CI Financial Corp.

Hello all and a warm welcome to the CI Financial second quarter 2022 earnings call. My name is Lydia and I'll be your operator today. If you'd like to ask a question after the prepared remarks, please press star followed by the number one on your telephone keypad. It's my pleasure to now hand you over to Curt McAlpine, CEO of CI Financial. Please go ahead when you're ready.

Good morning everyone and welcome to CI Financial's second quarter earnings call. Joining me this morning is our CFO, Amit Muni. Together we will cover the following. An overview of the highlights of the quarter, a review of our financial performance during the quarter, an update on our sales to date for the third quarter, an update on the execution of select items of our corporate strategy. Then we will take your questions. The impact of our corporate strategy is evident in our second quarter results amidst an extremely challenging market environment. Our adjusted EPS of 78 cents, despite the market pullback, was up 5% from a year ago, illustrating the benefits of our diversification efforts and capital management approach. To put these results in perspective, our peer group averaged a 20% decline in earnings per share on a year-over-year basis. EBITDA per share and free cash flow per share both increased more than 10% from a year ago, and are a direct result of the capital we've allocated to transforming the business. The percentage of our EBITDA coming from our wealth businesses has doubled since the same quarter last year. Our capital deployment in the quarter was focused on completing previously announced M&A obligations as well as buybacks to take advantage of the market dislocation in our shares. A sizable redemption from a single institutional client exaggerated net outflows for the quarter. Importantly, the institutional outflows were primarily from a single low fee mandate and had no impact on our earnings. On the Canadian retail side, flows held up well given the operating environment and broader industry flow challenges. Excluding the institutional channel, Canada retail net flows improved by more than $500 million sequentially. Our wealth businesses continue to generate consistently positive inflows despite market volatility. Both our Canadian and U.S. wealth businesses had positive organic growth in Q1 and Q2 and combined have generated net inflows of more than $4 billion through the first half of the year. Periods of volatility, like this year to date, illustrate the strength of the advisor-client relationship and the importance of sound financial planning. We also continue to execute against our three strategic priorities to modernize asset management, expand wealth management, and globalize the company. During the quarter, we closed on the previously announced acquisitions of Northwood Family Office, Canada's leading multifamily office, and USRA's Corrient and Galapagos. We continue to make strategic progress on the modernization of our asset management business, and I will discuss later on the call how these changes are leading to better outcomes for our clients. Within our U.S. wealth platform, we are taking advantage of the scale we now have to expand the services we provide to clients and to improve our operational efficiency. During the quarter, we applied for a charter to establish a South Dakota trust company. This enables us to provide a variety of services that better meet the complex financial needs of high and ultra high net worth clients. Finally, in May, We were the recipient of IT World Canada's Digital Transformation Award. This award validates the team's hard work and vision to modernize the business. Highlights of our efforts include embedding artificial intelligence and machine learning into our sales process, digitizing and automating several internal functions, and adopting a cloud strategy. The result is a more efficient company, better positioned to serve our clients. There is more work to be done on the digitization and automation front, but I'm excited about the progress to date. I'll now turn the call over to Amit to review our financial results.

Thank you, Kurt, and good morning, everyone. Turning to slide four, our global assets ended the quarter at $334 billion, primarily driven by the negative market sentiment, which was partly offset by inflows in our Canadian and U.S. wealth businesses, as well as assets from three wealth acquisitions, which closed during the quarter. Despite the negative backdrop, we have seen a 12 percent increase in AUM from last year due to a combination of organic and inorganic growth partly offset by the market. Turning to our financial results on the next slide, I'll focus my comments on our adjusted results. Adjusted net income was $149.2 million in the quarter, down 11 percent. However, adjusted EPS was down only 8 percent to 78 cents per share. Despite revenues being down 4%, expenses increased only less than 1%. I'll now highlight revenue drivers from our three segments on our consolidated results. Turning to the next slide. Asset management revenues declined due to negative markets and net outflows, primarily in a low fee generating institutional product. Our Canada wealth segment declined primarily due to lower asset levels, which was partly offset by net inflows in our acquisition of Northwood. Our U.S. wealth segment revenues increased primarily due to acquisitions and positive net flows, which were partly offset by negative market declines. Other income increased primarily due to higher interest income from client account balances due to an increase in interest rates. Turning to expenses on the next slide. On a fully comparable basis, total expenses declined 1.3% to 378 million, primarily due to lower advisor and dealer fees, which are mainly driven by asset levels in our Canadian wealth segment. Despite inflationary pressures, SG&A expense increased less than 1%. Expenses from newly acquired businesses were 8 million in the quarter, resulting in adjusted total expenses of 385 million. On slide eight, we can review our margins. Consolidated adjusted EBITDA margin was 44.5 percent, down only 2 percent from the first quarter. The segment results reflect the benefits of our strategy to expand our wealth businesses. Despite the challenging markets that affected all segments, the decline in our asset management segment margins were partly offset by an increase in margins from our Canadian and U.S. wealth segments. These margin increases are a result of the integration initiatives starting to flow through our business. We are still in the early innings of capturing synergies and operating leverage in the business that will flow through as markets improve. Now I'd like to provide you with some additional information given the difference in how our revenue is generated by our U.S. wealth business that our Canadian analysts and investors may not be as familiar with. About half of our U.S. wealth revenue is based on client asset levels at the beginning of a quarter. Therefore, part of the revenue we generated in the second quarter was based on asset levels as of March 31st. Asset levels are down at June 30th due to market declines. Therefore, we project our U.S. wealth revenues to be in the $150 to $160 million range, which is down from $169 million in the second quarter. However, due to our ongoing integration efforts, we don't anticipate a decline in margins. Turning to slide nine, we generated free cash flows of $170 million for the quarter. We deployed $60 million to buybacks and $35 million for dividends. Turning to the next slide, we can review our debt and leverage. At the end of the quarter, we had approximately $3.7 billion of debt outstanding on a gross basis or $3.5 billion on a net basis. The $158 million increase in our debt levels was due to two factors. First, an $85 million increase in the use of our credit facility due to the closing of three acquisitions during the quarter and to fund our buybacks. Second, a $73 million or 46% of the increase was due to an FX translation of our U.S. denominated debt. Our net leverage was 3.5 times based on our annualized second quarter adjusted EBITDA. However, our credit facility definition of leverage is well lower than the four times covenant level. Of the 85 million we drew on our credit facility, we spent 60 million on buybacks. As you've heard us say many times, we believe there is a disconnect in our stock price and the value of the business we have built. Because of this disconnect, This quarter, we used our free cash to buy back stock to save on a 4.9% dividend yield versus the 2.9% after-tax cost of our debt. We bought back shares at an approximate 4.4 times price-to-earnings multiple. We believe comparable public companies to our U.S. business traded higher multiples than that. So we view these buybacks as an efficient use of capital ahead of an IPO of our U.S. business. Thank you, and now let me turn the call back to her.

Since joining CI, we prioritized creating a strategy that is designed to continuously assess all aspects of the business in order to position the firm for maximum success. Historically, CI operated with a horizontal management structure that sat across the entire firm. We've implemented changes over the past couple years to improve the governance structure of each business, enhance operations, expand profitability, and accelerate growth. As discussed previously, we've overhauled all aspects of our asset management business to improve investment performance, better serve clients, and operate more efficiently. On this call last quarter, we talked about the organizational changes we made to the Canadian wealth business. namely unifying leadership under Sean Etherington and Chris Enright, the presidents of Asante and Align Capital, respectively. Having unified management enabled us to integrate our advisor recruiting efforts, consolidate technology, discontinue redundant systems, and expand the capacity of our institutional broker-dealer, CI Investment Services. In the U.S., we installed a complete governance structure with committees comprised of partners in CI private wealth, that oversee key aspects of the integration and synergy capture, including technology, finance, client experience, business development, client solutions, and investments. Across the company, these structural and governance changes combined with our rapid strategic transformation have resulted in promotions and new opportunities for employees. CI believes that we are a better organization when we maximize diversity of background, education, and perspective in our decision making. This viewpoint has resulted in us now having one of the most diverse workforces in Canadian financial services. Today, more than 40% of our employee base are women, with a proportionate representation in management roles, and approximately 40% of our workforce identify as minorities. We operate in a human capital businesses, And we are committed to continuing to create opportunities for our employees and increase our diversity as we execute our strategy. i've talked at length on previous calls about the changes we made to our investment management platform pivoting from a series of competing boutiques to an integrated global platform and shifting from funds run by individuals to funds run collaboratively by a team. The results of these changes speak for themselves. When we initiated the strategy in Q4 of 2020, only 37% of our funds were outperforming their peers over the previous three years. Today, we're at approximately double that amount, with 72% of our funds outperforming their peers. This is the best investment performance improvement of any of our peers over this time period. It is important to note that the performance improvement spans a variety of asset classes and products and combined with newer innovative products leaves us well positioned to compete for virtually all money in motion opportunities. A combination of new integrated team-based approach to our investment platform and the resulting performance improvements, our distribution and marketing strategy powered by predictive analytics, and our new approach to product development are starting to drive sustainable improvements to our flows. During the month of July, our Canadian business flows remained positive, driven by $139 million in net flows from our Canadian retail business, while the rebound in markets helped our firm-wide assets increase to 4.4% to just under $350 billion. Before opening the call to questions, I want to take a step back and put our recent results in context and highlight where we are today and where CI is headed. It's been a challenging operating environment given market volatility across nearly every asset class. However, our laser focus on strategic priorities and effective capital management have produced growth. As to where we are today, in the second quarter, we delivered the best year-over-year financial performance of any of our North American traditional asset management peers. Our EPS increased 5% from the same quarter a year ago compared to an average decline of 20% for our peers. These results reflect the restructuring we did in our Canadian asset management business, the prioritization of our Canadian wealth management business, the expansion into the U.S. wealth management space, and our effective deployment of capital. We are on track to file an S-1 for our U.S. IPO with the SEC during Q4. Looking forward, I believe the changes we have made position us to deliver sustained organic growth in asset management, continued rapid and profitable expansion of Canadian wealth management, and unlocking significant value for our shareholders as our U.S. wealth business continues to scale, recognizes efficiencies through integration, and executes the IPO. I'd now like to open up the call for questions.

Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad now. To withdraw your question, it's star followed by two. When preparing to speak, please ensure your device is unmuted locally. Our first question today comes from Kyle Voigt of KBW. Your line is open. Please go ahead.

Hi, good morning. Maybe my first question would be on capital, but with leverage moving a bit higher in the quarter at three and a half times and with average market levels still down a bit year on year and significant volatility. So in equity markets, should we really be thinking about this level as being the high end of where you want to run your leverage ratio over the next few quarters? And I guess, are you comfortable running here until we get to this U.S. wealth IPO or should we expect some deleveraging even ahead of the IPO?

Thanks, Kyle. So as you mentioned, our leverage ratio increase is effectively entirely driven by the declines in the markets, not our increase in spending. So during the quarter, as Ahmed had mentioned, we increased our debt by $85 million to fund these previously announced transactions and then buy back about $60 million worth of stock at a PE multiple of 4.4. In a neutral market, this would have impacted our leverage ratio effectively zero or less than 0.1 terms. So when we took a look at this, we were comfortable with the trade-off, looking at the current share price and the upcoming IPO intentions. I'd say looking forward for the remainder of the quarter, we have no additional uses of capital planned for us currently. So we're comfortable with the debt that we have, and we believe as markets continue to hopefully stabilize and rebound, that our leverage ratio will trend down proportionately, given the uptick was driven by markets.

Okay, great. And then just a second question on the U.S. wealth IPO. I appreciate the additional color regarding the S-1 filing in Q4. I think on last quarter's call, you mentioned you went through a strategic review of options for that U.S. business and noted that the IPO was the best path forward. I just want to confirm that that is indeed still the case. And I guess, are you open to other strategic alternatives still? Or should we take this as really narrowing your sights on this IPO track?

We are 100% confident that the separation of the businesses to unlock shareholder value through the IPO is the right path forward for us. We've been sticking absolutely to plan and are on track to file. If you look at the U.S. business, what it's done for our earnings and growth as a company, it's been transformative for us. It's incredibly strategically important to us. We're just beginning to scratch the surface and really in the first inning of capturing our true potential. So we're 100% committed to the pathway that we're on. We're on track on schedule and look forward to getting everything filed in the coming weeks. Great. Thank you.

Thanks.

And next question comes from Tom McKinnon of BMO Capital Markets. Please go ahead.

Yeah, thanks. Good morning. First question just about operating free cash flow. It seems to be down 10% year over year. And despite higher AUM and despite better EBITDA year over year and better adjusted EPS year over year, So is there anything unusual in the operating free cash flow this quarter, and how should we be looking at that going forward? And then have a follow-up. Thanks.

Hey, Tom. No, there's nothing unusual. Remember, we had a couple of closing of transactions in the quarter, so that will affect the timing of any major cash flow movements. So I think you're just really just seeing the effect of that in this particular quarter.

So if adjusted EPS goes up, I don't know, 10% going forward, would we expect the operating free cash flow to be going up consistent with that? Should it track that kind of growth going forward?

I don't want to give just consistent guidance, but I would say you're directionally correct.

Okay. And then a question for Kurt with respect to the decision here to not take the free cash flow and deleverage, but to buy back stock. And I understand stock is cheap and that's the reason why you want to buy back. But as I understand, when you move to IPO, the U.S. Wealth Management, I don't think you're going to have any debt on that. So it's not going to influence the value of the U.S. Wealth Management IPO in that regard with respect to leverage. But you're just going to be loading up more leverage on the stub here and you know, that might have some implications for its value. So why not just try to continue to reduce your debt as opposed to buying back stock?

Well, Tom, when we look at it, we're looking at a variety of different factors. As I mentioned, having an opportunity to acquire the shares that we acquired at a P multiple of 4.4 was, unprecedented and incredibly attractive buying opportunity for us. The capital we've deployed in addition to the share buyback was to fund acquisitions that we previously announced that we believe will set our U.S. business up with more scale, faster growth, and better margins. So knowing we intend to IPO this business in the coming months, we felt the tradeoff was appropriate, and we will use the proceeds as indicated before to de-lever uh, the Canadian business. So our, our belief is that if we can buy our shares back at 4.4 times PE, when you look at all comps of wealth management businesses, there's a very significant disconnect between the multiple we trade at and what that multiple, uh, ideally will be on the corresponding other end. And that that's how we made the, made the trade off. If you look at the buyback decision and put it in broader context, $60 million would have very little impact or no impact actually on our leverage ratio on a standalone basis, but the impact from an accretion standpoint and what it does for our business is quite profound, and that's the tradeoff that we made.

I understand. And the decision then to IPO the U.S. wealth management business, is that strictly to surface value or does it have anything to do with trying to – raise proceeds to pay down debt? Or is that just something that would happen as a result of you trying to surface value?

This is 100% driven by a desire for our shareholders to realize what we believe to be the true value reflective in the share price. This has absolutely nothing to do with the need for capital or anything along those lines. I think we've had people ask the question before, and I think if anybody looks at our leverage, our interest obligations, our free cash flow in the business, you would not come to that conclusion at all. So 100% driven by our desire to realize value for our shareholders.

And if I could just squeeze one more in, I think you had mentioned in the past what the net sales are for the U.S. wealth management business. uh in the second quarter i think in the first quarter they were break even um not sure if you can share with us what the net sales were in the second quarter for the u.s wealth management business and how they're trending so far in july so in q1 just to clarify um strongly positive q2 was strongly positive

We're figuring out the sequencing and the timing for when we disclose kind of wealth flows going forward, but in the first half of this year, as I mentioned in the prepared remarks, we delivered well north of $4 billion of net flows across our wealth businesses.

Okay, thanks for that.

Sure.

Our next question today comes from Nick Pribb of CIBC Capital Markets. Your line is open.

Yeah, okay, thanks. The Canadian retail flows have been pretty resilient in the context of a deteriorating trajectory of fund flows in Canada. Are there any asset classes or strategies in particular or distribution relationships that are helping sustain that momentum or the third-party demand for those funds?

Great question, Nick. It's not really one isolated event. I think it's the combination of everything that we've done and worked so hard on strategically, right? If we start with the investment platform, one of the biggest drivers or the primary driver of your ability to drive flows is how are you performing on an absolute basis and relative to your peers, right? As I mentioned a little earlier, the number of funds that we have beating our peers from when we initiated the restructuring to today is doubled. So as you can imagine, that puts us in a much better position to drive sustained organic growth than when we started this in 2020. That combined with the distribution approach, which is powered by the analytics and predictive models, the way that those work is you just get smarter and smarter on your clients as more inputs come in and more interactions take place. It's not necessarily call it distribution, new distribution relationships, the way you're defining it as by third party platform relationships that didn't exist. The distribution landscape is the same for us. I think we are serving clients a lot more effectively, a lot smarter in a much more targeted way, which is evident in our flows. And then the third piece is our approach to product development. And we've really worked hard to make sure that we're at the forefront of product development and launching relevant product strategies for clients that they want in today's environment and looking forward. Related to that, we've also done a lot of work to clean up our product lineup. A couple of years ago, or even a year ago, we had several of our funds that still carried the legacy boutique names. A lot of them were designed to compete against one another. And there's just a lot of complexity in our lineup as our clients look to engage with us. We've cleaned all of that up now as well. So I think when I look at just the inputs that have led to the improvement in our flows, significantly better investment performance with a much more structured and disciplined investment platform, really reaping the benefits of integration. This distribution approach, product development, and then sound product management puts us in a pretty good place and in a place that we haven't been in in probably a decade.

Yeah. Okay. And those retail flows may have been kind of overlooked or overshadowed, I suppose, by a few sizable institutional redemptions lately that maybe were lower margin in nature. Is there anything else in the pipeline that might be a little bit chunky and could come out over the next quarter or two?

We don't believe so in terms of forward looking. Look, anything could happen from a redemption standpoint. The institutional business, which tends to be the lumpier of the flows with that large mandate that we mentioned kind of leaving is really around $5.5 billion of total assets today. significantly de-risked from where it was a couple of years ago, where those assets were probably more than double, and they were predominantly held in bank and insurance platforms that competed directly with us in the asset management space. So even despite the lumpiness and the redemptions we've seen in institutional, almost all of it has been repositioned by a bank or an insurance company to an internal mandate. as well. So when I look at where we're at today and what's planned in the pipeline, the answer is no, we don't anticipate anything lumpy, but obviously that could change, but it's off a very small asset base when you think of $5 billion in context of our $350 billion of total assets.

Yeah, okay. Fair enough. All right, that makes sense. I'll re-cue. Thank you. Thanks, Nick.

As a reminder, if you would like to ask a question today, it's star followed by the number one on your telephone keypad. Our next question in the queue comes from Jeff Kwan of RBC Capital Markets. Your line is now open.

Hi, good morning. Just wanted to ask, just given your comments on where the leverage is and share buybacks and whatnot, how are you kind of thinking about where you are from a leverage standpoint and the appetite between doing the share buybacks given where the price is at, as well as further M&A to help grow the business?

Sure. So in terms of total leverage, so once again, I just want to keep re-anchoring people to the leverage ratio increase was driven by the decline in the markets, not a significant uptick in our spending. As I mentioned, Jeff, we looked at the PE multiple of 4.4, our pending IPO plans, and beliefs that we have on where and how that should trade relative to comps and felt like it was a very prudent decision to do that for our shareholders. Looking forward for the rest of the quarter, we have no transactions that we have planned to close in this quarter, so no additional uses of capital. And then if you think about the buyback in the broader context, we have constraints in terms of how many shares we can buy back as outlined by our normal course issuer bid. And if you look at current pricing today, we have about 11 months or 10 and a half months remaining on that buyback period. Current share price would be deploying a couple hundred million dollars over the next 11 months if we maxed it out completely. So when I look at where we're at, no current planned uses of capital, we're certainly open to buying our stock back at 4.4 times P.E. given the pending upcoming IPO, but currently no intended uses of capital for the remainder of the quarter.

Okay, so I guess maybe it sounds like the RIA, M&A, obviously if there's an opportunity that comes up, you might pursue it, but it's maybe lower frequency than what we've seen more recently out of CI.

Well, it's lower frequency because the market environment is completely different. So when we think about our approach to M&A, we want to transact with the highest quality firms in the industry, period. And as we've talked about the M&A environment last year, a lot of the uptick was driven by individuals looking to get in front of pending potential tax changes in the U.S. So we saw a heightened level of activity through 2021, which I've described as a lot of stuff you would see in 2022 and 2023 pulled forward a year. Now, with that being said, we've announced three transactions so far this year. From an asset-based perspective, I believe we have acquired or aggregated, essentially have the fastest rate of aggregation again this year. But yes, we're being, as we always have been, very structured, very disciplined, and exclusively focused on the highest quality firms. We do maintain a robust pipeline. We're in active discussions today. But just given the nature of M&A and the timing, none of that would be closing this quarter, as I mentioned anyway. It would be subsequent quarters in advance.

Okay. And just my second question was the July flows you mentioned with respect to the Canadian retail business. Just wondering if you have any sense if that is similar to where the industry is tracking for the month or whether or not this was the case of having relative performance versus the broader industry.

I will comment on the industry in general, Jeff, but I think our performance, given the market environment and the momentum that we have, is very positive. So our retail business has delivered, really dating back to last year, a very considerable improvement. Even in Q1, when I mentioned a lot of those flows were driven by thematics and ETFs. So once kind of that shook out and those started to stabilize, the flows have been, absent some lumpiness here and there, pretty predictable. And I think when I look at our performance and how we're positioned relative to peers, I feel like the inputs are lining up for us to drive good outcomes on the flow front. Okay, thank you.

Our next question today comes from Graham Riding of TD Securities. Please go ahead.

Hi, good morning. On that theme, are there any sort of mandates or funds in particular that are driving the improvement in flows or the improvement in fund performance that you would flag and pull out?

No, it's very, very balanced. Yeah, no, in terms of our performance improvement, it's really performance improvement across the board. And our investment team has really worked very hard to create a unified investment management platform in a way that we never had historically. So we have a centralized approach to research, asset allocation, portfolio construction, integrated trading, and I think we're just reaping the benefits of lots of incredibly smart investment professionals having an opportunity to take down those legacy kind of walls and dividers we had in place and really work together. It's flowing through across our suite of products, not just to one or two mandates.

Okay. And there was some turnover departures in your investment management business. Do you need to backfill there? Are there any plans to adjust? Or do you have the team and the depth that you need right now?

Sure. So just to put into context, because it seems there is just a little bit of misconception about the departures. We did have three named PMs who are no longer with us that collectively managed about less than 1% of our assets. That actually happened and was announced to our clients in April. The associated impact of those changes from a flow perspective was actually zero. We had been retooling our investment platform from boutiques to an integrated approach. So we've been hiring all along as well. So this was not a series of call it departures and then a need to backfill, we had been retooling the investment platform all along. I feel great, as does Marc Andre, our CIO, about the construct, the quality of the individuals and how we're weighing in. So I just wanted to, sorry, just clarify that a little bit because there seemed to be a little misunderstanding as it relates to the magnitude of portfolio managers, the impact of the assets. But yeah, this was well in the past and we're fully staffed in our investment functions.

Okay, perfect. And my last question, if I could just, you talked about installing governance committees to oversee sort of the integration in your U.S. wealth, I guess. What can you point to in terms of progress to date in integrating those firms and then where's the focus over the next year or so?

Sure. So one of the items I've talked about a little bit in the past is how we've set up our U.S. wealth business. So effectively, CI Private Wealth, or our U.S. entity, is a private partnership that operates inside of our public company. Today, we have 180 partners that collectively own hundreds of millions of dollars worth of value of that partnership. They're contributing on a local level, as they had in the past, but it's also created a lot of step-up opportunities for people to weigh in on the national platform. So we effectively have nine committees that oversee or govern our partnership. And as I mentioned, those things range from operations and technology, leadership and development, financial planning, client experience, business development, and things of that nature. So if I were to take a segmented approach and say there's really three different areas where we're looking to drive more collaboration. The first one is how do we get more clients in the door? And we have some very... We made some very good progress on our business development efforts, creating a much more unified approach. That includes things like cross-border referrals from our Canadian business. That includes our digital marketing and lead generation efforts. It includes revamped approaches to business development where folks internally are sourcing best practices and knowledge from other people in the network, custodian referrals, and our network of senior advisors. So a variety of different inputs that are Leading to better or continued business development success which you're seeing in our flows once clients have. started to do business with us we've been expanding the services that we provide to them, so we had our tax function up and running as of last tax season, as I mentioned before we did over 1000 tax returns. We have increased demand on the back of a very successful launch last year, where we anticipate that number will go up, as I mentioned earlier in the prepared remarks we filed for the South Dakota trust. We're hoping we have that approved this year, and we have hundreds of trusts already queued up to be repapered. Our bill pay functions, our concierge service and other things like that are actively up and running, and we're getting good adoption. And then on the platform itself, we've unified functions like marketing and finance, legal, HR, compensation benefits, and compliance, and are really starting to to realize the scale benefits that we have of this integrated platform.

Perfect. That's it for me. Thank you. Sure.

Our next question comes from James Shanahan from Edward Jones. Your line is open.

Good morning. Thanks for taking my question. I actually have some questions about the weaknesses over financial reporting controls and procedures that have been characterized as material and ineffective. I see that the company has provided some information about remediation initiatives, but it isn't clear exactly what the issues are. Can you please describe them for us? And is there a timeline to remedy these issues? And what are the implications if the company is unable to address these concerns? say by year end 2022 or year end 2023? Thanks.

Sure. So just to put so these were weaknesses that were identified at the end of last year. Just to put this in context, remember, this is in light of the fact that we cross listed on the New York Stock Exchange last year, and had to become stocks compliant. Companies typically have material weaknesses during their first year. when they first have to become SOX compliant. And if you think about a company like CI that's been in existence for many, many years, there is going to be some issues that we're going to have to get, we're going to be identified. There are two areas. One was related to some of our legacy systems that didn't have sort of the controls and documentation that was needed from a SOX perspective. And those we are well underway identifying. starting to remediate, put in the proper documentation, and test the controls. We have no concerns over whether there was any errors or the like. I mean, systems are operating as they should. It's just a matter of documenting the controls in accordance with SOC standards. And we have a plan, and that plan is progressing. The second was around accounting for complex transactions. You know, given the the breadth and the speed that we have been modernizing and changing the business. We've had, as we've seen in other markets, a need for additional resources to help us navigate that. We've brought on consultants. We are bringing on more staff to help us go through it. So both of those weaknesses are well in the way of being remediated. And just lastly, as you can see from the audit opinion, just on the audit opinion of the year-end financial statements, we got a clean opinion, so there was no misstatement or anything like that. So none of these weaknesses had an effect on our financial results.

Thank you.

As a final reminder, it's star followed by one to enter the questions queue. We have a follow-up from Nick Pribb of CIBC Capital Markets. Your line is open again.

Yeah, thanks. Just wanted to squeeze one last one in. In the context of a volatile market environment, can you just talk about what proportion of SG&A expenses might be either discretionary or correlated with asset levels such that they can be managed downward in a bear market as a mitigating factor on margins?

Sure. So let me walk through the three segments. So, you know, obviously, well, overall, all three segments will be affected by the markets. On the asset management side, you can see that there was a pullback in our margins. I would say when markets decline as quickly as they did, you know, it does take time for us to pull levers to help manage that expense base. But we do believe that, you know, over time as, you know, Mark Benthien, C.E.: : market stabilize we we can manage that cost base and then start to stabilize the margins as markets rebound we will we do expect to see operating leverage in the business. Mark Benthien, C.E.: : On the wealth management on our wealth businesses in the US, you know because of the business model our efforts to integrate. Mark Benthien, C.E.: : We do expect to see expanding margins on that side of the business, as well as on the Canadian side. particularly as we're changing the business model to bring more profits from the advisors on the platform. So overall, there is variability tied to AUM, but I would say there are levers that we have in place that we can stabilize the cost base and see stabilizing margins from there.

And Nick, just to add on, putting it in context with the market, right? It's the worst start to a market in 50 years. In two of our three business units, we experienced margin expansion. So if you think about that in a market that's declined as rapidly as this one has, where we're realizing margin expansion, one, we're early stages of obviously the U.S. wealth strategy and putting the Canadian wealth businesses together from a platforming perspective, realizing those synergies. So you could imagine the positive operating leverage that we're creating in our business despite being able to manage our costs on a downward market like the one that we just experienced. The other thing I would point to would be the increase in our expenses relative to peers as you're looking at how we've managed our expense base relative to others given we're all dealing with a similar challenging market and we're very pleased with the flexibility that we have in the business and how responsive we've been to the markets and the impact on our financials. Great.

That's good color. Thank you.

We have a question from Jill Marchand of Knights of Columbus. Please go ahead.

Hi, thanks. In 2019, when you sold bonds here in the US, you stated there was a goal to get back to an A rating. Is that still a goal? And with the bonds trading down, is there an openness to do a tender offer?

Do you repeat the question?

Can you hear me now? Yes, repeat your question, please.

Yeah, hi. In 2019, when you sold bonds in the US, you stated that there was a goal to get back to an A rating, which you had at DBRS. Is that still a goal because that is kind of conflicted when you're buying back stock?

So a couple points of context. We actually didn't sell bonds in the U.S. until year-end 2020, and we did not have a stated objective of having an A rating at that point in time. So I apologize for the confusion, but that was not something that we had outlined.

All right, that's not what I had on my notes. Questions? No?

It appears that's the end of our questions. So thank you all for your interest in CI, and we look forward to speaking with you next quarter.

This concludes today's call. Thank you for joining. You may now disconnect your lines.