Q2 2025 AGF Management Ltd Earnings Call

Thank you for standing by and welcome to the Q2 2025, H F Management Ltd earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone.

This call is being recorded.

Speaker Change: I would now like to introduce your host for today's conference Mr. Saying you may begin.

Ken Zhang: Thank you operator, and good morning, everyone I'm, Ken Zhang Chief Financial Officer of Ags Management limited.

Ken Zhang: Today, we will be discussing the financial results for the second quarter of fiscal 2025.

Slides supporting today's call and webcast can be found in the Investor Relations section of Agl's Dot com.

Also speaking on the call today will be Kevin Mccreedy.

Speaker Change: Chief Executive Officer, and Chief Investment Officer for the question and answer period. Following the presentation could you recall green President and head of global distribution and National Laurence.

Speaker Change: Capital Partners will also be available to address questions.

Ken Zhang: Slide four provides.

Ken Zhang: For today's call. After the prepared remarks, we will be happy to take questions.

Kevin Mccreedy: I will now turn the call over to Kevin.

Speaker Change: Thank you Kevin and thank you everyone for joining us today.

Speaker Change: Second quarter of 2025 saw continued volatility as global markets grappled with the potential implications of ongoing trade wars.

Speaker Change: Despite the market volatility Q2 was another strong quarter for a J F.

Kevin Mccreedy: I'll begin with some highlights.

Kevin Mccreedy: AUM and fee, earning assets were $53 5 billion at the end of Q2 up 12% from a year ago.

Compared to Q1, our average AUM was down 3% due to the market volatility experienced throughout the quarter.

Speaker Change: Hey, Jeff investments retail mutual fund business reported net sales of $65 million in the quarter were 20 basis points of mutual fund AUM outpacing our Canadian mutual fund industry.

Kevin Mccreedy: SMA and ETF business remains strong.

Kevin Mccreedy: <unk> increased 54% year over year to $2 8 billion.

Kevin Mccreedy: We reported adjusted diluted EPS of 39 cents in the quarter.

Kevin Mccreedy: In addition, we have $426 million in short and long term investments on our balance sheet.

Kevin Mccreedy: They had a $50 million with $166 million available on our credit facility.

Kevin Mccreedy: Capital available and flexibility in our capital allocation strategy.

Kevin Mccreedy: Subsequent to the quarter EGF investments one of the mutual fund provider of the year Award has the 'twenty to 'twenty five wealth professional awards ceremony.

Kevin Mccreedy: This recognition celebrates our involving an innovative product lineup as well as our dedication to delivering exceptional value to our clients.

Kevin Mccreedy: Hey, Jeff was also wanted as an Excellence award D and employer of choice category.

Kevin Mccreedy: Finally, the board declared a 12 and a half cent per share dividend for Q2 of 2025.

Starting on slide six we will provide updates on our business performance.

Kevin Mccreedy: On this slide we break down our total AUM and fee, earning assets in the category as disclosed in our MD&A.

And show comparisons to the prior year.

Speaker Change: Hey, Jeff investments Mutual fund AUM was 31 billion up 15% year over year outpacing the industry increase of 11%.

Kevin Mccreedy: The growth of our ETF and SMA AUM remained strong and I'll provide more color on our mutual fund business and ETF and SMA AUM in a moment.

Kevin Mccreedy: Segregated accounts and sub advisory AUM increased by 2% compared to the prior year.

Kevin Mccreedy: Our private wealth AUM increased by 7% compared to the prior year to $8 6 billion.

Kevin Mccreedy: And our AGM capital partners, AUM and fee, earning assets were $4 7 billion at the end of the quarter as a reminder, new Holland capital.

Kevin Mccreedy: AUM of 9 billion is not consolidated into Egf's total AUM and fee, earning assets at this time.

Kevin Mccreedy: Turning to slide seven I'll provide some details on the mutual fund business.

Kevin Mccreedy: On the back of the volatility in the equity markets in the quarter. The Canadian Mutual fund industry saw net positive sales in the quarter of $1 billion or five basis points of Atlanta.

Kevin Mccreedy: H Fs investments retail mutual fund business outpaced the industry and achieved 65 million of net sales in the quarter were 20 basis points of a O N E.

Speaker Change: Hey, Jeff it's equity funds continue to see net inflows in the quarter with particular interest in the H F. Enhanced U S income plus fund and H F European equity class.

Speaker Change: Our AGM of enhanced U S income plus fund, which was launched earlier. This year aims to provide long term capital appreciation and generates a high level of consistent income by employing dynamic option strategies.

Speaker Change: Our award winning European equity class has garnered interest from clients and advisors on the back of a strong European equity market relative to the U S. In the first half 2025 and renewed interest in this category.

Kevin Mccreedy: I want to now give a quick update on our investment performance.

Speaker Change: Hey, Jeff investments measures mutual fund performance by comparing gross returns before fees relative to peers within the same category with.

Kevin Mccreedy: With the first percentile being the best possible performance.

Kevin Mccreedy: Our one year performance was in the 46 percentile our three year performance was in the 50, <unk> percentile and our five year performance was in the 41st percentile.

Kevin Mccreedy: Approximately half of our strategies are outperforming our peers on a three and five year basis.

Kevin Mccreedy: Turning now to slide eight I will.

Kevin Mccreedy: Talk about our ETF and SMA a U N.

Kevin Mccreedy: The AUM in this category has grown 41% on a compounded basis over the last two years.

Kevin Mccreedy: Included in this number are Canadian and U S listed Etfs and SMA platforms globally.

Kevin Mccreedy: In a volatile market environment, one of our liquid alternative products. Our U S listed market neutral anti beta ETF stood out for its ability to offer a hedge to equity markets.

Kevin Mccreedy: Biding protection during drawdowns, while maintaining upside participation.

Kevin Mccreedy: For example in the recent market downturn from mid February to early April.

Kevin Mccreedy: The S&P was down 19% this ETF produce positive returns of plus 18%.

Kevin Mccreedy: We have seen consistent growth and momentum in the SMA business across the U S, Canada, and now Asia, where many of our strategies are available on leading SMA and wealth management platforms.

Kevin Mccreedy: I will now pass it over to Ken to discuss our financial results.

Ken Zhang: Thanks, Kevin Slide nine reflects a summary of our financial results with the sequential quarter and year over year comparisons the financial results. In these periods are adjusted to exclude severance corporate development and noncash acquisition related expenses.

Ken Zhang: Adjusted EBITDA for the quarter was $40 million, which is $8 million lower than Q1.

Ken Zhang: This was mainly due to an outsized long term investment gain in Q1.

Kevin Mccreedy: Compared to the prior year, our adjusted EBITDA was $3 million higher mainly due to higher AUM levels.

Kevin Mccreedy: G&A came in at $60 million this quarter $4 million lower than Q1, and consistent with Q2 of last year.

Kevin Mccreedy: The decrease from Q1 reflects seasonally lower government regulated employee benefits, which are largely paid in the first quarter as well as reduced performance based compensation, mainly due to timing of RSP season sales adjusted.

Kevin Mccreedy: Adjusted net income attributable to equity earnings for the quarter was $26 million and adjusted EPS was 39 cents.

Kevin Mccreedy: Free cash flow for the quarter were $24 million down $8 million from Q1, primarily due to higher distribution income in the last quarter.

Kevin Mccreedy: Slide 10 provides further breakdown of our net revenues within our traditional asset and wealth management businesses net management fees were $84 million for the quarter, which is 1 million lower than the prior quarter and $3 million higher than the prior year.

Kevin Mccreedy: Our net management fees are directly related to our AUM levels, which were lower this quarter due to market volatility.

Kevin Mccreedy: Within our Ags capital partners business adjusted revenue was $15 million, representing a $9 million a decrease from the previous quarter. The decrease in revenues or due to outsized revenues from long term investments in Q1.

Kevin Mccreedy: While fair value adjustments on investments can be lumpy, we remain conservative in our guidance and target annual returns of roughly 8% to 10%.

Kevin Mccreedy: On slide 11, we outline adjustments to our EBITDA.

Kevin Mccreedy: As you might recall, the Ags capital partners business.

Kevin Mccreedy: <unk> the various Ll chip contingent consideration and put option liabilities. These liabilities are fair valued each quarter with the difference flowing through to the P&L. These.

Kevin Mccreedy: These accruals and fair value adjustments have no immediate cash impact and create noise quarterly which is why we've adjusted for these items to facilitate easier comparison of quarterly results.

Kevin Mccreedy: Adjusting for these items with severance expenses, our adjusted EBITDA for this quarter is $40 million.

Kevin Mccreedy: Turning to slide 12, I will walk through the yield on our business in terms of basis points.

Kevin Mccreedy: This slide shows our average AUM net management fees, adjusted SG&A and EBITDA as basis points on our average AUM in the current quarter previous quarter and trailing 12 months. This view excludes AUM and related results from EGF capital partners as well as DSC revenues other income.

Kevin Mccreedy: <unk> corporate development and acquisition related expenses the.

Kevin Mccreedy: The EBITDA yield this quarter was 24 basis points, which is two basis points higher than prior quarter and the 12 trailing 12 months the.

Kevin Mccreedy: The increase was driven by lower SG&A with a slight offset and the net management yields of one basis point.

Kevin Mccreedy: The decline in management fee yields reflects the success of our strategic efforts to expand across advisory channels, particularly those align with fee based platforms.

Kevin Mccreedy: Turning to slide 13, I will discuss our free cash flows and capital uses.

Kevin Mccreedy: This slide represents the last five quarters of consolidated free cash flows on a trailing 12 month basis as shown by the Orange bars on the chart.

Kevin Mccreedy: The Black line represents the percentage of free cash flows that was paid out as dividends.

Kevin Mccreedy: Our trailing 12 month cash flows was $106 million and our dividend paid as a percentage of free cash flow was 28%.

Kevin Mccreedy: In the same period, we returned $39 million to shareholders, consisting of $30 million in dividends and $9 million in share buybacks.

Kevin Mccreedy: During the quarter, we repurchased 237000 shares under our CIB for approximately $2 $4 million.

Kevin Mccreedy: We ended the quarter with net debt of $50 million. We also have a $426 million in short term and long term investments and have $166 million remaining on our credit facility, which provides credit to a maximum of $250 million.

Kevin Mccreedy: Our future capital allocation will be balanced and includes returning capital to shareholders in the form of dividends and share buybacks as well as investing in areas of growth.

Speaker Change: Before I pass it back to Kevin Let me take a minute on slide 14 to look at our market valuation.

Speaker Change: Ags <unk> current stock price of about $12 and our enterprise value as it is about $850 million.

Speaker Change: Taking our $426 million of short term and long term investments into account our remaining enterprise value is about $424 million.

Speaker Change: This implies a three six times enterprise value to EBITDA multiple on our 2024 adjusted EBITDA, excluding income from our long term and short term investments comparing this multiple to those of other traditional and alternative asset managers.

Speaker Change: It suggests potential upside to our valuation.

Kevin Mccreedy: I will now pass it back to Kevin to close out the presentation.

Speaker Change: This quarter, we continue to make great progress against a number of our strategic objectives.

Speaker Change: Our AUM and fee, earning assets continued to climb reaching nearly 54 billion. Our investment performance remains solid our sales momentum was strong and continued to outpace the industry.

Speaker Change: We remain disciplined in our expense management, while investing for growth.

Kevin Mccreedy: The strength of our balance sheet and capital position will provide us with flexibility in our capital allocation strategy and the resilience to weather a challenging market environment.

Kevin Mccreedy: I wanted to thank everyone on the HFF team for all their hard work and we will now take your questions.

Kevin Mccreedy: Thank you.

Speaker Change: Have a question at this time, please press star one on your Touchtone telephone.

Speaker Change: One moment for our questions.

Speaker Change: Our first question comes from Gary Ho with Desjardins Capital markets. Your line is open.

Gary Ho: Thanks, Good morning.

Gary Ho: First question just given the volatile markets last few months and we did see epic data kind of move from net redemptions in March April to positive territory in May.

Gary Ho: Wondering if you saw kind of similar trends in your net flows numbers and also curious to hear kind of which funds I think you highlighted a couple of that.

Gary Ho: Guys have seen a bit more momentum, including the European equity strategies.

Gary Ho: And what are you seeing in terms of that momentum and that carried through in June so far.

Gary Ho: Thanks, Gary So Judy calling Judy here I should say.

Gary Ho: Yes, we had we saw similar trends in our own business as it was in the industry.

Gary Ho: <unk> reported net sales of $65 million for the retail net sales.

Gary Ho: And it was our fourth consecutive quarter of positive retail sales, which is.

Gary Ho: Really good trend for us as well we were encouraged because we are actually outpacing the industry.

Gary Ho: In terms of that so that really does come on the back of really strong performance on a couple of our key growth mandates.

Gary Ho: Correct.

Gary Ho: Congrats mandates along with as mentioned by Kevin in his remark.

Speaker Change: European equity mandate that is an interesting trend, we arent too Tim Lipper Award.

Speaker Change: Three five year top performing fund and it really has been interesting to see the interest in that mandate as there has been sort of the.

Gary Ho: Less.

Gary Ho: Interest I guess in the European markets at this point given ample firms. So those have been sort of the areas of difference that we've received.

Gary Ho: And then the momentum so far in the <unk>.

Gary Ho: The June month, so far.

Gary Ho: So in to this quarter, it's still early days, obviously in the NDA at.

Gary Ho: The end of June but were essentially flat at this point.

Gary Ho: Sort of how you phrased it.

Gary Ho: Okay.

Gary Ho: Great and my second question I think there is some new U S proposed rules section $8 99 that talks about taxing dividend kind of foreign company pays for U S entities does that impact you.

Gary Ho: The us equity funds at all our strategies and how are you positioned on that front.

Gary Ho: Yes, Hi, Gary This is Ken here, yes. So there is still some uncertainty with respect to whether this bill will pass I mean, obviously and in what shape or form, but just to maybe set the context.

Gary Ho: They're still really does relate to.

Gary Ho: Specifically withholding taxes on U S domiciled companies.

Gary Ho: Pay dividends and interest.

Gary Ho: And so obviously will impact the broader industry landscape behind beyond just Ags, having said that though I think we do we are relatively muted from an exposure perspective, our funds are pretty global in nature and so it allows our managers to allocate away from more exposed U S names.

Gary Ho: Our funds out some more growth oriented.

Gary Ho: If most of the returns are coming from capital appreciation dividend interest. It's a smaller component of refine so it's again relatively muted and I'd say lastly, we do have a pretty broad suite of products as Judy had mentioned earlier.

Speaker Change: Shifting away from European funds could be actually accountants.

Gary Ho: It allow us to drive market share growth.

Gary Ho: Yes, maybe if I can add onto that Gary's, Kevin which is we also.

Gary Ho: Component of fixed income, we're probably one of the lowest from an AD.

Gary Ho: So it makes standpoint, so you're going to have a lot of managers in the industry, who have a large U S fixed income businesses, which are going to be more impacted than we would just given him.

Gary Ho: Minimal fixed income as our lineup.

Gary Ho: Okay, Okay alright.

Gary Ho: And just last question.

Gary Ho: Did notice that pick up in buyback in the quarter.

Gary Ho: Most of you have done in over a year whats your thoughts here you also have.

Gary Ho: Slide highlighting your attractive valuation should we expect similar buyback activity near term just.

Gary Ho: Also want to hear your thoughts that on and also capital allocation priorities.

Gary Ho: Yes.

Kevin Mccreedy: Yes, maybe I'll start with Kevin.

Gary Ho: Yes, we've always had a balanced approach to our capital which is pressing different levers at different times.

Gary Ho: More recently, we've been on the growth lever with some of the investments we've made into capital partners to build out our alternatives business and we also again thinking about the dividend payout ratio of 28% is pretty.

Gary Ho: Pretty conservative at this point so.

Speaker Change: We would probably agree with you you would say its probably accelerate.

Gary Ho: Some of the purchases within our NCI would be right now, especially as we are as we've talked previously kind of a pipeline in the industry pipeline of just deals out there right now is kind of jumped up a bit so well.

Gary Ho: While we're waiting for that to clear up you can see it's probably be a little bit more aggressive on that side.

Gary Ho: Yeah.

Gary Ho: Okay, Great. Those are my questions. Thank you.

Speaker Change: Thank you. Our next question comes from Tom Mackinnon with BMO capital. Your line is open.

Tom Mackinnon: Yes, thanks very much. Good morning, you mentioned, some lower management fees going forward is it changes in fees on some funds. If you can elaborate on that and does that still kind of fit into your one to two basis point decline guide in terms of fees.

Gary Ho: Yes, sure Hi, Tom Yes I.

Gary Ho: I could take it off.

Gary Ho: Certainly year over year, our management basis points would have gone down a little bit more than normal I would reference that I should be a year ago in the same quarter. We did have some outsize success fees that would have.

Gary Ho: I guess artificially elevated some of the management fees. So it's probably if you normalize for that that would probably.

Gary Ho: I'll take the management fee, that's down about one five basis points from.

Gary Ho: From last year.

Gary Ho: Having said all that I mean, I think the shift in our management fee I think it is a testament to the success. We are seeing in the sales that were better coming through.

Gary Ho: Just to give you. Some example.

Gary Ho: Broken into fee based IRA channels.

Gary Ho: Seeing more of an asset shift from mutual fund series due to F series.

Gary Ho: We've also seen as we had alluded to earlier some tremendous success in both R.

Gary Ho: Our etfs as well as our SMA products, which I think we've talked about in the past.

Gary Ho: Those products do tend to drive lower management fee dips, but come along with virtually no marginal costs and so what youre seeing overall is.

Gary Ho: Our AUM and revenues are actually increase even though youll see some of the management, that's decreasing and at the same time, our SG&A expenses have been relatively flat year over year.

Speaker Change: Yeah, maybe I can just follow on that Charles comments Kevin.

Gary Ho: Those parts of the business or a secular change youre going to see us look at just our SMA business year over year at 54%.

Gary Ho: Great So to Ken's point, the revenue margin or the basis points revenues become maybe less material over time as we shift entities other categories.

Gary Ho: Can be about if we can put that volume on but we've seen pretty good growth across these new channels, which is actually what we're trying to do.

Gary Ho: Okay. Thanks, and the follow up is just with respect to adjustments to the SG&A.

Gary Ho: Some of these contingent consideration put options and stuff but.

Gary Ho: We've had severance now kind of ongoing here for four quarters in a row is it.

Gary Ho: <unk>.

Speaker Change: Why is that stripped out and why is that.

Speaker Change: And I guess will it.

Speaker Change: You have.

Speaker Change: And adjusted.

Gary Ho: SG&A that doesn't have.

Gary Ho: Severance or corporate development and other expenses in.

Speaker Change: Yes, Tom.

Speaker Change: Maybe I'll start in EMEA accounts, Youre, telling me I mean severance obviously, we've been trying to be disciplined around the expense line.

Gary Ho: Overtime so we.

Gary Ho: We want to invest for growth, but at the same time, we've got a pair back some of the other things we've been doing.

Speaker Change: You've always had a pretty good discipline around that so severance I don't think ever goes away.

Gary Ho: If we ever did a large scale program, which we don't need to do at this point you'd see something where we call out a one time charge. So obviously the San Francis just a normal course of our expense management in terms of every now and then you'll also see us when there are deal costs related to some of the acquisitions that we've incurred.

Gary Ho: Those will be more muted here.

Gary Ho: Until we find the next transaction, but they also should be thought of as kind of one time, but you should not see those tick up too much in the near term is my guess.

Gary Ho: Yes.

Gary Ho: Of course, it's severance as normal course, and why is it stripped out.

Speaker Change: It's not no more clients I would say Tommy <unk> does.

Gary Ho: Does become seasonal line is timing based on.

Gary Ho: The individuals that we feel are.

Gary Ho: I mean, it just comes with operating the business and it does ebb and flow I wouldn't say that it's a normal course thing for us.

Gary Ho: Okay. Thanks.

Speaker Change: Thank you as a reminder, if you have a question at this time. Please press star one on your Touchtone telephone.

Speaker Change: Again, if you have a question. Please press star one on your Touchtone telephone.

Speaker Change: I'm not showing any further questions.

Speaker Change: Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating.

Speaker Change: Next earnings call will take place on September 24th 2025, you may now disconnect.

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