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Good morning, ladies and gentlemen. Welcome to the GMP's Third Quarter 2020 Conference Call. I would now like to turn the meeting over to Mr. Rocco Colella, Managing Director, Investor Relations, GMP Capital Inc. Please go ahead, Mr. Colella.
Thank you, operator. Good morning, everyone. This is Rocco Colella, Head of Investor Relations at GMP. Welcome to our third quarter earnings conference call. If you have any questions following this call, please reach out to Investor Relations. My contact information can be found at the end of our earnings release. Before we get started, I would like to remind you that this call is being webcast and will be available for subsequent replay. Our remarks today may contain forward-looking information and actual results could differ materially. Forward-looking information is subject to many risks and uncertainties. Certain factors or assumptions applied in forward-looking information can be found in our latest AIF and MD&A. These documents are available on our website and on sedar.com. In addition, information related to Richardson GMP continues to come from Richardson GMP. On the call this morning is our President and CEO, Kish Kapoor; and our CFO, Ben Scholten. Kish will provide opening remarks relating to the recently completed transformative transaction involving Richardson GMP and other key takeaways from the most recent quarter. Ben will then cover third quarter financial results. Kish will then end with closing remarks, following which we will open the call to questions from analysts. I will now turn the call over to Kish.
Thanks, Rocco. Good morning, everyone. Thanks for joining us. A little over a year ago, we promised to transform GMP into a wealth management leader in the high net worth market. And on October 20, we made great strides to deliver on that promise. We consolidated 100% of the ownership in Richardson GMP under GMP and did so with the overwhelming support of our adviser partners and the talented employees that support them, who, together now own 31% of the company, are entrusted with the responsibility in managing $28.9 billion in assets for 32,000 high net worth clients across the country and are the key drivers of our ambitious growth strategy. Soon, to be renamed Richardson Wealth and Patrimoine Richardson in the anglophone and francophone markets, respectively, Richardson GMP has been recognized as one of the country's top 3 brokerage firms for 7 years in a row and just earlier this week, for the third consecutive year was named one of the great places to work. We have good reason to be bullish. We now have national presence, considerable operating leverage and an excellent reputation for serving the multigenerational wealth management needs of a growing number of high net worth families across Canada. Known for having amongst the best advisers in the country, a strong independent culture, we are well positioned to accelerate the pace of growth to create long-term value for shareholders by leveraging our balance sheet and association with the rich history of the Richardson brand to capitalize on the compelling opportunities in the dynamic, fast-expanding $4.4 trillion Wealth Management Industry in Canada. In a world where some are turning to machines for simple wealth management advice, we're proud to have chosen to be in the people serving people business, and in particular, chosen to be the destination of choice for an increasing number of high net worth families turning to independent, nonbank-owned firms for expert, trusted, face-to-face advice for complex wealth and life management needs from someone other than a machine. We're Canada's top investment advisers who share our entrepreneurial spirit, independent culture and philosophy to deliver unparalleled face-to-face advice and for providers of innovative solutions, including those that offer access to best-in-class technology and leading-edge alternative products and services to enable delivery of smart, comprehensive and highly personalized face-to-face advice. With a clear mission, we now have an excellent foundation from which to be bold, disruptive and ambitious attackers to spearhead growth in an industry where strong independent firms like us are thriving once again. Starting immediately, we intend to grow by investing in Richardson GMP's highly talented investment advisers and platform to better serve them and their needs and their clients; proactively and aggressively recruit top advisers across the country; exploring potential acquisition of like-minded high-quality wealth management businesses; adding complementary asset management and insurance capabilities through acquisitions or alliances; enhancing operating margins; and expanding, originating and offering greater choice of third-party products and services, including branded and co-branded solutions with industry-leading providers of funds, ETFs, alternatives, structured products, deposits, insurance, banking solutions and more. In the coming quarters, we intend to raise awareness of our new brand, promote the strength of our agile independent culture with recruits and acquisition targets, reinforce success at every level of the firm, seek input to enhance our platform to better serve our advisers and their clients and do everything we can to accelerate growth. And we will share our story with the investment community, broaden our shareholder base and work hard to increase analyst coverage. Finally, before I turn the call over to Ben to discuss the results this quarter, let me take a moment to personally thank Don Wright, David Ferguson and Julie Lassonde, members of the special committee, for their tireless effort and strong belief in getting the RGMP transaction done. Our advisers and employee partners who were ably represented by Mark Dalpé, Neil Bosch and Andrew Marsh for publicly lending their overwhelming support for the transaction. If I had time, I would list the names of every single person at our firm for they truly deserve all the credit for our success now and well into the future. Hartley Richardson, Sandy Riley, and Dave Brown of Richardson Financial Group for the significant concessions, strong belief and long-term commitment to our success, including allowing us to have the Richardson name on our door. Our valued clients across the country and loyal shareholders for their patience and overwhelming support for our transformation agenda this past year or so. And the countless others who work long hours to make this transaction happen. This strong community of interest amongst our stakeholders bodes well for our future. Over to you, Ben.
Thanks, Kish. Before I comment on this quarter's results, let me address the accounting treatment for Richardson GMP. Commencing with the fourth quarter of 2020, in accordance with IFRS, Richardson GMP will be accounted for using the acquisition method, which is a line-by-line consolidation. With that, let's jump to our third quarter results, where we reported a loss from continuing operations of $5.8 million this quarter, which was affected by several onetime after tax costs. These included $2.4 million in professional fees in connection with our contested AGM, $1.5 million in costs incurred in connection with the RGMP transaction and a $1 million loss relating to our proportionate share of Richardson GMP's results in connection with the accelerated vesting of restricted share units on the RGMP transaction. Excluding these onetime items, our loss from continuing operations was $900,000. And while on the topic of onetime costs, Richardson GMP's results this quarter were also affected by $3 million in connection with the accelerated vesting of RSUs. As mentioned earlier, our proportionate share of those costs was $1 million. Excluding this amount, our share of net income from associates would have gone from a current reported net loss of $0.4 million to a net income of $0.6 million. Our adjusted third quarter results from continuing operations were moderately better than expected, due in part to dividend revenue received in connection with our preferred share investment in Richardson GMP. With that, let me briefly comment on the results of our operating segments. Our carrying broker operations was again moderately profitable this quarter. This business continues to perform as expected as we continue to explore opportunities to enhance revenues, particularly in our stock borrowing and lending business and drive further operating efficiencies. At Richardson GMP, adjusted EBITDA was $11.8 million in third quarter 2020. Revenues of $67.4 million this quarter increased 1% compared with the same period a year ago, driven largely by a 4% increase in fee-based and commission revenue. This increase was partly offset by lower interest income amid a lower interest rate environment. Richardson GMP ended the quarter with nearly $29 billion in client assets, administered by 164 advisory teams, representing an average book size of approximately $176 million per team, one of the highest in the industry. Before I turn the call back to Kish, let me comment on our current substantial issuer bid and the RGMP recognition plan. Under the SIB, we will purchase up to 16.5 million common shares at $2.42 per share for an aggregate purchase price of approximately $40 million. The SIB is set to expire on November 18, 2020. And following the completion of the SIB, and assuming it is fully subscribed, RF Capital will have 159.4 million common shares outstanding. Concurrent with the RGMP transaction, the company will pay $32.9 million in cash during fourth quarter 2020 as part of the previously announced recognition plan. Commencing in the fourth quarter, the cost of this plan will be amortized evenly over a 36-month period. Lastly, I would like to thank everyone for their hard work and many late nights towards getting our transformational deal completed. It wasn't easy getting here, but your professionalism and dedication inspire confidence that we are on the right path forward, and we have the right teams in place to execute our aggressive growth strategy. Now I'll turn it over to Kish for closing remarks.
Thanks, Ben. While the journey to arrive where we are today was long, costly and far from easy, we're thrilled by the opportunity to finally focus on retaining, recruiting and supporting our advisers in serving an increasing number of high net worth families across Canada and creating a long-term value for all stakeholders in a highly competitive but growing industry. The timing to unlock value for all stakeholders is now. The strategic rationale is not in doubt, and demand for delivery of face-to-face advice is extremely compelling. This knowledge is what allowed Richardson GMP to be successful for the past decade and will continue to drive our success for generations to come. Please be well, and stay safe. I will now turn the call back to Rocco.
Thanks, Kish. That concludes our formal remarks this morning. Operator, we are now ready to open the call to questions from analysts.
[Operator Instructions] We have a question from Jeff Fenwick from Cormark Securities.
So Kish, I wanted to start off with the discussion around ramping up growth. That's clearly the focus now as you go forward. I thought maybe you could provide us with a bit of color about how you're tackling that out of the gates here with respect to, are you building your business development team? Do you already have a pipeline in place of advisory groups that you're speaking with? Any other color like that, that might help us get a sense of what's going on.
Sure, Jeff. And thanks, Jeff, by issuing your research coverage this past week. It's appreciated, and I think you covered our story exceptionally well. In terms of our strategy going forward, clearly, we have said both in our messages today, in the messages to our shareholders over the last year that we're focused on growing through recruiting and through acquisition of other IROC firms. And in order to be able to do that successfully, we have thought about developing. And in fact, we'll develop a corporate development team that is focused full-time on doing nothing but acquisitions and recruiting. So we do have presently a gentleman by the name of JP Jansen in Montreal, who looks after a big share of the market for us. We have Paul Landry in Calgary, who just joined us recently from a bank, also looking after Western Canada. We intend to recruit another person here in the province of Ontario that will look after this large market for us. And this group of people will be fully dedicated to doing nothing but recruiting. And their efforts will be augmented by Mike Ankers who heads up our national sales. He, together with some outstanding branch managers across the country, is going to work in collaboration to assist the corporate development team in recruiting and expanding our pipeline. They've been doing that historically really well. But now that we have completed the RGMP transaction, we're now focused exclusively on this business. We have a simple, clear story. I think the task at hand becomes easier in telling the story. And certainly, for people who have been thinking about joining us now don't have to worry about the uncertainty that we had to endure for the past several years. So Andrew Marsh, of course, has a very pivotal role in all of this. And I think all of us are starting to map that strategy out, and we'll be really clear by the end of the year on how we will target that market. In terms of your question, I'm just trying to think -- I lost my train of thoughts here. Rocco is helping me out. In terms of the pipeline, so we do have a number of people in the pipeline. I can't recall the exact amount, but I would say it's anywhere from 20 to 30 people in our pipeline. And that pipeline will continue to grow now as we start telling the story. But beginning of the year is when I expect we will have a very clear pipeline on all the people that have previously expressed an interest and are now reaching out to us. And of course, we have 164 advisory teams who are really well connected in the industry, who now, given that they own 31% of the company, they now know the direction and have made a strong commitment to be a part of this firm and this culture, are going to start referring other advisers to us. So, I think, we have a fairly captive audience focused exclusively on this effort.
Great. And I know you were expecting to have about $30 million in cash available to start you off to support this process. I know there were some added costs here with the proxy battle and, I guess, the closing of the transaction. Is that still roughly where you think you're going to end up in terms of available capital to start off with?
Yes.
Okay. And I guess along with -- sorry, go ahead, Kish.
And the only other thing that I'd add to is that as we think about our needs, obviously, we will continue -- the sources of -- the access to capital is not finite for us. There are a variety of banking facilities that we will access in order to make sure that we have all of the capital to take advantage of all the opportunities as they present themselves.
And I was getting my follow-up in terms of accessing potentially some debt to help you out here. I mean how do you think about leverage? When I think about your business, the cash flow stream is very generally pretty consistent and pretty robust, not a lot of CapEx. So would you be comfortable taking leverage levels higher if you felt that was appropriate to support your growth ambitions?
Absolutely, as long as it going towards funding either acquisitions or what I think recruiting is very accretive for us, we're effectively able to attract assets that we can buy cash flow or EBITDA at a multiple of about 3.5x, very, very accretive. And I think that will support getting access to capital that we need.
Mr. Colella, there are no further questions registered on the phone lines at this time.
Perfect. Thank you, operator. Well, thanks, everyone, for joining us today. As always, please feel free to reach out to Investor Relations after the call if you have any questions. Thank you very much. Have a good day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.