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 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. Following 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 star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. If you have any difficulties here in the conference, please press star then zero for the operator at any time. As a reminder, this conference call is being broadcast live online and recorded. I would now like to turn the conference over to Mr. Dan Daviau, Chairman and CEO. Please go ahead, Mr. Daviau.

Thank you, Operator. 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. Before we begin, I am pleased to share that with the approval from our Board of Directors, Nadine Ahn has been appointed to the role of Chief Financial Officer for Canaccord Genuity Group with immediate effect. Since we welcomed Nadine as our Deputy Chief Financial Officer in October, she has been working closely with Don McVaden and our broader Global Operating Committee to ensure a seamless transition. And I have every confidence that she will continue to make a positive impact for the company and our shareholders. As we have previously disclosed, Don will remain very active in a senior finance capacity within our North American business, contributing his extensive experience rooted in over three decades of financial leadership across the organization. We are all deeply grateful to Don for his invaluable wisdom and expertise and look forward to his continued contributions. Both Nadine and Don are joining me on today's call. And with that, let's review our third quarter results. Our third fiscal quarter was characterized by improving performance across North American broad market indices with bouts of volatility driven by a mix of monetary policy developments, ongoing geopolitical risks, and the U.S. elections. Against this backdrop, our wealth management businesses continued to deliver impressive growth, and we also benefited from improving activity levels for corporate financing activity in most of our geographies. Firm-wide revenue for the three-month period was $451 million, up 16% year-over-year, and bringing our fiscal year-to-date revenue to $1.3 billion, up 22% year-over-year. Excluding significant items, firm-wide pre-tax net income for the three-month period amounted to $40 million, a decrease of 11% year-over-year. This translated to an adjusted diluted earnings per share of 17 cents for the three-month period. While this is a disappointing result in the context of our revenue growth, our profitability for the three-month period was impacted by certain elevated non-compensation expenses, which reflect ongoing investments in the growth of our wealth management businesses and certain client-related provisions, increased premise and equipment expense related to our new offices in Vancouver and New York, as well as increased professional fees and provisions recorded during the period largely in connection with previously disclosed ongoing regulatory matters. Our compensation ratio for the three and nine-month periods were 56.5% and 58.1% respectively. The lower ratios largely reflected a shift in our business mix by vertical segment and geography during the three-month period. As previously noted, our compensation ratios can be subject to variability between quarters and is best reviewed on an annual basis. I will note that our long-term averages have not changed. We are encouraged by a modest uptick in capital market activities over the past few quarters, and we look forward to fully participating in a recovery for mid-market equities in our core sectors when opportunities arise. Our wealth management business continues to be a source of resilience and earning strength. These businesses contributed 76% of our adjusted earnings per share for the third quarter and 82% of adjusted EPS for the fiscal year to date. On that note, I am pleased to report that our Board of Directors has approved a dividend per common share of $0.085. Turning to our wealth management operations. Firm-wide client assets grew to a new record of $115 billion at the end of the three-month period, improvements of 4% sequentially and 16% year-over-year. This improvement reflects positive inflows, market growth, and contributions from our recruiting and acquisition activities. The adjusted net income from this division totaled $36 million for the three-month period. representing a slight decline of 4% compared to the same period last year. This was primarily due to the impact of the previously mentioned rise in non-compensation costs. When measured on a fiscal year-to-date basis, adjusted pre-tax net income of $108 million increased by 1% year-over-year. Our business in the UK and Crown dependencies contributed record quarterly revenue of $116 million for the three-month period, up 14% year-over-year and bringing year-to-date revenue to $332 million, which is also a new record for this reporting period. Measured in local currency, client assets increased 7% year-over-year to a record of 36 billion pounds. Approximately £1 billion of this increase reflects assets from our acquisition of Cantab Asset Management, which was completed in October. Fee-related revenue in this business continues to be strong and remain comfortably above 80% of total revenue for nine consecutive quarters. The business achieved normalized EBITDA of around £20 million for the three-month period, marking an 11% increase from the second fiscal quarter. This brought year-to-date normalized EBITDA to approximately 58 million pounds. Our UK wealth management business was our largest contributor of adjusted pre-tax net income for the three- and nine-month period. That said, the quarterly and year-to-date contributions were flat when compared to the prior year's comparison period, primarily reflecting investments in our growth and capabilities. As the impact of inflows from our recruiting and acquisition activities are reflected in our results, we expect margins in this business to improve. And finally, we look forward to completing our acquisition of Brooks McDonald Asset Management International in the current fiscal quarter, which we expect will add just over £2 billion in client assets. Third quarter revenue in our North American wealth management business increased by 25% year over year to $96 million, largely attributed to higher commission and fee revenue. While we experienced a modest uptick in revenue from new issues during the quarter, activity levels in the segment have remained below historical levels, reflecting a reduced risk appetite among investors. Despite the reduced contributions from new issue activity, year-to-date revenue of $274 million represents 92% of the record revenues earned by this business in the prior full fiscal year. Client assets in this business improved by 17% year-over-year to a record $42 billion. and fee generating accounts now represent 55% of total assets under administration in this business. I'm also pleased to report that the average practice size per advisory team has increased to $292 million. We continue to experience solid recruiting momentum in this business, and we've had an excellent experience onboarding new teams in Calgary and Vancouver. The adjusted pre-tax net income contribution from this business was $9 million for the three-month period, down 17% from the prior year's comparison period. Profitability was impacted by higher premise and equipment costs in connection with our new Vancouver headquarters, in addition to an increase in our G&A for an elevated client-related expense, which is one time in nature. On a fiscal year-to-date basis, adjusted pre-tax net income improved by 5% year-over-year to $30 million. And finally, our Australian wealth management business earned record quarterly revenue of $21 million for the three-month period and $59 million for the fiscal year-to-date, increases of 31% and 27% respectively. Similar to our North American business, New issue activity remained below historical levels, but we are pleased to see a 31% year-over-year increase in revenue from this segment to $21 million for the three-month period. Managed client assets grew to $8 billion at the end of the three-month period, a year-over-year increase of 33% and a new high for this business. Our recruiting activity in this region remains strong and is contributing to a growth of fee-based assets, which contributed 43% of the total revenue in the third quarter. Adjusted pre-tax net income amounted to $2 million for the third quarter, bringing the year-to-date contribution from this business to $4 million, surpassing the full-year amount earned in fiscal 2024. Turning to the performance of our Capital Markets Division, On a consolidated basis, revenue earned by our capital markets division amounted to $211 million for the third quarter, which was relatively flat when compared to the prior fiscal quarter. This brought fiscal year-to-date revenue to $618 million, a year-over-year improvement of 29%. Third quarter profitability in this division was flat compared to the most recent fiscal quarter and down 11% year over year to $15 million. While our Canadian, Australian and UK businesses had positive contributions, our US business continued to be impacted by the previously mentioned expenses in relation to our ongoing enforcement matter. Additionally, trading expenses in this business increased in line with the increase in trading revenue. Our advisory segment was the largest contributor to our consolidated capital markets revenue mix in the quarter, although revenue of $70 million was down 6% from the same period a year ago. While still our largest contributor of advisory revenue for both the three- and nine-month periods Fees earned in our U.S. business declined by 28% year-over-year to $31 million in the third quarter. This reflects the timing of deal completions, which benefited our revenue in the prior fiscal quarter. On a year-to-date basis, advisory revenue in this business is up 25% year-over-year, and we continue to see this as a constructive environment. Our Canadian business experienced a notable increase in advisory revenue of 115% year-over-year to $23 million. While we had visibility into a solid pipeline of advisory mandates, our third quarter revenue was disproportionately impacted by a large fee by the completion of a significant mandate. Despite operating in a persistently difficult market for capital markets activities, Advisory revenue in our UK business was up 21% sequentially to $16 million. On a consolidated basis, corporate financing revenue increased by 46% year-over-year to $58 million as clients took advantage of more favorable conditions to raise capital. This brought our year-to-date revenue in this segment to $175 million, up 75% compared to the same period a year ago. Our Australian business reported a 28% year-over-year increase in new issue revenue to $21 million, reflecting a robust environment for mining sector activities. I will note that we anticipate some seasonality over the coming months, as this period typically marks a slower summer season in Australia. Corporate financing activities also showed modest improvements in our Canadian and U.S. businesses. which contributed 19 million and 17 million dollars respectively. While we've been pleased to see an improving operating environment for corporate financing, activity levels for small and mid-cap companies often trail broader market trends as we await a more supportive environment for risk equities. Revenue on our trading businesses improved 18% year-over-year and 28% sequentially to 35 million dollars. largely reflecting improved retail flows in our U.S. international equities group. We continue to work towards resolving our U.S. enforcement matter. In connection with our periodic assessment of the adequacy of our provisions, we increased our provision based on engagement with certain regulators during the quarter. We do not have any other substantive update, nor is it clear when we can expect resolutions. We've also had an active effort around reducing non-compensation expenses and improving our profitability, recognizing that compliance-related spending will continue to be elevated in the near term. Our outlook for the balance of our current quarter is constructive. As we look towards our 2026 fiscal year, we are optimistic for strong performance driven by continued strengthening of the corporate financing and advisory activities in our core capital markets verticals, coupled with a continuance of growing contributions from our wealth management businesses.

And with that, Dawn, Nadine, and I will be pleased to take your questions.