RF Capital Group Inc.

RF Capital reported Q3 2023 revenue of $88 million, up 2% year over year, alongside a 3% increase in ending and average AUA. Adjusted EBITDA was $17 million, which included about $3.5 million of mark-to-market recoveries on DSUs and RSUs; interest income was $12 million, consistent with last year, and insurance revenue rose 55% to just over $3 million. Cash flow available for growth was $11 million, and free cash flow was $5.9 million, up $7.3 million from Q3 2022. For 2023, management now expects adjusted EBITDA to be down slightly versus 2022, versus prior expectations for flat performance, but still expects $30 million to $35 million of cash flow available for growth.

Kish Kapoor framed the quarter as part of a multi-year transformation that is now shifting toward growth execution. He emphasized improving employee engagement, a stronger culture, and a leadership transition in advisory experience and growth, while saying the business is increasingly focused on what it can control: adviser experience, recruiting, and M&A. His tone was cautiously confident, stressing that the platform is better positioned now and that the company should benefit from demand for face-to-face advice.

Tim Wilson highlighted that revenue and AUA were stable, with Q3 revenue of $88 million, adjusted EBITDA of $17 million, and free cash flow of $5.9 million. He said free cash flow available for growth was $11 million, down from $12 million last year mainly because of higher interest expense, and noted that there were no transformation-cost adjustments in EBITDA because those costs are no longer being incurred. He also said the Fidelity conversion is generating the expected $5 million to $6 million of annualized savings, and that Q3 CapEx is a good proxy for run rate at roughly $8 million annually. On capital allocation, he said the company currently sees higher-return uses in recruiting but still thinks about NCIBs and other options in the background.

Analysts pressed on the recruiting pipeline, CapEx run rate, adviser retention, Fidelity conversion savings, insurance revenue, and the use of free cash flow. Management said the pipeline has grown to close to $30 billion, with multiple advanced-stage diligence meetings and strong inbound interest, and that they expect results from these efforts in coming quarters. On CapEx, management said most large build-outs are done and Q3’s level is a reasonable annual run-rate proxy of about $8 million. On capital allocation, management said there is no short-term plan to restart buybacks because recruiting is the better current use of capital.