RF Capital's operating expenses jump 17% year-on-year to $46 million

The good news for RF Capital Group Inc (TSX:RCI) is that it managed to beat analysts’ expectations for Q1 2024 earnings. The bad news is that earnings before interest, taxes, depreciation and amortization (EBITDA) fell by 30% to $9.5 million on higher operating expenses.

In a release on Wednesday, the company noted that it saw a 17% year-over-year growth in operating expenses to $46 million due to balance sheet revaluation adjustments.

The firm's shares fell slightly in early Thursday trading.

During a conference call, CFO Francis Baillargeon explained that operating expenses outstripped revenue growth due to costs related to the firm's leadership transition and an increase in carrying broker costs from higher client trading volumes.

Last fall, president and CEO Kish Kapoor resigned, but remained on the company's board. Dave Kelly, who joined RF Capital as COO in January 2024, was appointed his successor. Baillargeon joined the firm in November, and Kevin Shubley was appointed national sales leader, before being named senior vice-president, head of advisory experience and growth this March.

Kelly's base salary in 2024 was $670,000 and Baillargeon's was $390,000. Previous CEO Kapoor had a 2024 base salary of $800,000.

The company also noted it's planning to grow in other ways. On the call, Kelly said the firm is aiming for $100 billion in assets under administration (AUA), in part via advisor retention and recruitment. That will be difficult in the current market, he acknowledged.

"We're navigating a macroeconomic environment that's impacting the industry's ability to recruit advisors," said Kelly.

He noted that economic and market uncertainty "inevitably leads to challenges in recruiting advisors" as disruption in the markets makes it difficult for them to move clients. "We'll need to work through these challenges, and in the meantime, we'll keep close to those teams who are more ready to make a transition once the markets stabilize."

"It's been an exceptionally challenging start to the year based on the complex global economic environment, [which] ultimately has its impact on our industry and our business," Kelly said, adding that it may require the firm to delay some investments.

The company also plans to grow through acquisitions and partnerships with other firms.

At the end of Q1, RF Capital had 149 advisory teams onboard, down from 151 a year earlier.