CI Financial Corp.

Good morning and welcome to the CI Financial first quarter 2022 earnings call. My name is Brie Kerr and I'll be today's event specialist. There will be a question and answer session today, and if you wish to ask a question, you may press star followed by one on your telephone keypads. Your host for today's call will be Kerr Alkapine, CEO of CI Financial. So Kerr, please go ahead when you're ready.

Good morning, everyone, and welcome to CI Financial's first quarter earnings call. Joining me on the call is our CFO, Amit Muni. Together, we will cover the following topics, a discussion of the highlights of the quarter, a review of our financial performance during the quarter, an update on our sales to date for the month of April, an update on the execution of select items of our corporate strategy. Then we will take your questions. Before I discuss the highlights and challenges, I wanted to take a moment to acknowledge Lorraine Blair, who is our Head of Human Resources and the longest-standing employee in CI's history, on the incredible contributions that she's made to our company since joining in 1985. She will be transitioning to a much-deserved retirement over the summer. Lorraine has generated incredible impact for our employees and our shareholders. On the employee front, she has put in place our hiring processes, established the learning and development team, leads our diversity and inclusion efforts, and launched our employee engagement programs. On the shareholder front, she's provided valued advice as a member of the executive team and was actively involved in integrating all of CI's acquisitions. On behalf of CI Financial, I wanted to thank you for your contributions to our company, and we wish you well in retirement. Upon retiring, Lorraine will be replaced by Manisha Vermon, who is joining CI as EVP and head of human resources from BMO, where she was previously head of workforce strategies and client experience and the chief human resources officer for their capital markets and international wealth businesses. The resiliency of our business model and the benefits of our diversification efforts are evident in our first quarter results. amidst a backdrop of extreme market volatility and economic uncertainty. Our adjusted EPS of 85 cents was down one cent sequentially, despite the declines in both equity and fixed income markets. However, on a comparable basis, excluding the impact from the launch of CIPW, EPS would have increased 3.5 percent from the prior quarter to a record of 88 cents. Free cash flow of $202 million or $1.02 per share was a record for the company and a direct result of the capital we've deployed towards high quality wealth management firms over the past two plus years. We continue to take a dynamic approach to capital allocation. We focused our capital deployment towards reducing debt while also taking advantage of what we believe is a disconnect in our share price by buying back shares at the end of the quarter. Despite a very challenging market environment, firm-wide net flows were positive in Q1 on the back of continued strength from both our U.S. and Canadian wealth businesses. While our asset management segment experienced net redemptions, it is worth digging a little deeper to understand the flow dynamics in the quarter. Outflows were driven by tactical strategies, such as cryptocurrencies and gold, and fixed income products amidst rapidly rising interest rates. Our mutual fund platform, which makes up nearly 80% of our segment assets under management, saw net ed flows decline nearly 50% compared to the first quarter of last year. This highlights the structural improvements we've made to our business as a result of the complete transformation that we've undertook. This is also why we believe the flow turnaround in 2021 is sustainable, absent periods of extreme market volatility. We continue to make progress against our three strategic priorities. As we discussed on the last call, we successfully launched the CIPW partnership in January and have approximately 180 equity partners in our U.S. business. Overwhelming demand to increase their ownership from our partners shows the conviction they have in the strategy, although it did reduce our EPS by three cents in the quarter on a comparable basis. Finally, about a month ago, we announced our intention to pursue a subsidiary IPO of our U.S. wealth business. After a thorough evaluation of our strategic options, we concluded that this is the best route to unlocking shareholder value while retaining long-term strategic flexibility. I'll now turn the call over to Amit to review our financial results.

Thank you, Kurt, and good morning, everyone. Turn to slide four. Our global assets ended the quarter at $361 billion. Negative market sentiment offset the overall firm-wide positive flow we've had in the quarter, particularly in the wealth segments. This is the first quarter where we are reporting in three operating segments, asset management, Canada wealth management, and U.S. wealth management. In addition, we have reformatted our income statement to make it easier to understand our financial results. We have also provided additional operating data on the three segments. Additional historical information is available on the IR section of our website. Turning to the next slide, I'll focus my comments on our adjusted results as I walk through at a high level the earnings for the quarter. Adjusted net income was $171 million in Q4. Our earnings benefited $20 million this quarter from the full quarter effect of several acquisitions that closed at the end of last year. Our pro forma operating tax rate declined to approximately 25.2% as more of our earnings are being generated by our U.S. wealth management segment. We expect this lower rate to continue in future periods. We had additional expenses related to seasonal payroll taxes due to bonus payments in the first quarter. In addition, we lost two days of revenue due to less days in the first quarter. And lastly, other operating costs declined roughly $4 million. On a fully comparable basis to last quarter, our pro-foreign net income was $173 million, or $0.88 per share, as compared to $0.86 last quarter. Due to the overwhelming demand from existing partners for ownership in CIPW, we made the strategic decision to allow additional unit sales at pricing consistent with the fair market value for that business, which reduced our earnings by $5.5 million, giving us adjusted net income for the quarter of $167 million, or $0.85 per share. I'll now highlight revenue drivers for our three segments. Turning to the next slide. Asset management revenues declined due to negative markets and net outflows. Our Canada wealth segment benefited from transactional fees due to the RRSP season and increase in number of client accounts. Our U.S. wealth segment revenues increased primarily due to the full quarter effect of acquisitions. Non-controlling interests, which primarily represents the revenues owned by the minority owners of CIPW, increased due to the launch of the business on January 1st and the additional purchases by partners. Adjusted revenues were $587 million for the quarter. Turning to expenses on the next slide. On a fully comparable basis, total expenses increased slightly due to higher SG&A expenses and dealer fee payouts due to higher revenues from our Canada wealth segment. Expenses increased by $14 million due to the full quarter effect of year-end acquisitions resulting in adjusted total expenses of $384 million. On slide eight, we can review our capital priorities. We continue to generate strong cash flows of $201 million in the quarter. As we stated on our last call, we paused our buybacks due to transaction closings at the end of the last year. This quarter, we deployed $92 million to buybacks, as well as reducing debt by $246 million. Turning to the next slide, we can review our debt and leverage. At the end of the quarter, we had approximately $3.5 billion of outstanding debt on a gross basis, or $3.4 billion on a net basis, and our net leverage was three times based on our annualized first quarter adjusted EBITDA. We expect to deleverage over time as we generate earnings from the businesses we have acquired, as well as reduce debt, as we have demonstrated. Now turning to the next slide, I'll explain the accounting nuances related to our establishment of CIPW to help you better understand how it flows into our financials. Because of the terms associated with the liquidity features of the CIPW units, accounting rules recognize the units as a liability, not equity, and additionally as compensation expense, like a stock award granted to an employee. Each quarter end, we will recognize a liability reflecting the fair value of the units that have vested. The fair value will be based on a predefined valuation formula. The change in fair value for awards that have vested will be recorded as compensation expense in SG&A over the vesting period. To help put this charge in context, An increase in the liability or expense ultimately means that the value of CIPW has increased because of higher AUM, profitability, and operating margins, which benefits all holders of CIPW, of which CI is the majority. In addition, any distributions we make to the unit holders or recognition for non-controlling interest is also classified as compensation expense, which flows through SG&A. As you can see in our adjusted results, we have backed out these accounting charges to allow for better comparability and understanding of our financial results. Thank you, and now let me turn the call back to Kirk.