Canaccord Genuity Group Inc.

Thank you, operator. And thanks to everyone, for participating again today on our conference call.

As always I am joined by Don MacFayden, our Chief Financial Officer. And we're very pleased to be joining here today from Boston.

This is the site of our 39th Annual Global Growth Conference which we're hosting for the next two days. This three day event has become a premier event for global companies and investors focused on growth, and we are pleased to welcome more than 420 presenting companies and 2500 registered attendees.

Following the overview of our quarterly results, both Don and I will be pleased to answer questions from analysts and institutional investors. A reminder 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, Inc.

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 discussion of risks in our MD&A. Our discussion today may also include certain non-IFRS financial measures.

A description of these non-IFRS financial measures and the reconciliation to the comparable IFRS measures are contained in our earnings release and MD&A for the fiscal quarter. By now, you've all likely had a chance to review these documents and our supplementary financial information, which were made available yesterday evening.

They are available for download on SEDAR or on the Investor Relations section of our website at canaccordgenuity.com. So now let's review the financial highlights of our first quarter performance of our 2002 [ph] fiscal year.

Earlier this morning, we posted our quarterly investor presentation to our website. I won't cover the entire presentation during this call, but I will refer to certain slides to guide our discussion.

A few weeks ago, we preannounced our headline results for the three month period. We did this in order to provide our shareholders with adequate time to make an informed decision with respect to our $40 million substantial issuer bid, which is due to expire in just a few days from now.

Having said that most of you are already aware that we delivered another solid quarterly result. Almost all of our businesses achieved meaningful year over year improvement.

Total firm wide revenue for the three month period was $325.5 million. This is a record for our first quarter.

Excluding significant items, we earned pre-tax net income of $38.5 million and diluted earnings per share of $0.23, year over year increases of 32% and 21% respectively. While it's still early in the fiscal year, the charts on page six of our investor presentation show that our first quarter revenue, adjusted EPS and adjusted net income have all strengthened compared to our fiscal 2019 first quarter results, which gives us confidence that we're on track for another good year.

We continue to watch our expenses closely even as we invest into our core verticals. Firm wide non-compensation expenses increased slightly as a result of increased business activity.

But when measured as a percentage of revenue, remained flat year over year. Our compensation ratio continues to be within our target range of 60% for the three month period.

At the end of fiscal 2019, we announced the revised dividend policy. And I'm pleased to report that our board of directors has approved a quarterly dividend payment of $0.05 per common share, reflecting our confidence and the stability in earnings growth that is being driven by our global wealth management businesses.

We also anticipate that share buybacks will continue to be an important feature in providing enhanced returns to our shareholders. Particularly in periods of strong performance by our capital markets businesses.

Upon completion of our substantial issuer bid, we intend to apply to the TSX for a normal course issuer bid to be effective in our 2020 fiscal year. And with that, I'll review the performance of our operating businesses.

I'll start with our wealth management business. Excluding significant items our combined global wealth management operations earned pre-tax net income of $23 million an improvement of 25% compared to the same period last year.

Revenue for the three month period was $130 million. And adjusted pre-tax margin for a combined North American and UK businesses increased to 18%.

This is a sequential improvement of 4 percentage points. We're on track to achieve our mission 2020 goals for combined North American and UK wealth management businesses as we've outlined on slide nine of our investor presentation.

Our Canadian wealth business achieved an important milestone in the first quarter with client assets surpassing $21 billion mark for the first time in our firm's history. Excluding significant items this business earned pre-tax net income of $9 million a year over year improvement of 80%.

This was achieved on a quarterly revenue of $57.8 million, up 24% compared to the first quarter of last fiscal year. Driven by increases in commission and fees revenues, as well as higher interest on stock loan activity and margin accounts.

This business also achieved an impressive margin growth of 5 percentage points compared to last fiscal year as the benefits of our increased scale are becoming increasingly evident in our financial results. Assets in our UK and Europe wealth management business amounted to $45.6 billion, which includes approximately $1 billion added from our recent acquisition of The Miller Thomson assets.

First quarter revenue in this business increased by 9% year over year to $72 million. Despite higher operating expenses, related to the continued expansion of this operation and increased headcount, the adjusted pre-tax profit margin in this business improved sequentially, up to 19.5% as our margin enhancement initiatives have begun to take effect.

On a fully diluted basis, the adjusted earnings per share contribution from our combined UK and Canadian wealth management businesses was $0.13 or 57% of the total EPS of our combined operating businesses. The contact, I encourage you to take a look at slide 19, which highlights the earnings stability that are growing wealth management business contributes.

This is true even during a strong period for our capital markets business. Since we began our growth initiatives in this segment, significant time and effort has gone into ensuring successful integration of new advisors and clients over to our platform.

We continue to pursue growth through selective recruiting and smaller tuckins. But we are now able to place greater emphasis on driving organic growth and margin improvements in both our Canadian and UK businesses.

And finally, in June, we announced our intention to acquire Paterson Securities. And we expect to close this transaction in the quarter ended December 31 of this year.

With more than AUD 13 billion Australian dollars in client assets this development supports our strategy of adding significant scale to our wealth management business and builds upon the work that our Australian partners have done to make Canaccord Genuity an increasingly strong competitor in that region Turning to the performance of our global capital markets business. Despite global growth concerns and some trade tensions, it was a productive quarter for our capital markets segment.

We participated in 109 investment banking transactions globally, raising $13 billion for our clients. Our combined global capital markets business earned revenue of $190 million for the quarter, a year over year increase of 22%.

Mainly due to strong contributions from our Canadian and US operations. First quarter advisory revenue doubled on a year over year basis to $53.4 million.

And more than $30 million of this amount was contributed by our US business. Excluding significant items pre-tax net income contribution from this segment amounted to $20.4 million up 55% compared to the first quarter a year ago.

And a testament to the efforts to increased revenue diversity and scale to our key verticals. Our US capital markets business earned record quarterly revenue, which includes a 231% increase in advisory revenue, reflecting organic growth and contributions from Petsky Prunier acquisition.

The decrease in trading revenues in this region are consistent with the seasonally slow period of our international equities business. Our Canadian business also had a strong quarter with a year over year revenue and adjusted pre-tax net income growth of 40% and 31%, respectively.

Notwithstanding the significant volatility that impacted some of our core focus areas and the elevated facilitation losses in our Canadian capital markets business, we were within an acceptable range on a relative basis, as we supported our clients through this period. I will also note that the increase in general and administrative expenses in our Canadian business can be attributed to higher investments in conferences and marketing initiatives to support our increased business activities and market share growth.

We do not anticipate similar expense levels in future reporting periods. Our efforts to improve product and revenue diversity in our capital markets business is helping us improve our competitive position while simultaneously enhancing value for our shareholders.

In Canada Canaccord Genuity was again the leading equity underwriter for the first six months of calendar 2019 based on the league table data provided by FB Infomart. And since our acquisition of Petsky Prunier, our US business has also become a formidable competitor, taking the second place ranking for mid-market M&A in the US TMT sectors.

These tables are available on page 15 and 16 of our investor presentation. Our UK capital markets business ended the quarter close to breakeven level the result of the overall expense, a result of lower overall expenses following our recent restructuring in addition to increased levels in the corporate broking and advisory businesses.

Having just returned from a very productive trip to London, I am pleased to see the positive direction in this business under the leadership of Nick Russell and Stephen Massey. And I'm increasingly confident that this group can contribute on our platform.

Heading into our second fiscal quarter, all our capital markets businesses are continuing to perform well. And assuming the markets remain accommodative we look forward to executing on a good pipeline of capital raising and M&A mandates.

In closing, I am pleased with our quarterly performance. We have made significant progress in transforming our business mix.

And we're deploying capital strategically to promote sustainable, profitable growth in our business and return excess capital to our shareholders. We're executing on our strategy with the idea that we can help our clients outperform while increasing our earnings power.

I believe there's meaningful upside from an investment in Canaccord Genuity. Thanks again for joining us today.

And I'll open the line to questions.

Hi. Good morning, Dan.

Good morning, Jeff.

So I wanted to start off in the wealth management side of the business and specifically in the UK there. Looks like maybe there's a bit of a shift in the revenue mix that's going on.

And by that I mean it looks like the run rate of revenue off the base of assets that you're managing there seems to be lifting a little bit. Is that just a factor of the tuck-in acquisitions that you've done?

Or has there been a shift in some of the way the client assets are being managed that might account for that?

I think it's really just the introduction of the assets and activity from the two acquisitions McCarthy Taylor and Thomas Miller there's no real shift in the nature of the underlying business.

Fair enough. And then when we think about asset growth in this business and it's a little bit different from in Canada, as I understand it, it's a little challenging over in the UK to poach advisor and then have their assets follow along with them.

So how should we think about what a realistic organic growth rate of AUA should look like in the UK, absence the tuckins that you can do?

Yeah. I think a conservative approach would you just assume market growth, you assume no prob.

But I'm not saying that's our internal target, Jeff. But I think that would be the most conservative approach you could take to it.

Really, where we're focused in the UK right now is less so on asset growth inorganic or organic, much more so on margin improvement. As I think we've told in the past, we've got a plan to materially increase our margin in that business.

You're seeing the start of that take effect right now. With quarter over quarter that margin up 1.5 points.

And directionally that's where we're going to go our comparables in the UK and similar asset size could have 25% plus pre-tax net income margin. So directionally that's certainly what we're pushing towards over the next several quarters.

Okay. And so it's safe to say we should see that just gradually trend higher than as you're watching that business?

That's our plan.

Okay. And then maybe we'll just switch over into the US capital markets business.

I mean, obviously, a very big swing in advisory and you mentioned Petsky Prunier. And any other color you can offer around?

Is it a sector mix? I know you've been strong in particular sectors GMP and health sciences, but adding changing there.

And were there any, really it just upsized fees in the quarter that that might account for that really big swing in the advisory that we saw?

Not really. It is really ones and twos and threes that’s it.

That type of -- it's not like our Canadian business, where occasionally can get a digit fee, it really is more blocking and tackling. So a big chunk of the increase was definitely the Petsky.

But it wasn't the only increase. Our TMT sector in the US continues to perform extraordinarily well in the M&A volume and that picked up.

Our sustainability sector has also been very active in the last quarter. So I just think everyone on our US franchise has stepped up their game.

M&A has become more central to their thinking. So we're cautiously optimistic will continue to kind of see that similar trend.

Yeah. No, I think that's exactly right.

It wasn't skewed by any outside large transaction, as Dan mentioned, it's just the ones and twos and threes just building up. And activity in our in our key sectors, in technology and the health care sciences area.

I think it would be fair to say, Jeff, that the Petsky portion of these numbers is probably over what we originally budgeted and expected. I think the business is performing better than what we had anticipated.

Yes, that's right. Everything's on track and better.

Okay. And that's what I was kind of driving out there.

I mean, it was pretty exceptional quarter on that front. And I know with M&A, it's never easy to forecast.

But if it's a matter of just tapping into a growing pipeline and picking off those ones and twos, we could expect in time, we should be, maybe not seeing quite that number every quarter, but meaningfully higher than what you've been living for the last few years.

Yeah, that's right. I mean that wouldn't just simply annualize to a single quarter.

But I think in terms of an uptick from our historical run rate, I think we can look forward to that during this coming year.

Did we disclose Petsky revenue?

Yes, at the time we did it was just over $40 million for the calendar 2018. So Jeff, if you're doing math, we said is performing better than math and picked our historical M&A run rate and upticked a little bit.

But that’s the math that would work.

Okay. Makes sense.

And maybe just one more, all I'll put in here is just around strategic considerations. And it hasn't escaped me that big transaction with Piper Jaffray buying Sandler O'Neill's and to a lesser degree we saw GMP's transaction that got voted on yesterday.

I mean, what are you seeing in the market there and the opportunities for Canaccord, is either a buyer or a seller perhaps? I mean I know that, certainly, it's a feeling that your performance just hasn't been getting recognized by investors to date.

So what are your thoughts on that front?

Yeah, I mean strategically, there's very few assets in the capital markets business that we would need to acquire. I think we have most of the pieces we have.

I think competitively we're very well positioned in Canada. We're very well positioned in the US.

I think we have all the pieces we want. In the UK, that continues to be a volatile market that we're carefully managing through.

And on the wealth side, I mean we've got a strategy in place of doing tuckins in the UK. Those will be smaller.

Australia, we've made our bet with Paterson. And we're excited by the prospect of getting that closed and integrated.

In Canada, there's very few wealth assets of size available. If we will know where they are and of course, strategically we'd be interested in them at the right price.

If they fit into our business. So there's really not a lot to do on the buy side.

And you saw that in parts in both our increased dividend and our share buyback activity. If we felt that we needed that capital to do a meaningfully accretive acquisition, we wouldn't be buying back $40 million of stock.

So I think you can read into that that we intend to, you know that we continue to be very, very profitable, and we're going to use that excess capital to buy our stock, which is what we're going to do. So that would be the kind of the tell so to speak if you were playing poker.

So that's kind of where we are. But our Canadian business.

I mean, last year, we had $60 million of pre-tax net income in our Canadian business. The GMP business sold for less than that number or about that number.

So the scale of our business and their business is completely different. Literally, we made more than what they sold the whole business for sure.

Sure. And I guess from my standpoint, it doesn't mean that someone comes knocking on your door, given just how you're trading at this very depressed multiples or as I can tell so.

Yeah, no, I can tell too. So yeah, our job is to create shareholder value.

You never say never obviously, as a banker, I would never say never. But our -- we feel that our stock is materially undervalued, like to the tune of multiples not to percent.

So it would be hard to strategically have an intelligent conversation when you think your stock's trading at half or a third of where it should be.

Fair enough. Thanks for that color.

Thank you very much. And good morning.

Morning, Rob. And thanks for your new report and your coverage.

I appreciate it.

No, thank you. I have never been called concise.

And this is perhaps going back to Jeff's question a little bit. But could you talk to the Canadian wealth management margins and your outlook there in terms of further gains?

And perhaps going back again, to the UK as well, to paraphrase, I believe you were saying consistent gains, as you were early or in realizing on those gains. Could you talk to where they are being realized as well?

Don will deal with both of those things. Don?

On the Canadian wealth, I think it's really a question of scale in terms of margin improvement. With each incremental dollar revenue that we add through our advisor acquisition program has a contribution to the bottom line, because the variable costs are the variable costs and it leaves a healthy margin after that.

So it's really a question of scale and continuing to build on our program. In Canadian or on the UK wealth side?

What was the question again?

There you indicated phrase that margin enhancement initiatives were beginning to gain traction. So it's just one of -- can you talk to some of those initiatives?

And is it one where we should look for consistent marching up of those margins?

Yes, I think over time, when we acquired Hargreave Hale, it was really just sort of a bolt on. There wasn't immediate integration in terms of platforms and systems and so forth.

But that is commenced at the start of this fiscal year a common platform. So there's going to be some synergies and enhancements just from moving off of two systems onto one system.

So we've seen the introduction of that at the start of this year in this quarter. So that will continue as we progress through this current fiscal year.

And some of the compensation programs in terms of rationalizing those and combining those was a multiyear program. So that will continue to work off.

We will continue to see that during the course of this year and into the following year. So it's those two items, in particular, that will lead to what we believe can be fairly significant margin enhancements in that region.

So in Canada, Rob, like last year, we did 13%, pre-tax profit margin. This last quarter, we reported 16%.

Obviously, these things go up and down quarter to quarter. But you'll see in our investment presentation we talk about if we add $1 of inorganic, if we recruit an advisor we'd like to think we'll put $0.30 to the bottom line or 30% to bottom line.

That invariably increases your margin like assuming you don't take on a bunch of fixed costs, which we're not doing. That increases your margin.

Obviously, organic growth is an advisor growth that flows after you pay the advisor and compensation that flows directly to the bottom line. So that's the advantage of scale.

We continue to increase our assets. We continue to recruit aggressively.

So we'd like to think that we can improve our margins. We have stated again, in our public documents that overall we see our margins improving by 5 percentage points in our wealth business, which it's a -- well that's interesting.

But that could be $500 million of revenue or $25 million in incremental net income, just from margin expansion in our wealth business. So we continue to be excited by the prospects of that.

Thank you. And if I may, could you talk to the dynamics of your Canadian wealth management recruitment pipeline, and then perhaps, the prospects for tuck in acquisitions in the UK wealth management?

Sure. In the Canadian recruitment pipeline it continues to be robust.

I mean, it goes through periods of where the pipeline is increasing and decreasing. But today, you got us on a good day, and the pipeline's pretty active and pretty robust.

We see advisors from both firms we've recruited from in the past, as well as new firms, some of the bank loan dealers. So we continue to see a very good traction of people we're bringing on in all of our offices right across the country.

So, I think we'll continue to see that pace. As you've seen, again, in our updated presentation, we brought on I think 19 or so advisory teams, brought on close to $9 billion in assets that way.

So we'd like to think that we can kind of keep that pace up. I think I've been public in the past stating that that $60 billion in assets growing to $80 billion in assets, a big chunk of that growth, probably half that growth is going to be into our Canadian business.

And of that $10 billion in growth, we would see half of that being acquisitions; or not acquisitions but recruitment of advisors. So, you can backdoor that into roughly $2 billion a year recruitment, which is the pace we've been running at, quite frankly, we've been running at in excess of that pace.

So it continues to be good. We continue to feel confident.

And hopefully we will overachieve our targets. On the UK side tuckins, by definition will be small.

We're trying to integrate them into our business. Our primary focus on the UK will continue to be improving our margins from our existing business.

But part of that will involve bringing in small firms at the right price into some of our treasury offices. I think we've got 10 offices now in the UK and offshore.

That gives us a unique opportunity to bring in smaller platforms and integrate them into our offices that we really didn't have when we were just centrally located in London. So I think you'll see more of the acquisitions, be smaller and into some of our treasury locations.

Okay. Thank you very much.

I'll pass along.

Thank you, operator. And thanks for joining us today.

Just a reminder that our fiscal 2019 Annual General Meeting will take place at 11am today, Eastern Time. And the meeting will be webcast and available on our Investor Relations website.

But for those of you on the call here that have joined us today from Boston, either as a client of the firm or an investor, we look forward to spending time with you over the next coming days and showcasing the very best that Canaccord Genuity has to offer you. Operator, thank you very much and if you can close the line that'd be great.