Q3 2024 Canaccord Genuity Group Inc Earnings Call

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Operator: Good morning, ladies and gentlemen. Thank you for standing by. I'd like to welcome everyone to the Canaccord Genuity Group Inc. Cisco 2024 third quarter results. All lines have been placed on mute to prevent any background noise.

Good morning, ladies and gentlemen, thank you for standing by I'd like to welcome everyone to the chemical.

<unk> Genuity Group, Inc. Fiscal 2024 third quarter results conference call.

<unk> has been placed on mute to prevent any background noise after.

Operator: 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 and then the number 1 on your telephone. If you would like to withdraw your question, press the pound. 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 extend the conference call over to Mr. Dan Duggill, President and CEO. Please go ahead.

After the Speakers' 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 one on your telephone keypad. If you would like to withdraw your question press the pound.

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.

Mr. Don <unk>, President and CEO. Please go ahead Mr. <unk>.

Dan Duggill: 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.

Thank you operator, and thanks to everyone joining us for today's call as always I'm joined by Don Mcclain, 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 SEDAR plus and on the Investor Relations section of our website at <unk> Dot 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 or non <unk> financial measures. Please refer to our notice regarding forward looking statements and the description of non <unk> financial measures that appear in our Investor Relations presentation.

Dan Duggill: 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 our 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 continue to deliver stable and growing earnings. However, are capital markets businesses experiencing 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?

And in our DNA.

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've 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 quarters, albeit still significantly muted compared to historical levels.

Dan Duggill: Bermwide revenue improved by 15% sequentially and by 2% year-over-year to $390 million. This brings our fiscal year-to-date revenue to $1.1 billion, 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, 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.

Firm wide revenue improved by 15% sequentially and by 2% year over year to $390 million.

This brings our fiscal year to date revenue to $1 $1 billion, which is 1% lower than the same period last year.

Our wealth management and capital markets businesses, where both earnings positive in the three month period.

Excluding significant items firm wide pretax net income was $45 million, which.

Which translates to diluted earnings per common share of <unk> 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.

Dan Duggill: The Fermoid 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 $0.085 to reflect their strong confidence in the stability of our wealth management business. On a consolidated basis, our global wealth management businesses earned 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.

Firm wide compensation ratio was 57%.

We continue to manage our balance sheet carefully and.

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 eight and a half cents.

Reflecting their strong confidence in the stability of our wealth management businesses.

On a consolidated basis, our global wealth management businesses earned 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 point.

$2 billion.

Dan Duggill: 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 3 and 9 month periods increased by 4% and 20%, respectively, bringing the fiscal year-to-date contribution to $106 million.

Well, 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 pretax net income contribution from this division.

The three and nine month periods increased by 4% and 20% respectively.

Bringing the fiscal year to date contribution to a $106 million.

Dan Duggill: 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 made in 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 accelerating our organic growth by pursuing modest strategic opportunities to become an even more holistic wealth manager. In addition, we've 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.

Our UK wealth management business contributed 52% of the revenue and 67% of the adjusted pretax net income earned in this division during the three months 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're 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 advisers or planners, having agreed to join and a reasonable pipeline of additional recruits.

Dan Duggill: 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 the second fiscal quarter. BBS revenue was 51 percent. 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.

Revenue in our Canadian wealth management business was $77 million, which is in line with the same period of last year and 9% higher in the second fiscal quarter.

Transactional revenue in this business remain below historic levels, but we are pleased to see an uptick off the lull in our second fiscal quarter.

Fee based 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.

Dan Duggill: 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 dollars, increasing by 5% sequentially on improving commission and new issue revenue. Managed assets in Australia reached a record of $6.1 billion, an increase of 17% year over year.

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.

Dan Duggill: 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 quarter. 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. However, 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.

The adjusted pretax net income contribution of $1 $5 million is below the peak levels achieved in fiscal 2022 with 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.

Dan Duggill: 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 it 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.

Consolidated revenue of $190 million for the three months 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 and the technology and consumer sectors.

Dan Duggill: Our UK 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 complement 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 capability. 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.

Our UK 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 U K.

Rich joined Us in 2022 and brings a strong complement 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.

Dan Duggill: But the revenue contribution from the 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 CGE 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 market. 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 As a percentage of revenue, total expenses excluding significant items for the third quarter decreased by 4.9 percentage points.

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're also seeing excellent coordination across CGT 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 four nine percentage points.

Dan Duggill: 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 improved efficiency. Fiscal year to date, revenue per employee in the 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.

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'll also recall that we undertook a substantial head count reduction in this business earlier in the year.

Which brings me to highlight the improved efficiencies.

Fiscal year to date revenue per employee and 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.

Bring 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 <unk>.

Dan Duggill: 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 completion. 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 line?

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 profit.

<unk> 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.

Operator: Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you would like to ask a question, please press star then number one on your telephone keypad. If you would like to withdraw your question, please press the pound. Our first question comes from Jeff Henwick from COMA. Please go ahead; your line is open. Hi, good morning. Morning, Jeff. Dan, I appreciate your comments on Canadian capital markets at the end, the color there, and it was pretty. The head count there, the sort of the mix there across those reductions was this about, you know, operations. Yeah. Doctor.

Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask a question. Please press Star then number one on your telephone keypad. If you would like to thank for your question. Please press the pound.

Our first question comes from Jeff Fenwick from Cowen. Please go ahead. Your line is open.

Hi, Good morning, everyone. Good morning, Jeff.

I appreciate your comments there on Canadian capital markets at the end. It was maybe just hoping for a bit of <unk>.

Incremental color there I mean, it was a pretty significant change you did make the <unk>.

Head count there.

What was the sort of the mix there across those reductions with us about operational efficiency in terms of the back office.

Dan Duggill: Yeah, I mean, the easiest thing to say, Jeff, is that we didn't really cut into the bone. I don't even think we cut into the muscle, so to speak. So, you know, obviously, in a vibrant market, you tend to hire into a vibrant market. But when things are a little slower, I think you can cut around the edges. It was, you know, it was a big cut at the end of the day. You can see our headcount in Canada is down by about 50 people. I'd say it was primarily, you know, front office driven. It wasn't a back office job cut.

What was it.

Maybe some some reduction in emphasis in certain areas be it trading or banking or anything any color you can offer up there.

I mean easy thing to say, Jeff is we didn't really cut into the ball and I don't even think we cut into the muscle so to speak. So obviously in a vibrant market you tend to hire into a vibrant market when things are a little slower I think you can cut around the edges. Yes. It was a big cut at the end of the day you can see our head count in Canada is down by about 50 people.

I would say it was primarily.

Front office driven it wasn't a back office Scott we did take out certain areas that we didn't feel were productive. So some of the cuts for example in our fixed income group would have been more substantial than some of our other groups.

Dan Duggill: We did take out certain areas that we didn't feel were productive. So some of the cuts, for example, in our fixed income group would have been more substantial than some of our other, um, so but we really didn't cut any capabilities. I'd say we just kind of did a heavy trimming around the edges is probably the way I'd define it. Does that answer your question, Jeff?

So, but we really didn't cut any capabilities I'd say, we just kind of.

Heavy trimming around the edges is probably the way I'd define it does that answer your question Jeff.

So and then a follow on from that then is it.

Dan Duggill: I think so. And then, you know, a follow-on from that, then is it, about sort of reverting or running around the long-term average? We're not talking about a change necessarily in the compensation perspective. No, no, no.

When I think about compensation as a percent of revenue should it sort of revert or run around the long term average then we're not talking about a change necessarily.

Dan Duggill: I don't want to say our compensation ratio is a covenant with our shareholders, but it's, you know, the closest thing you can get to that absent weird market. So we don't see a material change. And then maybe within Canada, we could shift over to Wealth Management. You're adding some advisors here. Um, continue to refer to desire to shift, based on the product that's there, some of the volatility. It's always kind of hard to achieve success when he shifts around the percentage. Right, speak to you like what you're actually doing there to try and involve that, Canada, changes to the product mix that you're offering the advisor. Not always.

No I don't want to say our compensation ratio as a covenant with our shareholders.

The closest thing you can get to that absent weird markets.

So we don't see a material change in that.

And then.

Maybe within within Canada, we can shift over to the wealth management. It does sound like Youre, adding some some advisors here and there.

You continue to refer to desire to shift towards more of a fee based product that's there and take away some of the volatility.

It's always kind of hard to gauge the success because of the commission revenue shifts around the percent relative percentages right. So can you just sort of speak to you like what are you actually doing there to try and evolve that.

Within Canada is it changes to the product mix that you are offering the advisors I know, it's not always easy to change their behavior.

Dan Duggill: Yeah. Yeah, good, good question. At some point, you know, independent of this, we'll set you up with our wealth management folks, and they can walk you through it in more detail, but maybe, just as a background, I'll purposely use broad numbers. So, because we don't disclose all of these numbers, but if you think about it, you'll see a couple of things in our public statements. The 1st of all, you'll see that, you know, over a quarter of our assets are discretionary. That's what it says in our supplement.

Yeah. Good question at some point.

Dependent and this will set you up with our wealth management folks and I can walk you through it in more detail, but maybe just as a background just now purposely use broad numbers, because we don't disclose all of these numbers, but if you think of Youll see a couple of things in our public statements and first of all Youll see that.

A quarter of our assets are discretionary managed.

Dan Duggill: So, you know, Obviously, those are all fee-based assets, discretionarily managed assets. So, you know, that's over $10 billion of our, you know, almost $40 billion assets. You can see that.

In our supplement so.

Obviously those are all fee based assets discretionary managed assets. So that's over $10 billion of our almost $40 billion assets.

Can see that.

Dan Duggill: Number two, when you look at our, and we do disclose that 52 or over 50% is a fee. But that's 52% of revenue. There are several elements of revenue, and we kind of disclosed that as well, that, you know, there's fee-based asset revenue, there's commission-based asset revenue, there's interest revenue, there's new issue revenue. So, when you start thinking about absence of new issue revenue and absence of interest revenue, which these days is significant, as you can imagine, we start looking at what people are paying us to manage their assets. In other words, commission-based revenue and fee-based revenue, the fee-based revenue would be the significant majority, um, when you know of those revenues, and we don't disclose that in a way to give you that, but perhaps later I can walk you through the color associated with that, but a huge proportion of our commission and fee-based revenue is really fee-based revenue, not commission. So, in terms of what we're doing to do that Most of those advisors are fee-based advisors, first of all.

Number two when you look at our and we do disclose that 52 or over 50% is fee based but that 52% is 52% of revenue there are several elements of revenue.

We kind of disclose that as well that.

Fee based asset revenue there is commission based asset revenue. There's interest revenue there is new issue revenue.

So when you start thinking about absent the new issue revenue and absent the.

The interest revenue, which these days is significant as you can imagine when you start looking at what people are paying us to manage their assets in other words the commission based revenue and the fee based revenue the fee based revenue would be the significant majority of it.

Of those revenues that we don't disclose that in a way to give you that but perhaps later I can walk you through the color associated with that but a huge proportion of our commission and fee based revenue is really fee based revenue not commission based revenue.

So in terms of what we're doing to do that I mean, obviously most of the advisors that we recruit and we've recruited.

Almost 60 teams of advisers most of those advisers are all fee based advisors first of all so there's a natural kind of.

Dan Duggill: So there's a natural kind of bias for those numbers to increase. Secondly, we've taken a much stronger approach to financial planning and putting up plans in front of people. That tends to end up more fee-based than commission-based. We've done over 1,000 financial plans this year for our clients.

Bias for those numbers to increase.

Secondly, we've taken a much stronger approach on financial planning and putting up plans in front of people.

And that tends to end up more fee based and commission based we've done over that was in financial plans. This year for our clients and third we're giving our clients our advisers the tools to continue to grow their business and they've been immensely successful at rolling their business, we've seen net new assets grow in Canada.

Dan Duggill: And third, we're giving our advisors the tools to continue to grow their business, and they've been immensely successful at growing their business. We've seen net new assets grow in Canada. We've seen gross new assets grow a lot, but these are difficult times, so people are pulling some money out of their accounts from time to time just to fund their lifestyle.

We've seen gross new assets grow a lot, but these are difficult times. So people are pulling some money out of their accounts from time to time just to fund their lifestyle, we're not losing the clients.

Dan Duggill: We're not losing clients, so it seems like it's working, and I think in a more vibrant market, Jeff, it even works better. Hopefully, that answered some of your questions. I appreciate that. That's a very good color.

It seems like it's working and I think in a more vibrant market, Jeff It even works better.

Hopefully that answered some of your questions.

No I appreciate that that's very good color. Thanks, I'll re queue.

Dan Duggill: Thanks. Thank you. Our next question comes from Rob Goff from Eklund. Please go ahead, your line is open.

Thank you. Our next question comes from Rob Goff from Echelon. Please go ahead. Your line is open.

Dan Duggill: Thank you very much, and congratulations on both the revenue achievement and the efficiencies in a quarter. I know we have already hard-fought one game. Feels better. Yes, it looks better.

Thank you very much and congratulations on both the revenue achievement.

Efficiencies on a quarter and now we are a hard fought one gains.

It feels better.

Yes, it looks better.

Dan Duggill: Just perhaps following up on some of the questions from Jeff there. With respect to where you are currently with the efficiency gains, in the scenario you painted with a gradual transition to more normalized activity levels, would you be – have sufficient resources on hand, i.e. a bit of extra capacity to handle that, or do you foresee needing to add resources? Yeah, I'll take a step back and then I'll answer your question, Rob, but our comp, Jeff asked about comp ratio, obviously, and that won't, won't change materially. So if we have more resources, then if we have more revenue because the environment is better, either we'll pay our people more, or we'll hire more people. But that ratio won't change.

Just perhaps following up on some of the questions from Jeff there.

With respect to where you are currently with the efficiency gains.

In the scenario you painted with a gradual transition to more normalized activity levels.

Would you be.

Have sufficient resources on hand E a bit of extra capacity to handle that or do you foresee needing to add resources.

Yes.

I'll take a step back and then I'll answer your question Rob.

Our comp Jeff asked about comp ratio, obviously and that won't change.

Materially so if we have more resources.

Then we have more revenue because the environment's better either we'll pay our people more or we will hire more people.

Ratio won't change and I think we are in an environment and I. Appreciate you know that we've got a pretty good reputation here, if we needed to hire people we can.

Dan Duggill: And I think we're in an environment, and I appreciate you know this, we've got a pretty good reputation here. If we need to hire people, we can hire. I'm not worried about that. I don't think that will be a constraint. So one way or another, either people will work harder and make more, or we'll hire more people. I'm not worried about that either.

Higher people like I'm, not worried about that I don't think that'll be a constraint.

So one way or another either.

People will work harder and make more ore will hire more people I'm not worried about it either way.

Dan Duggill: Very good. And you've talked in the past about the counter-cyclical nature of advisory business versus, you know, underwriting business. Could you, and we saw this in the quarter, could you talk about your outlook in terms of both underwriting pipelines and advisory pipelines? Yeah, great question.

Okay.

You've talked in the past about the counter cyclical nature of advisory business versus underwriting business.

And we saw it on the quarter could you talk to your outlook in terms of both underwriting pipelines and advisory pipelines.

Yes, great question.

Dan Duggill: One of which I can answer, one of which I can't. We've got a pretty sophisticated CRM, and like any good investment bank, we would track our M&A revenue pretty closely. And there's, you know, I'm not saying you can track it perfectly 12 months in advance, but you know, three months in advance, you can, and six months, a little less.

One of which I can answer one of which I can.

We set up.

We've got a pretty obviously, we've got a pretty sophisticated CRM and like any good investment bank, we would track our M&A revenue pretty closely and theirs.

I'm not saying you can track it perfectly 12 months in advance, but three months in advance you can in six months a little less so we understand where our M&A revenue is absent major changes in the market.

Dan Duggill: So we understand where M&A revenue is, you know, absent, you know, major changes in the market. You know, the problem with M&A revenue and why we exceed or miss in a particular quarter is because something gets delayed by a week or two weeks, like it's not because it vanishes or blows up. So, you know, and that'll be the problem this upcoming quarter. I could tell you the dollar amount, you know, what we closed within a month of quarter end, but I can't tell you right at quarter end. So we've got a pretty good view.

The problem with M&A revenue and why we exceed or Miss in a particular quarter is because something gets delayed by a week or two weeks like it's not because it vanishes or below was up so.

And that'll be the problem this upcoming quarter I can tell you that the dollar what we close.

Within a month of quarter end, but I can't tell you right at quarter end. So we've got a pretty good perspective, and the pipeline is very similar to <unk>.

Dan Duggill: And the pipeline is very similar to, you know, similar to where it was this quarter, maybe with some upside surprises, depending on, you know, the timing of the closing of certain transactions. The broader pipeline, as I look forward for the year, continues to be robust, continues to be, you know, strong from where we are today and an uptick from where we are today. But again, really hard to nail it down to a day, which is the day of a quarter, um, you know, and whether a particular transaction closes then or the other day, but you know, over the course of a rolling average generally moving up to the right, so we feel pretty good about it. Now, that assumes no major, you know, sociopolitical economic changes. It assumes liquidity stays open in the market because it is pretty So, you know, in the end.

Similar to where it was this quarter.

Maybe with some upside surprises depending on timing of closing of certain transactions the broader pipeline as I look forward for the year continues to be robust continues to be strong from where we are today and an uptick from where we are today, but again really hard to.

Nail it down to a day, which is the day of a quarter end.

Yeah on whether a particular transaction closes then are the other day, but over the course of a rolling average generally moving up to the right. So we feel pretty good about that now that assumes no major sociopolitical economic changes it assumes liquidity stays open in the market because it is pretty open as you know right now.

So in.

In the.

And in the current environment, we feel pretty strongly that the new issue pipeline and the.

Dan Duggill: In the current environment, we feel pretty strong about that. The new issue pipeline and the underwriting activity, you know, you'd have as good a perspective on that, as likely as we would. We have a robust pipeline of people who want to raise money, no doubt. And I think as we see, you know, the smaller and mid-cap stocks start to perform better. Because even though the market is at record highs, it's really weighted to very, very large cap stocks, as you know, the mid and small cap stocks have kind of, relatively substantially underperformed. But as those stock prices come up and as the market does better, we'll see more new issuance. The uranium sector is a good example. I mean, lots and lots of demand out there. But the companies didn't like their stock prices. Uranium stocks went up a couple weeks ago, and all of a sudden, you see a bunch of uranium deals. That's not rocket science.

Underwriting activity you have as good as perspective on that is likely as we would we have a robust pipeline of people who want to raise money no doubt.

And I think as we see.

The smaller and mid cap stocks start to perform better.

Because even though the market is at record highs, it's really weighted to very very large cap stocks as you know.

The mid and small cap stocks of Kinder.

Relatively substantially underperformed, but as those stock prices come up and as the market does better we will see more new issuance and the uranium sector's. A good example, I mean lots and lots of demand out there the companies didn't like the stock price uranium stocks went up a couple of weeks ago and all of a sudden you see a bunch of uranium deal. So it's not rocket.

Dan Duggill: That's kind of obvious, so I think we'll continue to see a pretty robust pipeline of new issue activity. It's just impossible to predict.

And so it's kind of obvious so I think we'll continue to see.

Pretty robust pipeline of new issue activity, it's just impossible to predict so it's really hard for me to sit here today and tell you our underwriting revenues going up and Thats going to be great. Next year is really a function of where the market is in.

Dan Duggill: So, it's really hard for me to sit here today and tell you underwriting revenues are going up, and it's going to be great next year. It's really a function of where the market is. And, you know, if I had to draw a line and make it go up or go down, I'd make it go up, but I'd be guessing. Very good. May Ray Cuts be your friend.

If I have to draw a line and make it go up or go down and make it go up but I'd be guessing a little bit.

Okay.

Good day rate cuts Dear friends.

Dan Duggill: Great to be all our friends. Thank you. Thank you. Our next question comes from Stephen Boland from Raymond James. Please go ahead.

Great cuts be all our friends.

Yes.

Thank you.

Okay.

Thank you. Our next question comes from Stephen Boland from Raymond James. Please go ahead. Your line is open.

Dan Duggill: Your line is open. Thanks. Good morning, guys. First, I appreciate your comments on advisory in general. Maybe you could just talk about the pipeline in the UK. You mentioned a couple of things in your comments, but the pipeline there, is this a pent-up demand quarter, or is that particular segment in the UK, sustainable because it was a marked improvement? Yeah, the M&A pipeline in particular you're asking? Yeah, in the UK.

Thanks. Good morning, guys first I appreciate your comments on advisory in General maybe you just talked about.

The pipeline in the UK you mentioned some a couple of things in your comments, but the pipeline there.

I was just.

Pent up demand quarter or is that particular segment in the U K.

This level of sustainable because it was a marked improvement.

Yes, the M&A pipeline in particular, you are asking.

Dan Duggill: Yeah, I mean, again, our UK business is the smallest of our capital markets business. It's an important business. It's critical to our global franchise. We're active there globally, both on the tech and the mining and healthcare side.

In the U K, yes.

Yes, I mean again, our UK business is our smallest of our capital markets business.

It's an important business, it's critical to our global franchise, we got were interacted there globally, both on the attack in the mining and healthcare side.

Dan Duggill: You know, it's really part of our business. So when you look at it and say, you know, is that particular geography going to do better one quarter over another when it's kind of broadly integrated into our broader business, it's really hard to predict. It was a robust quarter in Q3. Will we do the exact same revenue in Q4? You know, I'd like to think so, but that could be a stretch.

It's really part of our business. So when you look at it and say.

Is that particular geography going to do better one quarter over another when it's kind of broadly integrated in our broader business, it's really hard to predict it was a robust quarter in Q3, where we do the exact same revenue in Q4.

I'd like to think so but that could be a scratch.

Dan Duggill: But we continue to have a bunch of activity. The good news about the UK is, you know, that we bought this team over a year ago called Results. And they're well integrated into the firm. They're well integrated into our US M&A practice as well, and they're starting to deliver.

But we continue to have a bunch of activity. The good news about the UK as you know that we bought this team.

Over a year ago called results.

And they are well integrated in the firm that well integrated into our U S. M&A practice as well and they are starting to deliver I mean, we bought them at a time when M&A was kind of becoming more difficult and we're finally, starting to see the benefits of that.

Dan Duggill: I mean, we bought them at a time when M&A was kind of becoming more difficult, and we're finally starting to see the benefits of that and those results. But again, and I'm sorry to do this to you, really hard to predict quarter over quarter. Again, if you're asking me to draw a line, it's not going to be right for a quarter, but you know, over a year probably.

And those results, but again I'm, sorry to do this really hard to predict quarter over quarter.

Again, if you're asking me to draw a line.

It is not going up to the right for a quarter, but over a year probably is.

Dan Duggill: Yeah, that's the best I can do. Okay. And maybe just on the UK wealth management business, one of the big things we've seen over the past few quarters is definitely the interest costs in the MD&A. It mentions some of the loans that you've taken out for acquisitions, I think. Where is that in terms of priority of getting those costs down with this in the just right environment? Is that a focus on your capital? Not really.

Yes.

What I can do at this stage.

Okay, and maybe just on the UK wealth management business, one of the big things you've seen over the past few quarters is definitely the interest costs.

In the MD&A mentioned.

Some of the walls are taken out.

For acquisitions I guess.

Is that where is that in terms of priority of getting.

Those cost out with the suggest rate environment is that is that a focus on your on your capital allocation.

Not really I mean, we've got.

Dan Duggill: I mean, we've got a 200 million pound loan, a little bit less than that outstanding, but we also have a lot of cash in that business. So our net debt, Don will give you the exact number in a second. I don't want to misquote it.

We've got a.

200 million pound loan a little bit less than that outstanding, but we also have a lot of cash in that business. So our net debt.

Don will give you the exact number in a second I don't want I misquoted.

Dan Duggill: So our net debt number is lower because we do have a pretty robust balance sheet in our UK wealth business, but we're using that money to buy little things like intelligent capital and other things. So, you know, that money does get deployed.

So our net debt number is lower because we do have a pretty robust balance sheet over in our U K wealth business.

But we're using that money to buy little things like intelligent capital and other things so.

That money does get deployed we're not the leverage in that business is negligible. When you look at our net debt relative to our EBITDA. So we're not worried about it the cost of debt, although increasing because it's floating is not really material relative to the size of our EBITDA in the business and you know that our interest income has also gone up a lot. So there is a.

Dan Duggill: We're not The leverage in that business is negligible. When you look at our net debt relative to our, so we're not worried about it. The cost of that, although increasing, because it's floating, is not really material relative to the size or even success of the business and, you know, that our interest income has also gone up a lot. So there's a natural edge in that business, which is why we left it floating in the first place when we did it, because we do earn a lot of interest income that that offsets. So, we're not really looking at taking that down in any material way.

Macro hedge in that business, which is why we left the floating in the first place when we did it because we do earn a lot of interest income.

That offsets that so we're not really looking at taking that down in any material way in fact, we renewed our bank facility there recently.

Dan Duggill: In fact, we've renewed our bank facility there recently and, you know, and the business performed pretty strongly. Don our net debt number in the UK, Yeah, if we just look at the loan balance versus excess cash, we're certainly sub-£150 million on that front, probably close to £140 million. But it's regular traditional commercial bank loan type debt, fairly standard in form, and certainly has a place in the capital structure for that particular unit.

And.

<unk>.

And the business continues to perform pretty strongly.

Don our net debt number in the UK.

Yes.

If we just look at the loan balance versus excess cash were certainly sub 150 million pounds on that front, probably closer to 140 million pounds.

But it is a regular traditional commercial bank loan type that with.

Fairly fairly standard inform and certainly has a place in the capital structure for that particular unit.

Okay and just my final question, Dan and you may.

Dan Duggill: And just my final question, Dan, and you may guess what it is. Certainly, the foreign jurisdiction that had the regulatory issue that was announced. Has there been any update or any change in that? No, no, no. I wish I could report something to you, but I can't.

And I guess, what it is.

Certainly the well the foreign jurisdiction that had the regulatory issue that was announced has there been any update or any change in that.

No.

I wish I could report something to you, but I can't no material changes people operate under their own time to timeline.

Dan Duggill: No material change. People operate under their own timelines. I appreciate that. Thanks, guys. Thank you. Our next question comes from Graham Riding from TD Securities. Please go ahead, your line is open. Hi, good morning.

Alright appreciate that thanks, guys.

Thank you our next.

Question comes from Graham Ryding from TD Securities. Please go ahead. Your line is open.

Hi, good morning.

Don McFadden: The comp ratio, I just noticed that it seemed to be much lower sort of across your wealth platforms relative to that historical range. Have there been any deliberate actions on your part to bring that wealth comp ratio down, or is this entirely, you know, the fair market value adjustment from stock-based comp that we're seeing in the corner and also year-to-date? Hi Graham, it's Don.

The comp ratio I, just understood it seem to be.

Much lower sort of across your wealth platforms.

Relative to sort of that historical range.

Have there been any deliberate actions on your part to bring that wealth comp ratio down or is this entirely.

The fair market value adjustments from stock based comp that we're seeing in the quarter and also year to date.

Hi, Graham it's dawn.

Don McFadden: There's been no changes in our comp structure and our payout models and so forth. They've been consistent. This year, consistent with prior years, I think, and as we've talked about before, you have to kind of, it's difficult to sort of isolate a particular quarter, and there's going to be some natural noise in any particular quarter's comp ratio, so you kind of have to extend it over a period of time. But the uptick in interest revenue makes that comp ratio look a little lower than it would be otherwise, just because there' Okay, that makes sense. Can you give us an idea of what the comp ratio would have been this quarter or year to date if we didn't have the noise around the stock based comp adjustment? Uh, well, we don't really get into that detail.

<unk>.

Theres been no changes in our in our comp structure.

Our payout models and so forth, they're they've been consistent this year consistent with prior years I think.

We've talked about before you have to kind of.

It's difficult to sort of isolate a particular quarter, there's going to be some natural.

Noise in any particular quarter as comp ratio. So you kind of have to extended over a period of time, but the uptick in interest revenue.

Makes that comp ratio look a little lower than it would be otherwise just because.

There's obviously different different structure around.

Around the interest revenue versus regular fee based type Commission revenue.

Okay that makes sense.

Can you give us an idea of what the comp ratio would have been this quarter or year to date, if we didn't have the noise around the.

The stock based comp adjustments.

Well, we don't really get into that detail I think just generally there is.

Don McFadden: I think just generally there is, you know, the, uh, there is a portion of the stock-based compensation that is tied to the market, so there is some component of that. It wasn't so much this particular quarter; it would be sort of more over the year-to-date, the nine-month period. So is there any potential true upcoming in Q4 on the cooperation side or should we sort of been taking 60, 61% as you're sort of...

There is a portion of that stock based compensation that does.

Is tied to market. So there is some some component of that it wasn't so much this particular quarter it would be sort of more more.

Over the year to date to nine month period.

So is there any potential upcoming in Q4 on the comp ratio side or.

Should we sort of been taken $60 61 percentage here.

Don McFadden: I would continue to think that we've always settled out in, by the time we get to the end of the year, we've always settled out into that 60, 61% type range. So I would continue to think along those terms. There's not, yeah, I would continue to think along those terms. So, some sort of catch-up in fiscal Q4 then, is that the right thing to do? Yeah, we may, we may see that.

I would continue to think in that we've always settled out.

By the time, we get to the end of the year, we've always settled out into that 60%, 61% type range. So I would continue to think along those terms.

There is not I would continue to think along those terms.

So some sort of catch up in fiscal Q4 that is that the right.

Don McFadden: Yes. It'll obviously depends on a number of factors, but Okay. Just jumping to your interest income on the wealth side, it seems like, on a relative basis, you're getting more of a benefit here on your UK platform from higher interest income, more so than we're seeing in Canada. Is there something structurally different here between the two platforms and the sort of degree of interest income that they would earn? And then, I guess, what should we think about next year?

We may see that yesterday.

But obviously depends on a number of factors but.

Yes.

Okay.

Just jumping to your interest income on the wealth side.

It seem to be.

Like on a relative basis youre getting more of a benefit here in your U K.

UK platform from higher interest income more so than we're seeing in Canada is there something structurally different here between the two platforms.

Sort of degree of interest income that they would earn.

And then I guess, how should we think about all the different the different business next year.

Dan Duggill: Yeah, in Canada, we self-clear, right? Client's cash, you know, we have that cash; we access that cash. Our interest income in Canada is primarily a function of the margin we make available to our clients. So, as our margin balances go up, our interest income goes up as well. As our margin balances go down, our interest income comes down. So it's really a function of how much our wealth clients are drawing down on their margin. That's the biggest thing. So, you see, our interest income not going up as much because people just don't have as much margin in their accounts because they don't want to have as much margin because interest rates are higher. So, that's the difference. The UK is different, right?

Yes, Canada, we self clear right clients' cash that we have that cash we access that cash our interest income in Canada is primarily a function of the margin we make available to our clients.

So as our margin balances go up our interest income goes up as our margin balances go down our interest income comes down so it's really a function of how much our our wealth clients are drawing down on their March and Thats. The biggest thing. So you see our interest income not going up as much is because people just don't have as much margin in their accounts because they don't want to have as much margin as interest.

It's our higher so that's the difference the UK, it's different by the U K.

Dan Duggill: In the UK, we take a spread, effectively on the cash that's in people's accounts. We pay them a certain interest rate. We use that cash to make a certain interest rate. So, that's much more linear, a much more linear calculation.

We take a spread effectively on the cash that's in People's accounts, we pay them a certain interest rate, we use that cash to make a certain interest rate. So that's much more linear.

A much more linear calculation.

Don McFadden: Yeah, that's right. We don't do margin lending in the UK versus Canada. So that is quite a different, a structural difference between the two units.

Yes, that's right, we don't do margin lending in the UK versus Canada, So that is quite a different.

Structural difference between the two units.

Dan Duggill: Okay, that makes sense. And my last question, if I could, you made some commentary around you're seeing some outflows on your wealth platform, I think more so in Canada, because it did look like Canadian wealth growth was softer than I expected quarter to quarter, year over year. Anything you can quantify there in terms of the percentage of AUA that you're seeing from net outflows in your wealth platform? No, there are actually net inflows in Canada. We've seen net inflows. What I was referring to when talking about outflows was gross outflows. So our gross inflows minus our gross outflows result in net inflows. Our inflows are very strong. And our outflows are stronger than I would like. So, you know, it was kind of a hidden positive comment that if outflows slow down because people stop needing their money to pay down their mortgage or do other things, then there's an opportunity for even better net inflows. In all of our markets, Canada, Australia, and the UK, we've seen net inflows.

Okay.

The piece that makes sense.

My last question if I could.

Just you made some commentary around you are seeing some outflows on your wealth.

<unk> platform I think more so in Canada, because it did look like the <unk>.

Canadian wealth growth was so was softer than I expected quarter over quarter year over year anything you can quantify there in terms of percentage of <unk> that youre seeing from net outflows near wealth platform.

Net inflows in Canada.

We've seen net inflows what I was referring to on the outflows was gross outflow. So our gross inflows minus our gross outflows, resulting in net inflows are.

Our inflows are very strong.

And our outflows are stronger than I would like.

So.

It was kind of a hidden positive comment that of outflows slowed down because people stop meeting their money to pay down their mortgage or do other things.

Then there is an opportunity for even better net inflows in all of our markets, Canada, Australia, and the U K, we've seen net inflows this year.

Dan Duggill: Okay. Okay, that's it for me. Understandable. Thanks. Great question.

Okay.

Okay. That's it for me understood. Thanks, great questions.

Operator: Thank you. There are no further questions. I will turn the conference back to Mr. W. Okay, well, that concludes our third quarter call. I really appreciate everyone having looked through this and joining us today. Our next update is going to be in June. That's our fourth quarter.

Thank you there are no further questions I will turn the conference back to Mr. Defeo.

Well that concludes our third quarter call really appreciate everyone I've been look through this and joining US today. Our next update is going to be in June thats, our fourth quarter, We reported a little later as you know because it's our fiscal year end results and as always Don and I are available for follow up questions. So operator. Thank you.

Dan Duggill: We report a little later, as you know, because it's our fiscal year end results. And, as always, Dawn and I are available for follow-up questions. So, operator, thank you. And then you can feel free to close the line. Thank you, ladies and gentlemen. This concludes the conference call for today. Thank you for participating. Please disconnect your lines.

Feel free to close the lines.

Thank you ladies and gentlemen, this concludes the conference call for today. Thank you for participating please disconnect your lines.

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