Q3 2025 Canaccord Genuity Group Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Welcome everyone to the Canaccord Genuity Group, Inc. Fiscal 'twenty 'twenty five third quarter results conference call.
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Speaker Change: I would now like to turn the conference over to Mr down W. Chairman and CEO. Please go ahead Mr debut.
Speaker Change: 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 SEDAR Clos and on the Investor Relations section of our web site at C. G F dotcom within our update certain reported information that's been.
Speaker Change: Adjusted to exclude significant items to provide a transparent and comparative view of our operating performance.
Speaker Change: These adjusted items, our non Ifr S financial measures. Please refer to our notice regarding forward looking statements and the description of non I F. R. S financial measures that appear in our Investor relations presentation and in our MD&A.
Speaker Change: Before we begin I am pleased to share that with the approval from our board of directors Nadine on has been appointed to the role of Chief Financial Officer for Canaccord Genuity group with immediate effect.
Speaker Change: Since we welcome Nadine as our Deputy Chief Financial Officer in October She has been working closely with Dan Mcfadden 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 to the company and our shareholders.
Speaker Change: As we have previously disclosed Dom will remain very active in the 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.
Speaker Change: And look forward to his continued contributions.
Speaker Change: Both Nadine and Don are joining me on today's call.
Speaker Change: And with that let's review our third quarter results.
Speaker Change: 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.
Speaker Change: Ongoing geopolitical risks and the U S elections.
Speaker Change: 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.
Speaker Change: Firm wide revenue for the three months period was $451 million.
Speaker Change: Up 16% year over year, and bringing our fiscal year to date revenue to $1 3 billion.
Speaker Change: Up 22% year over year.
Excluding significant items burn wide pretax net income for the three month period amounted to $40 million, a decrease of 11% year over year.
Speaker Change: This translated to an adjusted diluted earnings per share of 17 cents for the three month period.
Speaker Change: Well. This is a disappointing result in the context of our revenue growth our profitability for the three months 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.
Speaker Change: Increased premises 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.
Speaker Change: Our compensation ratio for the three and nine month periods were 56, 5% and 58, 1% respectively.
Speaker Change: The lower ratios largely reflected a shift in our business mix by vertical segment and geography during the three month period.
Speaker Change: As previously noted our compensation ratios can be subject to variability between quarters and its best reviewed on an annual basis.
Speaker Change: I will note that our long term averages have not changed.
Speaker Change: 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.
Speaker Change: Our wealth management business continues to be a source of resilience in earnings strength.
Speaker Change: 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 eight and a half cents.
Speaker Change: 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 up 4% sequentially and 16% year over year.
Speaker Change: This improvement reflects positive inflows market growth and contributions from our recruiting and acquisition activities.
Speaker Change: The adjusted net income from this division totaled.
Speaker Change: $36 million for the three month period, representing a slight decline of 4% compared to the same period last year.
Speaker Change: This was primarily due to the impact of the previously mentioned rise in non compensation costs.
Speaker Change: When measured on a fiscal year to date basis, adjusted pretax net income of $108 million increased by 1% year over year.
Speaker Change: Our business in the U K 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.
Speaker Change: Good.
Measured in local currency client assets increased 7% year over year to a record of 36 billion pounds.
Speaker Change: Approximately 1 billion pounds of this increase reflects assets from our acquisition of CANTAB asset management, which was completed in October.
Speaker Change: <unk> related revenue in this business continues to be strong and remain comfortably above 80% of total revenue for nine consecutive quarters.
Speaker Change: The business achieved normalized EBITDA of around 20 million pounds for the three months period, marking an 11% increase from the second fiscal quarter.
Speaker Change: This brought year to date normalized EBITDA to approximately 58 million pounds.
Speaker Change: Our U K wealth management business was our largest contributor of adjusted pretax net income for the three and nine month period.
Speaker Change: 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.
Speaker Change: As the impact of inflows from a recruiting and acquisition activities are reflected in our results. We expect margins in this business to improve.
Speaker Change: 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 pounds and client assets.
Speaker Change: Third quarter revenue in our North American wealth management business increased by 25% year over year to $96 million.
Speaker Change: Largely attributed to higher commission and fee revenue.
Speaker Change: While we experienced a modest uptick in revenue from new issues during the quarter activity levels. In this segment have remained below historical levels, reflecting a reduced risk appetite among investors.
Speaker Change: 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.
Speaker Change: Client assets in this business improved by 17% year over year to a record 42 billion.
Speaker Change: And fee generating accounts now represent 55% of total assets under administration in this business.
Speaker Change: I'm also pleased to report that the average practice size per advisory team has increased to $292 million.
Speaker Change: We continue to experience solid recruiting momentum in this business and we've had an excellent experience onboarding new teams in Calgary and Vancouver.
Speaker Change: The adjusted pretax net income contribution from this business was $9 million for the three months period down 17% from the prior year's comparison period.
Speaker Change: Profitability was impacted by a 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 onetime in nature.
Speaker Change: On a fiscal year to date basis, adjusted pretax net income improved by 5% year over year to $30 million.
Speaker Change: 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.
Speaker Change: Similar to our North American business, new issue activity remained.
Speaker Change: 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 months period.
Speaker Change: Manage 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.
Speaker Change: We're recruiting activity in this region remains strong and is contributing to our growth of fee based assets, which contributed 43% of the total revenue in the third quarter.
Speaker Change: Adjusted pretax net income amounted to $2 million for the third quarter, bringing the year to date contribution from this business to $4 million.
Speaker Change: Surpassing the full year amount earned in fiscal 2024.
Speaker Change: 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.
Speaker Change: This brought fiscal year to date revenue to $618 million a year over year improvement of 29%.
Speaker Change: Third quarter profitability in this division was flat compared to the most recent fiscal quarter and down 11% year over year to $15 million.
Speaker Change: While our Canadian Australian and U K businesses had positive contributions our U S business continued to be impacted by the previously mentioned expenses in relation to our ongoing enforcement matter.
Speaker Change: Additionally, trading expenses in this business increased in line with the increase in trading revenue.
Speaker Change: 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.
Speaker Change: Well still our largest contributor but 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.
Speaker Change: This reflects the timing of deal completions, which benefited our revenue in the prior fiscal quarter.
Speaker Change: 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.
Speaker Change: Our Canadian business experienced a notable increase in advisory revenue of 115% year over year to $23 million.
Speaker Change: While we have 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.
Speaker Change: Despite operating in a persistently difficult market for capital markets activities Advisory revenue in our UK business was up 21% sequentially to $16 million.
Speaker Change: On a consolidated basis corporate financing revenue increased by 46% year over year to $58 million is.
Speaker Change: As clients took advantage of more favorable conditions to raise capital.
Speaker Change: This brought our year to date revenue in this segment to $175 million up 75% compared to the same period a year ago.
Speaker Change: 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.
Speaker Change: I will note that we anticipate some seasonality over the coming months.
Speaker Change: As this period typically marks a slower summer season in Australia.
Speaker Change: Corporate financing activities also showed modest improvements in our Canadian and U S businesses, which contributed $19 million and $17 million respectively.
Speaker Change: 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.
Speaker Change: Revenue on our trading businesses improved 18% year over year, and 28% sequentially to $35 million.
Speaker Change: Largely reflecting improved retail flows in our U S International Equities group.
Speaker Change: 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.
Speaker Change: We do not have any other substantive update nor is it clear when we can expect resolution.
Speaker Change: 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.
Speaker Change: 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 our continue.
Speaker Change: <unk> of growing contributions from our wealth management businesses.
Speaker Change: And with that.
Speaker Change: Don Nadine and I will be pleased to take your questions.
Speaker Change: 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 one on your telephone keypad. If he would like to look try your question. Please.
Speaker Change: Please press star two.
Speaker Change: There will be a brief pause while we compile the Q&A roster.
Speaker Change: Your first question comes from Stephen Boland with Raymond James Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: Again, and maybe Jim can you can we just dig into the <unk>.
Speaker Change: The growth in expenses and G&A and the Canadian wealth.
Speaker Change: Wealth Management Division I know you said there were some.
Speaker Change: Client related provisions as well as maybe new costs costs for the new headquarters.
Speaker Change: Reading that in or we don't break.
Speaker Change: Yes, you nailed it.
Speaker Change: I mean, we just opened up a huge new office in.
Speaker Change: Certainly <unk> seen that incredible.
Our Canadian.
Speaker Change: Greater offices at some point that was long standing to be done on the cost.
Speaker Change: The increase in the back of our spaces.
Speaker Change: So you see an uptick on that cost, but the other costs.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Bye bye.
Speaker Change: Great.
Speaker Change: Specific client.
Speaker Change: So those costs will come down.
Speaker Change: Not the least cost.
Speaker Change: Alright.
Speaker Change: Yes.
Speaker Change: Yes, I mean, the lease cost would obviously be captured in the premises equipment line and client related activity and some professional costs and so forth would.
Speaker Change: It would be in G&A.
Speaker Change: Also typical seasonal activity.
Speaker Change: Were also contributors.
Speaker Change: Yeah.
Speaker Change: And the G&A number.
Speaker Change: Okay. So I don't want to I know, you don't like giving guidance, but like about $8 million.
Speaker Change: On the G&A is that.
Speaker Change: $5 million related to this client related provision or 4 million like whats the run rate dog Nadeem in terms of what you call it wouldn't be a run rate it would be.
Speaker Change: Just starting to be a one time component of it.
Speaker Change: A day impact on the.
Speaker Change: Q3 numbers historically.
Speaker Change: Historical.
Speaker Change: So probably the run rate would be in the $4 million to $5 million, which.
Speaker Change: Obviously as what <unk> been reporting for the last couple of years.
Speaker Change: Yes.
Speaker Change: Okay can you talk about what the client related.
Speaker Change: Lotteries.
Speaker Change: It's irrelevant.
Speaker Change: To be honest.
Speaker Change: Yes.
Speaker Change: Thanks, guys.
Speaker Change: Okay.
Speaker Change: David This is bill.
Speaker Change: Not an ongoing matter, that's going to lead to recurring costs.
Speaker Change: Okay.
Right.
Speaker Change: How about like why would the new headquarters in Vancouver is it just the wealth management, there or is it capital markets with harvest why why would that promised to be booked in that service as opposed to corporate.
Speaker Change: Well, we've got four floors.
Speaker Change: As far as on or.
Speaker Change: Hi.
Speaker Change: Yeah.
Speaker Change: <unk> three <unk>, three and a half of our wealth.
Speaker Change: So most of it so well.
Speaker Change: Got it okay. Thanks for that.
Speaker Change: Just in the U S provision.
Speaker Change: Language in the MD&A says that you booked.
Speaker Change: Another increase in provision, but there's a likelihood that it may go higher.
Speaker Change: I'm just curious out of it.
Speaker Change: Is it just wouldnt have booked more because you don't know what that amount is.
Speaker Change: But do believe it's going to go higher.
Speaker Change: Well, we don't know I think we don't know what the amount is going to be ultimately.
Speaker Change: So.
Speaker Change: Okay.
Speaker Change: The estimate on the basis of the information we have.
Speaker Change: Okay, let's move to the positive.
Speaker Change: Basically the.
Speaker Change: Dan you've always talked about the pipeline for M&A, maybe you could just go through each each of the main divisions.
Speaker Change: So you will always have a good.
Speaker Change: <unk> pipeline.
Speaker Change: Yes.
Speaker Change: Yeah, if I can again.
Speaker Change: Separating them up by country.
Speaker Change: As you kind of divide the M&A line and to add a little teeny buckets, you're always going to get some volatility just because he got somewhat.
Speaker Change: Fees that fall into one quarter don't fall into another quarter or so.
Speaker Change: You know what.
Speaker Change: The direction of travel is exactly as I indicated up until then.
Speaker Change: Probably and I'm sure you're all folks are telling us.
Speaker Change: Probably one more OEM to M&A markets I've seen in several years.
Speaker Change: Prices are good regulatory environment in the U S.
Speaker Change: Access to capital.
Speaker Change: You continue to have huge private equity balances looking to put out money. So we're probably in one of the more conducive M&A environment going forward, how that ox sent to every single corner.
Speaker Change: We've got visibility, but not that kind of visibility things get delayed a week or two weeks or three weeks, but generally up and to the right and that continues to be very conducive market. So you start with the Brexit vote.
Speaker Change: U S last quarter, all just theory.
Speaker Change: Yes timing Canada.
Speaker Change: Canada.
Speaker Change: Thanks.
Speaker Change: Lastly.
Speaker Change: We continue to see that in the quarters to come.
Speaker Change: Sure.
Speaker Change: Included in the court.
Speaker Change: Okay. That's it for me thanks very much.
Speaker Change: Good questions. Thank you.
Speaker Change: Your next question comes from Robert Golf with Van Kempen. Your line is now open.
Robert Golf: Thank you and good morning, My question would be on the advisory business, which you also described the advisory business as being one of the more buoyant markets.
Robert Golf: Yes, that's what I was describing the M&A advisory business sorry.
Robert Golf: Misnamed.
Robert Golf: Yeah, our M&A as Bob is that is that what youre talking about are you talking about.
Robert Golf: It's both market looks strong.
Robert Golf: And then the antibody.
Robert Golf: So both the mergers acquisitions.
Robert Golf: And the advisory the underserved the underwriting business look relatively real sorry, yes.
Robert Golf: Yes, they're writing business, yeah underwriting business.
Robert Golf: Yeah, well again Rob.
Robert Golf: It is what it was I would say to be honest.
Robert Golf: It's getting better for sure.
Robert Golf: Weeks like last week don't help.
Robert Golf: All of <unk> issues as you know.
Robert Golf: Yes.
Robert Golf: Everything simpler.
Robert Golf: It was this week I guess, so yeah, I think as we get just a little hint of stability and the risk trade improves we're seeing it for sure there are.
Robert Golf: Our U S business is disproportionately impacted by the IPO market like that.
Robert Golf: Okay.
Robert Golf: Higher percentage of our activity there.
Robert Golf: Yes, we're seeing Ips get done and then starting to improve the pace of that so that's helpful.
Robert Golf: A number of small cap financing start on several mechanical last week outside of our traditional mining sector, which is 45%.
Robert Golf: We're seeing that broadening some of the other sectors as well also.
Robert Golf: We're constructive on that but but as I've always said, we have less visibility.
Robert Golf: We do a deal next week that we won 100% sure even existed this week. So you don't have the same degree.
Robert Golf: Our visibility as you do on the M&A.
Robert Golf: Broadly speaking, we see DLP.
Robert Golf: The increase.
Robert Golf: I guess, if you could.
Robert Golf: To Australia, and the wealth side from it.
Robert Golf: Nice to see the AUR increase in local currency and $9 one versus eight and flat advisers can you talk to your organic growth prospects and perhaps.
Robert Golf: Broader or inorganic growth.
Robert Golf: And advisors.
Robert Golf: Yes, I mean, we continue to have an active plan in place to recruit advisors from competitors and banks in that market very similar to the strategy. We've employed in Canada has successfully worked with product.
Robert Golf: Okay.
Robert Golf: Of the advisors and that market continues to be very active bidders good coordination between our Canada and Australia.
Australia wealth business about how to grow that market intelligence. So.
Robert Golf: It is it is and it's working out.
Robert Golf: According to plan, but it's the law of small numbers starting to three.
Eight.
Robert Golf: Canada.
Robert Golf: 42.
Robert Golf: So yes, we've got some work.
Robert Golf: We've got some work to do to replicate.
Robert Golf: What we have in Australia.
Robert Golf: We built in Canada, and Australia, and we're actively working at Australia.
Robert Golf: Ex week the week after next.
Robert Golf: We continue to have very very strong aspirations for that market.
Robert Golf: Thats a nominal business there.
Robert Golf: And the adviser economics remain very attractive in Australia.
Robert Golf: Yes.
Arguably more markets are always changing arguably.
Robert Golf: Better in Australia.
Robert Golf: Yeah.
Robert Golf: Okay. Thank you.
Speaker Change: Your next question comes from writing with TD Securities. Your line is now open.
Speaker Change: Hi, good morning.
Speaker Change: Growth in Canadian wealth was strong in the quarter do you have some success recruiting you're closing some new advisers joining the business.
Speaker Change: Hi, Graham as Dawn, Yes, we did have some some some.
Speaker Change: Our larger size box come into the business during the quarter as a result of the neighbor great effort I mean, as you know it tends to be lumpy.
Speaker Change: So it does stand out one dmitry.
Speaker Change: Yes.
Speaker Change: We certainly are important hires in Vancouver, and Calgary and Ottawa.
Speaker Change: Okay, Great and then on your U K wealth looks like there's a little bit of margin compression going on.
Speaker Change: It seems to be around the compensation side, what would be driving that.
Speaker Change: Yeah.
Speaker Change: Well, it's just our continued.
Speaker Change:
Speaker Change: Efforts, it is improving organic growth and putting systems and so forth in place, which is gaining traction obviously always incurred the costs for you.
Speaker Change: So there's a little bit of that as well as.
Speaker Change: We closed on the <unk> acquisition right at the start of the quarter on October one so theres always a little bit of noise as we integrate to integrate that business into one.
Speaker Change: Our existing larger platform.
Speaker Change: So there is nothing exceptional.
Speaker Change: Those kinds of costs.
Speaker Change: Okay.
Speaker Change: That's it for me thank you.
Speaker Change: Yes.
Speaker Change: Absent the.
Speaker Change: Expenses for the quarter was a great. It was a good quarter exactly what we hoped to be.
Speaker Change: There obviously looks like.
Speaker Change: Excellent.
Speaker Change: Yes.
Speaker Change: Got it.
Speaker Change: So certainly appreciate the questions and again look forward to our upcoming quarter Q4.
Speaker Change: Which will be our year end.
Lots of parts and pieces around that so.
Speaker Change: I appreciate everyone's participation on the conference call.
Speaker Change: Our next formal update.
Speaker Change: June but we'll obviously be talking to you folks before then in term.
Speaker Change: Dean and myself and Don are around and certainly welcome any additional questions. So thank you again.
Speaker Change: Your participation in this.
Speaker Change: Goodbye from New York, which is where we're sitting today.
Speaker Change: Ladies and gentlemen, this concludes the conference call for today. Thank you for participating please disconnect your lines.
Speaker Change: Okay.
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Speaker Change: Okay.
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