Thank you for standing by, and welcome to the Q2 2025 AGF Management Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Tsang. You may begin.
Thank you, Operator, and good morning, everyone. I'm Ken Tsang, Chief Financial Officer of AGF Management Limited. Today, we will be discsing the financial results for the second quarter of fiscal 2025. Slides supporting today's call and webcast can be found in the investor relations section of AGF.com. Also speaking on the call today will be Kevin McCreadie, Chief Executive Officer and Chief Investment Officer. For the question-and-answer period following the presentation, Judy Goldring, President and Head of Global Distribution, and Ash Lawrence, Head of AGF Capital Partners, will also be available to address questions. Slide 4 provides the agenda for today's call. After the prepared remarks, we will be happy to take questions. With that, I will now turn the call over to Kevin.
Thank you, Ken, and thank you, everyone, for joining us today. The second quarter of 2025 saw continued volatility as global markets grappled with the potential implications of ongoing trade wars. Despite the market volatility, Q2 was another strong quarter for AGF. I'll begin with some highlights. AUM and fee-earning assets were CAD 53.5 billion at the end of Q2, up 12% from a year ago. Compared to Q1, our average AUM was down 3% due to the market volatility experienced throughout the quarter. AGF Investments' retail mutual fund business reported net sales of CAD 65 million in the quarter, or 20 basis points of mutual fund AUM, outpacing the Canadian mutual fund industry. Our SMA and ETF business remained strong. AUM increased 54% year- over- year to CAD 2.8 billion. We reported adjusted and diluted EPS of CAD 0.39 in the quarter.
In addition, we have CAD 426 million in short and long-term investments on our balance sheet, net debt of CAD 50 million, with CAD 166 million available on our credit facility. We have capital available and flexibility in our capital allocation strategy. Subsequent to the quarter, AGF Investments won the Mutual Fund Provider of the Year award at the 2025 Wealth Professional Awards ceremony. This recognition celebrates our evolving and innovative product lineup, as well as our dedication to delivering exceptional value to our clients. AGF was also honored as an Excellence Awardee in the Employer of Choice category. Finally, the board declared a CAD 12.50 per share dividend for Q2 of 2025. Starting on Slide 6 , we will provide updates on our business performance. On this slide, we break down our total AUM and fee-earning assets in the categories disclosed in our MD&A and show comparisons to the prior year.
AGF Investments' mutual fund AUM was CAD 31 billion, up 15% year- over- year, outpacing the industry increase of 11%. The growth of our ETF and SMA AUM remains strong. I'll provide more color on our mutual fund business and ETF and SMA AUM in a moment. Segregated accounts and sub-advisory AUM increased by 2% compared to the prior year. Our private wealth AUM increased by 7% compared to the prior year to CAD 8.6 billion. Our AGF Capital Partners AUM and fee-earning assets were CAD 4.7 billion at the end of the quarter. As a reminder, New Holland Capital AUM of CAD 9 billion is not consolidated into AGF's total AUM and fee-earning assets at this time. Comparing to slide seven, I'll provide some details on the mutual fund business.
On the back of the volatility in the equity markets in the quarter, the Canadian mutual fund industry saw net positive sales in the quarter of CAD 1 billion, or 5 basis points of AUM. AGF's investments retail mutual fund business outpaced the industry and achieved CAD 65 million of net sales in the quarter, or 20 basis points of AUM. AGF's equity funds continue to see net inflows in the quarter, with particular interest in the AGF Enhanced U.S. Income Plus Fund and AGF European Equity Class. Our AGF Enhanced U.S. Income Plus Fund, which was launched earlier this year, aims to provide long-term capital appreciation and generates a high level of consistent income by employing dynamic options strategies.
Our award-winning European Equity Class has garnered interest from clients and advisors on the back of a strong European equity market relative to the U.S. in the first half of 2025 and renewed interest in this category. I want to now give a quick update on our investment performance. AGF Investments measures mutual fund performance by comparing gross returns before fees relative to peers within the same category, with the first percentile being the best possible performance. Our one-year performance was in the 46th percentile, our three-year performance was in the 51st percentile, and our five-year performance was in the 41st percentile. Approximately half of our strategies are outperforming our peers on a three and five-year basis. Turning now to Slide 8, I will talk about our ETF and SMA AUM. The AUM in this category has grown 41% on a compounded basis over the last two years.
Included in this number are Canadian and U.S.-listed ETFs and SMA platforms globally. In a volatile market environment, one of our liquid alternative products, our U.S.-listed market-neutral anti-beta ETF, stood out for its ability to offer a hedge to equity markets by providing protection during drawdowns while maintaining upside participation. For example, in the recent market downturn from mid-February to early April, while the S&P was down 19%, this ETF produced positive returns of + 18%. Further, we have seen consistent growth and momentum in the SMA business across the U.S., Canada, and now Asia, where many of our strategies are available on leading SMA and wealth management platforms. I will now pass it over to Ken to discuss our financial results.
Thanks, Kevin. Slide 9 reflects a summary of our financial results with sequential quarter and year-over-year comparisons. The financial results in these periods are adjusted to exclude severance, corporate development, and non-cash acquisition-related expenses. Adjusted EBITDA for the quarter was CAD 40 million, which is CAD 8 million lower than Q1. This was mainly due to an outsized long-term investment gain in Q1. Compared to the prior year, our adjusted EBITDA was CAD 3 million higher, mainly due to higher AUM levels. SG&A came in at CAD 60 million this quarter, CAD 4 million lower than Q1 and consistent with Q2 of last year. The decrease from Q1 reflects seasonally lower government-regulated employee benefits, which are largely paid in the first quarter, as well as reduced performance-based compensation, mainly due to timing of RRSP season sales. Adjusted net income attributable to equity owners for the quarter was CAD 26 million, and adjusted EPS was CAD 0.39.
Free cash flows for the quarter were CAD 24 million, down CAD 8 million from Q1, primarily due to higher distribution income in the last quarter. Slide 10 provides further breakdown of our net revenues. Within our traditional asset and wealth management businesses, net management fees were CAD 84 million for the quarter, which is CAD 1 million lower than the prior quarter and CAD 3 million higher than the prior year. Our net management fees are directly related to our AUM levels, which were lower this quarter due to market volatility. Within our AGF Capital Partners business, adjusted revenue was CAD 15 million, representing a CAD 9 million decrease from the previous quarter. The decrease in revenues was due to outsized revenues from long-term investments in Q1. While fair value adjustments on investments can be lumpy, we remain conservative in our guidance and target annual returns of roughly 8%-10%.
On Slide 11, we outline adjustments to our EBITDA. As you might recall, the AGF Capital Partners business gives rise to various LLTIP, contingent consideration, and put option liabilities. These liabilities are fair valued each quarter, with the difference flowing through to the P&L. These accruals and fair value adjustments have no immediate cash impact and create noise quarterly, which is why we've adjusted for these items to facilitate easier comparison of quarterly results. Adjusting for these items with severance expenses, our adjusted EBITDA for this quarter is CAD 40 million. Turning to Slide 12, I will walk through the yield on our business in terms of basis points. This slide shows our average AUM, net management fees, adjusted SG&A, and EBITDA as basis points on our average AUM in the current quarter, previous quarter, and trailing 12 months.
This view excludes AUM and related results from AGF Capital Partners, as well as DSC revenues, other income, severance, corporate development, and acquisition-related expenses. The EBITDA yield this quarter was 24 basis points, which is two basis points higher than prior quarter and the trailing 12 months. The increase was driven by lower SG&A, with a slight offset in the net management yield of one basis point. The decline in net management fee yields reflects the success of our strategic efforts to expand across advisory channels, particularly those aligned with fee-based platforms. Turning to Slide 13, I will discuss our free cash flows and capital uses. This slide represents the last five quarters of consolidated free cash flows on a trailing 12-month basis, as shown by the orange bars on the chart. The black line represents the percentage of free cash flows that was paid out as dividends.
Our trailing 12-month cash flows was CAD 106 million, and our dividend paid as a percentage of free cash flows was 28%. In the same period, we returned CAD 39 million to shareholders, consisting of CAD 30 million in dividends and CAD 9 million in share buybacks. During the quarter, we repurchased 237,000 shares under our NCIB for approximately CAD 2.4 million. We ended the quarter with net debt of CAD 50 million. We also have CAD 426 million in short-term and long-term investments and have CAD 166 million remaining on our credit facility, which provides credit to a maximum of CAD 250 million. Our future capital allocation will be balanced and includes returning capital to shareholders in the form of dividends and share buybacks, as well as investing in areas of growth. Before I pass it back to Kevin, let me take a minute on Slide 14 to look at our market valuation.
AGF's current stock price is about CAD 12, and our enterprise value is about CAD 850 million. Taking our CAD 426 million of short-term and long-term investments into account, our remaining enterprise value is about CAD 424 million. This implies a 3.6x enterprise value to EBITDA multiple on our 2024 adjusted EBITDA, excluding income from our long-term and short-term investments. Comparing this multiple to those of other traditional and alternative asset managers would suggest potential upside to our valuation. I will now pass it back to Kevin to close out the presentation.
To sum up this quarter, we continue to make great progress against a number of our strategic objectives. Our AUM and fee-earning assets continue to climb, reaching nearly CAD 54 billion. Our investment performance remains solid. Our sales momentum was strong and continued to outpace the industry. We remain disciplined in our expense management while investing for growth. The strength of our balance sheet and capital position will provide us with flexibility in our capital allocation strategy and the resilience to weather a challenging market environment. I want to thank everyone on the AGF team for all of their hard work, and we will now take your questions.
Thank you. If you have a question at this time, please press star one one on your touch-tone telephone. One moment for our questions. Our first question comes from Gary Ho with Desjardins Capital Markets. Your line is open.
Thanks. Good morning. My first question, just given the volatile markets last few months, and we did see IFIC data kind of move from net redemptions in March, April to positive territory in May. Just wondering if you saw kind of similar trends in your net flows numbers, and also curious to hear kind of which funds. I think you highlighted a couple that you guys have seen a bit more momentum, including the European equity strategies. What are you seeing in terms of that momentum? Did that carry through in June so far?
Thanks, Gary. Judy here. Yeah, we saw certainly similar trends in our own business as it was in the industry. As was reported, we saw net sales of CAD 65 million for the retail net sales, and it was our fourth consecutive quarter of positive retail sales, which is a really good trend for us. As well, we were encouraged because we were actually outpacing the industry in terms of those flows. That really does come on the back of really strong performance on a couple of our key growth mandates, the Global Select and American Growth mandates, along with, as mentioned by Kevin in his remarks, the European equity mandate. That is an interesting trend.
We are a two-time Lipper Awards, you know, 135-year top-performing fund, and it really has been interesting to see the interest in that mandate, as there's been sort of a less, more interest, I guess, in the European markets at this point, given their performance. Those have been sort of the areas of the flows that we've been seeing.
The momentum so far in the June months so far?
Into this quarter, it's still early days, obviously, into the end of, almost the end of June, but we're essentially flat at this point, is sort of how I'd best phrase it.
Okay. Great. My second question, I think there's some new U.S. proposed rule, Section 899. This talks about taxing of dividend, kind of foreign company pays for U.S. entities. Does that impact your U.S. equity funds at all or strategies, and how are you positioned on that front?
Yeah. Hi, Gary. This is Ken here. Yeah. There is still some uncertainty with respect to whether this bill will pass and obviously in what shape or form. Just to maybe set the context, this bill really does relate to specifically withholding taxes on U.S. domiciled companies that pay dividends and interest. Obviously, it will impact the broader industry landscape beyond just AGF. Having said that, though, I think we are relatively muted from an exposure perspective. Our funds are pretty global in nature, and it allows our managers to allocate away from more exposed U.S. names. Our funds are also more growth-oriented. Again, if most of our returns are coming from capital appreciation, dividend interest is a smaller component of our fund. It is, again, relatively muted.
I'd say lastly, we do have a pretty broad suite of products, as Judy had mentioned earlier. Shifting away from into European funds could be actually a catalyst and could actually allow us to drive market share growth.
Yeah. Maybe if I can add on to that, Gary, to Kevin, which is we also, as a component of fixed income, we're probably one of the lowest from an asset mix standpoint. You're going to have a lot of managers in the industry who have large U.S. fixed income businesses, which are going to be more impacted than we would, just given how minimal fixed income is as our lineup.
Okay. Copy that. All right. And then just the last question. Did notice a pickup in buyback in the quarter. Most you have done in over a year. What's your thoughts here? You also have a slide highlighting your attractive valuation. Should we expect similar buyback activity in near term? Just also want to hear your thoughts on that and also capital allocation priorities.
Yeah, Gary, maybe I'll start. It's Kevin. Yeah, we've always had a balanced approach to our capital, which is pressing different levers at different times. More recently, we've been on the growth lever with some of the investments we've made into Capital Partners to build out our alternatives business. We also, again, think about the dividend payout ratio at 28% is pretty conservative at this point. We would probably agree with you, you'd see us probably accelerate some of the purchases within our NCIB right now, especially as we've talked previously. Kind of our pipeline and the industry pipeline of just deals out there right now has kind of jumped up a bit. While we're waiting for that to clear out, you could see us probably be a little bit more aggressive on that side.
Okay. Great. Those are my questions. Thank you.
Thank you. Our next question comes from Tom MacKinnon with BMO Capital . Your line is open.
Yeah. Thanks very much. Good morning. You mentioned some lower management fees going forward. Is it changes in fees on some funds? If you can elaborate on that, and does that still kind of fit into your one to two basis point decline guide in terms of fees?
Yeah. Sure. Hi, Tom. Yeah, I could pick it off. I mean, certainly year- over- year, our management basis points would have gone down a little bit more than normal. I would reference that actually a year ago in the same quarter, we did have some outsized success fees that would have, I guess, artificially elevated some of the management fees here. It is probably, if you normalize for that, that would probably take the management fee dips down about one and a half basis points from last year. Having said all that, I mean, I think the shifts in our management fee, I think it is a testament to the success we are seeing in the sales that are coming through. Just to give you some example, I mean, the growth into fee-based IROC channels is seeing more of an asset shift from mutual fund series to F-series funds.
We've also seen, as we had alluded to earlier, some tremendous success in both our ETFs as well as our SMAs products, which I think we've talked about in the past. Those products do tend to drive lower management fee dips, but come along with virtually no marginal costs. What you're seeing overall is our AUM and revenues are actually increased, even though you'll see some of the management bids decreasing. At the same time, our SG&A expenses have been relatively flat year- over- year.
Yeah. Maybe I can just follow on that, Tom. It's Kevin, which is those parts of the business are sectorally changing. You're going to see us look at just our SMA business year- over- year at 54%. Right. To Ken's point, the revenue margin or the basis points and revenues will become maybe less material over time as we shift into these other categories. It's just going to be about if we can put that volume on. We've seen pretty good growth across these new channels, which is actually what we're trying to do.
Okay. Thanks. The follow-up is just with respect to adjustments to the SG&A. I mean, I get some of these contingent consideration put option stuff, but we've had severance now kind of ongoing here for four quarters in a row. Why is that stripped out? Why is it? When, I guess, will you have an adjusted SG&A that does not have severance or corporate development and other expenses in?
Yeah, Tom, maybe I'll start, and maybe Ken can follow me. I mean, severance, obviously, we've been trying to be disciplined around the expense line over time. We want to invest for growth, but at the same time, we've got to pare back some of the other things we've been doing. We've always had a pretty good discipline around that. Severance, I don't think ever goes away. If we ever did a large-scale program, which we don't need to do at this point, you'd see something where we call out a one-time charge. Obviously, the severance is just a normal course of our expense management. In terms of every now and then, you will also see us when there are deal costs related to some of the acquisitions that we've incurred. Those will be more muted here as we're until we find the next transaction.
They also should be thought of as kind of one-time, but you should not see those tick up too much in the near term, my guess. Yeah.
The severance is normal course. If severance is normal course, then why is it stripped out?
It's not normal course. I'd say, Tom, I mean, the severance does become seasonal and is timing based on individuals that we feel are, I mean, well, it just comes with operating the business, and it does ebb and flow. I wouldn't say that it's a normal course thing for us.
Okay. Thanks.
Thank you. As a reminder, if you have a question at this time, please press star one one on your touch-tone telephone. Again, if you have a question, please press star one one on your touch-tone telephone. I'm not showing any further questions. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. AGF's next earnings call will take place on September 24th, 2025. You may now disconnect.