AGF Management Limited ($AGFB)

Thank you for standing by, and welcome to the Q1 2026 AGF Management Limited Earnings Conference Call. [Operator Instructions]. 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 discussing the financial results for the first quarter of 2026. 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 Judy Goldring, Chief Executive Officer. For the Q&A period following the presentation, Ash Lawrence, Head of AGF Capital Partners; and David Stonehouse, Interim Chief Investment Officer, 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 Judy.

Good morning, and thank you for joining us. Before we get to the specifics of the quarter, I'd like to touch on some exciting news for AGF investments announced late yesterday. Following a comprehensive global search, we are thrilled to welcome John Porter as Chief Investment Officer for AGS Investments effective May 1, 2026. John brings decades of investment management and leadership experience overseeing investment management teams across markets and asset classes. John will also join AGF Executive Management team and will report directly to me. . I want to sincerely change David Stonehouse for his contributions as interim Chief Investment Officer. David provided steady leadership that helps ensure disciplined execution and oversight of the investment management team during a pivotal period for the firm. Looking ahead, I am confident that under John's leadership, the investment team culture of high performance collaboration and risk management will continue positioning the firm for future growth. Continuing with our Q1 highlights against the backdrop of significant market volatility, Asia has continued to demonstrate the durability of our business. Outside of the impact of long-term investments, which I will speak to shortly, Q1 was a solid quarter. AUM and fee earning assets were over $60 billion at the end of Q1, up 12% from a year ago. AGF Investments' retail mutual fund business reported net sales of $237 million in the quarter marking our seventh consecutive quarter of positive retail mutual fund net sales. 7 of AGS Investments' Funds earned FundGrade A+ awards, which are given annually to investment funds that have delivered consistent, outstanding risk-adjusted performance throughout the year. The 7 award-winning funds span across our suite of equities, balanced and fixed income strategies. We continue to generate strong free cash flows totaling $36 million in the quarter, which is up 14% from last quarter. Free cash flows were $122 million over the trailing 12 months. Our balance sheet remains strong with $432 million in short- and long-term investments, net debt of $48 million with $160 million available on our credit facility. The strength of our balance sheet and capital position provides us with flexibility to deploy capital thoughtfully in line with our strategic priorities. On the back of our strong capital position, the Board unanimously declared a $0.135 per share quarterly dividend for Q1 2026, representing an 8% increase. This is the sixth consecutive year where we have increased our dividend. Following the quarter, we were pleased to see AGF added to the Nasdaq Broad Canadian Dividend Achievers Index, reflecting our track record of consistent dividend growth and our ongoing focus on returning capital to shareholders. During the quarter, we did see revenue from our long-term investments decreased to negative $10.6 million. This represents a 2.5% decline in the value of our long-term investments during the period. As a consequence, our adjusted EPS from AGF Capital Partners was negative $0.05 per share. Excluding AGF Capital Partners, adjusted EPS was $0.35, which is up 21% year-over-year. and our adjusted diluted EPS was $0.30 in the quarter. 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 Canadian mutual fund AUM was $36 billion, up 15% year-over-year, outpacing the industry increase of 14%. The growth of our [ ECF and SMA ] AUM globally remains strong, up 54% year-over-year. I'll provide more color on our mutual fund sales and ECF and SMA AUM in a moment. Segregated accounts and subadvisory AUM decreased by 9% compared to the prior year. The decrease was driven by the redemptions from 2 institutional clients as disclosed in previous quarters. As equate to quarter end, we saw inflows of $350 million from an institutional client. We continue to see strong interest in our strategies in the institutional space with a number of existing clients. Our private wealth AUM increased by 13% compared to prior year to approximately $10 billion. In our AGF Capital Partners AUM and fee earning assets were $4.5 billion at the end of the quarter. As a reminder, new hauling Capital's AUM of approximately $10 billion is not consolidated into AGF's total AUM and fee earning assets at this time. Turning to Slide 7. I'll provide some details on mutual fund sales. The mutual fund industry in Canada saw net positive sales of $19 billion in the quarter. AGF Investments retail mutual funds delivered the seventh consecutive quarter of positive net sales totaling $237 million in line with the industry net sales rate of 0.7% of AUM. Since Q1 2024, the Canadian mutual fund industry has recorded approximately $55 billion of net sales representing 2.5% of AUM. Over that same time period, AGF's retail mutual fund business generated roughly $1 billion of net sales or 3.3% of AUM, demonstrating our ability to continually grow market share. The strength of our retail mutual fund sales reflects the successful execution of our distribution strategy and our strong investment performance. Let me provide a brief 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 1-year performance was in the 35th percentile, our 3-year performance was in the 46 percentile, our 5-year performance is in the 39th percentile and nearly 2/3 of our funds are outperforming our peers on a 3- and 5-year basis. Turning now to Slide 8. In addition to our retail mutual fund net flows of $237 million, the AUM in our ETF and SMA vehicles, which has now reached $4.5 billion, have grown at 64% on a compounded basis over the last 2 years. We continue to see consistent growth and momentum in our SMA vehicles across U.S., Canada and Asia, where many of our strategies are available on leading wealth management platforms. In January, we launched ECF Series of Asia Global Select and AGF American Growth Fund here in Canada, 2 funds with long-standing and proven track records. The launch expands our Canadian ECF lineup and addresses growing adviser demand for metro and how they access our capabilities for investors. I will now pass it over to Ken to discuss our financial results.

Thanks, Judy. 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, noncash acquisition-related expenses as well as other adjustments as noted in our MD&A. Adjusted EBITDA for the quarter was $30 million, down $22 million from the prior quarter and $18 million from the prior year, primarily reflecting lower net revenues from AGF Capital Partners long-term investments, which we will expand on in a moment. . SG&A was $65 million, down $3 million from the prior quarter and up $1 million from the prior year. The decrease from the prior quarter was attributable to lower noncompensation and performance-based compensation. offset in part by the seasonally higher government benefits recorded in this quarter. The increase from the prior year was primarily due to higher noncompensation expenses, reflecting the impact of inflation as well as increased sales and marketing and other AUM-driven costs. Net income attributable to equity owners for the quarter was $20 million, and adjusted diluted EPS was $0.30. Free cash flows for the quarter was $36 million, which is $4.5 million higher than the prior year and prior quarter, reflecting strong cash generation. As a reminder, free cash flow excludes noncash items, such as fair value mark-to-market adjustments on our long-term investments. Slide 10 provides a further breakdown of our net revenues. Within our traditional asset and wealth management businesses, net management fees were $93 million for the quarter, which is $2 million lower than the prior quarter and $7 million higher than the prior year. Sequential quarter decrease in net revenue rates reflect the timing of fund expenses as well as 1 less day in the quarter. Revenue from AGF Capital Partners was $0.8 million this quarter which decreased by $22 million against the prior quarter and $23 million against the prior year, driven primarily by lower revenues in our long-term investments. This quarter, we recorded a negative $16.8 million fair value adjustment of long-term investments, partially offset by $6.6 million in distribution income resulting in revenues from long-term investments of negative $10.6 million. This was primarily driven by our legacy long-term investments in the infrastructure space. While these investments have returned over $36 million in distributions over the last 36 months, the sector has not been immune from the economic and trade environment. As a reminder, AGF is an investor in these legacy long-term investments where we also have retained an economic interest, but not the management of the funds. We view these as long-dated investments, and as we have seen in prior quarters, fair value adjustments can be lumpy, but we remain pleased with the long-term performance. Since inception, these investments have generated returns of over 11% per annum, exceeding our target annual returns of 8% to 10%. In addition, this quarter, we recorded $4.6 million in other fair value and income mostly related to our share of the profits earned at New Holland Capital. On Slide 11, we outline adjustments to our EBITDA. As you might recall, M&A transactions in the AGF Capital Partners business gives rise to various LTIP contingent consideration and put obligation 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 which is why we've adjusted for these items to facilitate easier comparisons of our quarterly results. Adjusting for these items, along with severance and other adjustments, our adjusted EBITDA for this quarter is $30 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 and any other onetime adjustments. The EBITDA yield this quarter was 24 basis points, which is consistent with the prior quarter and trailing 12 months. Turning to Slide 13, I will discuss our free cash flow and capital uses. This slide represents the last 5 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 a percentage of free cash flow that was paid out as dividends. Our trailing 12-month free cash flow was $122 million, and our dividend paid as a percentage of free cash flows was 26%. In the same period, we returned $71 million to shareholders consisting of $32 million in dividends and $39 million in share buybacks. During the quarter, we repurchased over 1 million shares under our NCIB. We ended the quarter with net debt of $48 million. We also have $432 million in short-term and long-term investments and have $160 million remaining on our credit facility, which provides credit to a maximum of $250 million. Our future capital allocation will be balanced and includes return of capital to shareholders in the form of dividends, share buybacks as well as investing in areas of growth. Before I pass it back to Judy, let me take a minute on Slide 14 to look at our valuation. AGF's current enterprise value is approximately $1.3 billion. Taking into account our $432 million of short- and long-term investments with a conservative 10% discount, our remaining enterprise value is about $945 million. This implies a 7x EV to EBITDA multiple on our fiscal 2025 adjusted EBITDA, excluding income from our long-term and short-term investments. Comparing this multiple to those of other traditional and alternative asset managers and recent acquisitions, which suggests further potential upside to our valuation despite the strong positive share movement over the past few quarters. When we do see volatility in our stock, we continue to be very active and we'll continue to look for opportunities to buy back shares opportunistically. I will now pass it back to Judy to close out the presentation.

To sum up this first quarter, we continue to make progress against our strategic objectives. Our traditional asset and wealth management business remains strong, our AUM and fee earning assets continue to climb, reaching over $60 billion or 12% higher from prior year. Our investment performance remains solid, and our sales momentum remains strong. We are confident in the progress and direction of our private capital and alternatives business, notably its contribution to the diversification of AGF's overall business. We remain disciplined in our expense management, while investing for growth. . We increased our quarterly dividend by 8%, continuing a 6-year track record of dividend growth and the strength of our balance sheet and capital position provides us with the flexibility in our capital allocation strategy and the resilience to weather different market environments. I would also like to take a moment to thank our AGF team for all their hard work. We will now take your questions.

[Operator Instructions] Our first question comes from Gary Ho with Darden Capital Markets.

Just wanted to start off with a question on your private alt side. So just wondering if you can just walk us through that $16.8 million of noncash fair value adjustment loss in the quarter. I know you carry infrastructure assets, private equity through Kensington and some private credit exposure. Can you maybe just break down what that relates to? I know there's sometimes DCF kind of involved in valuing these assets. Is it lower expected cash flows looking out or higher discount rates? And are the marks appropriate now in your view and what gives you that confidence?

Gary, it's Ash here. I'll take that question. As mentioned in Julian Ken's earlier comments, the net $10.6 million in fair value adjustments after the distributions, that was largely driven by markdowns in our legacy infrastructure fund holdings. Based on recent discussions we've had with the general partner for those funds, those adjustments were largely driven by the impact around the current economic environment in certain sectors as well as the continued uncertainty through the end of last year with the cross-border tariff environment, and that is impacting certain businesses within their portfolio. I would also note that the net adjustment amount, the $10.6 million equates to a pretty modest 2.5% adjustment in the value of our long-term investments. And Ken mentioned this in his comments as well, but over the long term, our long-term investment portfolio has produced an 11% return to AGF. And as with most private investments, we have a long-term perspective on these investments, and we continue to be pretty pleased with the performance that they're giving us. That said, we are reducing our expectations for returns on the portfolio for this fiscal year, for fiscal 2026, from our typical long-term guidance around 8% to 10% to a more modest 5% to 6% for this year. And just to remind you again, our infrastructure investments, these are legacy fund investments where while we do retain an interest in certain fund economics, we do not have an ownership in the manager of these funds.

Okay. Ash, maybe just to clarify that, that 5% to 6%, does that include the negative 2.5% in Q1? And then also the infrastructure assets that you mentioned, any Middle East exposure there? Or are they all North American?

Yes. So on your first question, that does include the 2.5%. There is no direct Middle East exposure. Certain assets in that business will have energy market exposure, which obviously, at some point, will tie back to what's going on in the Middle East.

Great. And my second question, I did see decent retail flows in the quarter, which included the RSP season. Can you elaborate on the retail environment today and also last quarter, what are you seeing through your distribution channels? I know the markets have been choppy of late. Geopolitical risk, has that kind of put a dent in the retail flows at all? Or how is the retail side holding up?

Yes. Thanks, Gary. Judy here. Well, we did comment that we saw $237 million of net sales for the quarter. That was adjusted for one institutional outflow that occurred during the quarter as well. That being said, we found -- we were quite pleased because we were right at market at 0.7% of AUM, which is the same as what industry saw. As well, mutual funds obviously, a primary source for us, we do see continued growth in our SMAs. And I think as we look to the industry and as it continues to evolve, looking to how we account for the SMA flows is something that I think a number of our market participants are trying to deal with. But really, we would have seen double of our net sales had we included our SMAs. And quarter-to-date, I can just let you know, we're about $40 million net positive quarter-to-date. . What we are seeing is a bit of skittishness with investors as they sort of assess where this market turmoil and the economy generally is going given the volatility. But we're still seeing strength in our SMA business, a little bit of softness on the mutual fund side.

Gary, the $40 million of quarter-to-date net sales excludes the SMA flows.

Okay. And maybe if I can sneak 1 in for Ash. I believe in the you passed the lockup terms for the ability to increase your stake in new hauling capital. I would have expected an announcement by now, but given the outperformance there, is there something that we're missing or cost just ongoing? Just would appreciate an update there. .

Yes. Gary, you are correct. We are in a position, starting in the first half of this year to exercise an option to increase our ownership in New Holland Capital. One thing to note, that window remains open through the first half of '27 as well. So it is not a onetime singular event. We have a window to exercise. We are actively evaluating that option. And I think we've mentioned this on prior calls, but we are pretty pleased with our partnership and with the progress that New Holland has made over the last couple of years. In Canadian dollar terms, we've seen their AUM increase from approximately $7 billion when we made our initial investment to around $10 billion today. So we are in active analysis and discussions around that option now.

Okay. Great. Thanks for the update. I'll jump back in the line. .

Our next question comes from Bart Dziarski with RBC Capital Markets.

Just wanted to ask around AGF Capital Partners, the recurring manager earnings of $6.3 million or down sequentially and year-over-year. Could you just help us understand what's driving -- what's driving that trend? .

Yes. Bart, it's Ash again. So that trend is largely due to some fair market value adjustments in Kensington's Evergreen private equity and venture portfolio. that obviously results in lower net asset values, on which the fee rate is applied for those vehicles. So depending on exactly which historic period you're comparing to, there may also be a little bit of impact from capital that was redeemed from that same fund in Q1 of 2025. But that impact is largely driving that reduction you're seeing. .

Okay. Great. And just a clarification, how big is the Evergreen PE venture portfolio?

That vehicle is approximately $1.2 million of NAV. .

Okay. And then if we could just get an update on Kensington, the redemption suspending. Is there any line of sight or clarity that you can give us as to when we could sort of get through that?

Yes, absolutely. So there is an update on March '25, actually, Kensington held a unitholder boat to pass certain amendments to the terms of the private equity fund. As a result of that boat passing, the suspension is actually lifted now. It also eliminated the redemption Q, and it implements a new redemption framework that will allow the fund to operate without the need to further suspend redemptions. The amendments basically allow the fund to manage liquidity in a manner that's more consistent with the underlying investments while also avoiding the pressure to liquidate assets either in opportune times or at discounts. And this sort of preserves the long-term value for all the unitholders in the fund. So we are now in a position where the Kensington team is focused on the underlying assets again and managing that fund for its objectives for its unitholders. .

Our next question comes from [indiscernible] with Jefferies.

So I just have a question on the $4.3 million of special interest income that you received in New Holland. Assuming that you don't convert to note, should we expect another $4 million to $5 million of interest income in Q1 '27? .

Yes. It's Ken. The short answer is no. The $4.5 million represents our proportionate share of the earnings of New Holland above and beyond kind of the coupon that's collected. You will note that this is an increase. I think in the prior year, we would have recorded a similar revenue amount to about $1 million. So there's some volatility depending on sort of the overall profitability of New Holland. And 2025 was a good year for them. Part of those earnings were driven in part by the strong performance fees that they would have earned in the year as well.

Okay. Got it. And the other question I had was when we're looking at -- so when we're looking at the net management fee rate that you're collecting. So I think in the past, you've mentioned that you're expecting 2 basis points of annual compression. Is that still relevant today like we're still seeing 2 basis points of annual compression on that management fee? And what would that impression look like on the revenue basis only?

Yes. So we do still expect a roughly 2 basis point annualized rate of decline in a year. That's driven in part by the success in the growth of our fee-based IIROC channels as assets shift from MF Series to F-Series as well as what Judy alluded to earlier, of just a tremendous success in the SMA business, which has grown by more than 50% since last year. [indiscernible] consequence, you will see that while our revenue basis points will trend lower, our overall revenues will increase over time. . This quarter was compounded by some volatility in terms of the level of AUM that we saw, just in the way it's calculated, there are -- the fees are determined based on daily but the denominator of that calculation is calculated based on simple averages for each of the months. And so that volatility does create a bit of noise in that number for this particular quarter.

Our next question comes from Graham Ryding with TD Securities.

Actually, you could just go back to the Kensington, just maybe a little bit more color on how you're managing those redemption requests going forward while still preserving the performance of the fund. Can you give us a little more detail on what the specific changes are?

Yes, sure. So the structure they've implemented going forward really provides the manager a little more flexibility in terms of making capital available for investor redemptions that is more consistent or in line with the cash management needs of the fund. It also basically eliminates an ongoing queue from ramping up, which can have sort of spiral effects on vehicles of this type. So from a long-term perspective, that allows them to manage the fund consistent with what are generally illiquid assets below, but it will require from a cash management perspective, ensuring that there is liquidity available to investors on a relatively consistent basis, but it just doesn't put you in a buy script at certain points in time in the market.

Okay. So is there any sort of quarterly limit to redemptions in place? Or is the entire structure fluid going forward? .

It's a little more fluid going forward. So the fund will endeavor to make 5% a quarter available, but that is neither a cap nor an obligation. .

Understood. Okay. And then the the earnings that you earned from, I guess, new on capital this quarter, is that -- that's based on 2025 earnings for that business. So does that reflect your 25% sort of interest in that entity? Is that the right way to think about it? And then what would be -- is it safe to assume that the run rate -- the earnings run rate is higher than what's implied with that $4.6 million that you received? .

Graham, so yes, the earnings from New Holland does represent our 25% stake. I will sort of highlight that a proportion of that is related to performance fees. And so these earnings, again, could be lumpy as a consequence. .

Okay. Understood. And then last question just for Judy. With the new hire of John Porter, can you just maybe elaborate a little bit on what it was about his track record or a skill set that sort of makes you think he's going to be a good fit for AGF and the right person for the role of CIO going forward? .

Yes. Thank you. Graham, we're really excited that John has joined us. So he'll start May 1. He comes from Boston in the U.S. has a long decade years of experience in investment management. He's been in leadership positions as well and certainly has overseen investment management teams across different markets and asset classes. And so the combination of sort of his passion, his capabilities, his leadership strength being a talent portfolio manager, understanding the role of a CIO, I think he'll make a very strong addition to our investment team. So we're really excited by that. Certainly, I want to make sure I give credit to David Stonehouse has as well for his significant contributions it really was truly valued during a very pivotal period of our firm. And again, thank you to David for his work as interim CIO.

[Operator Instructions] Our next question comes from Tom MacKinnon with BMO Capital.

Yes. Just a follow-up with respect to the March 25th agreement with respect to Kensington. I think you mentioned about clearing the redemption queue. Were there any redemptions then? What does that mean in terms of where the AGF Capital AUM, which was sitting at $4.465 billion at the end of fiscal -- at the end of Q1. How should we be thinking about where that would be sitting right now as a result of clearing that redemption queue?

Tom, it's Ash. Good question. So let me clarify. When I say cleared the redemption queue, I should have said eliminated the redemption queue. So no redemptions were paid out as a result of the amendment passing on March 25. So that AUM going forward or at least for now until liquidity is made available for redemptions will generally go forward, reflecting fair market value adjustments in the portfolio until such time as liquidity is available for reductions. .

And was there any -- in order to get that agreement, was there any reduction in fees that Kensington can get? .

There was no reduction in fees. There was a consolidation of 2 classes that had a very nominal impact on fee levels for 1 of those classes that got a little bit lower from a result of that consolidation, but nothing material. No.

Okay. And then -- just a question with respect to severance and other expenses. I mean these aren't supposed to be part of normal course, but they were like in the last couple of years, they seem to be running about 2% of your overall expenses. They're closer to 5 in this quarter. Is there anything to call out? And should we continue to kind of see these below-the-line severance expenses going forward? .

Tom. Yes, the elevated expenses this quarter reflected some targeted workforce adjustments that we've made to align our portfolio and repositioning for our initiatives. We make these tactical adjustments periodically in an effort to focus on improving efficiency while investing for growth. The number is quite lumpy. I mean, just to give you a sense, I mean, last quarter, it was virtually 0, right? And so in this quarter, it was $3.5 million, which is why we've adjusted it out. It's just doesn't represent a normalized EBITDA run rate for the business.

I mean everybody is always investing in the business, but what's the decision then to move some of these below the line?

I think it's -- a number of firms actually do adjust out severance just because the part of making the adjustment is to provide more of a run rate EBITDA number for evaluation purposes. And to my earlier point, you -- similar to how we view fair value adjustments on the liabilities, which, again, can be lumpy, we try to just eliminate that noise. It's one of the few adjustments we make to the EBITDA. It's a fairly short list. But we felt that it's appropriate to do that for the for the investors to better evaluate our core underlying business from an EBITDA perspective.

[Operator Instructions] I'm not showing any further questions at this time.

Thank you very much for your questions. And in closing, our investment performance and sales momentum remained strong. Our strong balance sheet and strong cash flow position provides flexibility to return capital to shareholders, continue investing in the long-term growth and remain resilient through challenging market conditions. We continue here at AGF to make progress against our strategic objectives, and we look forward to our Q2 earnings call on June 24, 2026.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.