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Matrix Asset Management Inc. Reports Year End Results, Including $1.5 Million Recurring EBITDA and $0.2 Million Free Cash Flow

Tuesday, April 02, 2013

Matrix Asset Management Inc. Reports Year End Results, Including $1.5 Million Recurring EBITDA and $0.2 Million Free Cash Flow

19:00 EDT Tuesday, April 02, 2013

VANCOUVER, BRITISH COLUMBIA--(Marketwired - April 2, 2013) - Matrix Asset Management Inc. (the "Company" or "Matrix") (TSX:MTA) reported today its financial and operating results for the year ended December 31, 2012.

"The first half of 2012 was a challenging period for Matrix yet we are pleased with some of the progress we have made since the second quarter," said David Levi, President and CEO of Matrix. "Efforts aimed at reducing expenses have resulted in a 5.1% decrease in recurring expenses in 2012. Matrix Funds have demonstrated organic growth with its Flow Through LP program. SEAMARK's AUM increased in the fourth quarter. The return of three former principals who re-joined SEAMARK from LeeSide Capital Management Inc. in March 2012 has been a stabilizing influence. Moreover, the proposed business combination with Marquest we announced recently would offer a great opportunity for Matrix to attain greater scale and realize significant synergies. Improving the balance sheet is a priority for management and we are considering a range of potential options to increase working capital."

Selected Fourth Quarter and Year End 2012 Highlights

  • As at December 31, 2012, assets under management ("AUM") were $1.1 billion, compared to $1.1 billion as at September 30, 2012 and to $1.6 billion as at December 31, 2011.
  • Total revenue for the fourth quarter of 2012 was $5.0 million compared to $6.6 million during the fourth quarter of 2011. Total revenue for the year was $24.3 million compared to $30.7 million in 2011. Incentive participation revenues totaling $0.8 million were earned during 2012 but have not been declared or recorded as revenues in the financial statements for the year ended December 31, 2012.
  • EBITDA for the fourth quarter was $0.1 million, an increase of $2.8 million compared to the fourth quarter of 2011. EBITDA for the 2012 year was $1.1 million, an increase of $6.5 million compared to 2011.
  • Recurring EBITDA for the fourth quarter was $0.1 million, a decrease of $0.1 million compared to the fourth quarter of 2011. Recurring EBITDA for the 2012 year was $1.5 million, a decrease of $4 million compared to 2011.
  • Free Cash Flow for the fourth quarter was $(0.2) million, an increase of $2.9 million compared to the fourth quarter of 2011. Free Cash Flow for the 2012 year was $0.2 million and is a significant improvement from the cash outflow of $6.3 million in 2011.
  • Total Expenses for the fourth quarter decreased by $3.4 million or 31% compared to the fourth quarter of 2011. Total Expenses for the year decreased by $12.1 million or 29% compared to 2011.
  • Recurring expenses for the fourth quarter decreased by $0.5 million or 6.3% compared to the fourth quarter of 2011. Recurring expenses for the 2012 year decreased by $1.6 million or 5.1% compared to 2011.
  • Net loss for the fourth quarter was $(3.2) million compared to $(9.1) million during the fourth quarter of 2011. Net loss for the year was $(4.9) million compared to $(10.2) million in 2011.
  • Working capital deficit has increased over the quarter by $1.8 million to $(6.0) million. Working capital, including contingent assets, was $(4.2) million. See" Liquidity and Capital Resources".
  • Matrix declared two cash dividends and two stock dividends during 2012. Matrix has not generated sufficient Free Cash Flow to declare and pay further cash dividends as management's current priority is managing cash flow with a view towards reducing Matrix's working capital deficit.
  • During the fourth quarter of 2012, Matrix announced the closing of the Matrix 2012 Enhanced Short Duration National and Québec Flow Through LP. It is a unique product which offered the shortest hold period of any syndicated Flow Through LP in the class of 2012. Total gross proceeds raised were $25.5 million, representing the largest amount raised in four years. For 2012, total Flow Through LP sales were $40.3 million compared to $27.3 million in 2011, representing an increase of 48%.

Subsequent Events:

  • On February 13, 2013, Matrix and Marquest Asset Management Inc. ("Marquest") announced they have signed a Letter of Intent to pursue a business combination (the "Transaction") which would result in significant benefits to both parties. Following the Transaction, the Board of Matrix and its senior management team will include representation from both organizations. Under the proposed Transaction, privately-held Marquest will combine with Matrix by way of a share exchange. Marquest shareholders are expected to receive treasury common shares of Matrix totaling 35% of Matrix's issued shares, post-closing, in exchange for all shares of Marquest. Marquest's capital markets business will be spun-off to Marquest's existing shareholders prior to or in conjunction with closing. Under the Letter of Intent, the parties have agreed to use their best efforts, on a timely basis, to negotiate and execute definitive documentation and take all steps necessary to close the Transaction. The proposed business combination is expected to yield the following benefits: additional equity and working capital for the merged business, significant cost savings over time from rationalization and operating synergies, larger scale, diversification of Matrix's asset management platform, a stronger combined management team, and greater growth opportunities. There can be no assurance that the Transaction will be completed on the terms proposed or at all. Closing is now scheduled to take place in mid to late April and is subject to customary closing conditions, including obtaining necessary shareholder, stock exchange and regulatory approvals. See Matrix's Management's Discussion and Analysis ("MD&A") for more details.
  • On March 21, 2013, the Federal Government announced its decision to phase out the 15% federal Labour-Sponsored Venture Capital Corporation ("LSVCC") tax credit by 2017. The federal tax credit will be reduced to 10% in 2015 and 5% in 2016 before being eliminated in 2017. Through Matrix's Venture Capital Division, GrowthWorks Capital Ltd. and other operating subsidiaries manage several LSVCC investment funds that will be affected by this announcement, including Working Opportunity Fund (EVCC) Ltd., GrowthWorks Commercialization Fund Ltd. and GrowthWorks Atlantic Venture Fund Ltd. While fundraising for these funds has declined to modest levels over the past several years, management anticipates that the phase out of the federal LSVCC tax credit will affect these funds' ability to raise capital. Matrix is assessing the impact of this announcement on these managed funds and on management fee revenue earned by Matrix subsidiaries from these funds.
  • On March 1st, Matrix Funds filed the preliminary prospectus for the Matrix 2013 Short Duration FT LP. This Flow Through LP has the shortest hold period in the class of 2013 thus far and is expected to rollover on or before February 14, 2014. The syndicate of agents is being co-led by National Bank Financial, CIBC World Markets and Desjardins Securities with other syndicate members including, among others, BMO Nesbitt Burns and TD Securities. Matrix Funds again adopted a fee structure that aligns its interest with unitholders by charging its management fee on the final Net Asset Value of the LP when its assets are rolled over.

Corporate Overview

Matrix is a diversified, asset and wealth management company with offices across Canada. The Company manages approximately $1.1 billion in assets through three operating divisions:

  • Institutional asset management, operated through SEAMARK, which offers portfolio management to institutional and high net worth private clients.
  • Fund management, operated through Matrix Funds Management (a division of GrowthWorks Capital Ltd.), which manages the Matrix family of mutual funds and specialty funds (formerly Mavrix Funds and SEAMARK Mutual Funds) and distributed through investment dealers and financial planners across Canada.
  • Venture capital, operated through GrowthWorks Ltd., which manages funds in the venture capital sector.

This diversified set of operations delivers multiple sources of revenue across several asset and client groups. The Company's mission is to provide a diverse array of investment choices and the best possible investment management service to Canadian investors and institutions. With five offices located in major and regional centres across Canada, Matrix has a national investment presence.

Summary of Year and Fourth Quarter ended 2012 Financial Results - Audited

The following table sets out selected consolidated financial information about Matrix for the years ended December 31, 2012, 2011, and 2010.

For the twelve For the twelve For the twelve
months ended months ended months ended
December 31, 2012 December 31, 2011 December 31, 2010
(in $ thousands) (in $ thousands) (in $ thousands)
Revenue
Management and administration fees $ 21,567 $ 26,835 $ 31,402
Additional administration fees 1,248 1,421 1,630
Incentive participation revenues 503 1,533 2,517
Interest income 530 56 81
Other income 440 832 851
Total Revenue 24,288 30,677 36,481
Expenses
Selling, general and administrative 20,494 25,998 26,035
Share-based compensation 507 477 393
Servicing commissions 2,344 2,638 2,402
Amortization - property and equipment 317 306 433
Amortization and impairment - deferred sales commissions 2,073 2,400 2,711
Amortization and impairment - asset management contracts 2,267 1,658 1,435
Interest 1,240 816 910
Accelerated option vesting costs - - 948
29,242 34,293 35,267
(Loss) Income before merger, acquisition and other special project costs (4,954) (3,616) 1,214
Merger, acquisition and other special project costs 375 7,440 1,239
Loss before taxes (5,329) (11,056) (25)
Income tax recovery (473) (875) (390)
Net (Loss) Income $ (4,856) $ (10,181) $ 365
Basic (loss) income per share (in $) (0.10) (0.22) 0.01
Diluted (loss) income per share (in $) (0.10) (0.22) 0.01
NON-IFRS MEASURES
EBITDA (1) 1,075 (5,399) 6,805
Add non-recurring items, net(2) 375 10,910 1,896
Recurring EBITDA (3) 1,450 5,511 8,701
Free Cash Flow (5) 207 (6,316) 8,099
Loss before taxes (5,329) (11,056) (25)
Add non-recurring items, net(2) 375 10,910 2,844
Recurring (loss) income before taxes (4) (4,954) (146) 2,819
Dividends declared and paid 2,873 2,856 929
As at As at As at
December 31, 2012 December 31, 2011 December 31, 2010
(in $ thousands) (in $ thousands) (in $ thousands)
Cash, cash equivalents and investments $ 2,353 $ 1,767 $ 14,482
Total assets 25,439 28,133 41,536
Total long-term liabilities 10,642 11,799 8,601
Total assets under management (6) 1,100,000 1,600,000 2,600,000
Notes:
(1) EBITDA (defined by Matrix as earnings before interest, taxes, depreciation and amortization & impairment and other non-cash items) is a measure used by many investors to compare issuers on the basis of their ability to generate cash from operations. Management believes EBITDA is a useful supplemental measure of operating performance as it provides an indication as to cash available for working capital needs, capital expenditures and dividends.
(2) Non-recurring items are described in Matrix's Management's Discussion & Analysis posted on SEDAR.
(3) Management believes "recurring EBITDA" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate EBITDA generating capacity of the business may be by adjusting EBITDA for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on EBITDA.
(4) Management believes "recurring income (loss) before taxes" is a useful supplemental measure of operating performance because it provides readers with greater insight into what the core or run-rate income before taxes generating capacity of the business may be by adjusting income before taxes for various non-recurring items. Without presentation of this measure, there can be a lack of transparency of the effect of non-recurring revenues or expenses on income before taxes.
(5) Management believes "Free Cash Flow" (defined by Matrix as EBITDA less interest paid, commissions paid and net taxes (payable/refundable as filed)) is a useful supplemental measure of available cash generated from the business' operations for working capital needs, capital expenditures and dividends.
(6) Assets under management or "AUM" means the fair value of the net assets of the funds and accounts managed by Matrix and its subsidiaries in respect of which fees are earned.

The following table sets out selected consolidated financial information about Matrix for the three months ended December 31, 2012 and 2011 (footnotes are listed above).

For the three For the three
months ended months ended
December 31, 2012 December 31, 2011
(in $ thousands) (in $ thousands)
Revenue
Management and administration fees $ 5,010 $ 6,150
Additional administration fees 296 345
Incentive participation revenues (624) -
Interest income 184 30
Other income 147 109
Total Revenue 5,013 6,634
Expenses
Selling, general and administrative 4,308 6,265
Share-based compensation 95 95
Servicing commissions 564 590
Amortization - property and equipment 71 82
Amortization - deferred sales commissions 541 601
Amortization and impairment - asset management contracts 1,692 797
Interest 348 192
7,619 8,622
Loss before merger, acquisition and other special project costs (2,606) (1,988)
Merger, acquisition and other special project costs - 2,416
Loss before taxes (2,606) (4,404)
Income tax expense 577 4,657
Net Income (Loss) $ (3,183) $ (9,061)
Basic (loss) per share (in $) (0.06) (0.20)
Diluted (loss) per share (in $) (0.06) (0.20)
NON-GAAP MEASURES
EBITDA (1) 141 (2,637)
Add non-recurring items, net(2) - 2,904
Recurring EBITDA (3) 141 267
Free Cash Flow (5) (237) (3,131)
Loss before taxes (2,606) (4,404)
Add non-recurring items, net(2) - 2,904
Recurring (loss) before taxes (4) (2,606) (1,500)
Dividends declared and paid 753 716

Liquidity and Capital Resources

As at December 31, 2012, Matrix had total assets of $25.4 million, a decrease of $2.7 million from $28.1 million at December 31, 2011. During the year, current assets decreased by $1.3 million while long term assets decreased by $1.4 million. Total liabilities of $24.1 million as of December 31, 2012 increased by $2.8 million compared to $21.3 million as at December 31, 2011. Current liabilities increased by $5.0 million while long term liabilities decreased by $2.1 million year-over-year. Significant changes in financial position during the 2012 year resulted primarily from a $4.0 million third party loan financing to Matrix, the proceeds of which were used to fund a loan in the same amount to GrowthWorks Canadian Fund Ltd. ("the Canadian Fund Loan"), repayment of term loans, the change from long-term to current liabilities of $1.2 million of subordinated debentures, additional $0.6 million and $0.8 million in new term loans advanced from related parties and third parties, respectively, and $1.8 million of employment related obligations.

As at December 31, 2012, Matrix had a working capital deficiency of $6.0 million, comprised of $8.5 million current assets and $14.4 million in current liabilities. Matrix's retained earnings deficit as at December 31, 2012 was $23.1 million and the net loss for the period was $4.9 million. Significant items contributing to the working capital deficit are: (1) $1.8 million of employment related obligations, primarily non-recurring lump sum payments due in April 2013; (2) $1.2 million of payments on account of a subordinated debenture due in July 2013; and (3) $6.8 million in internally-financed retail mutual fund commissions, which management aims to re-finance.

Matrix has not recorded contingent current assets of $1.7 million on the balance sheet, consisting of incentive participation revenues of $776 thousand, which have been confirmed as earned in 2012 but are paid in the form of dividends which have not yet been declared, and tax refunds receivable of $953 thousand, comprised of taxes paid in a prior year by a subsidiary, which refunds are dependent upon filing and processing of tax returns in 2013. During 2012 similar refunds of $953 thousand were received in the third quarter. Matrix's working capital deficit after deducting these contingent amounts would be $4.2 million. There can be no assurance as to whether or when contingent assets will be realized.

The financial statements and MD&A for the year ended December 31, 2012 were prepared on a going concern basis, which assumes that Matrix will continue to realize its assets and discharge its liabilities as they become due into the foreseeable future.

Management's cash flow forecasts indicate that the Company is expected to have resources available to continue to operate as a going concern into the foreseeable future, however the forecasts are based on a number of assumptions with respect to future cash flows. Uncertainties surrounding these assumptions may cast significant doubt on the ability of Matrix to discharge its liabilities in the normal course and continue as a going concern. There is material uncertainty surrounding future profitability, the realization of savings from cost reduction programs, the Company's ability to re-pay, re-finance or re-structure debt obligations, timely collection of fund management fees and incentive participation dividends from managed funds with poor liquidity, the outcome of regulatory filings and reviews, collection of tax refunds and the timing and completion of any previously announced and future strategic transactions, including possible acquisition or disposition transactions. Further information is contained in Matrix's MD&A and Annual Information Form for the year ended December 31, 2012. See "Forward-Looking Statements" below.

Management is evaluating several strategic options for reducing the Company's working capital deficit and improving the Company's operating results, including acquisitions and possible dispositions of assets or operating divisions that are not generating positive results and re-financing debt obligations.

On February 13, 2013 Matrix and Marquest announced a signed Letter of Intent to pursue a business combination. Management expects the business combination to improve Matrix's working capital position and generate cost savings as the two businesses are integrated and operating synergies are realized. See "Introduction". There can be no assurance that the transaction will be completed on the terms proposed or at all.

It is not possible to predict whether strategic options pursued by Matrix will result in sufficient improvements to Matrix's financial condition to allow Matrix to continue as a going concern. If the going concern assumption ceases to be appropriate, adjustments will be necessary to the carrying amounts and/or classification of Matrix's assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in the audited consolidated financial statements. The audited consolidated financial statements do not reflect any such adjustments and do not take into account events or conditions that arose subsequent to December 31, 2012.

Matrix's fourth quarter and year end 2012 financial statements and MD&A available on the SEDAR website at www.sedar.com.

About Matrix (www.matrixasset.ca)

Matrix Asset Management Inc. (TSX:MTA) is a diversified asset and wealth management company, with approximately $1.1 billion in assets under management and offices in four cities across Canada. Matrix's mission is to provide a diverse array of investment choices and the best possible investment management service to Canadian investors and institutions. Matrix delivers its services through three main operating subsidiaries serving institutional, high net worth and retail investors.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements based on beliefs, assumptions and expectations of the Company and not on historical fact. Forward-looking statements are provided for the purposes of assisting the reader in understanding the Company's financial position and results of operations and to present information about management's current expectations and plans related to future periods. Readers are cautioned against placing undue reliance on forward-looking statements and that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding Matrix's ability to continue to operate as a going concern, future operations, business, financial condition, AUM, financial results, expense reductions, tax refunds, dividends and dividend policies, proposed financings, re-payment, re-financing and/or re-structuring Matrix's financial obligations, managed venture capital fund divestments, targeted acquisitions and other transactions, prospects, opportunities, goals, strategies, accounting policies and estimates and outlook of the Company for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature or depend upon or refer to future events or conditions. Forward-looking statements are based upon beliefs and assumptions of management that were applied in drawing a conclusion or making an estimate, forecast or projection as reflected in the forward-looking statements, including the perception of historical trends and current conditions and beliefs and assumptions with respect to levels of AUM and related assumptions as to levels of portfolio returns and managed fund sales and redemptions, beliefs and assumptions concerning prevailing and future economic and market conditions and the impact of such conditions and other factors on Matrix's AUM and managed portfolio performance, the continuation of portfolio and fund management and advisory engagements, the extent and effectiveness of cost-saving measures and the impact of such measures and other factors on earnings, the outcome of pending and future tax filings, the outcome of litigation, the status of pending transactions and the impact of transactions on Matrix's future operations, the ability of Matrix to re-pay or re-structure financial obligations and remain in compliance with related covenants, tax rates and laws, the ability of managed venture capital funds to generate liquidity, pay management fees when due and satisfy secured payment obligations under financing arrangements, performance of managed venture capital investments relative to carrying values and performance fee return thresholds, the collection of trade receivables and the absence of extraordinary or one-time expenses not currently known to management. While management considers these beliefs and assumptions to be reasonable based on information currently available, these statements are subject to numerous risks and uncertainties and no assurance can be given that such beliefs and assumptions will prove to be correct. Accordingly, actual results may differ significantly from those expressed or implied by forward-looking statements due to many factors including, but not limited to, risks associated with institutional, mutual fund and venture capital fund management sectors generally, market, economic, political and other risks affecting portfolio performance, interest and foreign exchange rates, managed fund sales and redemptions and in turn Matrix's AUM, risks associated with tax filings and litigation, other risks affecting revenues and earnings, regulatory and other risks associated with completing proposed financings and targeted acquisitions, managed venture capital fund divestments and liquidity levels, risks associated with non-performance of financial obligations, including secured obligations, the risk that new products will not be successful, integration and continuity risks affecting completed acquisitions, changes in consumer demand for the financial products offered by the Company, Matrix's ability to respond to competition and other risks and uncertainties listed under "Risk Factors" in the MD&A for the year ended December 31, 2012 and in Matrix's Annual Information Form dated March 30, 2013, which are available on SEDAR. Many of these risks are beyond the control of Matrix.

The assumptions and risks noted in this press release are not exhaustive of the factors that may affect any of the Company's business and the forward-looking statements in this press release. Readers should consider these and other risks, uncertainties and potential events carefully and should not place undue reliance on forward-looking statements. Other than as specifically required by law, the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect new information, future unanticipated events or results or other factors.

Non-IFRS Financial Measures

"EBITDA", "recurring EBITDA", "Free Cash Flow" and "recurring income (loss) before taxes" are not measures recognized under International Financial Reporting Standards ("IFRS"). However, management of Matrix believes that most shareholders, creditors, other stakeholders and investment analysts prefer to have these measures included as reported measures of operating performance, a proxy for cash flow, and to facilitate valuation analysis. These non-IFRS measures do not have any standard meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Readers are cautioned that these non-IFRS measures are not alternatives to measures determined in accordance with IFRS and should not, on their own, be construed as indicators of performance, cash flows or profitability or measures of liquidity. These non-IFRS measures should only be read in conjunction with the financial statements of Matrix posted on SEDAR. For additional information regarding Matrix's use of non-IFRS measures, including reconciliations of these measures to the nearest IFRS measures, please refer to the "Non-IFRS Financial Measures" and "Non-Recurring Items, EBITDA & Free Cash Flow" sections of its MD&A available on the SEDAR website at www.sedar.com.

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Matrix Asset Management Inc.
David Levi
President & CEO
(604) 895-7274 and (416) 934-7700
david.levi@matrixasset.ca


Matrix Asset Management Inc.
Isabelle Gervasio
Vice President, Investor Relations & Business Development
(514) 227-0666, ext. 3222
isabelle.gervasio@matrixasset.ca
www.matrixasset.ca

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