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 2025 First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. Following the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 2. If you have any difficulties hearing the conference, please press 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 Davio, President and CEO. Please go ahead, Mr. Davio.

Thank you, Operator, and thanks for 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, 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 presentation and in our MD&A. And now with that, let's discuss our first quarter fiscal 2025 results. Results for our first fiscal quarter reflect improving market conditions for corporate financing and advisory activities in our capital markets division, coupled with continued strong performance from each of our wealth management businesses. Firm-wide revenue for the three-month period improved by 25% year over year and 5% sequentially to $429 million. This reflects a 41% year over year increase in revenue from our capital markets division to $206 million, and a 13% increase from our wealth management business to $216 million. Excluding significant items, firm-wide pre-tax net income improved by 6% year-over-year to $35 million, and this translated to diluted earnings per common share of 13 cents. Although this represents an improvement of 86%, compared to the same period last year, our profitability was impacted by higher interest expense, in addition to increased G&A expenses in connection with conference and client engagement activities during the three-month period. As previously discussed, in addition to making disciplined investments to strengthen our core capabilities, we also continue to invest in our compliance infrastructure in each region, bolstering our operations and implementing best practice training programs to continue to promote a culture of compliance across the platform. We expect the non-compensation expenses related to this activity to continue over the coming year. Development costs for the quarter were also higher, primarily due to ongoing investments in connection with the growth of our wealth management operations. in addition to increased professional fees and certain exceptional items incurred during the period. About half of the quarter-to-quarter increase in our non-compensation expense is not expected to recur in future run rates. Reflecting confidence in the strength and consistency of earnings generated by our wealth management business, our Board of Directors has approved a dividend per common share of 8.5 cents. which is in line with the previous quarters. On that note, I'm very pleased to report another strong quarterly performance from our Wealth Management Division as we continue to execute against our long-term growth strategy. Blind Assets grew to a record $106 billion, driven by rising equity markets, solid advisor retention and recruiting, and positive flows in our managed portfolio products. This reflects a year-over-year increase of 19% in North America, 23% in Australia, and 11% in the UK and Crown dependencies, where client assets reached a new record of $61 billion. We ended the quarter with modestly positive net inflows, primarily driven by organic growth efforts in all regions. Gross inflows continue to be offset by outflows as clients access their investments in an environment of elevated inflation and interest rates. We are hopeful this trend will soon change. On a consolidated basis, our wealth management businesses earn record quarterly revenue of $216 million, a year-over-year improvement of 13% and a sequential improvement of 8%. The adjusted pre-tax net income contribution from this division amounted to $33 million, which was in line with our prior quarter and 8% lower than the same period a year ago, largely due to higher interest costs and increased development costs, primarily in connection with our growth activities in the UK and Crown dependencies. Looking at contributions by region, our business in the UK and Crown dependencies contributed 50% of the revenue and 68% of the pre-tax net income earned in this division for the three-month period. First quarter revenue of $107.5 million increased by 4% compared to the same period last year and is a new quarterly record for this business. The adjusted pre-tax net income contribution from this business amounted to $23 million, which was 15% lower than the same period a year ago in connection with our previously mentioned investments in growth. For the three-month period, normalized EBITDA was approximately 19 million pounds. We have had an excellent experience integrating the team from Intelligent Capital, and we are on track to complete our previously announced acquisition of Cantab Asset Management within the next three months, subject to regulatory approval and other customary closing conditions. Our North American wealth business generated $90 million in fiscal first quarter revenue, which increased by 24% compared to the same period a year ago and primarily reflects a 23% increase in commission and fee revenue as market participation levels have increased. We continue to emphasize the growth of fee-generating account types in this business. For the first quarter, fee-based revenue was 48%, but down modestly compared to Q4, given the uptick in transactional revenue. Notably, revenue from corporate financing activities increased by 37% year-over-year and 72% sequentially to $7.5 million. While this amount remains below historical levels, it points to an encouraging trend of improving confidence. Interest revenue continues to be substantial, representing 18% of total revenue in this business. As interest rates begin to decline, we would expect the associated decrease in interest revenue to be more than offset by higher transaction revenue as lower borrowing costs are generally positive for activities in our trading, ECM, advisory, and securities lending segments. Buying assets of $38 billion were marginally lower than the record set in the prior quarter. Notably, our average practice size reached a new record of $270 million and continues to be amongst the largest in the Canadian wealth management industry. And finally, we continue to experience solid momentum in our Australian wealth business. which generated its strongest quarterly revenue of $18 million, an increase of 8% sequentially and 21% year-over-year. Managed client assets improved by 23% year-over-year to $6.6 billion, a new high for this business. Excluding significant items, this business contributed pre-tax net income of $1.2 million. While improving, net income continues to be impacted by our planned investments to support growth in this business. I will also note that we added four new investment advisors in the region in this quarter. The momentum we are experiencing in all our wealth businesses is helping us to attract a solid pipeline of talented prospects. Turning to the performance of our capital markets division, which had the most notable revenue improvement in the quarter. On a consolidated basis, revenue of $206 million for the three-month period was in line with the prior quarter and increased by 41% year-over-year, primarily driven by higher corporate financing and advisory revenues. Our advisory and corporate finance segments both benefited from an improved backdrop for mid-market activities. We are also experiencing remarkable cross-border collaboration that is not only achieving positive outcomes for our clients, but also reinforcing our market position within our selected verticals. Revenue from corporate finance activity improved by 121% year over year to $65 million. reflecting increased contributions from each of our geographies. The most substantial contribution in this segment were Canada and Australia, which reported year-over-year increases of 235% and 99% respectively. While the mining sector continues to be our most active, comprising 47% of revenue in this segment, we are pleased to see a modest improvement in activity levels in our other core focus sectors. While it is still early days, we've been pleased to see the beginning of a rotation away from U.S. mega cap stocks into broad markets, which includes smaller cap growth companies. We are ranked among the league table leaders in each of our geographies and notably ranked second in Canada for transaction volume and proceeds raised for the fiscal quarter. This performance highlights our team's agility in adapting to changes in the market environment and their steadfast dedication to helping our clients achieve their goals. Advisory fees also improved notably to $67 million for the three-month period, which reflects an improvement of 66% compared to the same period last year, but was still slightly lower than Q4, where we also benefited from a substantial transaction in the technology sector. Our U.S. business continues to be the largest contributor in this segment, and first quarter revenue improved by 78% year over year and 84% sequentially to $45 million. The technology sector was the most productive, accounting for 70% of our advisory business globally. Principal trading and commission and fee activity remained relatively strong, but revenue in both segments declined when compared to the prior fiscal quarter. reflecting seasonal declines. Excluding significant items, the pre-tax net income contribution from this division amounted to $13 million, a substantial improvement from both the prior quarter and year's comparison periods. Each of our geographies contributed positively, except for our U.S. business, which reported a small loss, primarily reflecting increased G&A expenses in connection with our upcoming Global Growth Conference and the aforementioned investments in our compliance infrastructure. In closing, while we are encouraged by indications that we are on a path toward more normalized economic conditions relevant to our core businesses, we expect bouts of volatility from quarter to quarter given the ongoing geopolitical and macroeconomic overhangs. With interest rates poised for further declines, we expect improved corporate finance and M&A activities and improved risk appetite, which bodes well for client engagement in both our wealth and capital markets businesses. Regardless of the backdrop, we are continuing to execute against our long-term strategy and remain focused on operating in the best interest of our clients and fellow shareholders. With that, Don and I will be pleased to take your questions. Operator, can you please open the line?

Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask a question, press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. There will be a brief pause while we compile the Q&A roster. Your first question comes from Jeff Fenwick with Cormark Securities. Your line is now open.