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GMP Capital Inc. Reports Second Quarter 2018 Results

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GMP Capital Inc. Reports Second Quarter 2018 Results

Canada NewsWire

  • Enhanced operating leverage drove increase in profitability
  • Purchased 1.3 million common shares under 2018 NCIB during second quarter 2018

For further information about GMP Capital Inc., our results for second quarter 2018 and the meaning of certain references, this earnings release should be read in conjunction with our unaudited interim condensed consolidated financial statements as at and for the three and six months ended June 30, 2018 (Second Quarter 2018 Financial Statements) and our management's discussion and analysis for the three and six months ended June 30, 2018 (Second Quarter 2018 MD&A), which can be accessed on our website at gmpcapital.com and on SEDAR at sedar.com. Unless otherwise indicated, all dollar amounts are expressed in Canadian dollars and have been taken from our Second Quarter 2018 Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS).

 

FINANCIAL HIGHLIGHTS

Second Quarter 2018 vs. Second Quarter 2017

  • Revenue of $43.8 million decreased from $44.4 million.
  • Net income of $0.5 million increased from a net loss of $54.2 million.
  • On an adjusted basis1, net income of $4.0 million increased from $1.6 million.
  • Diluted loss per share of $0.01 increased from a diluted loss per share of $0.79.
  • On an adjusted basis1, diluted earnings per share (EPS) of $0.04 increased from $0.01.

First Half 2018 vs. First Half 2017

  • Revenue of $96.4 million increased from $93.2 million.
  • Net income of $4.6 million increased from a net loss of $50.8 million.
  • On an adjusted basis1, net income of $11.4 million increased from $8.6 million.
  • EPS of $0.03 increased from a diluted loss per share of $0.76.
  • On an adjusted basis1, EPS of $0.12 increased from $0.08.

TORONTO, Aug. 3, 2018 /CNW/ - GMP Capital Inc. (GMP) (TSX:GMP) today reported revenue of $43.8 million in second quarter 2018, down 1% compared with the same period a year ago.  Second quarter 2018 net income was $0.5 million and a diluted loss per share of $0.01, compared with a net loss of $54.2 million and a diluted loss per share of $0.79 in second quarter 2017. The improvement largely reflects a $52.0 million non-cash goodwill impairment charge recorded in second quarter 2017. 
On an adjusted basis1, second quarter 2018 net income was $4.0 million and EPS was $0.04.

"Improved net income highlights the benefit of the firm's enhanced operating leverage and our leadership position in emerging industries.  Adjusted EPS was $0.04 this quarter compared with $0.01 in the same period a year ago while revenues were relatively unchanged.  There are two things we are particularly proud of in second quarter 2018: Our Canadian Capital Markets business grew revenue by 15% led by improved origination activity in cannabis and mining, and our Wealth Management continues to deliver solid profitability while growing client assets. We are also encouraged by improving capital markets activity levels," said Harris Fricker, President and CEO of GMP.

First half 2018 revenue was $96.4 million, up 3% compared with the same period last year.  GMP recorded net income of $4.6 million and EPS of $0.03 in first half 2018 compared with a net loss of $50.8 million and a diluted loss per share of $0.76 in first half 2017.  First half 2017 included the non-cash goodwill impairment charge. On an adjusted basis1, net income was $11.4 million in first half 2018, generating EPS of $0.12, compared with net income of $8.6 million and EPS of $0.08 in first half 2017.

1.

Considered to be a non-GAAP financial measure. This measure does not have any standardized meaning prescribed by generally accepted accounting principles (GAAP) under IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers.  This data should be read in conjunction with the "Non-GAAP Measures" section at the end of this press release and the "Presentation of Financial Information and Non-GAAP Measures" section in the Second Quarter 2018 MD&A.


 

SECOND QUARTER 2018 BUSINESS SEGMENT HIGHLIGHTS

Capital Markets
Second quarter 2018 vs. Second quarter 2017

Revenue
Revenue of $40.1 million decreased 3% primarily due to lower commission revenue and lower interest revenue.  Investment banking revenue was largely unchanged compared with the same period a year ago.  Partly offsetting these decreases were higher net gains from principal transactions.

  • Commission revenue of $9.1 million decreased 13% on lower client trading activity.
  • Interest revenue decreased 28% to $2.5 million on lower activity in stock borrowing and lending.
  • Investment banking revenue of $24.1 million decreased 1%. Lower M&A revenue was largely offset by higher underwriting revenue.
  • Advisory fees decreased 40% to $4.8 million largely due to lower revenue in mining and energy.
  • Underwriting revenue increased 18% to $19.3 million largely due to improved client activity in cannabis and mining.
  • Principal transactions generated net gains of $3.8 million, representing an increase of 33% primarily due to higher returns on principal inventories. Partly offsetting this increase was lower U.S. client-related fixed income trading activity.
  • Revenue from Canadian operations increased 15% to $29.9 million in second quarter 2018.

Expenses
Expenses of $34.7 million decreased 62% compared with the same period last year.  Second quarter 2017 included a $52.0 million non-cash goodwill impairment charge. Employee compensation and benefits expense decreased 8%, while selling, general and administrative costs decreased 15%. Lower interest expense in connection with weaker stock borrowing and lending activity also contributed to the decrease.

  • Variable compensation expense decreased 6% in second quarter 2018 compared with second quarter 2017 commensurate with lower revenue generation.
  • Share-based compensation expense declined 74% in connection with the expiration of certain incentive arrangements.
  • Lower selling, general and administrative costs reflects lower transaction-related expenses commensurate with the decline in client trading activity over the same period and lower business development expenses.
  • The ratio of total employee compensation and benefits to revenues decreased to 57.4% in second quarter 2018 compared with 60.6%.

Income (loss) before income taxes

  • Income before income taxes of $5.4 million compared with a loss before income taxes of $49.6 million. On an adjusted basis1, income before income taxes was $5.7 million in second quarter 2018 compared with $2.6 million in second quarter 2017.

Wealth Management
Second quarter 2018 vs. Second quarter 2017

  • Wealth Management reported income before income taxes of $1.7 million compared with $0.8 million.
  • Second quarter 2018 revenue includes $0.6 million in dividends received in connection with GMP's preferred share investments in Richardson GMP.
  • Share of Richardson GMP net income was $1.1 million compared with $0.8 million.

Richardson GMP Highlights
The following information sets forth an overview of the consolidated financial results of Richardson GMP, on a 100% basis; noting, however, that GMP owns an approximate 33% non-controlling interest of Richardson GMP as at June 30, 2018.

  • Revenue of $74.7 million representing a 6% increase largely on higher interest revenue and higher investment management fees.
  • Adjusted EBITDA2 of $13.2 million increased 15% compared with the same period a year ago.
  • Assets under administration of $30.2 billion as at June 30, 2018, increased 2% compared with second quarter 2017.

2.

Considered to be a non-GAAP financial measure. This data should be read in conjunction with the "Supplemental Information" section at the end of this press release and in the Second Quarter 2018 MD&A.


 

DIVIDENDS

On August 2, 2018, the board of directors of GMP (Board) approved a quarterly cash dividend of $0.2257 per Cumulative 5-Year Rate Reset Preferred Share, Series B, and $0.2640 per Cumulative Floating Rate Preferred Shares, Series C, payable on October 1, 2018, to preferred shareholders of record on September 14, 2018.

GMP ANNOUNCES CHANGES TO BOARD OF DIRECTORS

GMP is pleased to announce the Board appointed Kishore Kapoor as an independent director and member of its Audit Committee, effective June 18, 2018. Mr. Kapoor is one of two James Richardson & Sons, Limited (JRSL) director nominees on the Board, replacing Donald Solman, who resigned from the Board on the same date. The Board and senior management would like to thank Mr. Solman for his service and contributions to GMP.

Mr. Kapoor is currently a member of the Board of Directors of Richardson Financial Group Limited, a subsidiary of JRSL.  He is former President of Wellington West Holdings Inc., a company providing full service brokerage, capital markets, asset management and financial planning services.  In 1995, Mr. Kapoor was one of the founders of Assante Corporation, a company that provided family office, wealth and asset management services to ultra high-net-worth clients.   Mr. Kapoor has considerable leadership experience, business acumen and capital markets and wealth management expertise. Mr. Kapoor has a Bachelor of Science from the University of Manitoba and is a Chartered Professional Accountant and former tax partner with KPMG LLP.


CONFERENCE CALL

A conference call and live audio webcast to discuss GMP's second quarter 2018 results will be held this morning at 10 a.m. (EST).  Interested parties are invited to access the quarterly conference call on a listen-only basis by dialing 416-340-2216 or 1-800-273-9672 (toll free) or via live audio webcast at http://gmpcapital.com/Investor-Relations/Quarterly-Information. A recording of the conference call will be available until Friday, August 10, 2018, by dialing 905-694-9451 or 1-800-408-3053 (toll free) and entering access code 7855958#. The webcast will be archived at http://gmpcapital.com/Investor-Relations/Quarterly-Information.

NON-GAAP MEASURES

We use certain measures to assess our financial performance that are not GAAP measures under IFRS. These measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of GMP's performance, liquidity, cash flows and profitability. For further information, refer to the "Presentation of Financial Information and Non-GAAP Measures" section in the Second Quarter 2018 MD&A.

The following table provides a reconciliation of GMP's reported results to its adjusted measures including the composition of the adjusted measures for the periods presented.

($000, except as otherwise noted)

Three months ended
June 30

Six months ended
June 30


2018

2017

2018

2017

Reported Results





Income (loss) before income taxes

1,812

(54,854)

8,814

(50,893)

Net income (loss)

518

(54,246)

4,608

(50,755)

Net (loss) income attributable to common shareholders

(549)

(55,268)

2,497

(52,798)

Reported Measures





Net (loss) income per common share (dollars):






Basic

(0.01)

(0.79)

0.04

(0.76)


Diluted

(0.01)

(0.79)

0.03

(0.76)

ROE 1

(1.2)%

(108.7)%

2.8%

(51.0)%

Pre-Tax Impact of Adjusting Items:






Transaction Shares

3,344

3,642

6,444

7,065


Amortization of intangible asset

217

217

434

434


Goodwill impairment charge

52,000

52,000

Impact of adjusting items on income (loss) before taxes

3,561

55,859

6,878

59,499

After-Tax Impact of Adjusting Items:






Transaction Shares

3,344

3,642

6,444

7,065


Amortization of intangible asset

159

159

318

318


Goodwill impairment charge

44,261

44,261


Deferred tax asset write-down         

7,739

7,739

Impact of adjusting items on net income (loss)              

3,503

55,801

6,762

59,383

Adjusted Results 1





Income before income taxes

5,373

1,005

15,692

8,606

Net income

4,021

1,555

11,370

8,628

Net income attributable to common shareholders

2,954

534

9,259

6,585

Adjusted Measures 1





Net income per common share (dollars):






Basic

0.04

0.01

0.14

0.09


Diluted

0.04

0.01

0.12

0.08

ROE

6.4%

0.9%

10.1%

5.8%

1.

Considered to be non-GAAP financial measures. These measures do not have any standardized meaning prescribed by GAAP under IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

 

SUPPLEMENTAL INFORMATION - RICHARDSON GMP

The following supplemental information reflects how management of Richardson GMP assesses the financial performance of Richardson GMP.

Richardson GMP's management assesses performance on both a reported and an adjusted basis and considers both bases to be useful in assessing underlying, ongoing business performance. Presenting results on both bases also permits readers to assess the impact of specified items on financial results. Richardson GMP's management uses certain measures to assess the financial performance of Richardson GMP that are not GAAP measures under IFRS. EBITDA and adjusted EBITDA do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of Richardson GMP's performance, liquidity, cash flows and profitability. Richardson GMP's management believes adjusting results by excluding the impact of the specified items is more reflective of ongoing financial performance and cash generating capabilities and provides readers with an enhanced understanding of how management views Richardson GMP's core performance. For further information, refer to the "Supplemental Information" section in the Second Quarter 2018 MD&A.

The following table sets forth an overview of the consolidated financial results of Richardson GMP for the periods indicated, on a 100% basis; noting, however, that GMP owns an approximate 33% non-controlling interest of Richardson GMP as at June 30, 2018.

($000, except as otherwise noted)

 Three months ended
June 30


%
increase/
(decrease)


 Six months ended
June 30


%

increase/

(decrease)

2018


2017


2018


2017


Revenue

74,748


70,389


6


150,047


147,796


2

Expenses

68,164


64,368


6


138,483


135,909


2

Employee compensation and benefits

48,337


46,965


3


98,923


99,446


(1)

Non-compensation expenses

19,827


17,403


14


39,560


36,463


8

Income before income tax

6,584


6,021


9


11,564


11,887


(3)

Net income - reported

4,601


4,319


7


8,203


8,510


(4)

Pre-tax impact of adjusting items








Interest

1,856


749


148


3,718


1,477


152


Deferred income tax

1,954


1,702


15


3,310


3,377


(2)


Depreciation and amortization

1,316


1,264


4


2,629


2,500


5

Transition assistance loan amortization

2,625


2,891


(9)


5,378


5,763


(7)

EBITDA1

12,381


10,925


13


23,289


21,627


8


Share-based compensation

778


540


44


1,055


1,160


(9)

Adjusted EBITDA1

13,159


11,465


15


24,344


22,787


7

Number of advisory teams

172


187


(8)





AUA at period-end ($ millions)

30,231


29,590


2





1.

Considered to be a non-GAAP financial measure. This measure does not have any standardized meaning prescribed by GAAP under IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers.

 

FORWARD-LOOKING INFORMATION

This press release contains "forward-looking information" as defined under applicable Canadian securities laws.   This information includes, but is not limited to, statements concerning our objectives, our strategies to achieve those objectives, as well as statements made with respect to management's beliefs, plans, estimates, projections and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events. Such forward-looking information reflects management's current beliefs and is based on information currently available to management.

Forward-looking information is not a guarantee of future performance and is subject to numerous risks and uncertainties, including those described in this press release. GMP's primary business activities are both competitive and subject to various risks. These risks include market, credit, liquidity, operational and legal and regulatory risks and other risk factors including, without limitation: variation in the market value of securities, volatility and liquidity of equity and fixed income trading markets, volume of new financings and mergers and acquisitions, dependence on key personnel and sustainability of fees. Other factors, such as general economic conditions, including interest rate and exchange rate fluctuations, may also have an effect on GMP's results of operations. Many of these risks and uncertainties can affect GMP's actual results and could cause its actual results to materially differ from those expressed or implied in any forward-looking information disclosed by management or on its behalf.  For a description of additional risks that could cause our actual results to materially differ from our current expectations, see "Risk Management" and "Risk Factors" in the Second Quarter 2018 MD&A and "Risk Factors" in GMP's annual information form. These risks and uncertainties are not the only ones facing GMP together with its consolidated operations controlled by it and its predecessors (GMP Group).  Additional risks and uncertainties not currently known to us or that we currently consider immaterial may also impair the operations of the GMP Group.  Material assumptions or factors underlying the forward-looking information contained in this press release include, but are not limited to, "Second Quarter 2018 Financial Highlights", "Segment Results" and "Liquidity and Capital Resources" sections of the Second Quarter 2018 MD&A. Although forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information. Certain statements included in this press release may be considered a "financial outlook" for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this press release. The forward-looking information contained in this press release is made as of the date of this press release, and should not be relied upon as representing GMP's views as of any date subsequent to the date of this press release. Except as required by applicable law, management and GMP's Board of Directors undertake no obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

ABOUT GMP CAPITAL INC.

GMP is a leading independent diversified financial services firm headquartered in Toronto, Canada, providing a wide range of financial products and services to a global client base that includes corporate clients, institutional investors and high-net-worth individuals in two integrated reporting segments. The Capital Markets segment provides investment banking, including advisory and underwriting services, institutional sales and trading and research through offices in Canada, the United States, the United Kingdom and the Bahamas. Wealth Management consists of GMP's non-controlling ownership interest in Richardson GMP Limited. Richardson GMP Limited, Canada's largest independent wealth management firm, is focused on providing exclusive and comprehensive wealth management and investment services delivered by an experienced team of investment professionals. GMP is listed on the Toronto Stock Exchange under the symbol "GMP". For further information, please visit our corporate website at gmpcapital.com.

SOURCE GMP Capital Inc.

View original content: http://www.newswire.ca/en/releases/archive/August2018/03/c1850.html

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