Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported
today its financial and operating results for the third quarter ended September
30, 2012 and announced that, subject to TSX approval, a stock dividend of $0.015
per share will be paid on December 20, 2012 to shareholders of record on
December 5, 2012. The dividend will be paid through the allotment and issuance
of additional Common shares in the capital of the Company (the "Dividend
Shares"). The Board of Directors remains hopeful that a cash dividend will be
reinstated in the future as initiatives aimed at growing assets under management
("AUM") are implemented and cost-cutting measures continue to reduce Matrix's
expenses.
Dividend Shares will be issued at a price equal to the volume weighted average
trading price of Matrix's Common shares over the ten trading days prior to the
dividend payment date (the "Issue Price"). Each shareholder's dividend
entitlement will be determined by multiplying the number of Common shares held
by the shareholder as at the record date by $0.015, dividing the cash value by
the Issue Price and rounding the resulting number of Common shares to the
nearest whole Common share (with more than one-half of a share being rounded
up).
Q3 2012 Highlights
-- The third quarter of 2012 saw AUM and corresponding fee-based revenues
continue at levels comparable to the second quarter. At the end of the
third quarter, total AUM was $1.1 billion, compared to $1.1 billion as
at June 30, 2012 and $1.9 billion as at September 30, 2011. Fee-based
revenues were $5.8 million for the third quarter compared to $6.0
million for the second quarter.
-- EBITDA for the third quarter was $0.8 million and $0.9 million year to
date, compared to $(0.4) million and $(2.8) million during the same
periods last year.
-- Recurring EBITDA for the third quarter was $0.8 million compared to
$(43) thousand during the second quarter and to $1.1 million during the
same period last year, and was $1.3 million year to date, compared to
$4.0 during to the same period last year.
-- Free cash flow for the third quarter was $0.9 million compared to ($0.7)
million during the same period last year, and $0.4 million year to date
compared to $(3.2) million during the same period last year,
representing a significant year to date increase of $3.6 million.
-- Total expenses are down $8.7 million or 28% on a year to date basis
compared to the prior year, and down $1.5 million or 18% relative to the
second quarter of 2012.
-- Recurring expenses decreased by approximately $2.3 million for the nine
months ended September 30, 2012 as compared to the prior year, and down
$1.2 million relative to the second quarter of 2012.
-- During the third quarter, Matrix Funds announced the filing of the
preliminary prospectus for the Matrix 2012 Enhanced Short Duration
National and Quebec Flow Through LP. The first closing occurred on
October 31, 2012, and gross proceeds raised were close to $20 million,
representing the largest amount raised in over 4 years for the LP
program. The Quebec units reached the maximum sales levels as set out in
the prospectus, representing the first time the Matrix flow-through LP
program announced a "Sold Out". Matrix Funds adopted a fee structure
that aligns its interest with unitholders by charging its management fee
on the final NAV of the LP when its assets are rolled over.
-- Matrix Funds' gross redemptions continued to decline during the previous
quarter, which had the lowest gross redemption amount in 9 years. Net
sales were almost flat during the third quarter, compared to net
redemptions of $9.1 million during the same period last year
Prior and Subsequent Events:
-- GrowthWorks Canadian Fund Ltd. ("Canadian Fund") has closed Class A
Share redemptions to preserve capital for follow-on investing and to pay
liabilities and operating commitments. The Canadian Fund is focused on
completing divestments from its venture portfolio. A number of the
fund's venture positions are subject to signed letters of intent for
exit transactions. A portion of the proceeds from these transactions
would be used to reduce the accrued management fees owing to Matrix.
While there can be no assurance that the transactions will complete as
scheduled or at all, management believes there is a high probability
that the transactions will be completed by the end of 2012.
-- On November 2, 2012, Working Opportunity Fund (EVCC) Ltd. ("WOF")
announced advanced negotiations towards a potential sale of one of the
WOF's largest portfolio positions at a significant increase to the WOF
Fund's carrying value. Management believes the potential gain on the
sale of this portfolio company could result in an increase of greater
than 20% in the WOF's Venture Series share values. A resulting increase
in NAV may increase NAV-based fees paid to the manager of WOF. There can
be no assurance that the transaction will complete as contemplated.
David Levi, President and CEO of Matrix, commented: "The past quarters were
challenging and returning to profitability is a priority for management.
Important progress was achieved on reducing expenses and implementing organic
growth initiatives. Cost saving measures initiated last year have started to
take hold and we expect to realize additional expense reductions as we continue
to implement cost-cutting measures. We are pleased with the results of Matrix
Funds, which are showing organic growth following our recent initiatives. Also,
during the quarter we raised short term capital towards financing the working
capital deficit and we are continuing to pursue longer term capital raising
initiatives to reduce the deficit."
Corporate Overview
Matrix is a diversified asset and wealth management company with offices across
Canada. The Company manages approximately $1.1 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, operated through Matrix Funds Management (a division of
GrowthWorks Capital Ltd.), which manages the Matrix family of mutual
funds and specialty funds (formerly Mavrix Funds and SEAMARK Mutual
Funds) and distributed through investment dealers and financial planners
across Canada.
-- Venture capital, operated through GrowthWorks, which manages funds in
the venture capital sector.
This diversified set of operations delivers multiple sources of revenue across
several asset and client groups. 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. With five offices located in major and
regional centres across Canada, Matrix has a true national investment presence.
Summary of Third Quarter Financial Results - Unaudited
Results of operations for Matrix for the third quarter consolidate the results
of Matrix and its subsidiaries. Matrix reports its consolidated 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 nine months ended September 30, 2012 compared
with financial information for Matrix for the same periods in 2011.
For the For the For the For the
three three nine nine
months months months months
ended ended ended ended
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
(in $ (in $ (in $ (in $
thousands) thousands) thousands) thousands)
----------------------------------------------------------------------------
Revenue
Management and administration
fees $ 5,205 $ 6,503 $ 16,557 $ 20,685
Additional administration fees 296 352 952 1,076
Incentive participation
dividends 144 265 1,127 1,533
Interest income 187 1 346 26
Other income 99 185 293 723
----------------------------------------------------------------------------
Total Revenue 5,931 7,306 19,275 24,043
Expenses
Selling, general and
administrative 4,563 5,630 16,186 19,733
Share-based compensation 133 154 412 382
Servicing commissions 578 631 1,780 2,048
Amortization - property and
equipment 83 82 246 224
Amortization - deferred sales
commissions 528 592 1,532 1,799
Amortization - asset
management contracts 191 287 575 861
Interest 436 192 892 624
----------------------------------------------------------------------------
6,512 7,568 21,623 25,671
----------------------------------------------------------------------------
Loss before merger, acquisition
and other special project costs (581) (262) (2,348) (1,628)
----------------------------------------------------------------------------
Merger, acquisition and other
special project costs - 1,431 375 5,024
----------------------------------------------------------------------------
Loss before taxes (581) (1,693) (2,723) (6,652)
Income tax expense (recovery) (974) (1,631) (1,050) (5,532)
----------------------------------------------------------------------------
Net Income (Loss) $ 393 $ (62) $ (1,673) $ (1,120)
Basic loss per share (in $) 0.01 - (0.03) (0.03)
Diluted loss per share (in $) 0.01 - (0.03) (0.03)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NON-GAAP MEASURES
--------------------------------
EBITDA(1) 790 (386) 934 (2,762)
Add non-recurring items, net(2) - 1,529 375 6,772
----------------------------------------------------------------------------
Recurring EBITDA(3) 790 1,143 1,309 4,010
Free Cash Flow(5) 876 (685) 444 (3,185)
Loss before taxes (581) (1,693) (2,723) (6,652)
Add non-recurring items, net(2) - 1,529 375 6,772
----------------------------------------------------------------------------
Recurring (loss) income before
taxes(4) (581) (164) (2,348) 120
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dividends declared and paid 717 716 2,120 2,140
As at As at As at
September 30, 2012 September 30, 2011 December 31, 2011
(in $ thousands) (in $ thousands) (in $ thousands)
----------------------------------------------------------------------------
Cash, cash
equivalents and
investments $ 368 $ 2,047 $ 1,767
Total assets 28,390 35,036 28,133
Total long-term
liabilities 10,325 8,236 11,799
Total assets under
management(6) 1,100,000 1,900,000 1,600,000
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 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.
The accompanying unaudited interim financial statements of the Company 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.
Matrix Asset Management's auditor will perform an audit of the December 31, 2012
Consolidated Financial Statements.
Liquidity and Capital Resources
As at September 30, 2012, Matrix had a working capital deficit of $4.1 million,
which is slightly improved from the working capital deficit at the end of the
second quarter of $4.5 million. Total current liabilities of $13.5 million are
scheduled for repayment over the next 10 months, including a payment on account
of a subordinated debenture of $1.2 million in July 2013.
The more significant changes in the Company's financial position reported during
the year to date result primarily from a $4.0 million third party loan financing
to Matrix, the proceeds of which were used to fund a loan in the same amount to
Canadian Fund ("the Canadian Fund Loan") to support Canadian Fund's liquidity.
The repayment, interest and other terms of these two loans are the same.
Current liabilities have increased to $4.0 million as at September 30, 2012. The
primary factors contributing to the increase are $2.0 million payable on account
of the Canadian Fund Loan ($1.0 million plus accrued interest on each of January
31, 2013 and July 31, 2013) and $1.2 million payable in July 2013 under a
subordinated debenture. The Canadian Fund Loan is secured by a charge over the
present and after-acquired assets of a Matrix subsidiary and a guarantee from
Matrix. Similarly, the subordinated debenture is secured by the assets of the
Matrix subsidiary that originally borrowed the funds and by guarantees from two
other Matrix subsidiaries. Matrix is working with the Canadian Fund to reduce
and over time eliminate levels of accrued management fees owed by the fund,
which will ease liquidity pressures on Matrix.
Additional capital resources will be required to meet Matrix's financial needs
for the next 12 months, which includes funds required to service and re-pay
debt, and to fund operations. The continuation of Matrix as going concern is
dependent on increased revenues and raising, from external sources, sufficient
working capital to maintain operations and pay current liabilities as they come
due.
As organic growth initiatives and cost alignment measures typically require
several quarters to impact AUM and operating results, Matrix is seeking medium
term working capital financing to provide further time for these initiatives and
measures to take hold. To that end, on August 7, 2012, the Board of Directors
approved Matrix raising up to $2.0 million in debt through term loan
arrangements of which approximately $0.6 million was raised during the third
quarter under term loans advanced by both the CEO of Matrix and a (31%)
shareholder of Matrix. Matrix may also seek financing from external sources to
pursue growth opportunities.
The financial statements and MD&A for the third quarter were prepared assuming
Matrix would continue as a going concern, realize on its assets and discharge
its obligations in the ordinary course of business. The continuation of the
Company as a going concern is dependent on restoring positive net income,
working capital, cash flows, and obtaining additional financing, while
continuing to make timely interest payments and meet its debt covenants under
existing financing arrangements.
Returning to profitability is a priority for management. There are two key
elements to management's plan for doing so. First, to grow fee-generating AUM
with existing internal resources, including sales and marketing initiatives and
positive portfolio performance. Secondly, to pursue larger growth opportunities
through acquisitions after obtaining necessary external financing in the form of
equity or debt or both.
Matrix's third quarter 2012 financial statements and MD&A and year end 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 $1.1 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 and profitability, expense reductions, future
dividends and dividend policies, proposed financings, performance, potential
acquisitions, material divestments from managed venture capital portfolios,
levels of management fee accruals owed to Matrix by managed venture capital
funds, prospects, opportunities, new products, priorities, goals, strategies,
accounting policies 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
and expenses 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, 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 ability of managed venture capital funds to complete divestments
and pay management fees, tax rates and laws, performance of managed venture
capital investments relative to 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 to it, 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, 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, other risks affecting revenues and
earnings, regulatory and other risks associated with completing proposed
financings, divestments by managed venture capital funds, potential acquisitions
and other strategic transactions and introducing new products, integration and
continuity risks affecting completed acquisitions, changes in consumer demand
for financial products and the ability of Matrix to respond to such changes and
other risks and uncertainties listed under "Risk Factors" in the MD&A for the
quarter ended September 30, 2012 and in Matrix's Annual Information Form dated
March 30, 2012, which are available on SEDAR. 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 other factors.
Non-IFRS Measures
"EBITDA", "recurring EBITDA", "Free Cash Flow" 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 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Matrix Asset Management Inc.
David Levi
President & CEO
(604) 895-7274 and (416) 934-7700
david.levi@matrixasset.ca
Matrix Asset Management Inc.
Isabelle Gervasio
Vice President, Investor Relations & Business Development
Toll Free: (514) 227-0666 ext. 3222
isabelle.gervasio@matrixasset.ca
www.matrixasset.ca
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