Canaccord Genuity Group Inc.

Good morning, ladies and gentlemen. Thank you for standing by. I'd like to welcome everyone to the Canaccord Genuity Group Inc. Fiscal 2024 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. If you have any difficulties hearing the conference, please press the star, then zero for operator assistance at any time. As a reminder, this conference call is being broadcast live, online, and recorded. I would now like to turn the conference call over to Mr. Dan Daviau, President and CEO. Please go ahead, Mr. Daviau.

Thank you, Operator, and thanks to everyone joining us for today's call. As always, I'm joined by Don McFadden, our Chief Financial Officer. Today's remarks are complementary to our earnings release, MD&A, and supplemental financials, copies of which have been made available for download on CDAR Plus and on the investor relations section of our website at cgf.com. Within our update, certain reported information has been adjusted to exclude significant items to provide a transparent and comparative view of our operating performance. These adjusted items are non-IFRS financial measures. Please refer to our notice regarding forward-looking statements and the description of non-IFRS financial measures that appear in our investor relations presentation and in our MD&A. With that, let's discuss third quarter fiscal 2024 results. During our third fiscal quarter, The major benchmark indices enjoyed positive performances, driven by increased investor confidence that we are nearing the end of the rate hiking cycle. Although global economic growth remains weak, we have been pleased to see headline and core inflation begin to come down and stronger corporate profits are helping to lift stock prices. Against this backdrop, our wealth businesses continued to deliver stable and growing earnings. Our capital markets businesses experienced an uptick in activity levels in both new issues and M&A when compared to the previous fiscal quarter, albeit still significantly muted compared to historical levels. Berm wide revenue improved by 15% sequentially and by 2% year-over-year to 390 million dollars. This brings our fiscal year-to-date revenue to 1.1 billion dollars, which is 1% lower than the same period last year. Our wealth management and capital markets businesses were both earnings positive in the three-month period. Excluding significant items, firm-wide pre-tax net income was 45 million dollars. which translates to diluted earnings per common share of $0.20 for the fiscal quarter, a year-over-year improvement of 25% and our best quarter of this fiscal year. Compensation expense declined by 7% compared to the same quarter a year ago, partially related to changes in the value of certain stock-based compensation awards. Bermwide compensation ratio was 57%. We continue to manage our balance sheet carefully in this reduced revenue environment as we manage through inflation, increased supplier and system costs, several planned office relocations, and additional investments to advance our technology and compliance infrastructure. I will also note that our board of directors has approved a quarterly common share dividend of 8.5 cents, reflecting their strong confidence in the stability of our wealth management businesses. On a consolidated basis, our global wealth management businesses earn revenue of $195 million for the three-month period. This brings the fiscal year-to-date revenue contribution to $573 million, which is 12% higher than the same period of last year. The value of firm-wide client assets increased by 5% year over year to $99.2 billion. While we are still modestly below peak levels, client assets in each of our geographies improved on a year over year and sequential basis. We ended the quarter with modestly positive net flows in each of our businesses. Our organic growth initiatives have helped us drive strong gross inflows, which were unfortunately offset by some outflows as we continue to see clients access their assets for their own cash requirements in the current environment. The adjusted pre-tax net income contribution from this division for the three- and nine-month periods increased by 4% and 20% respectively, bringing the fiscal year-to-date contribution to $106 million. Our UK wealth management business contributed 52% of the revenue and 67% of the adjusted pre-tax net income earned in this division during the three-month period. This business is on track to deliver record full-year revenue and adjusted net income, reflecting the excellent progress against our efforts to improve synergies and drive organic growth. Looking ahead, we continue to advance our organic growth initiatives, and we are also looking forward to completing our previously announced acquisition of Intelligent Capital in the current fiscal quarter. Our team is also augmenting our organic growth by pursuing modest strategic opportunities to become an even more holistic wealth manager. In addition, we have also begun to recruit teams to our industry-leading platform, with a number of advisors or planners having agreed to join and a reasonable pipeline of additional recruits. Revenue in our Canadian wealth management business was $77 million. which is in line with the same period of last year and 9% higher than the second fiscal quarter. Transactional revenue in this business remained below historic levels, but we are pleased to see an uptick off the low in our second fiscal quarter. BBA's revenue was 51%. On an adjusted basis, pre-tax net income of $11 million was the strongest quarterly contribution from this business in the current fiscal year. Recruiting activity in Canada remains on track. We welcome two new teams in the Toronto region and our recruiting pipeline remains robust in all our branches. Our Australia wealth business delivered its strongest quarterly results for the current fiscal year with revenue of $16 million increasing by 5% sequentially on improving commission and new issue revenues. Managed assets in Australia reached a record of $6.1 billion, an increase of 17% year over year. The adjusted pre-tax net income contribution of $1.5 million is below the peak levels achieved in fiscal 2022, but 28% higher year over year. While improving, our net income continues to be impacted by continued planned investments that we are making to support growth in this business. We recently welcomed new advisors in Perth, Melbourne, and our new office in Brisbane, and our recruiting activities in this region are positively contributing to the growth in fee-based assets. These additions will positively add to revenue in the upcoming quarters. The potential for rate cuts over the coming year may be a headwind to interest revenue, which has accounted for 20% of our year-to-date revenue in our wealth management division. Traditionally, we would expect improving new issue activity in Canada and Australia to provide a substantial offset to any decline in this segment. Our Global Capital Markets Division returned to profitability in the third fiscal quarter, and all geographies contributed positively. Consolidated revenue of $190 million for the three-month period was down 4% year-over-year, but increased 31% sequentially, driven by improved contributions from our U.S. and Canadian businesses. The quarterly revenue mix in this division was similar to the first half of the fiscal year, but we had a notable uptick in advisory completions driven by the stability in the market and improving liquidity. Revenue from advisory activities was flat compared to the third quarter of last year, but improved by 62% from the low in our second fiscal quarter to $75 million. which is the strongest quarterly contribution this fiscal year. 58% of total advisory revenue was contributed by our U.S. business, which continues to perform well in the technology and consumer sectors. Our U.K. business also experienced stronger completion activity during the quarter and contributed $21 million, or 28% of total advisory revenue. We are pleased to see increased contribution from the results team in the UK, which joined us in 2022 and brings a strong compliment to our existing capabilities in the mid-market technology and healthcare sectors. Our Australian business, which has not historically had a focused M&A practice, is now increasingly targeting advisory mandates and hiring dedicated resources to support this practice. We expect to see an improving M&A contribution from this region as we build out our capabilities. Consistent with broader industry sentiment, we believe we have passed the trough of activity levels in the advisory segment, but liquidity, market stability, and valuation levels will dictate how quickly we return to historic levels. New issue activities have remained below normalized levels, but the revenue contribution from this segment improved by 6% year-over-year to $40 million, which was the strongest quarterly contribution of this fiscal year. The metals and mining sector continues to be the most active, primarily led by our Australian and Canadian businesses, and we are also seeing excellent coordination across CG geographies for distribution of new issues. Early into this calendar year, we continue to see increasing activity levels in some of our geographies, but it is still too early to predict a return to pre-pandemic levels given the uncertainties impacting the broader capital markets. And finally, principal trading revenue for the three-month period decreased by 15% from Q3 of last year, but was up 47% from our second quarter, reflecting higher activity levels in our institutional equity group, which tend to increase at the end of the calendar year. As a percentage of revenue, total expenses excluding significant items for the third quarter decreased by 4.9 percentage points. The previously mentioned changes in the fair value of share-based awards granted in prior periods contributed to a substantially lower compensation ratio in this division, and this was particularly evident in our Canadian business. You will also recall that we undertook a substantial headcount reduction in this business earlier in the year, which brings me to highlight the improved efficiencies. Fiscal year-to-date revenue per employee in Canadian capital markets has improved by 76% year-over-year. In all, we are encouraged by improving sentiment and activity levels and looking forward to executing on a healthy pipeline of business as we support our clients' success. While I do not believe that we are entering into a normalized operating environment, Barring any major surprises in the macro backdrop, I do believe that we are at the beginning of a gradual transition back to normal. Markets are still navigating geopolitical and economic uncertainty, which has implications for the timing and quantity of rate cuts, a long-awaited recovery in IPO and new issue activities, and a more accommodating environment for advisory completions. Looking at how our business and talented professionals in all CG geographies support one another and our broader business strategy through the best and worst environments, I believe we are very well positioned to capitalize on the opportunities and maintain a strong market position while delivering profitable growth and improved value for our shareholders. With that, Don and I will be pleased to take your questions.

Operator, can you please open the lines?