrix's ability to continue to operate as a going concern.
It is not possible to predict whether strategic options pursued by Matrix will result in sufficient improvements to Matrix's financial condition to allow Matrix to continue as a going concern. If the going concern assumption ceases to be appropriate, adjustments will be necessary to the carrying amounts and/or classification of Matrix's assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the consolidated financial statements. The condensed interim consolidated interim financial statements do not reflect any such adjustments and do not take into account events or conditions that arose, or transactions that completed, subsequent to September 30, 2013.
In addition to the funds raised by the September 2013 financing (see "Introduction" in the Company's MD&A for the third quarter), on August 7, 2012, the Board of Directors approved Matrix raising up to $2.0 million in debt through term loan arrangements, including with insiders of Matrix. During the third quarter of 2012, Matrix raised approximately $0.6 million under term loans advanced by the CEO of Matrix and a shareholder of Matrix. These two loans are evidenced by unsecured promissory notes that mature on the earlier of 30-day written notice by the lenders and the date of closing of a transaction by Matrix or any of its subsidiaries resulting in cash proceeds to Matrix of $7 million or more. The notes bear interest at a rate of 8.0% per annum, calculated and compounded monthly. These terms may be adjusted to match terms negotiated with additional third party lenders, although maturity dates may vary by lender. Subsequent to the third quarter of 2013, the lenders have agreed, for no additional consideration, to extend the maturity date to 30 days after written notice is given by the lenders demanding repayment (see "Events After the Reporting Period" in the Company's MD&A for the third quarter and current Annual Information Form). There can be no assurance as to the amount of capital that will be raised through these arrangements.
Matrix's third quarter 2013 financial statements and MD&A available on the SEDAR website at www.sedar.com.
About Matrix (www.matrixasset.ca)
Matrix Asset Management Inc. (TSX:MTA) a venture capital asset management company with offices across Canada. As at September 30, 2013, the Company managed approximately $0.3 billion in assets operated through GrowthWorks Capital Ltd., which manages funds in the venture capital sector.
Forward-Looking Statements
Certain statements in this press release are forward-looking statements based on beliefs, assumptions and expectations of the Company and not on historical fact. Forward-looking statements are provided for the purposes of assisting the reader in understanding the Company's financial position and results of operations and to present information about management's current expectations and plans related to future periods. Readers are cautioned against placing undue reliance on forward-looking statements and that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding Matrix's ability to continue to operate as a going concern and meet minimum working capital and other regulatory requirements, future operations, business, financial condition, AUM, financial results, expense reductions, tax refunds, dividends and dividend policies, proposed financings, re -payment, re-financing and/or re-structuring Matrix's financial obligations, managed venture capital fund divestments, prospects, opportunities, goals, strategies, accounting policies and estimates and outlook of the Company for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature or depend upon or refer to future events or conditions.
Forward-looking statements are based upon beliefs and assumptions of management that were applied in drawing a conclusion or making an estimate, forecast or projection as reflected in the forward-looking statements, including the perception of historical trends and current conditions and beliefs and assumptions with respect to levels of AUM and related assumptions as to levels of portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning prevailing and future economic and market conditions and the impact of such conditions and other factors on Matrix's AUM, managed portfolio performance and the trading price of Matrix shares, 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, the outcome of pending and future tax filings, the outcome of litigation, the outcome of disputes on the allocation of expenses between Canadian Fund, the status of pending transactions and proposed transactions and the expected benefits from and impact of transactions on Matrix's future operations, the ability of Matrix to re-pay, re-finance or re-structure financial obligations, including by way of future advances under the September 2013 Financing and maintain compliance with related contractual covenants, minimum working capital and other regulatory requirements and other laws, tax rates, the outcomes of regulatory compliance reviews, the ability of managed venture capital funds to generate liquidity, pay management fees and IPA revenues when due and satisfy secured payment obligations under financing arrangements, performance of managed venture capital investments relative to carrying values and performance fee return thresholds, the collection of trade receivables 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, these statements 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, regulatory and other risks associated with venture capital fund management sector generally, market, economic, political and other risks affecting portfolio performance, the trading price of Matrix shares, interest and foreign exchange rates, levels of managed fund sales and redemptions and in turn Matrix's AUM, risks associated with tax filings and litigation, other risks affecting revenues and earnings, regulatory and other risks associated with fund and asset management activities, completing proposed financings and targeted acquisitions, liquidity risks associated with low trading volumes for Matrix Common shares and/or Matrix's ability to maintain a stock exchange listing, managed venture capital fund divestments and liquidity levels, risks associated with non-performance of financial obligations, including secured obligations, integration and continuity risks affecting completed acquisitions, changes in consumer demand for the financial products offered by the Company, Matrix's ability to respond to competition and other risks and uncertainties listed under "Risk Factors" in the MD&A for the quarter ended September 30, 2013 and in Matrix's Annual Information Form dated March 30, 2013, which is available on SEDAR. Many of these risks are beyond the control of Matrix.
The assumptions and risks noted in this press release are not exhaustive of the factors that may affect any of the Company's business and the forward-looking statements in this press release. Readers should consider these and other risks, uncertainties and potential events carefully and should not place undue reliance on forward-looking statements. Other than as specifically required by law, the Company 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 new information, future unanticipated events or results or other factors.
Non-IFRS Financial Measures
"EBITDA", "recurring EBITDA", "Free Cash Flow", "recurring expenses", and "recurring income (loss) before taxes" are not measures recognized under International Financial Reporting Standards ("IFRS"). 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-IFRS measures do not have any standard meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non -IFRS measures are not alternatives to measures determined in accordance with IFRS and should not, on their own, be construed as indicators of performance, cash flows or profitability or measures of liquidity. These non-IFRS measures should only be read in conjunction with the financial statements of Matrix posted on SEDAR. For additional information regarding Matrix's use of non-IFRS measures, including reconciliations of these measures to the nearest IFRS measures, please refer to the "Non-IFRS Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.
Contact Information:
David Levi
President & CEO
(604) 895-7274 and (416) 934-7700
david.levi@matrixasset.ca
Matrix Asset Management Inc.
Clint Matthews
Chief Financial Officer
(604) 895-7251
clint.matthews@matrixasset.ca