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 third quarter results.

With me this morning is Deb Starkman, our CFO. 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 numerous risks and uncertainties.

Certain factors or assumptions applied in forward-looking information can be found in our 2016 AIF and our third quarter MD&A. These documents are available on our Web site and on sedar.com.

The third quarter provided one of the least constructivist business backdrops in our firm’s history. The operating environment represented a continuation of the ongoing Malaysian commodities and a low level of activity in small to mid cap names in general.

This was particularly availably acute in our equity underwriting franchise and sales and trading businesses where client activity and equity market volatility remain stubbornly low. The dollar value of our industry-wide equity underwriting transactions completed in the quarter across all sectors was down 61% compared with the same period a year ago.

And this is an industry-wide statistic. And closer to home, the dollar value of industry-wide mining and energy transactions in the quarter decreased 73% and 100% respectively.

This confluence of conditions, when combined with muted investor conviction, made for a daunting revenue environment and a disappointing quarter. Despite these obvious performance headwinds, there were several bright spots this quarter.

First, we remain encouraged by the strength demonstrated by our Canadian and international advisory franchises as the conditions for a favorable M&A cycle remain intact. M&A revenue was up 157% year-over-year.

Second is the ongoing earnings momentum of our wealth management business where our partners at Richardson GMP have grown client assets to $29.4 billion by quarter end. And lastly are the benefits of maintaining leaner operations and solid capital positioning have provided the financial flexibility to sustain the business through current and long term cyclical lows.

Though below expectations, we have delivered adjusted net income in three of the past four quarters. Further, we note a solid start to the fourth quarter with more robust capital markets activity in the month of October.

The pace of dialogue with clients has accelerated and our pipeline activity is stronger than it has been in quite some time. Helping lead the charge into the fourth quarter is momentum in our recently established blockchain practice.

We believe that this fairly nascent for transformative technology will be the ultimate disruptor. Client dialogue and investor feedback continues to be quite positive, and there’s little doubt the blockchain technology is here to stay.

And importantly, GMP intends, as always, to be the most effective bridge between great teams of entrepreneurs with great business plans and the investors who want to invest in them. Let’s now turn to our results this quarter.

GMP generated adjusted net income of $500,000 on total revenue of $34 million. This translated into an adjusted diluted loss per share of $0.01.

Let's take a closer look at the results for the quarter. Total revenue of $34 million decreased 21% from Q3 last year.

This decrease was largely due to lower investment banking revenue led by a sharp retreat in equity underwriting activity. Lower client related trading activity across both equity and fixed income markets also contributed to the decrease.

Partly offsetting is increased was higher M&A advisory fees in our Canadian and international franchises and $5.6 million in dividends received from our preferred share investments in Richardson GMP. For the first nine months of 2017, GMP generated adjusted net income of $9.1 million, up substantially from the net loss of $1.5 million for the first nine months of last year.

Total revenue of $127.6 million decreased 3%. The improvement in negative income, despite a drop in revenue generation, evidences the firm’s enhanced operating leverage.

Adjusted diluted earnings per share year-to-date, was $0.08. Let me now discuss quarterly financial highlights for each of our business segments.

Capital markets reported an adjusted loss before income taxes of $3.6 million into Q3 compared with pretax earnings of $4.6 million in the same period last year. Revenue of $26 million decreased 37% from Q3 last year, largely driven by 39% decrease in investment banking fees and lower fixed income client trading activity in our U.S.

operations. Let me expand further.

The decrease in investment banking revenue was driven by 74% drop in equity underwriting fees compared with Q3 last year. Our share of decline in equity underwriting was broadly across the industry with the dollar value of transactions completed in Canada dropping 61% since Q3 last year.

And as mentioned in my opening remarks, down further in both mining and energy. Partly offsetting this decrease was higher advisory revenue in our Canadian mining and international energy franchises.

There is no doubt that equity underwriting in commodities remains at or near historical lows. However, there is also no doubt that the value proposition for any Canadian dealer must include a top tier franchise in the country’s two top economic sectors, mainly mining and energy.

This is unlikely to change. And GMP is the only Canadian independent with both.

Given the success and leadership of our franchise in these important sectors over the past decade, GMP has been mistakenly categorized as exclusively a commodities franchise. That’s simply is not the case.

We make no apologies for being a leader in commodities. We’re very, very proud of that leadership and our competitive positioning in both the mining and energy sector.

However, we are also enjoying considerable success in growth in market share outside of commodities. We’re a firm of entrepreneurs who will continue to play a crucial role in connecting Canadian small and mid-cap companies with the advice and capital necessary to grow their businesses regardless of industry sector.

In the last several months alone, our firm has operated considerable capital outside of the commodity sector for corporate clients that include CanWel Building Materials, HIVE Technologies, MedReleaf, GoldMoney, Stingray Digital and Drone Delivery to only name a few. Our near term focus is continuing to drive market share gains outside of commodities.

Through the first nine months of 2017, investment banking revenue outside of commodities accounted for approximately 42% of total investment banking, up considerably from last year. And in energy, we are beginning to see increasing signs that conditions maybe improving, particularly given that the price of oil has remained above what appears to be the key psychological barrier at $50.

The oil market is rebalancing and the crude oil supply demand balance globally is starting to show real signs of tightening with inventories, both overseas and the United States, showing clear signs of moving lower. We are cautiously optimistic that there was potential for prices to break out of both recent long standing ranges, which will impact new investment in Western Canada and the energy markets internationally.

Turning to advisory where client dialogue remains robust. We enjoyed renewed stakes in Canada and internationally and we are hopeful this renewed strength will continue into Q4 and on into 2018.

Our reason for optimism is rooted in higher CEO confidence, strong equity market valuations and an historically low financing costs in both the equity and high yield markets. In equity sales and trading, commission revenue decreased 32% to $6.9 million this quarter, largely due to muted client activity and low levels of volatility, amid a general shift towards liquidity in larger cap names.

Our results in this business were consistent with the market backdrop and industry trends. Virtual transactions generated net gains of $3 million this quarter, down from net gains of $7.2 million last year.

This decrease was led primarily by lower fixed income client trading activity in the U.S. and lower returns from principle inventories.

Fixed income trading revenue dropped to $5.2 million for the quarter, down from $8.3 million in Q3 last year. With that, let’s turn to the Wealth Management segment.

Richardson GMP recorded adjusted EBITDA of $8.5 million this quarter and $31.3 million for the first nine months of the year. Revenue of $66.2 million was down 6% from Q3 last year, largely due to lower new issued commissions.

Richardson GMP ended the quarter with AUA of $29.4 billion. Total team count stands at 183 with average assets per advisory team at impressive $161 million.

Despite a weak trading environment, Richardson GMP continues to benefit from its high proportion of fee based client assets, which means it is less reliant on transactional activity compared to its peers. Before I turn it over to Deb, let me say a few words on Richardson GMP’s debt refinancing, which was announced earlier this week.

Subsequent to quarter end, Richardson GMP entered into a four year $80 million credit facility with a syndicate of chartered banks. Richardson GMP intends to use the initial proceeds from this facility to refinance its existing long-term indebtedness with the remainder of the proceeds to be used to redeem a substantial portion of its Class B Preferred Shares for an aggregate cash redemption amount of $45 million.

This amount will be allocated equally between GMP and James Richardson & Sons, Limited. Concurrently, Richardson GMP also intends to repay fully its $5 million subordinated loan facility made available by GMP.

In the aggregate, GMP anticipates receiving approximately $28 million in cash. These proceeds represent a notable return of capital, which substantially strengthens our already strong net working capital position.

It is worth stating that Richardson GMP’s stable cash flow operation should allow the company to continue to return capital to its shareholders. This new credit agreement is a positive reflection of the evolution of their business and strong financial performance, and allows the business to access more cost effective and tax efficient external funding, thereby increasing financial flexibility at Richardson GMP.

These transactions in no way affect the existing equity ownership interest in Richardson GMP held by GMP and James Richardson & Sons, Limited. GMP and the Richardson family each continue to own approximately 32% equity stake in Richardson GMP with the remainder held by Richardson GMP management and the IA teams.

We remain committed to working with our partners at Richardson GMP as they continue to grow the business and solidify their firm standing as the leading wealth management firm in Canada. With that, I’ll turn it over to Deb to discuss expenses.

Thank you, Harris. Total expenses of $37.6 million this quarter decreased 33% compared with Q3 last year, largely due to lower employee compensation and benefits expense.

Partly offsetting this decrease were incremental operating expenses since the third quarter 2016 acquisition of FirstEnergy and higher share based compensation, which included $3.1 million this quarter in connection with the FirstEnergy transaction. Q3 last year included $15.1 million in restructuring and integration costs.

Adjusting for these times, total expenses decreased 16% from Q3 last year, largely due to 38% decrease in variable compensation expense, mainly in our capital markets business statements commensurate with lower revenue generation. Big salaries and benefits are down 49% despite the addition of GMP FirstEnergy and largely reflect notable restructuring and integration charges recorded in Q3 last year and lower current quarter headcount in connection with substantial restructuring of our capital markets business over the past two years.

Non-compensation expenses decreased 29% from Q3 last year. The decrease largely reflects prior year restructuring and integration charges that also includes lower transactional related expense this quarter to measure it with muted business activity.

Partly offsetting this decrease was incremental GMP FirstEnergy expenses and higher interest expense in connection with increased stock pouring and lending activity. We remain confident that efforts to maintain leaner operations and positive operating leverage will prove meaningful to our longer term performance and, of course, safeguarding capital and liquidities remains a top priority.

And now, I’ll turn it back over to Harris for closing remarks.

Thanks, Deb. A less than constructive market backdrop in the small to mid-cap segments of the domestic market continues to provide performance headwinds.

Our response has been measured meaningful and timely. We are much leaner organization today, following the substantial restructuring of our capital markets business.

Our cost structure is highly variable and we are comfortable that our fixed cost base is more effectively aligned to the new normal in our industry and reflects our disciplined expense and risk management practices. Having successfully executed on the cost side of the business, the next logical step describing top line revenue growth in adding diversification.

We added revenue producers to our franchise, both organically and through acquisition. We also focus considerable effort towards winning further market share in non-commodities, mainly technology, healthcare and the blockchain.

Our results demonstrate that we are gaining traction in all commodities with the aforementioned now representing over 40% of banking revenues. And our expansion into blockchain ecosystem and currency represents an exciting new opportunity for our firm, and is reflective of the firm’s longstanding commitment to the technology space and the belief that this technology holds the potential to be a significant disruptor across multiple industries.

GMP is ready for blockchain. At the end of the day, firms that are able to disrupt are the ones who adapt best and GMP continues to be that firm.

That concludes our remarks this morning. Thank you again for joining us today.

And we look forward to speaking with you at the next quarter.