GMP Capital Inc. Reports Second Quarter 2017 Results

• Revenues increased 7% compared with second quarter 2016
• Second quarter 2017 results affected by non-cash impairment charges
• On an adjusted basis¹, net income was $1.6 million in second quarter 2017 or $0.01 per diluted share
• Purchased 1.5 million common shares under 2017 NCIB during second quarter 2017

For further information about GMP Capital Inc., our results for second quarter 2017 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, 2017 (Second Quarter 2017 Financial Statements) and our management's discussion and analysis for the three and six months ended June 30, 2017 (Second Quarter 2017 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 2017 Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS).

FINANCIAL HIGHLIGHTS

Second Quarter 2017 vs. Second Quarter 2016

• Revenue of $44.4 million compared with $41.5 million.
• Non-cash goodwill impairment charge of $44.3 million (after-tax) and deferred-tax asset write-down of $7.7 million recorded in second quarter 2017.
• Net loss of $54.2 million compared with $0.7 million.
• On an adjusted basis¹, net income of $1.6 million compared with net loss of $0.7 million.
• Diluted loss per share of $0.79 compared with $0.02.
• On an adjusted basis¹, diluted earnings per share (EPS) of $0.01 compared with diluted loss per share of $0.02. 

First Half 2017 vs. First Half 2016

• Revenue of $93.2 million compared with $87.4 million.
• Net loss of $50.8 million compared with $4.3 million.
• On an adjusted basis¹, net income of $8.6 million compared with net loss of $3.6 million.
• Diluted loss per share of $0.76 compared with $0.10.
• On an adjusted basis¹, EPS of $0.08 compared with diluted loss per share of $0.08. 

TORONTO, Aug. 4, 2017 /CNW/ - GMP Capital Inc. (GMP) (TSX: GMP) today reported revenue of $44.4 million in second quarter 2017, up 7% compared with the same period a year ago.   Second quarter 2017 net loss was $54.2 million and diluted loss per share was $0.79, compared with a net loss of $0.7 million and diluted loss per share of $0.02 in second quarter 2016.  Second quarter 2017 results included significant non-cash impairment charges in Capital Markets.  On an adjusted basis¹, second quarter 2017 net income was $1.6 million and EPS was $0.01.

"Market conditions in the quarter remained challenging for independents in Canada given their focus on small- to mid-cap companies.   While our ability to deliver positive adjusted earnings in this environment is encouraging, we are cognizant of the ongoing impacts that the seemingly interminable risk-off trade in Canadian commodities continues to have on our business performance and client activity.  This quarter's performance highlights the need to continue driving operational efficiencies in all parts of our business, while maintaining a strong capital position," said Harris Fricker, President and CEO of GMP.

Commenting further, Mr. Fricker said, "Our Capital Markets business benefited from increased investment banking, including incremental revenue since the GMP FirstEnergy transaction.  In Wealth Management, Richardson GMP also continues to build its earnings momentum, posting another strong profitable quarter."

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 2017 MD&A.

Non-Cash Impairment Charges

During second quarter 2017, GMP performed an interim goodwill impairment test for the Capital Markets operating segment, which is the only group of CGUs to which goodwill has been allocated. When determining whether an impairment test is required at a given balance sheet date, GMP considers factors such as revenue performance compared with forecast and the relationship between the Company's market capitalization and its book value.  GMP determined that the recoverable value of its Capital Markets CGU was less than its carrying value and, accordingly, GMP recorded a pre-tax non-cash goodwill impairment charge of $52.0 million (after-tax $44.3 million) in second quarter 2017.

In second quarter 2017, GMP also recognized a non-cash deferred tax expense of  $7.7 million in connection with a write-down of deferred tax assets associated with the firm's U.S. operations.  This has no effect on our ability to utilize deferred tax assets to reduce future tax payments.

SECOND QUARTER 2017 BUSINESS SEGMENT HIGHLIGHTS

Capital Markets
Second quarter 2017 vs. Second quarter 2016

Revenue
Revenue of $41.5 million increased 7% primarily due to higher investment banking fees.

• Investment banking revenue of $24.4 million increased 35% primarily driven by improved client activity in the mining, oil and gas, and industrials sectors.
• M&A advisory fees increased 58% to $8.1 million and underwriting revenue increased 26% to $16.3 million.
• Interest revenue increased 186% to $3.5 million on higher activity in stock borrowing and lending.
• Principal transactions generated net gains of $2.8 million, representing a decrease of 68% primarily due to lower U.S. client-related fixed income activity and lower returns on principal inventories.
• Commission revenue of $10.5 million decreased 5% on lower client activity.

Expenses
Expenses of $91.1 million increased 145% primarily due to the $52.0 million non-cash goodwill impairment charge recorded in second quarter 2017 and the inclusion of incremental operating expenses since the acquisition of the GMP FirstEnergy business.  Higher interest expense in connection with increased activity in our stock borrow and lend business also contributed to the increase.

• Share-based compensation expense declined 45% in connection with the expiration of certain prior incentive arrangements.
• The ratio of total employee compensation and benefits to revenues decreased to 60.6% in second quarter 2017 compared with 66.8% in second quarter 2016 largely reflecting efficiency gains from prior restructuring initiatives.

Income (loss) before income taxes

• Loss before income taxes of $49.6 million compared with income before income taxes of $1.5 million.
• On an adjusted basis¹, income before income taxes was $2.6 million in second quarter 2017 compared with $1.5 million.

Wealth Management
Second quarter 2017 vs. Second quarter 2016

• Wealth Management reported income before income taxes of $0.8 million compared with $0.3 million. 
• Share of Richardson GMP net income of $0.8 million compared with $0.3 million.

Richardson GMP Highlights
The following information sets forth an overview of the consolidated financial results of Richardson GMP Limited, on a 100% basis; noting, however, that GMP owns an approximate 32% non-controlling interest of Richardson GMP as at June 30, 2017.

• Revenue of $70.4 million representing a 9% increase largely on higher investment management fees.
• Adjusted EBITDA² of $11.5 million, increased 20%.
• Assets under administration of $29.6 billion as at June 30, 2017, a 9% increase compared with $27.2 billion as at June 30, 2016.

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 2017 MD&A.

DIVIDENDS

On August 3, 2017, the board of directors of GMP (Board of Directors) approved a quarterly cash dividend of $0.2257 per Cumulative 5-Year Rate Reset Preferred Share, Series B, and $0.2156 per Cumulative Floating Rate Preferred Shares, Series C, payable on October 2, 2017, to preferred shareholders of record on September 15, 2017.

CONFERENCE CALL

A conference call and live audio webcast to discuss GMP's second quarter 2017 results will be held this morning at 10:00 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 11, 2017, by dialing 905-694-9451 or 1-800-408-3053 (toll free) and entering access code 4397065#. 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 2017 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
		2017	2016	2017	2016
Reported Results
(Loss) income before income taxes		(54,854)	297	(50,893)	(3,439)
Net (loss) income		(54,246)	(701)	(50,755)	(4,322)
Net (loss) income attributable to common shareholders		(55,268)	(1,194)	(52,798)	(6,317)
Reported Measures
Net (loss) income per common share (dollars):
	Basic	(0.79)	(0.02)	(0.76)	(0.10)
	Diluted	(0.79)	(0.02)	(0.76)	(0.10)
ROE ^1		(108.7)%	(2.2)%	(51.0)%	(5.8)%
Pre-Tax Impact of Adjusting Items:
	Goodwill impairment charge	52,000	—	52,000	—
	Transaction Shares	3,642	—	7,065	—
	Amortization of intangible asset	217	—	434	—
	Bond forwards	—	—	—	945
Impact of adjusting items on (loss) income before income taxes		55,859	—	59,499	945
After-Tax Impact of Adjusting Items:
	Goodwill impairment charge	44,261	—	44,261	—
	Deferred tax asset write-down	7,739	—	7,739	—
	Transaction Shares	3,642	—	7,065	—
	Amortization of intangible asset	159	—	318	—
	Bond forwards	—	—	—	696
Impact of adjusting items on net (loss) income		55,801	—	59,383	696
Adjusted Results ^1
Income (loss) before income taxes		1,005	297	8,606	(2,494)
Net income (loss)		1,555	(701)	8,628	(3,626)
Net income (loss) attributable to common shareholders		534	(1,194)	6,585	(5,621)
Adjusted Measures ^1
Net income (loss) per common share (dollars):
	Basic	0.01	(0.02)	0.09	(0.08)
	Diluted	0.01	(0.02)	0.08	(0.08)
ROE		0.9%	(2.2)%	5.8%	(5.2)%

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

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

Supplemental Financial Information - 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 2017 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 32% non-controlling interest of Richardson GMP as at June 30, 2017.

		Three months ended June 30			% increase/		Six months ended June 30				% increase/
($000, except as otherwise noted)		2017		2016	(decrease)		2017		2016		(decrease)
Revenue		70,389		64,731	9		147,796		130,150		14
Expenses		64,368		61,819	4		135,909		125,624		8
Employee compensation and benefits		46,965		44,964	4		99,446		89,993		11
Non-compensation expenses		17,403		16,855	3		36,463		35,631		2
Deferred Income tax		1,702		—	n.m.		3,377		—		n.m.
Net income - reported		4,319		2,912	48		8,510		4,526		n.m.
Pre-tax impact of adjusting items
	Interest	749		787	(5)		1,477		1,622		n.m.
	Deferred income tax	1,702		—	n.m.		3,377		—		n.m.
	Depreciation and amortization	1,264		1,330	(5)		2,500		2,667		(6)
	Transition assistance loan amortization	2,891		3,878	(25)		5,763		7,128		(19)
EBITDA^1		10,925		8,907	23		21,627		15,943		36
	Share-based compensation	540		674	(20)		1,160		1,543		(25)
Adjusted EBITDA^1		11,465		9,581	20		22,787		17,486		30
Number of advisory teams		187		198	(6)
AUA at period-end ($ millions)		29,590		27,200	9

n.m. = not meaningful

 

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 2017 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 2017 Financial Highlights", "Segment Results" and "Liquidity and Capital Resources" sections of the Second Quarter 2017 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, Bahamas and Asia. 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.

GMP Capital Inc., Rocco Colella, Director, Investor Relations, 145 King Street West, Suite 300, Toronto, Ontario M5H 1J8, Tel: [phone]; Fax: [phone], [email protected] or [email protected]

Related Links

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