Canaccord Genuity Group Inc.

Daniel Daviau - President and Chief Executive Officer Donald MacFayden - Executive Vice President and Chief Financial Officer

Graham Ryding - TD Securities Equity Research

Thank you, operator, and thanks everyone for participating on our conference call today. I'm sorry, we're a few minutes late.

A reminder that our remarks and responses during today's call may contain forward-looking statements that involve risk and uncertainties related to the financial and operating results of Canaccord Genuity Group Inc. The Company's actual results may differ materially from management expectations for various reasons that are outlined in our cautionary statement and in the discussion of risks in our MD&A.

We encourage you to review our earnings release, MD&A and supplementary financial information, all of which were made available yesterday evening. These documents can be found on SEDAR or on the Investor Relations section of our website at canaccordgenuitygroup.com.

Joining me on the call today is Don MacFayden, our CFO. And following an overview of our fiscal first quarter results for the period ended June 30, 2017, both Don and I will be pleased to answer questions from analysts and institutional investors.

Canaccord Genuity Group revenue for our first fiscal quarter was $200 million, a decrease of three percentage points when compared to the same quarter last year. Excluding significant items, net income for the first fiscal quarter was $1.6 million and we recorded a loss per share of $0.01.

While a backdrop of continued uncertainty led to a challenging period for our capital markets activities during the quarter, we continued to make excellent progress to deliver on our strategy of increasing contributions from our global wealth management operations and focusing on initiatives to improve stability across our operations. So now let's review our business unit performances for the quarter.

I'll begin with the global wealth management operations. Globally, Canaccord Genuity Wealth Management generated $76 million of revenue during our first fiscal quarter.

At the end of the three-month period, total assets under administration and management in this segment grew to just over $39 billion, an increase of 19% from the same period a year ago. Our wealth management operations in the UK and Europe delivered another strong quarterly performance.

In fact, a record quarterly performance. This business recorded revenue of $38 million for the quarter, a year-over-year increase of 14%.

Excluding significant items, net income before income tax was $8.5 million, which translated into a pre-tax profit margin of 22%. When measured in local currency, assets under management in this business increased by 19% compared to a year ago.

Subsequent to the end of the quarter, we announced that this business has agreed to acquire Hargreave Hale, a leading independent UK investment and wealth management business. This development gives us a stronger national footprint and will position Canaccord Genuity Wealth Management as a top 10 wealth manager by assets in the United Kingdom, with even stronger growth potential from a base of £22 billion.

Our Canadian wealth business also delivered a significant improvement in profitability for the first fiscal quarter, driven primarily by our efforts over the last year to increase the scale in this business. Revenue for the three-month period was $37 million, a year-over-year increase of 25%.

Excluding significant items, this business contributed net income of $3 million, or a pretax margin of 9%, an improvement of seven percentage points compared to the same period last year. And this was a record quarter for the business since 2011.

Total assets in this business at the end of the three-month period were $13 billion. And the percentage of revenue from fee-based assets increased to 38.5%.

Importantly, discretionary assets under management in this business grew by 109% year-over-year. Our recruiting efforts in our Canadian wealth business remain on track and we continue to attract talented advisors with established books of business to our platform.

We can expect that net income contributions from this business will improve steadily over time. And now turning to our capital markets business.

During the first fiscal quarter, our global investment banking teams participated in 98 transactions to raise total proceeds of $12.7 billion for growth companies. The robust market backdrop that characterized the previous quarter was replaced with more subdued activity levels in the first quarter, as the environment of continued uncertainty impacted activity levels for small and mid-cap stocks across our industry.

Our global capital markets division generated revenue of $122 million, decrease of 13% when compared to the same period last year. We experienced a modest improvement in revenue generated from capital raising activities from our Canadian, U.S., UK and European operations.

This was offset by a decrease in Australia, the first period of subdued activity in this region following two years of strong gains, as investors transitioned away from small and mid-cap stocks. Our U.S.

capital markets operations recorded a modest revenue increase of 3% when compared to the first quarter of last year. Trading operations in the region was a strong revenue contributor in this business, with a year-over-year increase of 5%.

Revenue generated from commission and fees and investment banking activity also improved by 12% and 17%, respectively, on a year-over-year basis. Our Canadian capital markets business delivered a pre-tax profit margin of 9% for the first fiscal quarter, while revenue generated through commission and fees and investment banking activity improved 7% and 29%, respectively.

Revenue generated from advisory fees was significantly lower on a year-over-year basis, a result of lower activity in the period but also due to an exceptionally strong first quarter of last year. Subsequent to the end of the quarter, Canaccord Genuity Acquisition Corp., was established in Canada, a special purpose acquisition company or SPAC, which we raised $30 million for in funding.

By levering our core capabilities as a leader in capital raising for growth companies, Canaccord Genuity is well-positioned to identify compelling investment opportunities for investors in the SPAC. With this in mind, we harnessed an opportunity to help high-potential growth companies gain access to capital and a method by which to go public, while simultaneously offering an attractive and innovative investment product to our network of retail investors.

I look forward to updating you on this development when we introduce the qualifying transaction. Looking ahead, our priorities for our capital markets business continue to center on further improving coordination across our businesses and regions to deliver enhanced suite of globally integrated services, placing clients of Canaccord Genuity Group at a great advantage while driving superior revenue opportunities.

Next week, we'll host our 37th Annual Global Growth Conference in Boston, with confirmed attendance of over 300 companies across the technology, healthcare, industrial, consumer and sustainability sectors. Over the two days, we'll showcase our global capabilities and connect industry leaders with investors in more than 4,000 one-on-one meetings and a robust series of thoughtfully coordinated presentations and panel discussions that focus on the current trends and differentiated investment themes.

Overall, I'm pleased with the progress we are making to adjust our business mix and strengthen our market position across our operations. We've continued to manage our expenses carefully throughout the various market backdrops and we've improved operational efficiencies across many areas of our business.

We've also continued to maintain a solid capital position, which protects our capacity to increase business activity and enhance our earnings capability. At the end of the first fiscal quarter, our Company had $468 million on working capital and $522 million in cash and cash equivalents.

I'm also pleased to report our Board of Directors has approved a cash dividend of $0.01 per share for quarter payable to shareholders of record on September 1, 2017. While we remain cautious in the near term, we're encouraged by the indications of improving global economy, with potential for broader and more sustainable growth than what we've seen in recent years.

Variability in our results is inevitable given our focus in the key growth sectors of the global economy. So we must focus on operating our business for longer term success and stability.

I'm confident we have an increasingly better - we are increasingly better positioned to withstand the inherent cyclicality of our capital markets businesses, which are capable of delivering exceptional results when market conditions are accommodative. We remain committed to strengthening alignment across our business to drive stronger net income results, improving our stability and our profitability, and sustainably improving returns for our shareholders.

And with that, I'm now happy to answer questions from institutional investors and analysts. Operator, please open the lines.

Thanks.

Hi, maybe I can start with the Hargreave acquisition. The jump in your pretax earnings from, I think, £2 million in year one to £5 million in year two thereafter.

Can you just remind what the key drivers of that lift are expected to be?

Yes, thanks Graham. The Company that we bought makes money.

So it's pretty and we're funding it with primarily debt in our existing balance sheet. So the premise of increase in £2 million in year one, I mean, the business does dip last year over £4 million in net income.

So £4 million less the cost of the debt gets you to £2 million, it's pretty simple. What will continue to drive the earnings will be the - realizing the synergies that we suspect exist.

And we're being prudent in just terms of timing of when we're going to realize those synergies. So that's how the £2 million grows to £5 million.

Can you breakout some of the buckets from where you're going to - where you think you can get those synergies from?

Hi, Graham, it's Don MacFayden. It's a combination of rationalizing systems and premises and things of that sort.

So it's really - it's going to take a bit of time. The synergies aren't going to be day one kind of synergies, but over the course of the 12-month to 24-month period, that's when we expect to see them sort of fully unfold.

Okay. Great.

And there was - there was 27 million deal costs, some of those are going to be booked upfront, I think £8 million, and the remaining is going to be expensed over the following four years. Can you give a little bit of color on sort of what's going to be booked upfront and then what's going to be amortized over the following four years?

Well the upfront costs are primarily related to deal specific costs, advisory fees, professional fees, upfront financing fees, things of that sort. And the costs over time are primarily related to compensation or employment type costs do with programs that will be put in place.

Yes, Graham, as I think you know and you see common in the industry, the second we tie any of the proceeds of the acquisition to somebody's continued employment, it becomes an expansible item as opposed to acquisition price, and that's the issue. I mean, really the back end of that is more of an acquisition price but it's tied to certain peoples' continued employment and as a result shows up as an in-expansible deal cost.

Okay. And there was some cost in the quarter, I think, that you flagged.

I assume that was - I think it was $2 million or around that. Was that related to this acquisition?

And is that baked into this $27 million deal cost? Or is that incremental?

No, that's part of that cost that we had referred to. Certain costs are paid on closing our success, other costs you have to pay whether you close or not.

So that's really just a reflection of kind of costs incurred to date and legal accounting and those kinds of costs.

Okay. The UK wealth management platform, pretty good AUA growth or AUM growth this quarter.

Is that a combination of organic net flows and market performance?

It's a combination of both those things. There was - has certainly been some organic growth, market growth, and there was a couple of - just bringing onboard a couple of the small transactions that were been able to complete.

Okay. Shifting to the Canadian wealth management platform, AUA declined quarter-over-quarter, I think your advisory teams did as well.

I guess, can you just give me a little bit of color on what happened quarter-over-quarter, and then perhaps some color around just the visibility on the recruitment side?

I'll start off and then Don can finish up. I mean - why don't we start backwards?

In terms of visibility on the recruitment side, I think you heard in our prepared remarks on the call, we continue to have a reasonably good visibility on our recruitment pipeline. You never know until somebody shows up with a picture of their husband and/or wife and their kids, but we think we've got a pretty good visibility on our ability to track more teams.

It's a long sales cycle and both myself and the other senior executives around here are spending a lot of time on that recruitment, but the pipeline seems reasonably robust, as we speak today. In terms of the asset decline, Don can speak to it specifically, some of it was market and some of it was - it was never our intention to materially increase the number of advisors, it was our intention to materially increase our assets under administration.

So some of that activity you'll note is making room for the bigger books of business and some of the other important partners that we're trying to attract. But Don, maybe you want to give a little more color on that.

Well, I think in the normal course of life in this particular business, there's sort of natural movement of assets and client movement in and out. So I think it's just a combination of that plus some market declines.

Okay. Maybe if I can I keep going here, or is there?

Yes, go ahead.

Great. Capital markets, I appreciate it's volatile and your visibility is fairly near-term.

But in the UK division, I guess, what do you need to see for that division to get to a more consistent level of profitability?

The issues in our UK - I mean, M&A is always going to be volatile. It just is what it is.

We've got a good pipeline of M&A activity and I think, we feel pretty confident as to what that business can do from an M&A standpoint. To sustainably have profitability, we've got to continue to increase the number of clients that we have as corporate broking relationships because those clients ultimately translate into new issues and other revenue, and that's what we've been doing.

We've got a very focused effort on increasing the right clients to our platform, and that's what we've been doing. Unfortunately, the UK, and I think I tried to flag this a little last quarter, as we saw volatility in the UK market, there was a dearth of financing activity there.

We're cautious that it's better. I think we've done the right structural steps in that market and I think the team is perfectly aligned with what we're trying to do.

So the short answer is more revenue, because I think we've done most of everything we've had to do from a structuring and cost perspective. We don't have a lot of degrees of freedom in the UK market, given the relatively high fixed-cost base.

You lose a dollar of revenue, that dollar falls basically to the bottom line, dollar for dollar.

Okay. That's good color.

And then maybe in Canada, M&A, the advisory side of your business traditionally has been a - you get some earnings leverage there. It seems to have gone a little quiet over the last few quarters.

Just maybe a little bit of color there on do you feel you sort of have the depth and the right people in place on that side of your business?

Good question. Yes, I mean, I continue to think things were directionally pointed in the right way.

Our M&A franchise continues to be robust. We continue to - we've brought on some new people in the past six months, as you're aware, some very senior professionals in our organization.

Chris Blackwell, a new Head of Banking; Brad Cameron, a new Senior Advisor. We've got some other hires that we're cautiously optimistic that we will announce soon.

We continue to invest in our Canadian landscape and particularly on the M&A side of our equation. So I think we are well positioned going forward.

But again, M&A will be volatile, you can't avoid it, especially when we do a lot of chunky M&A. There's not a lot of sub-million dollar checks there they tend to be larger assignments and it just depends on when they fall.

We've got pretty good visibility on M&A, because unlike equity, I mean it takes you months and months and months and months to close. So I think we've got a pretty good perspective of what our M&A revenue will be.

And I think we're, again, reasonably optimistic that that will improve. I don't like the quarterly volatility, but there's not a lot you can do about it.

Okay. Thanks very much, operator, and appreciate it.

Just a reminder that we're going be hosting our AGM today at 10 o'clock at the Goodmans LLP in the Bay Adelaide Centre in Downtown Toronto. For anyone who cannot join us in Toronto, the event will be webcast and available on the Events page of our Investor Relations section of our company website.

Thanks again for joining us today and look forward to updating you again in November when we will release our second quarter results. Thanks.