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Good morning, ladies and gentlemen. Welcome to the RF Capital's Fourth Quarter and Year-End 2020 conference Call. I would like now to turn the meeting over to Mr. Rocco Colella, Managing Director, Investor Relations. Please go ahead, Mr. Colella.
Thank you, operator. Good morning, everyone. This is Rocco Colella, Head of Investor Relations at RF Capital. Welcome to our fourth quarter and year-end 2020 earnings conference call. If you have questions following this call, please reach out to Investor Relations. Please see my contact information at the end of our earnings release. Before we get started, I would like to remind you that this call is being webcast and available for subsequent replay. Today's 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. Both documents are available on our website at sedar.com. This morning on the call is our President and CEO, Kish Kapoor; and our CFO, Ben Scholten. Kish will provide opening remarks related to the recently completed transformative transaction involving Richardson Wealth and other key takeaways from the most recent quarter. Ben will then cover the fourth quarter and year-end financial results. Kish will end with closing remarks, following which we will open the call to questions from analysts. I will now turn over the call to Kish.
Thanks, Rocco. Good morning, everyone. Thanks for joining us. The last few years have been truly transformative for our company. We promised change and change we did, even in the midst of a global health pandemic. Over the past 2 years, we exited the capital markets business, we concluded the consolidation of the ownership of Richardson Wealth and focused all our attention and resources on supporting our advisers and their clients across Canada. We returned $79 million to our shareholders by way of dividends and a $40 million buyback of our shares. We entered into $36 million in recognition agreements with Richardson Wealth's talented advisers who now just -- who now own just under 31% of our company. We inspired Richardson Financial Group to leave $75 million that they would have otherwise been entitled to on closing of the RGMP transaction in our business to support our ambitious growth initiatives. And we secured the right to use the Richardson name to promote our corporate brand across Canada. We have many to thank for this extraordinary outcome, especially our 160 advisory teams, which is down from 162 at the end of the year -- at the end of last year following the consolidation of 2 internal teams in early 2021; our 800 employees; and a growing base of clients who never wavered in their support; and our shareholders who voted overwhelmingly in favor of this transformative change in our business. Early results show we are off to a good start. As of last Friday, our 160 advisory teams managed $31.4 billion for 31,000 clients across Canada. This is a new record for client assets at Richardson Wealth. And it is $2.9 billion higher than we started the transformation at the beginning of 2019. Adjusting for advisers that left us during this period, in other words, looking at the asset growth attributable to only 2 advisers who stayed with us or joined us over the last 2 years, the growth we achieved is even more impressive. On that measure alone, assets were up by $6.2 billion. And more recently, growth over the past 5 months since the acquisition in assets from advisers who chose to stay or join Richardson Wealth over that period were up $3.6 billion, recruited and new assets accounting for $1 billion of that increase with the remainder attributable to the strong market performance. All these factors highlight why we believe after a difficult multiyear journey to transform the business, we have positioned the company for long-term success in the dynamic, fast-expanding wealth management industry in Canada. If we get just a small share of the expected growth from $4.4 trillion today to the $7.8 trillion in 2028, we can grow our business several fold. We intend to do that by growing our existing client base, attracting new advisers and their clients and by acquiring like-minded firms. Work on that front has already started. Management and the Board, with considerable input from our investment advisory teams across Canada and the support of a global consulting firm with deep expertise in wealth management, we have begun to thoughtfully map out an ambitious growth strategy. It will leverage the firm's national platform, scale, best-in-class advisers and breadth of wealth management solutions to gain a greater share of wallet in the lucrative wealth management market. The strategy will exercise -- the strategy will encompass validating our view of the external market and our capabilities, laying out the desired end state vision and value proposition to our advisers and their clients and developing a multiyear execution road map. We intend to complete the review by the second quarter of 2021 and communicate the key elements of our plan to our shareholders and, in fact, everyone in the firm by midyear. To help with the successful execution of our growth agenda, we've added high-caliber talent to our Board and our senior leadership team. Joining the Board over the past several months, are independent directors, David Leith and Nathalie Bernier. David brings over 25 years of investment banking depth, including significant mergers and acquisition expertise. He was most recently head of a large Canadian financial institutions' investment and corporate banking division. David is an accomplished executive and a highly respected and experienced corporate director. Nathalie is a seasoned executive with extensive experience transforming businesses and implementing innovative growth strategies. As former CFO of the public sector pension investment board, she led the transformation of that firm's 5-year strategy, which resulted in a 50% increase in net assets under management between 2019 and -- 2015 and 2019. And more recently, we announced that Tim Wilson will be joining our management team as Chief Financial Officer, effective April 5, 2021. Tim has a proven track record of delivering profitable growth and improving operational performance. We are thrilled by the impact they're already having in our business and look forward to introducing them to you at our upcoming AGM. Other highlights that Richardson Wealth include: First, the Wealth Management reported recording -- sorry, the Wealth Management segment reported record recurring fee-based investment management income in the fourth quarter and full year 2020. Second, Richardson Wealth was named a Great Place to Work for the third consecutive year, with 94% of advisers indicating they're proud to tell others they work at the company. Further, 95% of advisers at Richardson Wealth is a diverse and inclusive workplace. Third, Joseph Bakish in our Pointe Claire office in Quebec was named the Investment Industry Association in Canada's top 40 -- top under 40 award recipients. Fourth, several of our advisers were recognized by another wealth management publication as one of Canada's top 50 advisers. We had 5 recipients, the third most of any firm in Canada and more than any bank-owned firm. Joseph Bakish, Marc Dalpé, Alexandra Horwood, Ida Khajadourian and Kyle Richie. Fifth, we entered into strategic alliances with 2 of Canada's leading independent firms, Cormark Securities in June last year, and healthcare specialist Bloom & Burton just last month. These alliances will help expand an already broad shelf of wealth solutions by providing advisers and their clients preferred access to research investment ideas, new issues, investment funds and other investor events. The power of these strategic relationships is evidenced by a six-fold increase in the dollar value participation in the deals led by Cormark, a substantial increase in the number of transactions introduced to our firm by Cormark, access to research on over 280 companies and their recent addition of real estate capabilities in response to demand from our advisers. And finally, in preparing for an exciting new future, we're moving into soon to be constructed modern premises on Toronto's waterfront in 2023. This new building will meet the high standards in environmental sustainability, and its design will support collaboration, connection and idea exchange, which best represents the future of work. These successes and milestones bode well for our wealth management business in 2021 and beyond. Before I turn the floor over to Ben, I would like to acknowledge and thank him for assuming the interim CFO role. This will be Ben's last conference call as CFO as he transitions the role to Tim over the coming months. Thank you, Ben. Over to you now.
Thanks, Kish. Before I dive into the results, I want to highlight that Q4 and 2020 were periods of transformation and not reflective of our operating potential going forward. They include costs and other one-off items incurred to conclude our transformational wealth transaction. Further, under IFRS, our financial performance only consolidates the financial results of Richardson Wealth since our acquisition of the business on October 20. We reported net income from continuing operations of $40 million in the fourth quarter of 2020 and net income of $29.4 million for the full year 2020. Diluted earnings per share were $0.52 in Q4 and $0.26 for the full year. The following onetime numbers impacted our Q4 and 2020 results. A $45.7 million accounting gain on investment in associate recorded in Q4 on completion of the Richardson Wealth transaction. $1.2 million of acquisition-related costs incurred in Q4 and $6.7 million incurred for full year 2020. And $2.6 million pretax and amortization of acquired intangibles recorded in Q4. It is worth noting that under IFRS, these intangible assets will be amortized on a straight-line basis over their useful life, adding approximately $13 million pretax, $9.5 million after-tax in annual amortization expense. And Richardson Wealth also incurred $4.1 million and $7.1 million in Q4 and 2020, respectively, in onetime costs prior to its consolidation with our proportionate share of those costs, $1.4 million in Q4 and $2.4 million in 2020. These costs were related to the accelerated vesting of RSUs in connection with the Richardson Wealth transaction and retention payments provided in shares rather than loans made largely under the recognition plan. These costs reduced our share of income from associates in their respective periods. Let me now briefly comment on Richardson Wealth's stand-alone results for the full year 2020, noting that our consolidated results only reflect their results commencing October 20. At Richardson Wealth, adjusted EBITDA was $43.5 million in 2020. This was down from $50.3 million in 2019, largely due to lower interest income on cash balances, which decreased sharply following the 150 basis point decrease in the prime rate in March 2020. Revenues were $268 million in 2020, including record investment management and fee income of $208 million. This recurring and stable fee-based income represented 78% of total 2020 revenue. AUA grew by $1.7 billion to $30.3 billion in 2020, increasing 6% for 2019 and at a record high last month, up $1.1 billion to start the year. The path to arrive where we are today has certainly not been a straight line. It has involved everyone working together toward a common goal, united by a special culture that differentiates our firm. Let's now turn briefly to working capital. At the end of 2020, net working capital stood at $88 million. This is after the $40 million substantial issuer bid, $33 million in retention payments, $2 million in preferred dividends and $1.2 million in acquisition-related costs. We intend to deploy this amount to support and accelerate our growth initiatives. Richardson Wealth's strong financial performance, record fee income and, more recently, record AUA, when combined with a strong balance sheet, evidences that we have a solid foundation from which to be an ambitious attacker to drive profitable growth. Thank you to all my colleagues for your hard work and commitment to ensuring we are prepared for what promises to be a bright future. Now I'll turn it over to Kish for closing remarks.
Thanks, Ben. Before my closing remarks, I want to take the opportunity to thank Andrew Marsh, Richardson Wealth's CEO; and Elliot Muchnik, Richardson Wealth's CFO, for their outstanding service. Both will be leaving the firm later this month. After 17 years at the firm, including 11 as CEO, Andrew decided to step away from day-to-day operations to move to the owner's box. Among his many accomplishments, Andrew grew AUA from $11 billion to just over $31 billion and oversaw several transactions, including assisting me in consolidating Richardson Wealth under the public company. Andrew has agreed to stay on in a consulting role for the next 2 years, serving as an ambassador for Richardson Wealth. He also remains a significant and incredibly supportive shareholder. Elliot has been Richardson Wealth's CFO for the past 14 years. He built a strong finance organization, a strong team, always guided by -- and has always guided the firm to multiple transactions. We respect both Andrew and Elliot's personal decisions. On behalf of the entire company, I thank Andrew and Elliot for their significant contributions to making Richardson Wealth, the leader it is today, including being strong advocates for the firm's adviser-centric culture, commitment to provide exceptional client experience and promoting a work environment that has consistently ranked the company as a great place to work. We intend to build on all these trends to unlock our full potential and are confident that our results in the coming quarters, not just our words, will inspire confidence in clients, advisers, shareholders and others who we hope to attract to the firm. The Richardson's name on the door signals a return to an era when the name on the door mattered and the connection with its founder was a powerful draw for wealthy families and advisers alike. Independent wealth managers are enjoying a renaissance of sorts across Canada, and we believe our firm with a proven brand, scale and a national platform is well positioned to capture a greater share of this lucrative market. So stay tuned for more to come. Please continue to 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.
[Operator Instructions] First question is from Jeff Fenwick from Cormark Securities.
So Kish, obviously, a very busy time, continues to be busy for you as you start the year here and appreciate the commentary on reaching a broader strategic plan in the coming months. Maybe just in the short term, what are some of the priorities you have? I mean, clearly, there's been some additions into the executive team and a bit of changeover happening there. Maybe give us a bit of color on how that's going? What the status is there? And maybe some other areas you might be focusing on such as marketing?
Right. So I mean, first of all, thank you for the questions. The consulting program or the consulting contract that we have with this international consulting firm will be completed by sometime at the end of this month, somewhere around March 20 to 25. And we hope to announce the results of that plan and direction at our AGM, which will be sometime early in the spring. I think it's scheduled right now for April 29. So that's when we will roll out the message externally and internally as to what our 1-year and 5-year plans are. And in fact, that will detail out all of our key priorities. As to what we've been working on, we've canvassed the input of all our advisers across the country over the last several months. They have engaged in discussions with the consulting firm. They provide the input to our Board of Directors. We have been reaching out to external players to gather insights and data as to how to position our company for success. We've been actively engaged in talking to people who are recruits or advisers at other firms who would now like to join us, given the uncertainty is behind us. So that is an active engagement today and a very much a priority in telling that story. We have started reaching out to some targets that we think are like-minded firms that would be great additions to our capital, and these are very early-stage discussions. So more to come on that in the next several quarters. And in terms of our priorities other than having added David Leith and Nathalie Bernier to our Board, we have been working on Tim. Of course, Tim Wilson has now joined our team. He starts April 5, coming to us from EQ Bank, where he was at -- there for 9 years, and a tremendous track record there. We are looking at now consolidating our companies. We have a public company and a clearing broker, introducing broker into one functional management team. That functional management team and how it will look and feel to both the internal audience and external audience, we will announce that by the end of March. I'm actually very close to that decision. And some of the other things that we're working on, we're working with a -- aside from our very strong relationship with Bloom Burton now and Cormark, have very active engagement with our advisers and our clients receiving both an introduction to new opportunities in the new issue market, access to research. We are partnering with other firms that -- at least starting the discussions with firms that have deep, deep expertise in the insurance area. That relationship probably will take us another 2 months to cement. And when we do, we think that we'll be able to expand what we provide to our high network clients. We are also working with a firm that is going to give us access to effectively a digital universe, which has 3.2 million people in that digital universe that wants to engage in conversations about wealth management activities with our advisers, gives us an opportunity to get, at least certainly for our advisers prospective new clients. We also think that, that is an ideal forum for us to start marketing our brand and telling our story. So there's a variety of things. So I've sort of listed a short for you. But I think at our AGM, we will have a fairly comprehensive view of all of our work streams to now go out and aggressively pursue and implement our strategy.
Great. That's great color. And then, obviously, a nice story here has been the growth in the AUA, as you've highlighted. And I guess, in part here, helped that a bit by what's been happening in the market. Can you offer up any color here in terms of what you're hearing or seeing from clients? Are you seeing some incremental client inflows versus the benefit from the markets rising? Any sort of color you could offer there?
I think like we mentioned in our comments for the last 5 months, the portfolios have grown by $3.6 billion. And a big part of that was market, but there was also $1 billion of new recruits and new assets that came in through that 5-month period. So that's very strong activity, supported by engagement by our clients and our advisers, but also by the market. So good strong momentum, and I would say to you that we have been very active in the -- obviously, the markets have been very strong. So we've had tremendous new issue activity in both January and February, and we're participating in all that.
Great. And then, I guess, from a financial capacity perspective, I think the net working capital was $88 million in the quarter. You had previously articulated the cash available to deploy and do investments in the firm, either acquisitive or in building out your platform. Are you able to provide that number? And then maybe speak about the ability to layer on some incremental debt if you wanted to?
Yes, I'll take that one, Jeff. So we do need working capital in our carrying broker business. And we think we can run that at about $40 million of working capital. So there is then $48 million remaining to deploy. In respect of -- we are looking -- we do have a $67 million facility in Richardson Wealth, and we are looking at moving that up into a public entity and out of that regulated entity. And we may very well add on to that as well to provide us additional capital.
Yes. And I think that -- just adding to that. Present mindset is to look to add another $40 million to our debt facility there. And mostly, that debt facility will be used specifically for recruiting in acquisition activities. And some of which, I think, may be deployed towards investment in our platform, which I think is a very important thing. But we think we have enough resources here to invest in our platform. For example, something that is critically important to our advisers is an investment in our portfolio management platform. We announced a decision that we will engage in that initiative. It's an 18-month initiative. It will cost us about $6 million to $7 million, and we committed resources to that. And there's a number of other things that they've highlighted for us, but we think we have adequate resources to continue to, in fact, prioritize investment in our platform.
Great. And then maybe a few more accounting focused ones here. Ben, maybe just help me with the advisers incentives that were part of the transaction, the $36 million there, how does that get accounted for? Is it tucked somewhere on your balance sheet today? Or how should we sort of think about where that sits in the business?
Yes, sure. So there was $36 million of retention awards provided. Approximately about $3 million of that, Jeff, was provided in shares, and that's part of the accelerated expense that was taken prior to the deal closing. So there's about $33 million leftover, and that is sitting in our adviser loans and will be amortized over the next 3 years on a straight-line basis.
Okay. That's helpful. And then the other question here, I appreciate the pro forma -- or sorry, the supplemental information on the wealth manager that you put in your press release there. I guess the one thing I'm trying to understand out of that is, I believe, in those supplemental details. In that expense bucket, there was some expense associated with the clearing, which now would be an intercorporate and get eliminated. So in the numbers you gave there in that supplemental, would that still include say, a couple of million bucks of clearing-related expense that might fall away from that segment?
Yes. So actually, the way that it will work, Jeff, the Richardson Wealth segment will stay status quo. What you'll actually see is the Operations Clearing segment. You're going to see both the reduction in revenues and expenses in that segment to account for the fact of the intercompany transactions. And just to make you aware, for the first 10 months of 2020 in our Operations Clearing segment, there's about $12 million of intercompany amounts, both on the revenue and expense side.
Okay. That's helpful. I think, that's really it. I mean, I guess the one other thing I did notice is that the other revenues certainly moved up nicely for you. I'm guessing, is that sort of deal commissions, just with the market activity being strong for the end of the year. And I know there's a bit of supplementary sort of items in there like insurance sales and things that go in that number, too. But is it really just sort of commission revenue that begins to push that other bucket higher?
I don't know we've the answer, but we should get back to, Jeff, on that. And Jeff, just to finish up on those numbers that, you will see that in the coming quarters, we are looking to probably change our segmented reporting to report just everything under Richardson Wealth in one segment and -- from an operating point of view and a corporate segment. And that will make evaluating our operating performance much easier going forward. Because I think when you look at 2020, we had Richardson, while it was only included for 2 months of those results, but now you'll -- starting January 1, 2021, you'll start seeing full operating performance of Richardson Wealth in our results. And so we thought the best way to do that is to move to 2 segments, easier to understand our results.
There are no further questions registered at this time. I'd like now to turn it back over to Mr. Colella.
Thank you, operator, and thanks, everyone, for joining us today. As always, please feel free to reach out to Investor Relations if you have any further questions. Have a great day and a great weekend.