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.