Canaccord Genuity Group Inc.

Paul Reynolds – President & CEO Brad Kotush – Executive Vice President & CFO

Paul Holden – CIBC World Markets Geoffrey Kwan – RBC Capital Markets Graham Ryding – TD Securities Sumit Malhotra – Scotiabank

Thank you, operator, and thanks to everyone participating on our conference call today. With me on the call is Brad Kotush, Chief Financial Officer of Canaccord Genuity Group.

As usual, I will provide an overview of our fiscal second quarter results for the period ended September 30, 2014. Afterwards, both Brad and I will be pleased to answer questions from analysts and institutional investors.

I remind you that our remarks and responses during today's call may contain forward-looking statements that involve risks and uncertainties related to the financial and operating results of Canaccord Genuity Group. The company's actual results may differ materially from management's expectations for various reasons that are outlined in our cautionary statement and in the discussions of risks in our MD&A and supplementary financial information, all of which were made available yesterday evening.

These documents can be found in the Investor Relations section of our website at canaccordgenuitygroup.com. Our second quarter results were impacted by a period of growing global uncertainty leading up to the markets correction that took place in early October.

While broad market indices posted minor increases, smaller and mid-cap stocks struggled, which lead to diminished transaction and trading activity in the global growth-oriented sectors. While this operating environment aggressively impacted our results on a sequential basis, we achieved solid year-over-year improvement in our Canadian, U.K.

and Europe, and Asia Pacific operations. For the second quarter of fiscal 2015, Canaccord Genuity Group recorded revenue of $263.3 million, a healthy year-over-year improvement of 29%.

On an adjusted basis, net income was $20.7 million, three times higher than the same period one year ago. We recorded diluted earnings per share of $0.17 compared to $0.03 per share in the second quarter of last year.

As a result of the increased business activity, our expenses for the second fiscal quarter were $211.3 million, an increase of 15% compared to the second quarter of last year. On a year-over-year basis, our total expenses as a percentage of revenue decreased by 12%.

Our broad market fundamentals slowed the momentum we have built in recent years, we have maintained a clear focus on managing our capital and liabilities and returning value to our shareholders. On an adjusted basis we have lowered our non-compensation related expenses by 4.6% over the previous quarter against the 3.7% decrease in revenue from the same period.

At the end of our second fiscal quarter, we have working capital of $453.5 million, an increase of $18.4 million from the previous quarter. Our balance sheet remains strong, liquid, and well capitalized for continued investment in the growth of our business.

Some sequential to the quarter, we purchased a 190,683 shares for cancellation under our current NCIB program bringing the total number of shares purchased for cancellation in the fiscal year to 454,883. I'm also pleased to confirm that our Board of Directors has approved a dividend of $0.05 for the second quarter as well as a special dividend of $0.05.

To-date through share buybacks and dividend payments, we have returned 51% of our adjusted earnings to shareholders for this fiscal year. Turning to the performance of our capital markets business, for the period ended September 30, our global capital markets division generated revenue of $170.6 million, an improvement of 35% over the second quarter of 2014 led by the performance of our Canadian operations, all of our geographic segments generated higher revenue compared to the second quarter of last year with the exception of our U.S.

operations. Following seven straight quarters of gains, broad market U.S.

equity valuations turned sharply downward in September. The aggregate value of follow on offerings in our core U.S.

coverage sectors declined by 56% compared to the previous quarters. This operating environment negatively impacted investment banking and trading activity in the region which led to a 7.5% year-over-year decline in revenue for our U.S.

operations. While the global decline in investment banking and trading activity had the most notable impact on revenues in our U.S.

operations, planned investments and strategic build out of our investment banking, trading, and fixed income businesses increased our expenses in the region during the three months period. As we continue to pursue growth under the American market, we believe these investments will add to the breadth of our offering and improve our execution capabilities in the U.S.

and global mid markets. During the quarter, our global investment banking team participated in 86 transactions, and raised total proceeds of $10.7 billion.

Canaccord Genuity Group investment banking revenue for the second quarter increased by 63% from the same period one year ago. The most significant contribution to this increase came from our Canadian operations, due impart to our role as lead Bookrunner and two transactions from Amaya Gaming Group which received interest from investors in Canada, the U.K., and the U.S.

further showcasing the strength of our cross-border execution capabilities. In the Asia Pacific region, we continue to post meaningful increases in all capital markets activities due impart to our core netted approach to building and growing our presence in the region.

As a result our Australian operation was voted the top independent dealer and this year's East Coles Equity Markets Awards as voted by 80 of our Australia’s top institutions and fund managers. We achieved meaningful improvement in advisory revenue and all regions during the period.

Second quarter revenue from advisory fees was $55.7 million, an increase of 86% over the same period of last year. This largest improvement came from our Canadian operations which recorded a 102% increase followed by the U.K.

and Europe at 54%, compared to the second quarter of last year. Additionally, our U.K.

team was recognized as the 2014 Corporate Financer of the Year in the Unquote British Private Equity Awards which celebrates innovation and excellence in private equity and venture capital. While the current market environments will prove challenging for our capital markets activities in the near term, we continue to have confidence in the long term fundamentals for the global equity markets.

Looking ahead, our period for our global capital markets division centered on increasing contributions from new products such as debt and restructuring and continuing to improve our market share in the regions we have targeted for growth. Our pipeline is broad and diverse and we continue to be well positioned for leadership in the global mid markets.

Now turning to the performance of our global wealth management operations. The steps we have taken to refocus our global wealth management business have resulted in steady improvement of a reoccurring revenue streams from both our Canadian and U.K.

operations, and meaningfully reduce our reliance on transaction based revenue, making our business less sensitive to changes in market conditions. For the three months period ended September of 30, our global wealth management operations generated revenue of $63 million, an increased assets under administration and management by 16% compared to the same period last year.

Our Canadian wealth management business recorded second quarter revenues of $31.6 million, and narrowed its net loss by 66% to $1.8 million. When compared to the second quarter of last year, discretionary assets under management for this business increased by 49%.

As a result of ongoing efforts to contain cost, and manage operational expenses, our expenses as a percentage of revenue in this business decreased by 18% compared to the second quarter of 2014. By aligning our service offering to meet the evolving needs of Canadian wealth management clients and leveraging the resources of our global platform, we have attracted growing numbers of advisors with established books of business and proven track records of exceptional client service.

We have recently begun the national launch of our proprietary asset management product, Canaccord Genuity Global Portfolio Solutions, or GPS. We expect this unique range of portfolios will further improve our recurring revenue streams by helping to track new business and increasing engagement with existing clients.

Our U.K. wealth management business has shown steady improvement posting year-over-year revenue growth of 15% to $29.8 million.

At the end of the second quarter, fee based revenue accounted for 69% of total revenue for this division. Looking ahead, the implementation of our world-class operating system Evalac [ph] is on schedule for the end of this year calendar year, and will be an important catalyst in our efforts to increase our scale and the dynamic U.K.

wealth management landscape. As we enter the second half of our fiscal year, we will continue to pursue opportunities for meaningful growth across all of our global businesses while upholding our firm wide culture of cost containment.

We will strive to protect and improve our market share in all regions by continuing to provide our differentiated service offering and uniquely global perspective to companies focused on growth. On behalf of the word of the Director, I would also like to welcome Dennis Miller, who has recently been appointed as an Independent Director.

Dennis has deep experience, originally in value for growth companies in the American marketplace which makes him an ideal fit for Canaccord Genuity Group as we continue to advance the capabilities and reach of our U.S. operations.

And with that, we'll be happy to answer questions from investors and analysts. Operator can you please open the line.

Thank you.

Thank you, good morning.

Hi, Paul.

Even though I'm a financial services analyst, I seem to be spending an undue amount of time talking about the oil prices these days.

You and me both Paul.

So that's where I want to go with the first question, right. So if I look at your results for last year, according to your filings only 12% of investment banking revenue came from the energy sector.

So wondering if there is any significant change to that this year? And any other additional sense if you can give us on the sensitivity of your revenue to energy in particular?

Obviously, we have a very strong energy practice globally, and I wouldn’t think you're going to see a material change and we haven't seen to-date a material change in the percent of revenues seen from those sectors, obviously commodity prices, whether it's in mining or energy have a big sway on markets but I would think of energy – I would think it's kind of blossoming [ph] in this range and I think there could be a lot of activity. We have a fair amount of energy business to do for market successes, we'll do it over the next several quarters when we've got some large underwritings, especially in our Australian and Asia Pacific businesses in those sectors and we expect those deals will be able to come to market.

And then in terms of the build out of the U.S. team, I guess first specifically on the backend restructuring side, can you talk about a little bit where you're at and where you want to go in terms of the build out of the teams and if they are generating enough revenues per day?

First thing, they are generating revenues. I would say we're mildly disappointed so far in our high yields in fixed income team in the U.S.

that we have need some restructuring in it which we announced upon last week, and we've timed back some of the team and made some adjustments but we continue to be very positive on our overall U.S. business, we're still investing in research and in banking and in sales and trading like we talked in the past and we continue to make those investments.

I think you can see as we've said before, I think for the foreseeable future you're going to see us investing around $2.5 million to $3 million per quarter in the U.S. to grow that business.

And that $2.5 million to $3 million is that sales trailing in research, broadly is it still build out industrials team, build out technology, build out life sciences, those types of verticals.

It's across the platform, and you're going to see some more hires like we announced next week on the banking side and on the research side, but we're going to continue to make investments. The business – if back out the investment we made in the U.S.

even though with the difficult quarter as we've said in our prepared remarks and we've come to put out last night, the business basically broke even if you back out the investments we've made last quarter.

Great. So my understanding is that I look at the comp ratio which looks elevated in the U.S.

that's because your recurring bonus for new hires today and then unnecessarily generating run rate type revenues. Am I correct?

Yes, I think that's fair. I mean there hasn’t been looking at it for the six months, there has been 0.4 basis percentage point increase in that comp ratio from 51% to 50.6%, so we're not – the 51% to 50.6% so we've got the overall – again to down 0.3 percentage point, so we're trying to keep that all in line.

I think Paul you got to look at it from the whole goodness quarter, we're slightly weaker in banking than we would have liked. And mainly you look at it confirms that we did okay in the U.S.

in the quarter, primarily did so on the back of the biotech sector, and we just had – we had about run the biotech sector in the quarter, generally it's a pretty good part of our business. We did have a few analyst leads which we've replaced but I think that kind of put us over the box a little bit in that particular quarter and our U.S.

business in the biotech sector was more than by the research analyst, I think not having them in that quarter probably cost us some revenue but we have replaced them and their backup percentage of full speed so we wouldn’t expect that to be a problem going forward.

Got it, and then last question is with respect to Canadian wealth management. Are you still comfortable with the expectation of reaching the breakeven by the end of this fiscal year?

Yes.

Okay, good. Thanks for your time.

Hi, just had one question it was just with some of the turbulence we've seen in the markets and how you have been or wanting to look at growing your wealth business in the U.K. has that provided some opportunities or to just do earlier and maybe just some broader color around, kind of the landscape on what you're looking for in the U.K?

Geoff I think – no, it hasn’t affected I would say the price of any of the assets that we're looking at. The nice thing about these businesses – we've seen with our business even when you look through a turbulent quarter with businesses pretty consistent in its revenue and earnings, and I think the businesses will be highly competitive to get, once I think we've got a very – with our new systems that we've talked about, with them being in place, I think we are ahead of the curve of most of our competition and we rather put dynamic management team here in the U.K.

and a very dynamic platform that I think will attract the business we're looking to buy plus the performance of our asset management team has been very, very good, especially these turbulent times which again I think will be attractive to other business that we're trying to consolidate.

Okay, thank you.

Good morning, Graham.

Hi, how are you?

I'm very good. Thank you.

Did you just talk about the actual strategy and how you're executing the transition of your AUA in the Canadian wealth management platform from a condition model over to the discretionary model, like are there few things you're doing or are you concentrating on one thing in particular. And what are the key factors that I guess dictate the pace of that transition?

It is very difficult to dictate the pace of that though it's a multipronged approach and that we're retraining a lot of the traditional transactional paid brokers we've had in the past, and getting these looked at probably differently from our existing clients. We're recruiting and we're also providing honestly a different product set, especially with GPS which we're just launching which is proprietary to IAs, and it's something we've heard from them, they like to have.

And we've also seen that varying to recruit and the IAs were recruiting or more wealth management oriented and we see that as they were kind of the overall strategy to changing from 15 IAs retraining, bringing on new IAS that are already interested in wealth management oriented and we're getting some great success as you've seen in the growth of our AUM. I think all the regulatory wins too are pushing the business in that direction.

Yes, absolutely. So I think you are at 30% of your total AUA is discretionary now?

That's correct.

Have you done any analysis on to get to breakeven, what that percentage of AUA needs to be, like I assume the higher the discretionary component, the better your economics are. Have you done any analysis…

It will depend on what kind of market you're in because the reality is, in a perfect world it probably want to 50% of your assets, maybe not on a discretionary basis but we see fee based so you have the reoccurring revenue coming in, and then have 50% more transactional type of assets and you get the – in the Canadian marketplace you get the access to more active investment banking marketplace. Your return rates on those assets are not only quite a bit higher than your traditional fee based assets which are probably around 1%, and then on your transactional site in a more active you probably get 1.4% to 1.6% return on your retail assets.

So our strategy is to get about 250% of overtime but it's going to take us time to get there. I wouldn’t want to give exact date, I don't have that crystal ball.

That's good color, and I appreciate that. And then just lastly on the U.K.

slide, it sounds like you are either completed or you're about to complete that technology upgrade, does that mean that you're now in a position to consider looking at and executing on talking acquisitions?

Yes, we've been telling, myself and Brad and Scott Davidson, who is Head of our Business Development, he is spending a lot of time in the U.K. and looking towards the right fit for us and I think we've got a strategic lift of businesses we're interested in and I would think sometimes next year we will start to see and execute on that strategy.

We're at a really critical point of getting Evalac [ph] up and running, and I feel the transition should happen at the early part of December, and as long as that's successful we should be in a great position to start to look at acquisitions here in the U.K. and space which has been our strategy for quite a long time.

Great, thank you.

Good morning, guys. How are you?

We're good.

First question I have for you is, release the risk management and it seems like from a market perspective we have – for a long time it only felt like for a couple of years there was a lot of discussion about the lack of volatility in the equity markets and how it has been originally uninterrupted straight upright. And we certainly have gotten the taste of that volatility over the last two months or so.

So from a management perspective, when I look at your facilitation loss ratios over the last couple of years they have been extremely well contained, and we haven't had to worry about issues such as inventory type losses or principal trading type losses. So maybe a little bit bigger picture than we usually discuss but just given the state of the markets, I was hoping you could talk to us about how the company has altered if at all their risk management profile which perhaps why we've seen such improved results outside of just the lack of volatility.

I don't know if I have explained that well but basically want to know if these improved numbers have strictly been the market or whether there has been an issue that's taken by Canaccord to improve on that front.

Thanks, Sumit. And you expressed your question very clearly.

We have taken concrete steps to reduce some of the exposures and including mid option of some of the capital we have on the desk as well as increased focus from outsiders in particular and half of this from ahead of trading that we needed to reduce that exposure and our facilitation loss ratio. So it's been a deliberate strategy to do so.

The buying of market share to increased facilitation losses wasn't a strategy that had worked particularly well and so there was a deliberate decision made to reduce that exposure.

I will play the numbers back here within the capital market segment, and I think it's fair to say it's been roughly 10% since the start of 2012, maybe even a little bit below that. Can I take your comments to mean that even with this dislocation that we've had particularly in the commodity sector, yet again in Canada, that you haven't seen any concerning signs from that perspective?

The short answer is yes but the quarter is not over yet. So – and what I mean to say is that we didn't have a deliberate focus on reducing that but in times of extreme volatility you may happen this as where it's going to strike when we look at this single in six months at annual basis so we may have quarterly variations but the strategic focus as I doubt is to keep those – that loss ratio in that range.

Thank you for that. Next topic for me is around your thinking with respect to capital and excess this one that we've come up with few times over the years and I think the company seems to be in much better position than perhaps earlier times that we've had this conversation.

So you reported your networking capital level to be in the $450 million to $460 million range, given the – let’s call it the regulatory end market requirements from where you are right now, how would you classify your excess capital position at these levels?

Sumit, if you read that facility I said we're managing it to around $100 million because of some of the increased business activities we've undertaken, I think that's still our consistent response. You've seen also the consistent list, our statement that we would be returning 50% to the shareholders and we did that this quarter with special dividend and the NCIB and we're going to continue to manage our capital with that and there is not much more we can face, we're comfortable at this level and comfortable with their statements that it's the $100 million.

And maybe this one is more for Paul. When you think about that excess position, where – what's the packing order if I can put it that way in terms of your wish list for deployment.

We've seen the company opportunistically over the last couple of years stepped in other buybacks and as you mentioned I think you did so recently with some of the volatility, are buybacks higher up the list at certain price points or as you're focused more on some of these acquisition opportunities particularly in the U.K. wealth management space that you've outlined.

I think soon as far as returning capital to shareholders, if the stocks – I think we've consistently said that stocks of low book value, we would be a buyer of the stock, that hasn’t changed. And these stocks were about book value, and we would pay special dividends, this quarter we did a bit of both because that's just the way we played out and we'll see the volatility over the next six months how it works.

Again, we'll wait till the end of the year now to next six months before we make a decision whether we will pay another special dividend but definitely the stocks below book value, you will see a fact of under our NCIB. As far as acquisitions in the wealth management space, we obviously have some excess capital, it was slightly larger U.K.

wealth management acquisition, we've probably give it to the debt to finance it opposed to issuing equity as we have no debt in our balance sheet right now.

Not to put it in a box in terms of your acquisition appetite but would you say at this point the appetite of the company and some of the entity that you're considering would skew closer to the size of your comp store or the size of your Eden Financial which was obviously…

Most of the ones we're looking at are much smaller but there is some business…

One is smaller than, sorry?

Than comp store.

Okay.

Much longer. We're looking at businesses that are strictly wealth management but not an integrated financial service like comp store, these are strictly wealth management businesses, managing between $1 billion and $4 billion pounds and assets.

And traditionally these businesses have been selling for around 2% to 2.5% of assets, so you can work the acquisitions on a large side, so high side would be around probably $200 million.

Thank you for that. And last one for me, again, maybe you're saying little bit bigger picture macro today.

When we look at the last four quarters from Canaccord, your core earnings are somewhere around $0.80, revenues approaching $1 billion. I think it's fair to say it hasn’t been what I would call peak operating conditions over that time, certainly better than maybe the previous twelve months but not what I would call a big picture.

A couple of years after the column you will know, you have the pressing call on mining, it doesn't sound like you're as worried about energy as you worry about mining a few years ago. When you think about that $0.80 over the last year, how far – and this again might be a little bit unfair but how close do you think you are to being able to say where we're approaching big earnings power of the company when you look at that $0.80 level.

I think you know what I'm trying to express here.

We're not even close, I mean we're not happy with $0.80 a share to be honest. Obviously a lot of it is out of our control because it's market driven, and we're still quite a – we're going to work hard to change that with the wealth management acquisition we're going to make here in the U.K.

and turning around our Canadian wealth management business. But you know this is a business as revenue goes up, the earnings will go up at a much greater rate.

We're operating closer to the bottom of our earnings potential not the top.

Thanks for your time.

Very well. Thank you all for participating in our call and we look forward to talking to you with our next release.

Thank you.