VANCOUVER, BRITISH COLUMBIA--(Marketwired - Aug 9, 2013) - Matrix Asset Management Inc. (the "Company" or "Matrix") (MTA.TO) reported today its financial and operating results for the second quarter ended June 30, 2013.
A conference call to discuss the second quarter results is scheduled for August 9, 2013 at 9:00 a.m. Eastern Time. A link to view the web-cast is available at: http://www.matrixasset.ca/about/webcastsandpresentations.aspx.
As an alternative, you may connect via telephone to the presentation. The dial in number will be: 1-800-732-6870.
"Management's cost-cutting measures have reduced recurring expenses by $0.7 million compared to the same period last year and Matrix continues to review options for further expense reductions. Matrix is pleased to report the previously announced sale of the operating assets (excluding working capital) of its subsidiary, SEAMARK Asset Management Ltd. (renamed GrowthWorks Enterprises Ltd.) ("SEAMARK") was completed (the "Seamark Sale"). The previously announced agreement to sell 100% of the portfolio management, custodian and related contracts for the Matrix Funds to Marquest Asset Management Inc. ("Marquest") is scheduled to be completed by August 31, 2013 and is expected to help improve the Company's working capital position." said David Levi, President and CEO of Matrix.
Selected Second Quarter 2013 Highlights - Unaudited
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At the end of the second quarter, total AUM was $1.0 billion, compared to $1.1 billion as at March 31, 2013 and $1.1 billion as at June 30, 2012.
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Total revenue for the second quarter was $5.3 million compared to $6.4 million during the same period last year.
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Recurring expenses for the second quarter were $7.0 million compared to $7.7 million during the same period last year.
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EBITDA for the second quarter was $(1.6) million compared to $(0.3) million during the same period last year.
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Free cash flow for the first quarter was $(1.1) million compared to $(0.8) million during the same period last year.
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Working capital deficit improved over the quarter by $0.2 million to $(6.8) million. See "Liquidity and Capital Resources".
This release should be read in conjunction with Matrix's unaudited interim financial statements and Management Discussion & Analysis ("MD&A") for the second quarter ended June 30, 2013, which are available on the SEDAR website at www.sedar.com.
Subsequent Events:
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On July 12, 2013, the SEAMARK Sale completed. Under the Seamark Sale, the operating assets of SEAMARK's institutional and high net worth operating unit (excluding regulatory registrations and working capital) were sold to a newly formed company ("New SEAMARK") owned indirectly by Robert McKim, a former director and the former Chief Investment Officer of SEAMARK, and by Marquest, a party at arm's length to Matrix (see "Introduction" in the Company's MD&A for the second quarter).
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On July 19, 2013, the $4.0 million principal amount loan made by Matrix to GrowthWorks Canadian Fund Ltd. (the "Canadian Fund Loan") was repaid in full, with interest, as was the third party loan in the same principal amount and on the same terms that was secured by a related company of Matrix in order to fund the Canadian Fund Loan (see "Liquidity and Capital Resources - Continuing Operations" in the Company's MD&A for the second quarter).
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On August 8, 2013, the Company entered into a debt financing arrangement for up to $5.0 million of which $1.0 million was advanced at closing (the "August 2013 Financing"). Further tranches of $2.0 million each are exercisable at the option of the Company, subject to the satisfaction of certain conditions precedent in favour of the lender, including the sale of 100% of the portfolio management, custodian and related contracts for the Matrix Funds to Marquest (the "Marquest Transaction"), which is scheduled to complete before August 31, 2013. Further details about the terms of the debt financing are set out in a news release dated August 8, 2013 and in the Company's MD&A for the second quarter.
Corporate Overview
Matrix is a diversified, asset and wealth management company with offices across Canada. As at June 30, 2013, the Company managed approximately $1.0 billion in assets through three operating divisions:
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Institutional asset management, operated through SEAMARK, which offers portfolio management to institutional and high net worth private clients.
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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.
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Venture capital, operated through GrowthWorks, which manages funds in the venture capital sector.
On July 12, 2013, the institutional and high net worth operating assets of SEAMARK (excluding regulatory registrations and working capital) were sold to New SEAMARK. During the period, Matrix entered into a binding agreement to complete the Marquest Transaction. There can be no assurance that the transaction will complete on the terms proposed or at all (see "Introduction" in the Company's MD&A for the second quarter). The assets subject to these transactions represent approximately $0.7 billion of Matrix's $1.0 billion in assets under management as at June 30, 2013 and an estimated 33.1% of Matrix's consolidated revenues for the six months ending June 30, 2013. Upon completion of the Marquest Transaction, the Company would no longer manage any conventional mutual funds or flow-through investment funds and AUM would consist only of managed venture capital fund assets.
Summary of Second Quarter ended June 30, 2013 Financial Results - Unaudited
The following table sets out selected consolidated financial information about Matrix for the three and six months ended June 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 second quarter.
| For the three | For the three | For the six | For the six | |||||
| months ended | months ended | months ended | months ended | |||||
| June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||
| (in $ thousands) | (in $ thousands) | (in $ thousands) | (in $ thousands) | |||||
| Revenue | ||||||||
| Management and administration fees | $ 4,314 | $ 5,473 | $ 9,034 | $ 11,352 | ||||
| Additional administration fees | 223 | 313 | 493 | 656 | ||||
| Incentive participation revenues | 390 | 399 | 390 | 983 | ||||
| Interest income | 183 | 150 | 363 | 159 | ||||
| Other income | 141 | 102 | 248 | 194 | ||||
| Total Revenue | 5,251 | 6,437 | 10,528 | 13,344 | ||||
| Expenses | ||||||||
| Selling, general and administrative | 5,074 | 5,896 | 10,103 | 11,623 | ||||
| Share-based compensation | 56 | 135 | 113 | 279 | ||||
| Servicing commissions | 559 | 584 | 1,124 | 1,202 | ||||
| Amortization - property and equipment | 69 | 81 | 142 | 163 | ||||
| Amortization - deferred sales commissions | 438 | 513 | 874 | 1,004 | ||||
| Amortization and impairment - asset management contracts | 414 | 192 | 492 | 384 | ||||
| Interest | 370 | 269 | 711 | 456 | ||||
| 6,980 | 7,670 | 13,559 | 15,111 | |||||
| Loss before merger, acquisition and other special project costs | (1,729 | ) | (1,233 | ) | (3,031 | ) | (1,767 | ) |
| Merger, acquisition and other special project costs | 1,211 | 293 | (1,284 | ) | 375 | |||
| Loss before taxes | (2,940 | ) | (1,526 | ) | (4,315 | ) | (2,142 | ) |
| Income tax (recovery) expense | (1,165 | ) | 5 | (1,260 | ) | (76 | ) | |
| Net loss | $ (1,775 | ) | $ (1,531 | ) | $ (3,055 | ) | $ (2,066 | ) |
| Basic loss per share (in $) | (0.03 | ) | (0.03 | ) | (0.06 | ) | (0.05 | ) |
| Diluted loss per share (in $) | (0.03 | ) | (0.03 | ) | (0.06 | ) | (0.05 | ) |
| NON-GAAP MEASURES | ||||||||
| EBITDA(1) | (1,593 | ) | (336 | ) | (1,983 | ) | 144 | |
| Add non-recurring items, net(2) | 1,211 | 293 | 1,284 | 375 | ||||
| Recurring EBITDA(3) | (382 | ) | (43 | ) | (699 | ) | 519 | |
| Free Cash Flow (5) | (1,123 | ) | (777 | ) | (1,915 | ) | (432 | ) |
| Loss before taxes | (2,940 | ) | (1,526 | ) | (4,315 | ) | (2,142 | ) |
| Add non-recurring items, net(2) | 1,211 | 293 | 1,284 | 375 | ||||
| Recurring loss before taxes(4) | (1,729 | ) | (1,233 | ) | (3,031 | ) | (1,767 | ) |
| Dividends declared and paid | - | 1,386 | - | 1,403 | ||||
| As at | As at | As at | ||||
| June 30, 2013 | June 30, 2012 | December 31, 2012 | ||||
| (in $ thousands) | (in $ thousands) | (in $ thousands) | ||||
| Cash, cash equivalents and investments | $ | 1,222 | $ | 901 | $ | 2,353 |
| Total assets | 23,286 | 28,091 | 25,439 | |||
| Total long-term liabilities | 9,564 | 11,965 | 9,689 | |||
| Total assets under management(6) | 1,000,000 | 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 second 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 second quarter of 2013 no dividends were declared or paid. Dividends are described in Matrix's MD&A for the second quarter posted on SEDAR. |
The unaudited interim financial statements of the Company for second quarter 2013 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 June 30, 2013, Matrix had total assets of $23.3 million, a decrease of $2.2 million from $25.4 million at December 31, 2012. During the first six months of 2013, current assets decreased by $0.3 million while long term assets decreased $1.9 million. Total liabilities of $24.6 million as at June 30, 2013 increased by $0.4 million compared to $24.1 million as at December 31, 2012. Over the same period, current liabilities increased by $0.5 million while long term liabilities decreased by $0.1 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. In this respect, the Company's working capital deficit has caused levels of working capital in the Company's two registered subsidiaries, SEAMARK and GrowthWorks Capital Ltd., to fall below regulatory working capital requirements. Management believes that SEAMARK restored compliance with regulatory working capital requirements on closing of the SEAMARK Sale. 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 since the business combination with SEAMARK was completed. 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 second quarter and current Annual Information Form).
As at June 30, 2013, Matrix had a working capital deficit of $6.8 million, comprised of $8.2 million current assets and $15.0 million in current liabilities. Matrix's retained earnings deficit as at June 30, 2013 was $25.8 million and the net loss for the six months then ended was $3.1 million. Significant items contributing to the working capital deficit are: (1) $1.0 million of employment related obligations, primarily non-recurring lump sum payments due during the next 12 months; (2) $1.2 million of payments on account of a subordinated debenture due in October 2013 which debenture is expected to be assigned to Marquest on closing of the Marquest Transaction; (3) $1.0 million payment on account of the loan from Marquest that will be applied against the purchase price of payable by Marquest on closing of the Marquest Transaction (or if the transaction does not close, is due and payable on October 15, 2013) and (4) $0.6 million of internally-financed retail fund commissions paid to earn a future management fee revenue stream and which management aims to re-finance.
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 the closing of the Marquest Transaction, future cash flows and the Company's ability to re-structure or re-finance significant amounts of debt obligations payable during 2013, including by way of further advances under the August 2013 Financing and including the re-financing of $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 the timing and completion of the Marquest Transaction 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 the Seamark Sale, the Marquest Transaction, the August 2013 Financing and other possible 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 June 30, 2013.
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 October 31, 2013 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. In connection with the Marquest Transaction, Marquest advanced $1.0 million to Matrix to be repaid at closing of the transaction or October 15, 2013. The advance is secured by Matrix's shareholdings in a subsidiary. The $1.0 million advance was received on April 15, 2013, bringing the total amount advanced under the term loan arrangement to approximately $1.6 million. There can be no assurance as to the amount of capital that will be raised through these arrangements.
On May 18, 2012, a Matrix's subsidiary obtained a $4.0 million loan from a third party lender. The proceeds from the loan were used to fund the Canadian Fund Loan in order for the Canadian Fund to pay its operating expenses and complete follow-on investments. The terms of the Canadian Fund Loan match the terms of the loan from the third party lender (see Note 5 "Notes Receivable" and "Transactions with Related Parties" in the condensed interim consolidated financial statements). Both the Canadian Fund Loan and the third party loan were repaid in full, with interest, on July 19, 2013 (see "Events After the Reporting Period" in the condensed interim consolidated financial statements).
Matrix's second 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. (MTA.TO) is an asset management company with offices across Canada. As at June 30, 2013, the Company managed approximately $1.0 billion in assets through three operating divisions, with the institutional asset management operating division having since been sold to New SEAMARK. Upon completion of the previously announced transaction with Marquest, the Company assets under management would consist of managed venture capital fund assets.
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 and stock exchange listing 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, the Marquest Transaction, the availability of future advances under the August 2013 Financing and other transactions, expected benefits from the SEAMARK Sale and Marquest Transaction, 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, Matrix's ability to maintain a stock exchange listing, the outcome of pending and future tax filings, the outcome of litigation, 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 August 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 institutional, mutual fund and venture capital fund management sectors 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, the risk that conditions precedent to further advances under the August 2013 Financing may not be satisfied, 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 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 this MD&A 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.