RF Capital Group Inc.

Harris Fricker - Chief Executive Officer and President Deb Starkman - Chief Financial Officer

Thank you, good morning, and thanks for joining us as we walk through GMP’s first quarter and results. With me this morning as usual is Deb Starkman, our CFO.

Before we get started, I would like to remind you this call is being webcast and will be available for subsequent replay. Our remarks and answers to your questions today may contain forward-looking information and actual results could differ materially.

Forward-looking information is subject to numerous risks and uncertainties. Certain factors or assumptions applied in forward-looking information can be found in our 2016 AIF and our first quarter MD&A.

These documents are available on our website and on cedar.com. This quarter saw the return of challenging conditions for generating revenue across most businesses.

Following a more accommodative market environment during the fourth quarter particularly in energy, investor conviction and risk appetite waned in the quarter. This resulted in subdued business at current activity as clients once again headed to the sidelines.

This quarter is a strong reminder that the market environment is dynamic and can change quickly. In particular activity in our advisory for our franchise was down considerably compared with the strong first quarter last year.

In fact industry wide M&A transaction volume was down 32% year over year. That said, there were several great spots for the quarter, including the performance of our equity commission business post the First Energy acquisition, a notable year over year increase in equity underwriting revenue led by our energy and real estate franchises and a strong quarterly performance at Richardson GMP.

With that let's take a closer look at our results for the quarter. Total revenue of 49 million increased 7% from Q1 last year, included in our results this quarter were 7.7 million in dividends received on our preferred share investments in Richardson GMP.

In our core activities higher commission and underwriting revenue were offset by lower advisory fees and lower fixed income trading revenue. We reported adjusted net income of 7.1 million in the quarter and adjusted diluted earnings per share of $0.07.

As I mentioned last quarter our performance clearly evidences that we are realizing the benefits of a substantial cost cutting efficiency measures undertaken over the past two years. Let me now discuss the quarterly financial highlights for each of our business segments.

Capital markets reported an adjusted pre-tax earnings of 1.7 million largely reflecting an increased operating leverage built into the business. While revenue of 38 million for this segment is down 13% total expenses were down 19% which is precisely the relationship we have worked so hard to achieve.

The year over year decrease in revenue is largely driven by 29% decrease in investment banking revenue and lower fixed income point trading activity in our US operations. These decreases were partly offset by improved commission revenue following a strong contribution from GMP First Energy.

Let me expand further. Performance in investment banking is mixed this quarter.

On the one hand revenue in our advisory franchise is down 78% compared with Q1 last year. This reflects lower client activity following a strong fourth quarter during which a number of deals consummated from our backlog.

On the other hand we saw a 40% rise in underwriting revenue led by our energy and real estate franchises. GMP securities later co-led 15 underwriting deals, completed in Canada this quarter valued at 530 million.

As I look forward the investment banking pipeline remains fairly robust as is clear the conditions for a strong advisory and underwriting cycle remain in place. One of the bright spots I mentioned in my opening remarks is equity sales and trading where commission revenue increased 29% to 12.1 million for the quarter.

This business has clearly been benefited from the addition of the accomplished energy professions at GMP First Energy. Our equity business is also benefiting from the increase trade flow that typically arises from underwriting transactions.

Following the addition of GMP First Energy we are now one of the most active traders of energy in addition to our traditional strength in mining. Principal transactions generated net gains of 8.2 million this quarter down from net gains of 10.5 million in Q1 last year.

This decrease is led primarily by lower fixed income point trading activity. Fixed income trading revenue dropped to 7.6 million this quarter as very low levels of volatility contributed to subdued client activity.

We continue to believe there is meaningful upside in terms of activity levels in this business given its very low capital intensity. With that that let's turn to wealth management segment where Richardson GMP recorded adjusted EBITDA of 11.3 million.

Revenue of 77.4 million was up a notable 18% from Q1 last year largely due to higher commissions and has actually management fees on increased client activity and a 12% year over year increase in client assets. Since year end they grew NUA by 400 million ending the quarter at just under 30 billion of NUA.

This increase largely reflects net new client assets, total T-count belt stands at 191 with average assets per advisory team and industry leading 156 million. By any measure Richardson GMP's Canada's leading independent wealth management franchise.

With that I'll turn it over to Deb to discuss expenses.

Thank you, Harris. Total expenses of 45.6 million this quarter decreased 8% compared with Q1 last year.

It's worth noting that this quarter included 3.4 million in share based compensation in connection with the unvested common shares issued to former First Energy shareholders, following the completion of that transaction late in Q3. The cost of those unvested shares will be recognized over a four year vesting period for accounting purposes and are being recorded in our corporate segment.

Excluding the impact this incremental share based compensation which we consider as part of the purchase price paid, notwithstanding the accounting treatment total expenses would decrease 15% year over year. This decrease reflects lower variable compensation commensurate with decreased revenue generation in our capital markets business.

Fixed salaries and benefits are down 27% despite the addition in GMP First Energy, anyways less the headcount reduction in connection with substantial destructuring in our capital markets business over the past 16 months. As mentioned during previous calls, the annualized run rate savings from these initiatives is approximately 50 million which represents roughly 22% reduction to our expense line.

However it’s worth repeating that keeping a close eye on expense increase is now a sensitive part of the ongoing discipline of running our business. Given the increased competition from bank loan dealers and a spinning of the rank among Canadian independent players we understand the importance of maintaining a lean business and safeguarding capital on liquidity.

Like any business there is always room to do things better and we are committed to delivering on this to our clients and shareholders, and now I'll turn it back over to Harris for closing remarks.

Thanks. Our results the past two quarters evidenced a considerable operating leverage in our business and the strength and resilience of both our capital markets and wealth management franchises.

It is no small feat that in the current environment to have generated adjusted diluted earnings per share of $0.07 per share in each of the past two quarters. Our performance while not where we would like it to be evidences we are on the right path and have considerable operating for to an upturn in the market environment.

However this quarter's business activity highlights how quickly market conditions change from quarter to quarter. We are confident that efforts to strengthen our franchise for the past two years will prove meaningful to our longer term performance.

In hind sight this allowed us to be profitable in what can be clearly be characterized as a challenging quarter for capital markets. Over our actions over the past two years we believe we have built a dominant independent player in the Canadian small to mid cap market.

We continue to manage our expenses closely and as always our focus as prudent managers of capital and risk. This concludes our remarks this morning, thank you again for joining us today.

As a reminder we will be hosting our annual general meeting of shareholders at the Calgary Petroleum Club this morning at 10am Mountain Standard Time. A slide presentation and live audio webcast will be accessible on our website, we look forward to seeing you there, thanks so much.