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Edited Transcript of GMP.TO earnings conference call or presentation 30-Apr-20 2:00pm GMT

Q1 2020 GMP Capital Inc Earnings Call

TORONTO May 20, 2020 (Thomson StreetEvents) -- Edited Transcript of GMP Capital Inc earnings conference call or presentation Thursday, April 30, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kishore K. Kapoor

GMP Capital Inc. - Interim President, CEO & Director

* Rocco Colella

GMP Capital Inc. - MD of IR

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the GMP's First Quarter 2020 Conference Call.

I would now like to turn the meeting over to Mr. Rocco Colella, Managing Director, Investor Relations, GMP Capital Inc. Please go ahead, Mr. Colella.

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Rocco Colella, GMP Capital Inc. - MD of IR [2]

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Thank you, operator. Good morning, everybody. Welcome to our first quarter earnings conference call. If you have any questions following this call, please reach out to Investor Relations. My contact information can be found at the end of our earnings release.

Before we get started, I would like to remind you that this call is being webcast and will be available for subsequent replay. Our remarks today 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 forward-looking information can be found in our latest AIF and MD&A. These documents are available on our website and on sedar.com.

On the call this morning is our Interim President and CEO, Kish Kapoor. Kish will start by commenting on the firm's response to the COVID-19 pandemic and the status of the transaction to consolidate the ownership of Richardson GMP under GMP. I will then cover first quarter results including a review of GMP's strong financial condition, and then Kish will end with some brief closing remarks.

I will now turn the call over to Kish.

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Kishore K. Kapoor, GMP Capital Inc. - Interim President, CEO & Director [3]

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Thanks, Rocco. Good morning, everyone. Thanks for joining us. We hope that you and your families are well. I'd like to extend our gratitude to all health care workers and first responders for keeping us safe and to everybody across the food industry for keeping us fed. I also extend thanks to shareholders, clients and our partners at Richardson GMP for your patience and continued trust as we navigate through these unprecedented times together.

We also stand alongside our partners at Richardson GMP's Halifax office, who continue to grieve the unimaginable tragedy that unfolded in their province 2 weeks ago. You remain in our thoughts.

Before we discuss first quarter results, let me review briefly our top priorities this quarter. Immediately prior to the COVID outbreak, our top priority was to consolidate the ownership of Richardson GMP under GMP. In that regard, we expended considerable effort and made significant progress that prompted us to announce the framework of a nonbinding agreement on February 26, 2020. That agreement had the complete support of GMP, Richardson Financial Group and the support of Richardson GMP's investment advisers responsible for managing over 90% of the firm's client assets.

However, once it was evident that we were in the midst of a prolonged pandemic, our priority quickly shifted to protecting the health of our clients, our partners, our employees and, indeed, our business. Working with the leadership team at Richardson GMP, we transitioned our operations to enable everyone by a handful of essential personnel to work remotely. Concurrently, we position the special meeting of share -- we postponed the Special Meeting of Shareholders set for 21st of April to vote on the RGMP transaction.

On April 14, we further announced that GMP, Richardson Financial Group and Richardson GMP's investment adviser representatives jointly agreed to extend the contractual negotiating period between Richardson GMP shareholders to 60 days following the termination of Ontario Declaration of Emergency. This shift in priority was simply the right thing to do for now.

That said, all 3 parties are continuing to work toward entering into a definitive agreement and remain hopeful that they will be able to do so in the near future. However, there can be no assurance that a deal will be reached or on what terms they will mutually agree.

Meanwhile, our business remained strong. At the end of March, GMP's net working capital stood at $126.1 million, a decrease of $5 million from year-end after the payment of $3 million in dividends to our shareholders, $500,000 in Part VI.1 tax and $1.6 million in costs incurred this quarter in connection with the RGMP transaction.

Looking at Richardson GMP. Assets under administration was $25.4 billion as at March 31, 2020, down 11% in 2020, but outperforming the 21.6% decline for the S&P/TSX Composite Index over the same period. It is worth noting that the AUA has risen to just shy of $27 billion as of last evening, owing largely to market recovery.

Additionally, Richardson GMP added 4 new advisory teams this quarter, building on early recruiting momentum following the communication of our intention to focus exclusively on wealth management. These results highlight the strength of our business even in the face of challenges in the market caused by the global pandemic.

Now I'll turn it over to Rocco.

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Rocco Colella, GMP Capital Inc. - MD of IR [4]

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Thanks, Kish. Let's jump to our first quarter results from continuing operations. Revenue in first quarter 2020 was $8.8 million, down 4% from Q1 a year ago. Total expenses were $11.4 million in the first quarter of 2020, up 12% compared with Q1 last year. Our investment in Richardson GMP contributed $100,000 this quarter compared with $1.5 million in Q1 last year, and we also reported $0.6 million in tax expense this quarter. This culminated to a net loss from continuing operations of $3 million this quarter.

These results were affected by the following items: First was $1.6 million in professional fees and restructuring costs incurred in connection with the RGMP transaction; and second was a $0.5 million tax expense in the quarter in connection with Part VI.1 tax related to preferred share dividends, which would be largely recoverable in future periods of profitability. Excluding these items, the adjusted net loss this quarter would have been $900,000 compared with net income of $200,000 in first quarter last year.

The $1.1 million change in adjusted net income from Q1 last year was due to an $800,000 decrease in our proportionate share of Richardson GMP's net income, $600,000 in dividends received on our preferred share investment in Richardson GMP in first quarter 2019 compared with nil in first quarter this year and a $400,000 decline in the net contribution for our emerging markets business this quarter compared with the same period a year ago. This was partly offset by a $700,000 increase in other revenue, largely due to combined carrying broker services for the first full quarter to Stifel's Canadian capital markets business and higher foreign exchange translation gains recorded this quarter.

It is worth noting that while we did not receive any dividends on our RGMP preferred shares this quarter, these dividends are cumulative and remain subject to declaration by Richardson GMP's Board of Directors.

With that, I'll turn it back to Kish for closing remarks.

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Kishore K. Kapoor, GMP Capital Inc. - Interim President, CEO & Director [5]

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Thanks, Rocco. So even as COVID-19 drives significant disruption, including the temporary suspension of our common share dividend, our franchise remains strong, and our strategy is clear and unchanged, and that is to focus the firm exclusively on the considerable opportunities in the wealth management industry. We have a common objective and that is to get the potential RGMP transaction across the finish line once the state of emergency is suspended.

From our perspective, [railing] crisis further confirms what we already know. There remains an immense value and opportunity in providing face-to-face advice across the entire household balance sheet. The clear message we hear from the investing public is that they value access, flexibility and personalization in the advice they receive and they need that advice to come from an individual. But the benefit of virtual tools, Richardson GMP's investment advisers have remained in constant contact with their clients, helping them navigate current volatility. Our partners at Richardson GMP are ever mindful of their role as stewards of wealth. Regardless, we are well positioned to get back to work whenever it is being safe to do so by public experts. Tomorrow will surely look different from yesterday, but we will get through this together.

And lastly, at our next AGM, likely later this summer, we will be seeking shareholder approval to change our corporate name as required under the terms of our Stifel transaction.

Please be well and stay safe, and speak to you next quarter. Thank you for joining us today, and we look forward to our next call. I'll turn it over back to Rocco.

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Rocco Colella, GMP Capital Inc. - MD of IR [6]

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Thanks, Kish. That concludes our formal remarks this morning. Thank you all for joining us today. As always, please reach out to Investor Relations if you have any questions. Goodbye, and stay safe.