Toronto, November 9, 2018 - GMP Capital Inc. (GMP) (TSX: GMP) today reported revenue of $59.2 million in third quarter 2018, up a notable 72% compared with the same period a year ago. Third quarter 2018 net income was $2.9 million and EPS of $0.02, compared with a net loss of $2.8 million and a diluted loss per share of $0.06 in third quarter 2017. On an adjusted basis1, third quarter 2018 net income was $11.3 million, EPS was $0.13 and return on equity was 21.0%.
“We are pleased with our performance in third quarter 2018 as accommodative market conditions for investment banking activity drove revenue growth of 72%. The firm's enhanced operating leverage allowed us to deliver adjusted net income of $11.3 million and adjusted ROE of 21%. The declaration of a special cash dividend and, as importantly, the reinstatement of a quarterly cash dividend is indicative of GMP's vastly improved operating performance and positive outlook for the franchise. Additionally, our Wealth Management business continues to deliver solid profitability while growing client assets," said Harris Fricker, President and CEO of GMP.
Commenting further, Fricker said "Leading the way was our strong Canadian Capital Markets business, which continues to be the main driver of profitability, growing revenue by 186% across multiple sectors. We also remain encouraged that our early leadership position in the financing of emerging opportunities in cannabis and blockchain, has provided the key ingredients for a step change in our non-resource franchise. Third quarter adjusted earnings highlights the earnings potential of our franchise in a more favourable operating environment with contribution from many of our focused industry sectors."
For further information about GMP Capital Inc., our results for third 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 nine months ended September 30, 2018 (Third Quarter 2018 Financial Statements) and our management's discussion and analysis for the three and nine months ended September 30, 2018 (Third 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 Third Quarter 2018 Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS).
Third Quarter 2018 vs. Third Quarter 2017
- Revenue of $59.2 million increased from $34.3 million.
- Net income of $2.9 million increased from a net loss of $2.8 million.
- On an adjusted basis1, net income of $11.3 million increased from $0.5 million.
- Diluted earnings per share (EPS) of $0.02 increased from a diluted loss per share of $0.06.
- On an adjusted basis1, EPS of $0.13 increased from a diluted loss per share of $0.01.
First Nine Months 2018 vs. First Nine Months 2017
- Revenue of $155.6 million increased from $127.6 million.
- Net income of $7.5 million increased from a net loss of $53.5 million.
- On an adjusted basis1 net income of $22.6 million increased from $9.1 million.
- EPS of $0.06 increased from a diluted loss per share of $0.82.
- On an adjusted basis1 EPS of $0.25 increased from $0.08.
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 Third Quarter 2018 MD&A.
THIRD QUARTER 2018 BUSINESS SEGMENT HIGHLIGHTS
Third quarter 2018 vs Third quarter 2017
Revenue of $55.4 million increased 115%, primarily due to higher investment banking revenue, higher returns on principal inventories and higher interest revenue. Partly offsetting these increases was lower commission revenue.
- Investment banking revenue of $35.2 million increased 162% led by broad-based growth across multiple industry sectors.
- Underwriting revenue increased 260% to $18.9 million largely due to improved client activity in blockchain and cannabis.
- Advisory fees increased 99% to $16.3 million largely due to stronger deal activity in energy, mining and blockchain.
- Principal transactions generated net gains of $11.7 million, representing an increase of 292% primarily due to higher returns on principal inventories acquired in connection with investment banking mandates. Partly offsetting this increase was lower U.S. client-related fixed income trading activity.
- Commission revenue of $5.5 million decreased 20% on lower client trading activity.
- Interest revenue increased 17% to $2.8 million in connection with increased activity in our stock borrowing and lending business.
- Revenue from core Canadian operations increased 186% to $49.8 million in third quarter 2018.
Expenses of $44.2 million increased 49% compared with the same period last year led largely by higher employee compensation and benefits expense and higher interest expense in connection with increased stock borrowing and lending activity this quarter. Third quarter 2018 includes a $5.5 million cost rationalization charge.
Employee compensation and benefits expense increased 71% compared with the same period a year ago, led largely by higher variable compensation, while selling, general and administrative costs increased 2% over the same period.
- Variable compensation expense increased 98% in third quarter 2018 compared with third quarter 2017 commensurate with stronger revenue generation.
- Increased fixed salaries and benefits expenses reflect the $5.5 million cost rationalization charge recorded in third quarter 2018.
- Share-based compensation expense declined 108% in connection with the forfeiture of certain incentive arrangements in connection with staff departures during third quarter 2018.
- Higher selling, general and administrative costs largely reflects higher deal related costs commensurate with the increase in investment banking activity. Partly offsetting this increase was lower trading-related costs in connection 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 59.5% in third quarter 2018 compared with 74.6%.
Income (loss) before income taxes
- Income before income taxes of $11.2 million compared with a loss before income taxes of $3.9 million. On an adjusted basis1, income before income taxes was $16.9 million in third quarter 2018 compared with a loss before income taxes of $3.6 million in third quarter 2017.
- Wealth Management reported income before income taxes of $1.0 million compared with $5.7 million. The decrease largely reflects $5.6 million in dividends received during third quarter 2017 in connection with GMP's preferred share investments in Richardson GMP. Third quarter 2018 revenues included $0.6 million in such dividends.
- Share of Richardson GMP net income was $0.5 million compared with $0.1 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 September 30, 2018.
• Revenue of $70.9 million representing a 7% increase primarily due to higher investment management fees on higher AUA and higher interest income.
• Adjusted EBITDA2 of $10.4 million, increased 22% compared with the same period a year ago.
• Assets under administration of $30.2 billion as at September 30, 2018, increased 3% compared with third 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 Third Quarter 2018 MD&A.
On November 8, 2018, the board of directors of GMP (Board) approved the payment of a special cash dividend of $0.075 per common share and reinstated a quarterly cash dividend of $0.025 per common share. Both cash dividends are payable on December 3, 2018, to common shareholders of record on November 19, 2018.
On November 8, 2018, the Board approved a quarterly cash dividend of $0.2257 per Cumulative 5-Year Rate Reset Preferred Share, Series B, and $0.2790 per Cumulative Floating Rate Preferred Shares, Series C, payable on December 31, 2018, to preferred shareholders of record on December 17, 2018.
GMP APPOINTS NEW BOARD MEMBER
GMP is pleased to announce the Board appointed Julie A. Lassonde as an independent director, effective September 10, 2018. Ms. Lassonde has over 20 years of experience in the banking and mining sectors in senior executive and board roles specializing in diamonds, gold and base metals. Ms. Lassonde presently serves on the boards of Calibre Mining Corp. and FireFox Gold Corp. Her philanthropic endeavours include York University, where she serves on the Executive Committee of the York University Board of Governors, and as Chair of the External Relations Committee; President of the Canadian Engineering Memorial Foundation; and as a Director of the Lassonde Family Foundation. Ms. Lassonde holds a degree in Civil Engineering from Queen’s University, and an Executive MBA from Brown University and IE University.
The appointment of Ms. Lassonde enhances the broad expertise and growing diversity of GMP's Board.
A conference call and live audio webcast to discuss GMP’s third 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 10 a.m. (EST) on Friday, November 16, 2018, by dialing 905-694-9451 or 1-800-408-3053 (toll-free) and entering access code 3976640#. The webcast will be archived at http://gmpcapital.com/Investor-Relations/Quarterly-Information.
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 Third 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.
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 Third 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 September 30, 2018.
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, cyber 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 Third 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, “Third Quarter 2018 Financial Highlights”, “Segment Results” and “Liquidity and Capital Resources” sections of the Third 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.
For further information please contact:
GMP Capital Inc.
Rocco Colella, Director, Investor Relations
145 King Street West, Suite 300, Toronto, Ontario M5H 1J8
Tel: (416) 941-0894; Fax: (416) 943-6175
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