Good morning, ladies and gentlemen. Thank you for standing by. I'd like to welcome everyone to the Canaccord Genuity Group, Inc. fiscal 2022 third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press Star, then the number one on your telephone keypad. If you'd like to withdraw your question, press Star, then the number two. If you have any difficulties during the conference, please press Star, then zero for operator assistance at any time. As a reminder, this conference call is being broadcast live, online, and recorded. I would now like to turn the conference call over to Mr. Dan Daviau, President and CEO.
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 third 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 one of our investor presentation and in our MD&A. All our businesses continued to perform at strong levels during the third fiscal quarter, and our nine-month fiscal year-to-date results showed that we are comfortably on track for a strong year. During this period, assets in our wealth management businesses remained strong and increased advisory activity in our capital markets business helped offset the reduction in new issue activity. Our quarterly and year-to-date financial highlights can be viewed in the context of our historical performance on page nine of our investor presentation. Firm-wide revenue for the three-month period amounted to CAD 551 million, our second-highest quarterly production on record.
This brings our total revenue for the first nine months of this fiscal year to CAD 1.5 billion, an increase of 19% when compared to the first nine months of our last fiscal year. Excluding significant items, firm-wide pre-tax net income amounted to CAD 113 million for our third quarter, which translates to diluted EPS of CAD 0.69. This brings our fiscal year-to-date EPS to CAD 2, an increase of 74% year-over-year. As highlighted on slide 10, we continue to generate meaningful margin improvement, a testament to our focus on operating our business more efficiently without compromising the employee and client experience. Excluding significant items, our total expense ratio for the nine-month period was 5.3 percentage points lower year-over-year, while non-compensation expenses as a percentage of revenue were 2.8 percentage points lower.
As expected, third quarter general and administrative expenses increased by CAD 6 million or 26% year-over-year due to higher promotion and travel expense, reflecting increased activity levels following the easing of pandemic restrictions. Communication and technology expense also increased by CAD 2 million or 13% to support increased headcount and business growth. Despite these modest increases, our agile platform continues to support higher activity levels over a relatively fixed cost base. Our third quarter was also a very productive period for strategic activities, including acquisitions to increase the long-term value and market position of our U.K. wealth business and our U.S. capital markets business, and $100 million share buyback. Slide 11 summarizes our capital deployment initiatives to date.
Reflecting the robust earnings from our capital markets businesses, we completed a substantial issuer bid for CAD 100 million after the end of the quarter, further reducing our common share count outstanding by 6%, our lowest level in over 10 years. I'm also pleased to report that our board of directors has approved a quarterly common share dividend increase to CAD 0.085, reflecting the growing earnings of our wealth management business. Year to date, our total dividend payout is up 31% from this time last year. We are delivering on our commitment to provide enhanced returns to our shareholders while maintaining sufficient capital for investment in our strategic priorities. Moving to the performance of our capital markets business.
Our combined global capital markets businesses earned third quarter revenue of CAD 362 million, the second highest quarterly results on record for this segment. Excluding significant items, capital markets third quarter pre-tax net income was CAD 94 million, bringing the fiscal year-to-date contribution to CAD 251 million, a year-over-year increase of 48%. The pre-tax profit margin in this segment remains comfortably above historic levels at 25.3% for the fiscal year to date, an improvement of 4.8 percentage points compared to the same period last year. We continue to experience a constructive backdrop for capital raising activities in our core sectors and geographies despite market-wide declines from the previous record levels. Third quarter investment banking revenue amounted to CAD 127 million, a decrease of 26% year over year, but an increase of 42% sequentially.
Technology, life science, and mining sectors were the most active globally. All geographies performed very strongly. The U.S. had its second highest revenue on record, with significant breadth in the number of material transactions. Canada revenue grew by over 60% from last quarter, concluding a very active calendar year where our franchise was the top or second most active underwriter in the country, depending on how we measure it. Our Australian business delivered its strongest quarter in history, with revenue of CAD 46 million, an increase of 59% sequentially. Finally, our U.K. capital markets team has experienced solid year-over-year growth in investment banking and advisory revenue, which were up 33% and 113% respectively. Also of note, this team ranked first for number and volume of transactions on AIM for calendar 2021.
Revenue from trading activities were lower in all regions, reflecting reduced volatility during the three-month period. Across our regions, the most substantial contributions were from our advisory segment, which set a new quarterly record revenue of CAD 152 million, representing 42% of our firm-wide capital markets revenue for the three-month period. This brings the fiscal year to date advisory contribution to CAD 367 million, up 187% year-over-year and surpassing all prior full year contributions by a wide margin. These results reflected strong completions in North America and U.K. and Europe, with an important contribution from our Paris team, which is operating at record levels. We continue to see a constructive pipeline of M&A opportunities into our fourth quarter. In December, we announced our acquisition of Sawaya Partners, a premier U.S.-based advisory firm focused in the consumer sector.
This acquisition builds on our track record of increasing contributions from higher margin advisory activity while materially enhancing our consumer and health and wellness verticals. Integration efforts have been positive and productive, and we're looking forward to expanding our client offering and reach with this team. Let's turn to the performance of our wealth management businesses. At the end of the third quarter, client assets surpassed CAD 100 billion for the first time, reaching a new record of CAD 102 billion and up 20% compared to a year ago. Our combined wealth management businesses earned revenue of CAD 185 million for the third quarter, and CAD 546 million fiscal year to date, increases of 2% and 18% respectively.
When measured on a fiscal year-to-date basis, this segment contributed adjusted pre-tax net income of CAD 119 million, an increase of 32% year-over-year. Our UK and Crown Dependencies business delivered its strongest quarterly net income contribution on record of CAD 22 million, an increase of 39% year-over-year. This business also continues to achieve steady margin growth, with its adjusted pre-tax profit margin improving 4.4 percentage points year-over-year to 27.1%. This was achieved on revenue of CAD 82 million, also a quarterly record, and an increase of 17% compared to the same period a year ago. Client assets in this business at the end of the quarter amounted to a record CAD 59 billion. In December, we announced the acquisition of Punter Southall Wealth, a leading vertically integrated wealth manager.
This further expands our footprint in the U.K. and increases the scale of our financial planning capability. Upon completion, this development will add another $8.5 billion in client assets. HPS has agreed to provide funding of GBP 65 million upon closing through the purchase of convertible preferred shares to be issued by U.K. Wealth. The underlying value of our interest has been enhanced with the expansion of the business, its growth prospects, and the underlying value proposition associated with the investment. Looking ahead, we expect further enhancements to the results of this business as we integrate our acquisitions of Adam & Company and PSW while pursuing our organic growth initiatives. Our North American wealth business demonstrated resilience during the third fiscal quarter, with client assets hitting a new record of $37.5 billion.
Total revenue amounted to CAD 83 million for the third quarter, bringing its year-to-date contribution to CAD 259 million, an increase of 19% year over year. While the anticipated reduction in new issue activity in this business led to an 11% year-over-year decrease in third quarter revenue, I will note that commission and fee revenue was the strongest on record for this business at CAD 59 million. This 25% year-over-year increase reflects the growth in our client assets. Additionally, fee-related revenue accounted for 43% of third quarter revenue for this business. Our average book per advisor has grown to CAD 257 million, representing a very impressive year-over-year growth of 26%. We continue to evaluate a range of options for profitable growth in this business, and our recruiting pipeline remains strong.
Finally, third quarter revenue for our Australian business exceeded CAD 20 million for the first time, an increase of 17% year-over-year. For context, when we expanded this business two years ago, the annual revenue of the acquired business was in the range of CAD 50 million. Excluding significant items, this business contributed pre-tax net income of CAD 7 million fiscal year-to-date, a year-over-year increase of 37%. Just like our Canadian wealth business, our Australian business is clearly benefiting from the synergies of its alignment with our leading capital markets business in the region. In all, the investments we've made to increase the scale of our wealth management businesses will continue to enhance our earnings foundation and long-term resilience as we navigate shifting market dynamics.
Alongside our investments in talent and acquisitions, we are actively building our specialist network in technology, sustainability and other growth areas to keep pace as investors continue to reshape their investment needs. Of course, underpinning all of this is our continued emphasis on cybersecurity to protect the firm and our clients. Obviously, we saw a broad market downturn and bouts of volatility in January, which have contributed to a challenging environment for new issue activities in all our geographies. We've intentionally invested in our wealth and advisory platforms over several years to protect our ability to produce reasonable results during uncertain times. While we expect increased headwinds, our franchise has never been stronger.
Our future earnings will be fueled by the continued expansion of our wealth management businesses and the increased breadth and depth of capabilities across our integrated capital markets businesses as we continue to innovate and strengthen our franchise for the long term. With that, Don and I would be pleased to take your questions. Operator, can you please open the lines?
Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. If you'd like to ask a question, please press Star, then the number one on your telephone keypad. If you'd like to withdraw your question, press Star then two. There will be a brief pause while we compile the Q&A roster. Your first question comes from Jeff Fenwick with Cormark Securities. Please go ahead.
Hi, good morning, everyone.
Good morning, Jeff.
You know, good to see continued strong progress in the U.K. wealth management business and your latest acquisition there. What's your feeling in terms of your market position? Are there more deals like this to be done? This included, you know, selling a little incrementally more of the interest to HPS and maybe just a comment there around your target ownership level for the U.K. business.
Yeah, I don't think there's a formal target ownership level, Jeff. You'll note when you do the math, the incremental ownership interest that HPS picked up would be reflective of the fact that the value was higher as well. You know, the value, the convertible value effect of that convertible preferred. You know, the premise of creating value through doing incremental deals with HPS' capital makes sense, continues to make sense. Our interest is, you know, probably a, you know, from a value perspective, 20% from where it was before, when we first did our first deal with them. We continue to look at incremental transactions. That being said, this was a big deal. It's gonna take time to integrate. We don't close it till, you know, April thirtieth, probably.
That's kind of when we're targeting towards that. You know, one thing at a time, but you know, scale continues to make sense in that business, and you can see it from the record profitability numbers and, you know, the record margin numbers. You know, the premise of growing the business through acquisitions is good. I'd also add that it was a really good quarter organically. We put organic growth initiatives in place in that business that seem to be working. You know, it's early stage. We've only been at it for probably, you know, a couple of quarters now, but we've had good organic growth in that business as well.
Okay, thanks for that. I wanted to touch on advisory and the acquisitions you've been doing at these boutiques that you're rolling in. You know, to look back over the last decade, the story's been mostly about these professionals starting up their own shops and leaving larger ones, and now we're seeing a bit of a reversal here. Maybe just comment why come and work with you? Why are they looking to sell? Is it just that you know there's obviously great economics behind these businesses standalone, and what are they getting when they come to Canaccord?
Yeah, good questions, and I've started that business myself over time. You know, let me take a step back, and then I will answer your question. From our perspective, it was very important to transition our business, as you know. We, you know, are material shareholders. We want our long-term value, long-term stability. That involved investing in our wealth businesses, 'cause we saw a great opportunity, and also increasing our M&A presence. That's, you know, okay, M&A is busy right now. You know, we've been growing our M&A business for years. And obviously see that playing out in the numbers right now. This was our strategy and is our strategy. I think we've been pretty public saying, we will grow in our core sectors of expertise.
You know, going deeper in existing sectors. That's kind of what we've been doing. Why would somebody transact? Again, I know this from my days at Genuity, you know, why would you transact with a bigger firm? Because you think you'll make more revenue per person. In other words, you think you'll get paid more. That's generally why you would transact on a transaction. What's happened is we've built such, you know, when you're talking about in our core expertise, in our core verticals, so if you were, you know, in digital advertising, as the folks at Petsky were, and felt that we could add international revenue to their relatively domestic pipeline, that's a big increase. Add on the fact that you think we can do equity for their, you know, basically their advisory pipeline. That's another huge increase.
You know, you've got and you can afford to grow the firm and expand them even domestically. You add all that up, and all of a sudden, if you know, you're sitting there and you're making $1 and you think if you can join us, that you can produce $3 of revenue, you know, you end up making a lot more money, and you see the benefits of that. We've got a very entrepreneurial franchise, as you know, a very collegial environment. I'm sure a lot of people say that, but I'm telling you, if you talk to the people who joined our franchise, they would attest to that. They're delighted to be here, and you know, the premise is working out well for them personally, as well as obviously for us corporately. Hopefully, that answers your question.
Sure. I guess in terms of the way you're structuring these agreements, you're giving them some upfront dollars, obviously, but it looks like this one has quite a substantial earn-out over time as well. You're making sure the economics are working for everybody.
Yeah. I'd say I'm overgeneralizing intentionally, Jeff. It's a good question, but it's basically $1 up front and then $1 over a long period of time, you know, if you hit your targets. You know, we're delighted to pay that second $1, 'cause it's a good news scenario for us. In fact, in Petsky, they've earned their other $1. That's been earned. It hasn't been paid yet, but it's certainly been earned. You know, four years of targets realized, you know, early. You know, quite frankly, with Sawaya, we hope that'll pan out the same way.
Okay. Maybe on a somewhat related topic then, I would like to talk about your Australian capital markets business. It's obviously booming down there. I guess it's a bit of a question around talent retention maybe, brought maybe a little bit more broadly speaking, but noted that you effectively sold back part of that equity interest in that local business to the team there. Let me just discuss a little bit around why do that, how that works. I mean, are they just anxious to get more of the equity in a business that's booming, obviously, but maybe any color you could offer there.
Yeah. No, no. I can see how you could think that on the face of what we've announced, but the practical reality is we've taken that business between the wealth and the capital markets business or just the capital markets business from a CAD 30-CAD 40 million a year business to last quarter, CAD 50 million. It's a much, much, much bigger business than it was two years ago. As a result, that business requires additional capital. It requires underwriting margin. It requires the things that you'd expect, Jeff, in a business that's over quadrupled in size, let alone the growth of the wealth platform over there. I'm just talking about, you know, the capital markets business. The wealth business, when we did our acquisition over there, I mean, it was doing, I don't know, CAD 50-ish million in revenue.
We did CAD 20 million in revenue last quarter in that business. Our wealth business has grown a lot. The net of it is it requires a lot more capital. You know, you had a choice to make, either we wrote the capital check, which we were obviously prepared to do. But the employees had a preference to write the check as well. Again, that supports alignment from our perspective. You know, our interest kind of went down a little because they wrote a check for some of the additional capital required in the business. Don, please jump in if you have a different answer on that.
No, I think that sums it up. I mean, and as we've talked about before, you know, Australia being it is a fair distance away, so having the employees with a key ownership stake in the business is just a prudent way to manage and run that business by having significant or meaningful local ownership and a stake in the game, so to speak.
Jeff, I'd just add one last thing. Unlike our U.K. wealth business where our shareholdings have been coming down, our relative ownership has been coming down. W e don't see this as a long-term trend for our Australia business. In other words, it will get increasingly diluted over time. You know, I think this is just kind of a one-timish event.
Okay, great. That's helpful color. That's all I had. Thank you.
Great questions. Thanks very much.
Thank you. Your next question comes from Graham Ryding with TD Securities. Please go ahead.
Hi, good morning.
Morning, Graham.
I could stick with the Sawaya Partners acquisition. Can you give us any color on sort of what sort of revenue this company has delivered over the sort of recent years and what sort of contribution you're expecting here?
Well, we don't disclose those numbers publicly. I think a good proxy for it is obviously the addition of Petsky Prunier three years ago had a meaningful impact on our advisory revenue and our run rate in the U.S. I think Sawaya is a similar kind of a transaction, and you can kind of draw some parallels there if you look at it that way.
Okay, you know, I appreciate the recent acquisition in the U.K. is, you know, I guess larger than some of your other ones. There's gonna be a bit of time to focus on integration here. Looking further out, what is the sort of longer-term plan in terms of your ownership stake in the U.K. wealth business and partnering with HPS? Should we expect that ownership, your ownership position in that platform to continue to trend down over time, or do you have any targets for that?
Yeah. I think as long as acquisitions over there, you know, cost 10x EBITDA or 9x EBITDA, adjusted EBITDA, and we trade at, you know, 7x earnings, you can imagine how we think about funding acquisitions in that business. We'll use the higher value currency as opposed to the lower value currency, which means a reduction in our ownership as we do additional acquisitions. That being said, you know, if we pull this off the way we seem to be doing it today to, you know, every deal kind of has to be negotiated. I'd like to think that our share of, you know, the enhanced net income from, you know, acquisitive growth will result in bigger net income to our shareholders, so to speak, you know, without the commitment of capital.
on the last transaction, as you're more than aware, you know, we didn't write a check. We funded it with incremental debt and with a, you know, an incremental significant investment from HPS. It's working out perfectly the way we'd expect it to.
Okay. Understood. Can you talk about just the organic growth in the U.K. wealth platform? I think if I sort of adjust for the Adam & Co. acquisition, it looks like U.K. assets under admin actually contracted slightly quarter-over-quarter. Am I looking at that properly? And then is there any color behind that?
Yeah. I mean, it's. You know, you're looking at it perfectly correctly. The assets did slightly contract, believe it or not. It was a very large, very low margin execution-only type client in that business. The problem with some of these clients is when they get big enough, they do it themselves. That's, we knew that this was gonna happen. We weren't exactly sure when it was gonna happen, you know, but it offset what otherwise would have been pretty impressive organic growth. You'll notice that our profitability went up in the business, so it wasn't a very profitable customer. Notwithstanding that, it did result in assets, incremental assets on the balance sheet. You were dead on there.
Okay. Understood. My last question, if I could, just thinking of the balance sheet and capital, it still looks like post the substantial issuer bid that you're probably sitting on a decent amount of working capital. You know, should we expect going forward, you know, a combination of you're gonna fund some organic growth yourself, but you're also gonna look to return capital through share buybacks, assuming-
Yeah
... decent level of profitability over the medium term?
Yeah. I mean, our balance sheet continues to be robust, notwithstanding the CAD 100 million we just spent. The dividend increases twice this year. You know, our dividend's 30% higher than where it was last year. So, you know, we just increased our dividend again. That's a pretty good reflection of our view on our cash generative capabilities. Yeah, I mean, we did what we thought was prudent. Remember, we only had 13 million shares tendered to our substantial issuer bid. It's gonna be hard to keep on doing substantial issuer bids. Our shareholders are pretty supportive of their positions. That being said, you know, there'll be no change to our progress that we're making on our normal course issuer bid.
We'll continue to do what we've been doing there and returning capital in that way. The premise has always been we will grow our dividend as our wealth earnings grow because it's relatively predictable. If we make excess cash in our capital markets business, which we've been doing, we'll figure out a way to get that back to shareholders too, through stock repurchases. Nothing's really changed, Jeff, there.
Okay. That's it for me.
Graham.
Thanks.
Sorry, Graham, not Jeff.
Yeah.
I forgot who was asking the question. My apologies.
No, no problem.
Christine is doing me dirty look right now. Sorry about that, guys.
Thank you. Your next question comes from Rob Goff with Echelon. Please go ahead.
Okay, Rob, I'm not gonna get this wrong, I promise.
Well done. Thanks, Dan. You were talking about if you were to do further acquisitions in the U.K., you are sensitive to the valuations over there, and you said you may look or may allow your shareholding to be reduced. Do you then look to this prospective substantial issuer bid as a way of maintaining your de facto leverage to that asset?
I never thought of it that way. I mean, that's an, I guess. Yeah, I guess it could work that way. I'm not quite and I don't really look at it that way, Rob. You know, again, it's just a matter of how we create incremental earnings. The best way to do that is to fund acquisitions at 15x, 16x, 17x earnings, which is, you know, where we sell equity to HPS at. You know, use that, you know, save that money effectively that we would have spent doing U.K. acquisitions and buy back our stock at 7x earnings or 8x earnings or wherever we happen to be trading. It's just a way better way to use capital.
I'd rather use the capital to buy back the stock than do incremental acquisitions in the UK if I'm able to. I don't think I answered your question, but that's the way we look at it.
You addressed. Can I ask in terms of acquisitions, your thoughts with respect to Australia and perhaps on further bulking up on the advisory side?
Yeah. As you can see in our financials, we don't do a lot of advisory activity in Australia, if that's your question. It tends to be an equity-centric market. We tend to, you know, start in equity and grow it into other services, create moats around our business. Canada being the most prolific, where we do a lot of other things other than equity. U.S., where we've grown from our equity practice into an M&A practice. I would think over time, Australia would probably directionally go the same way. You know, there's nothing immediate to announce. There's nothing, you know, imminent to announce on that side. Our business in Australia is a much bigger business than it used to be.
As I kind of alluded to before, you know, when we used to do CAD 40 million in revenue, we're now doing, you know, CAD 300 million. It's a much bigger business overall. You know, we're gonna continue to think about how we expand that profitably. So far it's working, but, you know, I think we take our time with it and be pretty prudent on how we elect to grow it.
Very good. If I could, with respect to the transactional accounts in Australia, any update with respect to the migration there?
You know, again, we've got, you know we report CAD 5 billion in assets in Australia. The number is substantially higher than that, as you're aware, on assets that you know don't pay significant fees, is probably the best way to define that. We continue to try and migrate those assets over. That is a long process. We also continue to recruit advisors in that business. That's going very successfully. The probably only thing that doesn't, you know, when you look at a graph or when you look at numbers, that kind of looks a little off is notwithstanding our revenue has materially increased in our Australia wealth business.
We've got a very profitable business there, but you don't see the profit kind of going up on the same line, and that's simply the investments we're making to hire people, you know, whether it's recruiting expenses or other associated hiring expenses. We would expect the profitability in our Australia wealth business to increase along the lines of revenues increasing, albeit, you know, slightly delayed. You know, the business is again performing according to plan or better than plan, I guess.
Exclusive of growth investments in Australia, would the Australian wealth management economics be similar to the Canadian economics?
Yep. Yeah. I think arguably a little better, just 'cause recruiting's cheaper in Australia than it is in Canada. You know, I'd say arguably better over time. From a long-term perspective, it certainly wouldn't be worse.
Okay. Thank you very much.
Thank you. Good questions.
Thank you. There are no further questions at this time. Mr. Daviau, you may proceed.
Okay. Well, thanks everyone again for getting on. We really appreciate it. That concludes our third quarter conference call. Our next update's June. You know, that's our year-end results. If, as always, Don and I are both available to take questions. Thanks very much, operator, and you can close the lines.
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.