Canaccord Genuity Group Inc.

Good morning, ladies and gentlemen. Thank you for standing by. I'd like to welcome everyone to the Canada Corps Genuity Group Inc. Fiscal 2025 Second 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 one on your telephone keypad. If you would like to withdraw your question, press star 2. If you have any difficulties here in the conference, please press star 0 for the 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 for joining us for today's call. As always, I'm joined by Don McFadden, our Chief Financial Officer. Also joining us today is Nadine Ann, our newly appointed Deputy Chief Financial Officer, who we were very pleased to welcome just a few weeks ago. 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 presentation and in our MD&A. And with that, let's discuss our second quarter report. which we are pleased to be reporting from our new Vancouver office. Our second fiscal quarter was characterized by an improving backdrop for corporate finance and advisory activities in our core mid-market focus sectors and continuing strong performance from our wealth management businesses. Broad market indices posted strong relative returns. The S&P 500, the TSX composite, and world equities gained 5.9%, 10.5%, and 6.7% respectively over the three-month period. Against this backdrop, firm-wide revenues of $528 million for the quarter was in line with the previous fiscal quarter and increased 27% year-over-year, reflecting increases of 16% and 40% respectively from our wealth management and capital markets businesses. Fiscal year-to-date revenue amounted to $857 million, up 26% compared to last year. Excluding significant items, we earned firm-wide pre-tax net income of $42 million for the three-month period and $77 million fiscal year-to-date. year-over-year increases of 156% and 56%, respectively. This translated to adjusted diluted earnings per common share of 20 cents for the three-month period, bringing our fiscal year-to-date EPS to 33 cents, a substantial improvement from the 7 cents earned in the comparative period last year. We are pleased to see improving contributions from our capital markets businesses which further augments the continued strength and stability of our wealth management businesses. Our wealth management division contributed 85% of our adjusted earnings per common share over the six-month period, highlighting the advantages of our diversified business model. Turning to expenses, our firm-wide compensation ratio was within our desired range of 58.6% for the three-month period, excluding significant items Firm-wide non-compensation expenses of $135 million declined modestly on a sequential basis, but remained above our historic run rate. A large portion of our expense base, such as interest and trading expenses, will move in line with revenue due to client activity and volumes, or has offsets in the corresponding revenue lines. While trading and compensation expenses increased modestly due to stronger business activities, G&A and development expenses collectively were lowered by $8 million from the previous quarter. We are actively working to reduce non-compensation expenses against the backdrop of a potentially higher amortization expense in the next fiscal year, in connection with the important investments in our new flagship office in Vancouver, where half our Canadian wealth assets are based, and in New York, where we are consolidating three offices into one central location. We remain disciplined on our capital allocation and continue to maintain a healthy level of working capital to support improving activity levels and invest in our businesses. On that note, I'm also pleased to report that our Board of Directors has approved a common share dividend of 8.5 cents per share. Turning to the performance of our operating businesses, total revenue earned by our Global Wealth Management Division amounted to $217 million for the three-month period and $432 million for the six-month period. Year-over-year increases of 16% and 14%, respectively, and new records for each measurement period. The adjusted pre-tax net income contribution of $38 million for the three-month period was the strongest quarterly result from this division in three years and reflects year-over-year increases of 31%, 20%, and 11% respectively from our Canadian, Australian, and UK businesses. Consolidated pre-tax net income for the fiscal year to date amounted to $71 million, up 4% year over year, placing this division on track to exceed the full fiscal year record set out last year. Firm-wide client assets reached a new high of $110 billion, and I'm delighted to share that all three of our wealth businesses set new records for assets under administration and management during the quarter. This growth was fueled by enhanced market valuations, modest inflows, new assets from recent acquisitions in the UK, as well as our recruitment of advisors in Canada and Australia. We also received a foreign exchange benefit on the value of our UK assets when reported in Canadian dollars. We're continuing to advance our organic and inorganic growth priorities in all regions, with an emphasis on growing contributions from fee-based revenue streams. Our UK business continues to deliver consistent earnings, generating normalized EBITDA of approximately £18 million for the three-month period and £38 million for the fiscal year to date. Fee-related revenue in the UK and Crown dependencies has remained comfortably above 80% for eight consecutive quarters. During the quarter, we completed the acquisition of Cambridge-based Cantab Asset Management, which expands our foothold in the east of England and further enhances our financial planning capabilities in the UK. We also entered into a binding agreement to acquire Channel Island-based Brooks McDonald Asset Management International Limited, a quality financial planning and fund management business with funds under management of approximately 2.3 billion pounds. This business will form a strong complement to our offshore business and introduce financial planning capabilities in the region. We anticipate completing this acquisition by the end of our fourth fiscal quarter and look forward to supporting the continued success of the professionals and clients of this business. We also continue to experience positive momentum for our recruiting efforts in Canada and Australia. and this is helping to increase fee-based assets in both regions. In Canada, fee-generating assets have continued to increase and fee-related revenue accounted for 50% of total second quarter revenue in this business. I'm also very pleased to report that the average practice size per advisory team in this region has increased by 16% year-over-year to $277 million, and continues to be amongst the largest in the Canadian wealth management industry. Recruiting momentum in Canada remains strong. In the past month, we've been pleased to welcome teams in Calgary and Vancouver with combined assets of $1.8 billion. And finally, fee-related revenue in Australia business has improved by 4.6 percentage points year over year to 44.7%. As previously discussed, our recruiting momentum in the region is contributing to growth in this segment. During the quarter, we welcome two new advisory teams in the business, bringing our total recruits for the past 12 months to 10. Turning to the performance of our Global Capital Markets Division. On a consolidated basis, our Capital Markets Division generated revenue of $202 million for the three-month period, an increase of 40% year-over-year overall. primarily driven by higher corporate financing and advisory revenues, which increased by 67% and 70% respectively. Fiscal year-to-date revenue of $408 million earned in this division increased by 40% year-over-year. This growth has primarily been driven by our strategy of investing in our higher margin advisory capabilities, which began in 2019. To further enhance this capability, yesterday we were very pleased to announce an indirect investment in CRCIB, a top-ranked advisory firm to the $1.8 trillion renewable energy sector. Based in the U.S., CRCIB contributes to a global client base and brings deep knowledge of market dynamics and a 15-year track record in capital-raising M&A and project financing for renewable energy sponsors and developers. With this development, we've established a business collaboration agreement which will enhance CRC IB's ability to provide fully independent advisory services to a broader base of clients while bringing dedicated expertise and relationships to benefit CG's growing client base in this sector. We look forward to collaborating closely with this team to significantly enhance our collective impact in the rapidly growing energy transition segment. Consolidated advisory revenue improved by 70% year-over-year and 17% sequentially to $78 million, of which 72% was earned in our U.S. business, primarily in the technology sector. We also reported meaningful year-over-year increases in our Canadian and UK advisory businesses. Second quarter revenue from corporate financing amounted to $52 million, an improvement of 67% over near trough levels a year ago, but 21% lower than the previous quarter, reflecting typical summer seasonality and a brief rise in volatility during September. Activity in this segment was still heavily weighted in the mining and metal sector with improved contribution from the technology and life sciences sectors. Year-to-date corporate financing revenue of $117 million was almost double when compared to the same period last year. While our Australian business remains our largest contributor in this segment, we are pleased to see improving activity levels in North America and the U.K., Trading revenue for the three-month period improved by 36% year-over-year and 11% sequentially to $28 million, primarily driven by increased activity levels in our U.S. international equities group. The 12% decrease in commission and fee activity to $35 million for the three-month period reflects lower client activity in connection with lower new issue activity in our Canadian and US businesses and partially offset by increases in our UK and Australian businesses. We've been undertaking a reorganization of our US trading business to better focus on core trading activities while reducing our exposure to non-core businesses. While this will result in slightly reduced trading revenue in this business, it's not expected to impact our profitability. In all, the adjusted pre-tax net income contribution from our capital markets division amounted to $15 million for the three-month period, up from a loss of $6 million in the prior year and an improvement of 15% sequentially. Our adjusted pre-tax margin of 7% improved from 6% in the previous quarter. We continue to be actively engaged with our regulators towards a potential resolution on our U.S. regulatory matter. While we don't have any substantive updates at this time, we hope to have greater clarity in the upcoming quarters. As previously discussed, we have continued to make significant additional investments both from a financial as well as a process enhancement standpoint in our firm-wide compliance infrastructure, including with respect to the matters under review in the U.S., and we continue to promote a strong culture of compliance among all our employees globally. In closing, we are encouraged by the general positive momentum towards a more normalized interest rate environment, which bodes well for risk appetite and should support a gradual return to healthy market for corporate financing and advisory activities in our core focus sectors. Lower interest rates, potential government stimulus, and improved market flows should generally strengthen the new issue pipeline in our core mid-market sectors. Our M&A pipeline also remains strong, driven off record private equity availability and a cheaper lending environment as interest rates come down. A lower interest rate environment is also beneficial for net asset flows in our wealth management businesses as we anticipate increasing inflows and a reduction in outflows that were previously driven by the need for clients to access funds in a higher interest rate climate. M&A appears to be returning to more normalized levels and the investments we've made in growing our capability leaves us well positioned to capture share in our core segments while advancing our impact in the energy transition segment. We're continuing to invest in the growth of our wealth management businesses with a focus on growing contributions from fee-based assets in all regions while advancing our recruiting initiatives to further increase our market position in North America and Australia. We also remain strongly committed to improving non-compensation expense ratios noting that revenue growth is also a factor in achieving this goal. While we expect continued bouts of volatility relating to the ongoing geopolitical overhang and the U.S. administration change, our commitment to operating in the best interest of our clients and shareholders remains steadfast. With that, we will be pleased to take your questions. Operator, could you please open the lines?

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 a question, please press star two. There will be a brief pause while we compile the Q&A roster. Your first question comes from Rob Jeff with Ventum. Your line is now open.