Canaccord Genuity Group Inc.

Thank you, operator and thanks to everyone for joining us for today's call. As always, I'm joined by Don MacFayden, our Chief Financial Officer.

Following the overview of our first quarter fiscal 2022 results, both Don and I will be pleased to answer questions from analysts and institutional investors. During today's discussion, we'll refer to our earnings release and MD&A, copies of which have been made available for download on SEDAR and on the Investor Relations section of our website at cgf.com.

Our quarterly investor presentation and supplemental financials are also available on our website. I won't cover the entire presentation during this call, but I will refer to certain Slides to guide our discussion.

Within our update, certain reported information has been adjusted to exclude significant items, in order to provide a transparent and comparative view of our operating performance. These adjusted items are non-IFRS financial measures.

Please refer to our notice regarding forward-looking statements and the description of non-IFRS financial measures that appear on Page 1 of our investor presentation and also in our MD&A. I expect you've all had an opportunity to review our quarterly disclosure that we made available last night.

Our first fiscal quarter performance underscores the strength of our client franchise and the constructive yet more normalized market environment relative to the same period a year ago. Our results also reflect ongoing progress on the firm's strategic priorities across all our businesses, as articulated by our leadership team at our 2021 Investor Day.

With higher contributions from our global wealth management operations, a continuance of strong capital-raising activity in our capital markets business and substantial growth in advisory activity, the Company has continued to post strong revenue and net income performances. While we don't expect a continuance of record ECM activity levels that we experienced over the past year, looking at Slide 6 of our investor presentation, you can see that our first fiscal quarter results have put us comfortably on track for a strong fiscal year.

Adjusted firm-wide revenues for the three month period amounted to CAD524 million, an increase of 39% when compared to the same period last year. This was the third highest quarterly revenue earned by our Company.

Excluding significant items, firm-wide pre-tax net income for the first fiscal quarter amounted to CAD114 million, up 173% year-over-year. This translated to an adjusted earnings per common share of CAD0.73, a substantial increase from the CAD0.25 reported in the first quarter of our last fiscal year.

While this was another strong quarter for capital markets contributions, on Page 9, you can also see the continued growth of net income and diluted EPS contribution from our wealth management businesses. Excluding significant items, our total expenses as a percentage of revenue for the first fiscal quarter decreased by 10.7 percentage points, when compared to the same period a year ago, with non-compensation costs coming in at 16.7% a year-over-year reduction of 5.3 percentage points.

As evidenced on Slide 10, we continue to benefit from the enhanced cost savings driven by the extended remote work environment and the restrictions that is placed on travel and entertainment. That said, we've also maintained a strong focus on the efficiencies and cost discipline measures that we implemented prior to the pandemic.

Our non-compensation expenses as a percentage of revenue decreased by 4.6 percentage points year-over-year. While we continue to tightly manage our non-compensation costs, we would expect T&E and business development expenses to rise moderately from current levels, as more in-person meetings are scheduled.

Firm-wide compensation ratio for the three month period was 62%, a decrease of 4.8 percentage points, reflecting higher revenue and lower PSU charges relative to the same quarter last year. Our continued progress against our strategic priorities, and our market-leading execution capability in each of our business and geographies reaffirms my confidence in the strength of our franchise and our earnings power.

Reflecting this confidence, the Board of Directors has approved a quarterly common share dividend of CAD0.075 for the first fiscal quarter. Perhaps most importantly, we begin the fiscal year with fewer common shares outstanding on a fully diluted basis.

And we expect continued buyback activity over the coming year, which will support enhanced earnings per share in any market backdrop. While we continue to deploy our balance sheet to support increased client activities during the three month period, we have remained active on our NCIB program and we expect to continue to do so throughout the fiscal year.

Our total capital deployment initiatives for the first fiscal quarter, including common share dividends and buyback activity amounted to CAD19 million or 26% of our net income. With that, let's turn to the performance of our operating businesses.

Performance by our global capital markets business remained very strong over the three month period, reflecting the strength of our mid-market franchise. While activity levels have begun to moderate from the extraordinary highs in the previous fiscal quarter, our Canadian, US and UK businesses delivered year-over-year revenue increases of 111%, 34% and 20% respectively.

In addition, our Australian business continued to perform above historic levels. Firm-wide capital markets revenue for the first fiscal quarter amounted to CAD324 million, up 38% when compared to the same period last year.

Our investment banking segment contributed 46% of the total capital markets revenue for the three month period at CAD151 million, a year-over-year increase of 55%. Over the three month period, we participated in a 199 transactions to raise gross proceeds of CAD20 billion for growth companies.

Excluding significant items, first quarter pre-tax net income improved by 145% year-over-year to CAD84 million and the pre-tax profit margin increased by 11.4 percentage points to 26%. These improvements reflect higher revenue on a relatively fixed cost base and the impact of increased contribution from higher margin advisory activities.

M&A completions in the quarter increased substantially and first quarter revenue from the segment increased 269% year-over-year to CAD76 million. Roughly half of this amount was contributed by our US business, which earned its second highest quarterly advisory revenue on record.

Our Canadian business also achieved impressive growth from advisory activity, with revenue increasing 95% year-over-year. I will also note that our Paris advisory team achieved several completions during the three month period and is performing at record levels, heading into the second quarter.

We continue to see robust M&A activity levels in our core segments and geographies. When compared to the same period a year ago, trading volumes declined modestly, reflecting reduced market activity, which led to a 19% year-over-year reduction in trading revenues.

This segment earned revenue of CAD52 million for the three month period, of which CAD45 million came from our US operations, principally from our International Equities Group. Across our capital markets business, we continue to pursue opportunities for expanding our product capabilities and the development of ancillary products, intended to complement our mid-market offering and enhance our long-term earnings potential.

Looking at the current quarter, although ECM volumes remained very strong in July, activity levels appear to be curbing as we head into August, reflecting naturally reduced levels as we close out this summer in most geographies. The ECM Pipeline for September looks strong, although not at prior year levels.

And as mentioned, we are also delivering on a strong pipeline of higher margin advisory activities. Next week, we are hosting our 41st Annual Global Growth Conference and it will be the second year hosting this event in an entirely virtual environment.

Despite the change of format, there has been no change in our commitment to providing unparalleled experience for our clients. We set another new record participation with over 600 companies, innovators and entrepreneurs, presenting from across North America, the UK and Europe and Australia.

Our global wealth management business delivered another strong quarter of impressive growth, with firm-wide client assets hitting a new record of CAD95 billion, up 38% year-over-year. Total revenue of our combined wealth management businesses amounted to CAD195 million, an increase of 41% when compared to the same period a year ago.

Excluding significant items, pre-tax net income from this segment doubled when compared to the same period a year ago to CAD48 million. Our North American business was the largest contributor to this growth, with an 83% year-over-year increase in quarterly revenue to CAD104 million.

Advisors in this region continued to enjoy strong participation in the robust market for new issue activity and quarterly investment banking revenue in this segment amounted to a record CAD40 million, a year-over-year increase of 211%. With our strong focus on recruitment, retention and recognition of our IA teams, we have continued to commit resources and investment in the area with [indiscernible] advisor experience and support them in growing their businesses.

The average book per IA team in this business grew an impressive 54% year-over-year to CAD239 million. In the UK and Crown dependencies, client assets at the end of the first quarter amounted to a record CAD56 billion, an increase of 28% year-over-year.

Excluding significant items, the first quarter pre-tax net income contribution from this business reached a record CAD19 million, up 21% compared to the same period in the prior year. Last week, we were pleased to announce the closing of the previously announced investment in this business by HPS.

We look forward to building upon this excellent partnership as we work together to enhance near and longer-term value for this business and for our shareholders. We also remain on track to close our acquisition of the Investment Management business of Adam & Company, at the end of our second quarter.

This development will increase our assets by roughly CAD3 billion and we expect it to be accretive to our adjusted earnings. Finally our Australian wealth management business contributed revenue of CAD17.5 million and excluding significant items, pre-tax net income of CAD2.6 million for the three month period, increases of 34% and 279% respectively.

Looking ahead, we will continue to invest with discipline in the growth of all our global wealth management businesses, which are fundamental to our long-term stability. We have been driving digital transformation throughout the organization for several years, with a particular emphasis on our wealth management businesses and the infrastructure that supports them.

These investments have played a critical role in our resilience throughout the pandemic, and it will continue to be critical to our long-term growth and stability. In conclusion, we are pleased to have had such a productive start to our fiscal year.

We expect that certain market tailwinds will moderate in coming quarters, but the global macroeconomic environment continues to provide a supportive backdrop for activities in our core mid-market sectors. Our substantially stronger wealth management franchise continues to provide a stable earnings foundation.

We are seeing both higher highs and higher lows across our businesses and we believe our competitive position has never been stronger. While we know a full reopening will take some time, people are gradually returning to the offices and safely meeting in person with colleagues and clients, which is boosting spirits across the firm.

We will always be firmly rooted in our core CG values, but we are acutely aware that generating sustainable value for our shareholders, requires us to advance our strategic priorities in ways that provide benefits to both our business and our communities. With that in mind, we are committed to operating with a greater consciousness of our impact on our people, our communities and the planet.

We've also continued to advance our capital markets and wealth management offerings, which focus on helping companies and investors advance their sustainability objectives and contribute to a better world. In everything we do, we remain focused on delivering outstanding experiences for our clients, while managing the firm for profitable growth and shareholder value over the long term.

With that, Don and I will be pleased to take your questions. Operator, could you please open the lines.

Good morning and congrats on a very strong quarter, another strong quarter I should say.

Thanks, Rob. Three in a row.

Perhaps turning to the UK to start, you had posted that your strategic priorities were building out distribution and then pursuing accretive financing opportunities to further expand the business without dilution. Could you perhaps elaborate on those?

Sorry, Rob. I didn't -- can you just rephrase that a little bit?

I didn't quite follow the question.

Sure. I'll tell one more time.

In the UK, on your Slide, you talked about building out your distribution capabilities. And to -- and the pursuit of accretive financing opportunities to expand the business.

If you could perhaps talk a bit more towards both points, that would be great.

Yes. So you mean UK Wealth?

Yes, sorry.

Yes. I mean I wouldn't really characterize it as perhaps expanding our distribution capabilities.

I think it's more just of increasing our client asset base through a program of organic growth and recruiting advisors and being opportunistic and looking at acquisitions. That's always been our path and our plan.

So it's really the growth of client assets through those methodologies that I just described. So, it's not in distribution as such.

And then, not -- then you mentioned not like non-dilutive, Rob, it's a good question and maybe we need to be a little bit more transparent on that. But the idea is, we've got a partner in UK Wealth, we don't want to dilute ourselves at the capital at the holding Company level, for sure.

We don't want to raise money when we've earned about CAD3 a share LTM and fund UK acquisitions. We brought in a partner for a reason to help to grow that business in a non-dilutive fashion to our public Company shareholders.

It doesn't mean that our ownership in UK Wealth wouldn't reduce over time, if we use their funds as opposed to our funds. We also have a pretty significant balance sheet there.

We've got post Adam & Co, we have about a GBP100 million of debt there. Don?

Yes, that's right.

Little bit on the lower debt. We have about GBP100 million of debt and we've got ample capacity to put more debt on that business, should we choose to use that to grow that business.

So there's a lot of non-dilutive ways to our public Company shareholders to finance the growth. The continued growth of our UK Wealth business, we continue to look at acquisitions in that market.

And in fact, are very active right now looking at a whole bunch of opportunities. We're going to continue to grow that business to scale.

Our margins now are up over 25% in that business, clearly very strong, but we want to continue to grow that business and continue to achieve very good margins and enhance profitability. Does that answer your question, Rob?

Yes, that's great. And if I may turn to Australia, could you talk to your assessment of the opportunities in Australia, both through recruitment, tuck-in acquisitions, and particularly on the conversion of the transactional accounts?

Yes. Great questions, all of which are great opportunities for us.

So, I wish I could get to Australia, to be honest, we haven't been there in a year and a half and those borders aren't opening up anytime soon. Our business there, I'll start by not answering your question.

Our capital markets business there has materially benefited from the fact that we've stapled on very successful wealth platform onto that business and you've seen those results, carry through for four -- for the last five quarters including this quarter, although down off its peak, still substantially higher than it was prior to when we bought Patterson and merged with Patterson. So that's playing out exactly according to plan.

What's playing out better than plan is how we've grown that wealth business. So we've taken assets, full fee-paying assets as opposed to just cost of the assets and growing them materially and that's been done in part from converting the book of custody assets into fee-paying assets and in part attracting new advisors to the platform.

I think we've brought on 12 teams, Don, I'm looking at you when I say it, but about that, certainly over 10 teams into our UK platform, which is a surprise because that wasn't our initial objective. Our initial objective was, get the house in order before starting putting on additions onto the house.

But there has been huge appetite from other firms there to join our very successful platform. So we're monetizing that or doing that.

So that remains in opportunity and then we are -- there is consolidation in that marketplace and change in that marketplace and we are looking at acquisitions as well in that marketplace, if they were incremental and additive and accretive to our shareholders. No big rush there, because I think we have a good critical mass there, but you never know what may come up and what we may do, so I wouldn't rule that completely, but I also wouldn't expect an announcement in the next three months, Rob.

Great, thank you. And lastly, if I may, you noted that your capital position leaves you prepared for evolving regulatory environments, are you looking for more restrictive regulations and prepared for that or I'm just interested in your thinking behind that.

You're talking about in Australia or broadly speaking?

More broadly.

No. Yes, we don't anticipate material changes in regulatory capital.

Broadly speaking, any particular market could have changes, Australia in particular is a very -- is a relatively capital-light jurisdiction, that could change. But the Canadian rules, if anything, would be, I'd hate to say this, I'm not going to say it, Rob.

I was going to say if anything capital, capital rules would free up as opposed to become more onerous. But I'm not going to say that, because I'll get it wrong.

But yes, we don't see a material change in our capital rules elsewhere. And we do have ample capital.

I think what we were alluding to and you never know words out of context here, Rob, but great question. But I think what we're alluding to is, the business is very, very, very active and as the business is active, that requires capital and especially when it's active on underwriting and active on margin and active everywhere.

So, we have been using our capital significantly to manage our business and make the money we're making. But that being said, we still have ample capital beyond -- above and beyond that.

Thank you. Good luck.

I noticed that you're reading the Slides, which is great.

No, need to make sure they're fully [ph].

Okay, thank you.

Thanks. Cheers.

Hi, good Morning, everyone.

Hey, Jeff.

Hi, Jeff.

Why don't we continue with the wealth management discussion here and focus on Canada first. I mean the margin there was a pretty sizable step-up, it looks like that was really a factor of lower cost as a percent of revenue, and when I look at the percentage there, I think that's about as low as it's been over the last couple of years.

So maybe could you just give us some color on what was happening there, is it a change in the revenue mix that's driving the lower relative compensation or how should we think about that?

Yes. I think it's -- there's nothing fundamental, Jeff.

But a great question. There is nothing fundamental, other than scale, right.

Certain comp is variable and certain comp is relatively fixed. So as you increase the scale of the business, the revenue in that business, comp comes down.

I appreciate, you'll find other quarters where it didn't, sometimes it will depend on mix between new issue business and commission business. But for the large degree, I mean, I think you'll expect to continue to see comp coming down as a percentage of revenue, as the overall revenue goes up.

You notice the mix in revenue in Q1 was roughly 60% kind of commission and fees, 40% new issue. Sometimes that new issue revenues have a slightly lower comp ratio than the commission and fee ratio would be.

But, I don't think there's anything material to take away there, other than that's the way the numbers played out.

Okay. And with respect to the focus on growth going forward from here, how do you think about your priorities?

Is it about maybe taking off some advisory teams with larger books? Do you still think there is some smaller independents you can go after to take down a whole firm?

Or maybe is it just about extending your service offering to maybe start to manage more of these assets as well as advising them?

Yes to all of the above. Yes, I mean we definitely want to continue to grow our Canadian Wealth offering, it's the same in the UK, same in Australia, to be honest.

But -- and we definitely have a lot of resources to do that. We think this business could be substantially larger, notwithstanding we're the largest independent, I make that point very purposely and most profitable or highest revenue independent.

We think there -- we think this business can and should be bigger and we are actively trying to grow it through all of the above scenarios that you pointed to.

Okay. And I think it was within the context of Capital Markets, you made some comments of extending your product capabilities, but I can see how there might be leverage into the wealth unit as well.

So I guess there's been a little bit of media speculation around looking at like an alternative debt platform, but what type of things might be a nice add-on to -- to what you have today. I do think if you're offering is being relatively wholesome, so are there holes in the menu there that you want to fill in?

Yes. I think -- I do think it's more -- well, it's primarily Capital Markets.

But you're right, it could relate to wealth and when you talk about holes, yes, you know a mid-tier debt platform would be good. No, I'm just kidding.

We're not to comment on speculation, but like there are -- we do have -- think about our client base or mid-cap client base, not materially different than your firm's client base or think about our retail offering and there's things that we don't offer, that we should offer if we are going to become more full service. So we continue to assess that.

I'll use an example, it sounds silly, but it's something as simple as FX, Jeff, like having a material foreign exchange offering. We do a lot of the US, we do a lot of Canadian deals, it would be good to be able to do FX in an intelligent fashion.

For example, there's lots of little examples that they're not going to be materially move the needle, but we've got a big enough balance sheet -- a big enough franchise that we can certainly handle some additional capabilities.

Okay. And then, maybe one last one here on UK growth.

You did give us a bit of color on this earlier, but what's the status of the market there from a competitive position, if you're looking to roll in other businesses like Adam & Company. Granted, you've got HBS now that's closed and with you as a partner.

So is there is still a pretty good pipeline here to continue to expand that, I mean you're quite large in the domestic market.

Huge pipeline. I mean this market continues to consolidate, little guys continue to get out, there continues to be deals every day.

You'll notice that Raymond James just announced an acquisition there the other day, there is lots of -- there continues to be lots of activity and I don't want to sound too promotional, Jeff. So I want to be a little careful.

But we've never been better positioned to get deals done. You look at our currency, you look at our capital capability, you look at our partner and you look at the fact that we've successfully, very successfully integrated in several firms, so there is real tangible benchmarks out there.

And we're really well known in the community now as a consolidator. So I don't -- we're very well positioned.

That being said, as you know, M&A is M&A and often you don't get to the finish line. More often than not, you don't get to the finish line.

So, who knows, but what we are -- the team there is working very hard to continue to consolidate that marketplace.

Okay, thanks for that color. I'll requeue.

Thank you. Great questions.

Hey, Graham.

Hi, good morning.

Good morning.

Just to follow on the last theme, when you look back at all acquisitions you've done in the UK wealth market, have your attention levels been higher? Have they been as high as you would have targeted or wanted, in terms of keeping assets and teams?

Hi Graham, it's Don. Yes, they've been very high and certainly met and exceeded expectations.

It hasn't really been a problem at all. There's always a little bit ones and twos here and there, but both client retention and advisor retention has been very strong and I think that speaks a lot to our capabilities in terms of integration and being on top of the socialization aspect of acquisitions, I think it's been -- always been well received.

And we've been successful at doing it, and known for doing it.

Yes. I guess, to tell to our sign, both on our UK wealth acquisitions or on our US M&A acquisitions, I mean if you noticed in our financials, we keep on paying earn-outs.

That means that people are over achieving what the targets that we set in those acquisitions are, you'd love to pay earn-outs, if you can, right. So we've been paying our earn-outs on all of our acquisitions and most of them have had some form of earn-out payments.

So that's a good thing. And that's a pretty obvious sign that they are performing better than at least the base estimate.

Okay, great. And then, any commentary in terms of sticking with wealth, just the organic flows in the quarter?

I know you've got divisions in Canada, the UK and Australia. Just any context on where your flow is positive or in the quarter?

And then just on the recruitment side as well, any activity there in the quarter to pull out or just any commentary on the pipeline?

Yes. The flows for the quarter have been positive, both in the UK and in Canada, in terms of organic net inflows.

So that's continued to meet our expectations and continue to build. On the recruitment -- on the recruiting side -- I mean the recruiting pace is the same as it's been -- we mentioned Australia already and it's been very active there.

But even in Canada, the recruiting pace is fantastic. But we're operating from a much bigger base.

The first person we recruited, we started with a CAD10 billion asset base, we're up to CAD35 billion, you know to keep moving needle, we got to keep the effort -- you got to intensify the effort, so to speak. So, we're still talking to lots of people, hoping lots of people are going to come over.

It's been -- it's easier than ever to sell this platform, just given the success on the 47 teams or 46 teams that have come across; so it's been good. We've attracted -- we attracted another very, very -- two large advisors from one of our independent competitors over the last couple of months.

And both of them were sized and they were important additions. So, things continue to go.

There is some ebb and flows, we are in the middle of the summer now, so not much happens, but it will pick up again.

Okay. And then, I noticed that there was some commentary around the management in the UK wealth management platform, purchased a 4% equity stake, is that a new development?

And is that incremental to the 22% stake that HBS has acquired? I just want to try to think like how much -- how much does Canaccord Genuity own of that UK wealth platform?

Well, I think we've always contemplated having some direct equity program for the employee base and the management base within the UK Wealth Group. So, this was just sort of the formalization of an equity incentive plan for that particular Group.

It's not completed and or closed yet, we'll do that over the next couple of weeks. But it's estimated to be about 4%.

So our interest of 78% after HPS would be diluted down to say in that 75% plus or minus range, depending upon what the finalization of the management participation plan is. And most private equity partners that you bring into a situation like that, want the management co-investing with them.

So this is not -- they're co-investing at the same values that HPS came in at, this is not some kind of free equity from that perspective. So, we're very supportive of that and obviously like the direct alignment there.

Sure. Okay.

And this is the management team run in your UK Wealth platform, correct?

It's not me, not Don. Yes, in this case, specific to UK.

Yes. Okay, understood.

And then just my last question, like capital or working capital, sort of, there is a few things going on in the current quarter with the proceeds from HPS, but that you're also investing in Adam & Co, any context on sort of -- are you expecting your capital levels here to -- to lift or to be relatively flat quarter-over-quarter? It's -- what are the key moving pieces that we should be aware of?

Yes. I think as Dan mentioned earlier on, I mean we have -- we're using debt in the UK to fund past acquisitions, we've got room in that debt capacity to fund future acquisitions.

So, how Adam & Co get specifically funded is still to be finalized, but it's quite conceivable that it could be fully funded with debt or substantially funded with debt. And then as we go forward, it will depend on the circumstances, but the combination of debt and equity is sort of the plan going forward.

So our current capital, obviously we've taken in a fair amount of capital from the HPS transaction, even repaying the interim financing that we used to take out the convert. So it's fair to say that we are relatively capital flush right now, we've got a number of strategic priorities going on, as we've indicated, but we've also said pretty publicly that we're going to continue to be aggressive on buying back our stock.

So we used CAD19 million last quarter between dividends and buying back stock. I think we're going to continue to be relatively aggressive in a normal way.

I don't think you'll see anything substantial at this stage, but in a normal way, buying back our stock and continuing to lower our share count. I mean we brought our share count down from a high of 130 million shares down to sub 110 million shares and that pace of activity is going to continue.

We are making a lot of money and we're making a lot of cash and that gives us an opportunity to use that balance sheet to create value for our shareholders.

Okay. That's it from me.

Thank you.

Good questions. Thank you.

Okay, well listen, thank you everyone. I appreciate you taking the time in the summer and I appreciate all your interest in our Company.

I mean, this really concludes our call for the first quarter and Don and I are of course available for any follow-up questions. We've got our Annual special meeting tomorrow at 10:00 AM tomorrow, feel free to dial in.

We've got a new Board member joining us as well on that. So you'll see 40% of our Board now will be gender diverse for sure and obviously access details for our meeting were provided through our information circular and they've also been made available on our website.

So with that, operator, thank you very much. And we can close the lines and we'll talk to you again soon.