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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Welcome to the RF Capital Third Quarter 2023 Earnings Conference Call. I would now like to turn the meeting over to Mr. Tim Wilson, Chief Financial Officer. Please go ahead, Mr. Wilson.
Thank you. Good morning, and welcome to RF Capital's Third Quarter 2023 Earnings Call. I'd like to remind you that our remarks 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 the forward-looking information can be found in our latest AIF and MD&A. These documents are available on our website and at sedar.com.
Today, I am joined by our President and CEO, Kish Kapoor. Kish will share key takeaways from the quarter, and I will cover our detailed financial results and our financial outlook. Kish will then end with closing remarks, following which, we will open the call to questions from analysts. If you have questions once this call is complete, please reach out to Investor Relations. Our contact information can be found at the end of our earnings release. I'll now turn the call over to Kish.
Thank you, Tim. Good morning, everyone. Q3 marked the third anniversary since the formation of Richardson Wealth. While we've accomplished much in doing the hard work of transforming our platform, especially at such a rapid pace, we know our journey has not been without challenges and frustrations for our people and our shareholders. And we know that these feelings of doubts are compounded by ongoing market volatility, geopolitical tensions and macroeconomic trends impacting the financial services industry and the overall market.
That said, we're finding encouragement from employee engagement across our firm. We experienced a 78% participation rate in our most recent Great Place to Work survey held in Q3. A very positive indication of the culture of our firm. In fact, we've been recognized as a Great Place to Work for the sixth consecutive year.
Even with our advisors teams navigating the challenging transformation over the last year or 2, 80% of the survey respondents agreed that Richardson Wealth is a great place to work and 84% said they are proud to tell others they work here. I'm humbled to serve them. They are such an entrepreneurial and impressive group.
In the spirit of providing important recognition in securing these results, I would like to celebrate 1 person who has made an incredible impact on Richardson Wealth. Mike Ankers, our former SVP of Advisory Experience and Growth. In September, we announced internally that Mike was leaving to begin a new and well-deserved chapter in his life. October 31 was Mike's last day at Richardson Wealth. Mike's home is in London, Ontario, which is a 2-hour commute from downtown Toronto. For more than a decade, Mike packed up every Sunday night and said goodbye to his family to travel to his office in Toronto only to turn around and head home on Friday afternoon.
This was an exhausting routine and that we are happy for the Ankers family and sad for the Richardson family to say, has come to an end. This was a big decision that he and his family made, but it's the right move for them, and we are fully supportive of his decision.
Fortunately, for us, Mike helped develop a top-notch team, allowing us to elevate two Mike's direct reports into net new roles, Neil Bosch, the Manager of our Calgary office; and James King, the Manager of our Toronto office are now newly appointed regional leaders. This should be a natural transition for them given the exemplary leadership they've demonstrated over the years. With this smooth transition, especially during these uncertain times, we, especially Neil and James, have shifted our mindset to focus more on growth and on things we can control or influence. They, along with our branch managers are helping our advisors spend more time helping clients navigate short-term volatility and focus on the long term. And they're joining the rest of our talented people to do all they can to help enhance the experience for our advisors and their teams, including visiting our offices across the country to learn how we can best do that.
These efforts are showing up in our financial results. Our ending and adjusted AUA was up 3% as compared to last year and has remained consistent in 2023, ranging between $35 billion and $36 billion each quarter and just recently dropped to $34.4 billion as a result of market volatility. In Q3, the stability in our AUA resulted in $88 million in revenue, $17 million in adjusted EBITDA, $11 million in cash flow available for growth and free cash flow of $5.9 million, up $7.3 million from Q3 of last year.
These results included a $3.5 million benefit from mark-to-market recoveries on RSUs and DSUs. Our free cash flow generation improved largely due to no transformation or office build-out costs during the quarter compared to $11.6 million in the same period last year.
Now back to what we can control. We're taking the same advisors give their clients during all times, but especially during these challenging times, stick to the plan, our 3-pillar growth strategy, double down on support for advisors, tell a story to prospective recruits and invest in partner with like-minded companies through M&A. And we're doing just that. We're focused on organic growth and working with Fidelity Investments to continuously enhance those platforms based on the feedback from our advisors teams.
As for our second pillar, another thing we have more influence over, we're seeing momentum in recruiting. During the third quarter of 2023, we announced that Mark Antaya and his team, including Ryan Raven, join Richardson Wealth's Ottawa office. We have also had the pleasure of welcoming Anthony Zicha to our Montreal team. Subsequent to quarter end, we also welcome Kate Murdoch to our team. Kate was a 2020 finalist in the Top Under 40 award, and has joined Richardson Wealth's Victoria office.
During the quarter, our corporate development team also hosted promising due diligence meetings with advisors teams across the country. They extended offers to a number of these prospective advisors, and we believe many of them will be joining Richardson Wealth in the coming weeks and months.
And we've begun to turn our mind to the third pillar of our growth strategy, acquisition of similar businesses or partnerships that afford us additional capabilities in the wealth management industry. We have several opportunities we are evaluating a fit and long-term value creation, and we remain confident that we will find partners that are aligned with our views on value creation.
As you can tell from all of this, we believe the path to creating long-term value is to keep laser focused on executing our growth strategy, do all we can to earn the trust and loyalty of our advisors teams and gain share in a market that we believe is going to see now more than ever growing demand for face-to-face advice.
Before I hand the call over to Tim, I also want to note that on October 20, the final 30% of the RF Capital common shares subject to the original escrow were released. Of the release escrow shares, 1.5 million will be delivered to Richardson Financial Group Limited and it's wholly-owned affiliate and 1.4 million will be released to Richardson Wealth advisors and employees and other shareholders. With this release, the company's public float now represents 56% of its total common shares outstanding.
With that, I will now pass the call over to Tim.
Thank you, Kish. For the third quarter of 2023, RF Capital reported $88 million in revenue, a 2% increase over last year, which is consistent with the 3% growth in ending and average AUA over the same period. Looking at recent trends, AUA has been stable in 2023, ranging between about $35 billion and $36 billion with the movement tracking closely to that of the TSX. This has resulted in steady revenues across each quarter of the year. While recruiting has not contributed materially to AUA growth in recent quarters, we are gaining momentum as we shift our focus to driving growth in all areas of our business.
Turning to other components of revenue. Interest income was $12 million this quarter consistent with last year, and insurance revenue increased 55% to just over $3 million. The contribution from corporate finance revenue remains muted given the low levels of financing activity in 2023. It might surprise you that interest revenue has been declining in the face of rising rates. This dynamic has occurred because advisors have been proactively shifting their clients out of cash into higher-yielding near-cash products such as GIC. We earned interest revenue on pure cash but not on substitute products. We earned fees on those other products, but the overall yield per dollar of AUA is lower.
We reported $17 million of adjusted EBITDA in Q3 2023. There were no adjustments in the calculation of our adjusted EBITDA in the period as we are no longer incurring transformation costs. Adjusted EBITDA did, however, include approximately $3.5 million of mark-to-market recoveries on DSUs and RSUs. This contrast to $1.9 million of recoveries last quarter and $0.2 million last year. If you have had the chance to read our press release and the MD&A, you will also have seen that we introduced 2 new financial metrics this quarter, free cash flow available for growth and free cash flow.
Free cash flow available for growth is the cash flow that the company generates before any investments in growth or transformation initiatives. It is intended to give you an indication of the cash that we generate organically to fund our strategic plans. In the third quarter, we generated $11 million of cash flow available for growth, down from $12 million last year, primarily due to higher interest expense.
Free cash flow is the net cash flow that the company generates from its continuing operations after considering its recruitment, transformation and strategic initiatives, including office build-outs to accommodate our growth. We generated over $5.9 million of free cash flow in the quarter, an increase of $7.3 million from last year as we incurred lower cash outlays from new office build-outs.
Turning to our outlook. We are now expecting adjusted EBITDA to be down slightly in 2023 as compared to 2022. We were previously expecting adjusted EBITDA to be flat this year, but the TSX was down 4% in September and 3.4% in October, which will impact AUA, and corporate finance activity continues to be weak. Notwithstanding this change to our outlook on adjusted EBITDA, the company is still in a position to deliver $30 million to $35 million of cash flow for growth this year.
With that, I'll now pass the call back to Kish.
Before we open the call to questions, I want to reiterate my confidence in our business today. Our revenue and profitability remains stable, and we're generating cash flow to grow our business. More importantly, our company's culture is allowing the business to move in the right direction and our people, our greatest assets, are committed to our long-term success and our shared vision.
That concludes our remarks. Operator, please open the line for questions.
[Operator Instructions] And the first question is from Jeff Fenwick from Cormark Securities.
So Kish, good to hear some news about some new advisors teams joining. Maybe you can just speak to the composition of that pipeline today? I know it's grown to be fairly sizable. And the focus must be now, I guess, around closing on some of those rather than seeking to build it. But what's the environment looking like right now? And maybe put it in the context of the volatility you have been seeing in the market as well.
So our pipeline has grown. In fact, now I think it's probably closer to $30 billion today. And we're starting to see really good strong engagement with the people that have been in the pipeline for quite some time. They've always been waiting to see that our transformation journey was complete that we've got at least 6 to 7 months under our belt for implementation of some of the changes, investment at Fidelity and smoothing out some of the challenges through that. So I think they've seen that. What you will -- what I have seen and been involved in, in the last, say, 3 months or so is multiple advanced stage diligence meetings with the teams that are on that pipeline, with very promising indication of interest in joining us in the next several months here. We clearly don't like to announce things until the people actually land. We are confident that they will, but you just wait to hear for that.
And the activity, I would say, today, we've literally ramped up our team, our corporate development team headed by Natalie Bisset. There are 6 of them on that team are getting lots of inbound interest as well, and we are very engaged. I would say -- I think in June, I signal that was going to start now spending 80% of my time on growth-related initiatives relative to transformation-related initiatives. I'm doing exactly that, spending lots of time talking to both recruiting targets and acquisition targets. So I think in the coming quarters, we'll see some of those results or that effort turn out into good results.
Great. And I think encouraging to see on the back of your comments there that the transformation spend that's effectively done now, also noted the CapEx spend during the quarter stepped down quite a bit. And I believe you referenced less investment in facilities build-out. So what's the expectation there? Are there other locations that still need to be refurbished or new ones added? And does that CapEx step up? Or is this a reasonable proxy for what the run rate looks like today?
So I would say, and Tim can speak to this in a second, all of the big build-outs, the large ones are done substantially. But we do have a few locations where the leases are expiring, and then we're going to have to do something with those locations. And we are likely in a new location that we are expecting some recruits in the market that we're not in, looking to enter into lease agreements, but we don't expect a big CapEx with respect to those. Tim, do you want to add anything to that?
Yes. No, I'd say just the last comment I make, Jeff, is in response to your question, I think the Q3 CapEx level is a pretty good indication of our run rate. I would think for -- on an annual basis, we're in and around $8 million. So right where we were in Q3.
Okay. Great. And then encouraging to see some of the employee sort of the commentary or your surveys you're doing coming back positively there. Is there anything else you need to do in terms of just monitoring for advisors retainment? Are there any costs there around that? The shares [indiscernible] and some of the progressively the loans get forgiven. Is there anything there that you need to focus on or think about it to ensure that, that base remains stable?
Well, I mean, I would say to you that really from day 1, and that's October 2020, but even long before that, every single day that we get up, we will do everything we possibly can to have -- to earn the right for our advisors to carry on business here for the people to work here. That means that effort is relentless. It's ongoing. We've made massive investments to prepare and position ourselves for their success for the long term. And that's not stopping anytime soon.
We know that as we've introduced so many changes in technology over the last couple of years and probably the largest investment and largest transition of its kind. It came with challenges that we're working very closely with both investment and Fidelity to iron out all those challenges, to remediate those challenges. And I think that we have a fairly good road map to do those.
They are, I would think, sort of an incremental change that week after week there are changes. And hopefully, in the next several months, we will be in a very good position in that regard. And we'll have, I would say get to what I think is closer to a steady state. That's what we're trying to do, and that is just really providing an outstanding service to our advisors that we can possibly provide. That's what we're doing.
The next question is from Jim Byrne from Acumen Capital.
Just a couple for me. Just thinking about the Fidelity conversion and the anticipated savings that you were looking for. Where are you on that front? Are you seeing those come through now? I know the conversion has been a little more painful that I think than most anticipated, but I just wanted to get an idea of the savings and some of the EBITDA impacts from the Fidelity conversion?
Yes. Right, Jim. We are realizing the expected savings from the Fidelity conversion. We did a deep dive on that over the course of the summer, and we are right on target on original business plan, which was to generate $5 million to $6 million of annualized savings as compared to what it would have cost us to continue to run the operations in-house. So we're right on. Not necessarily visible in our run rate quarter-over-quarter, only because we started to realize those savings back about 1.5 years ago as we wound down our operations. So they blend more into our cost base over time, but they're definitely there. And we're really happy financially and strategically with the investment.
Okay. And then just looking on the insurance revenue line. I know you had a very large premium last year. Just wanted to get a sense of any initiatives there? How is the progress on the growth in that revenue line?
So what I love about the insurance side of the business is that one, it's additive to our whole philosophy of providing holistic advice across the household balance sheet and managing risk across the balance sheet. It's consistent with our brand promise. Our advisors, many of them -- I think a majority of them -- more than a majority of them are licensed to sell and introduce insurance, and they're starting to get engaged in that. So we've invested in a lots of education sessions. We've invested in a significant number of insurance specialists to assist our advisors in introducing insurance. And I see much of that activity is driven by introduction of financial plans, the volume of financial plans done by both our advisors teams and our specialists has increased dramatically year-over-year.
It is surface opportunities for insurance. The challenge with insurance, it's a long cycle, from start to finish. So we've got lots in the pipeline, if you will, in insurance. We think that we'll be able to achieve our objectives of revenue growth there just by seeing the activity and the engagement that's going on today. So very confident with that segment of the business. And I think it would be 8 carriers that we work directly with the insurance. We held a conference back in January. We developed strategies on introduction of creative ideas and solutions for our clients and our advisors. All of that is being rolled out. And I see very encouraging signs.
Okay. And then just lastly on the free cash flow and maybe the potential home for some of that free cash. I know you have NCIB place. You haven't really been active on it. Any thoughts of kind of restarting that share repurchase plan? Or how do you think of the home for some of that free cash?
Yes. We think about the capital allocation strategies pretty actively, looking at the different uses for it. At the moment, we believe that we've got higher return uses like capital we deploy it into things like recruiting. But we are still thinking about NCIBs and other options in the background, but I don't expect us to act on anything in the short term. It's more going to be about recruiting right now and the growth story. .
That's exactly right, Jim. And Jim, when I take a look at the activity that we're seeing in our pipeline on recruiting. And when I say in our pipeline, a, in the last year or so, as we were building in -- our transformation journey, building a strong foundation to digest the growth, we were also actively building that pipeline. So the top of the funnel in the pipeline grew significantly, but we were now focused on converting the bottom of the funnel. And lots of efforts going on in converting the bottom of the funnel, and I'm seeing very promising expressions of interest at the bottom of the funnel and therefore, the use of capital to be deployed towards that.
[Operator Instructions] There are no further questions registered at this time. I'd like to turn the call back over to Mr. Kapoor.
Thank you, everyone, for joining us today. As always, feel free to reach out to Investor Relations if you have any further questions. Have a great weekend until we speak again.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.