Canaccord Genuity Group Inc. (CF) Earnings Call Transcript & Summary

Good morning. I'd like to extend a warm welcome to those of you who have joined us. Thank you for taking the time to meet with us today. My name is David Kassie, I'm the Chairman of Canaccord Genuity Group, and I have the privilege of chairing today's meeting. Joining me on today's webcast are our President and CEO, Dan Daviau; our Executive Vice President and Chief Financial Officer; Don MacFayden; and D'Arcy Doherty, our Senior Vice President of Legal Affairs and Corporate Secretary. I would also like to welcome additional members of our executive leadership team and our Board of Directors who are joining us from various locations in North America, the United Kingdom and Europe and Australia. We have made the decision to hold this year's meeting online to promote broader participation and provide the option for shareholders to vote and submit questions regardless of their location. Before we get started, a couple of procedural matters. Many shareholders submitted their votes before the meeting. Thank you. If you voted in advance and you do not wish to change your vote, no further action is required. A very small number of you have decided to vote at the meeting. Voting instructions were made available in the information that shareholders received as part of the meeting materials, and these instructions have also been made available on SEDAR. If you are a registered shareholder or a proxy holder, you would have received your control number with your meeting materials by mail or e-mail. This gives you the ability to vote and submit questions as shown on the meeting website. If you have followed the instructions in the meeting materials, then you will have logged into this meeting with your control number as the user name and the password CGF2023 using capital letters. If you are not a registered shareholder or a proxy holder, then you will have logged into this meeting as a guest. Guests will be able to follow the proceedings, but will only be able to submit questions after the end of the formal business of the meeting. Once the discussion on all items of business has concluded, I will pause briefly to allow sufficient time to enter your votes and then I will declare voting closed on all resolutions. We will conduct votes on the matters before us by a poll. On a poll, every shareholder entitled to vote on the matter as 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. This will allow you to vote on each resolution immediately or wait until the conclusion of the discussion on each resolution prior to casting your vote. Later today, the results of this meeting will be made available on our Investor Relations website and on SEDAR. There will be an opportunity for registered shareholders and proxy holders to ask questions on each resolution in turn. Please ensure that questions or comments are related to the matters currently before the meeting. When submitting a question, please provide your name and indicate clearly whether you are a shareholder or a proxy holder. To submit a question, use the message icon on the virtual meeting platform. We will answer questions related to each motion at the appropriate time in the meeting. We will also be pleased to address general questions after the presentations have concluded. If we receive several questions on the same topic, we will group these questions together and provide a response. We will respond to as many questions as possible during the meeting. If we are not able to address your question here. We will respond to you directly after the meeting if you provide an e-mail address or telephone number where you can be reached. During the meeting, you may experience pauses from time to time as we review messages and coordinate our roles at a distance. So please bear with us. On behalf of those of us speaking today, I note that our comments may include forward-looking statements. I encourage you to take a moment to review the detail regarding forward-looking statements and non-IFRS measures that has been provided as part of today's presentation and is also available in our financial reports. Our agenda for today's meeting will begin with the submission of the company's fiscal 2023 financial statements, followed by the election of directors, the appointment of auditors; and finally, the advisory resolution on our executive compensation approach as disclosed in our circular. Following the official business of today's meeting, I'll invite our CEO, Dan Daviau, to share a few remarks about our business and provide a brief overview of our corporate strategy and outlook. As I have previously mentioned, we will be pleased to take general questions after the presentations have concluded. And now for the official business of today's meeting. The meeting will please come to order. I appoint Jenny Karim, an Officer of Computershare Investor Services, Inc. to be the Scrutineer of the meeting. I have received Computershare's report as to share representation at today's meeting, and there is a quorum present. So I now declare this meeting to be regularly called and properly constituted for the transaction of business. I declare the polls open on all resolutions. The first item of business is election of the company's directors to serve until the next Annual General Meeting or until their successors are appointed. First, I propose a motion that the company set the number of directors at 7. D'Arcy, have we received any questions or comments online?

Mr. Chair, we have not.

If there are no questions, please cast your votes on Item 1 now before we move on to Item 2. I declare the meeting open for nominations and advise that management has nominated the following individuals, all of whom have consented to their election. Biographies for each of our nominate directors has been provided in the Management Information Circular. Michael Auerbach; Dan Daviau; Amy Freedman; our Lead Director, Terry Lyons; Jo-Anne O'Connor; Rod Phillips; and myself, David Kassie. D'Arcy, have we received any further nominations or any questions or comments online?

No, Mr. Chair, we have not.

Since there are no further nominations and no questions, please cast your votes for each of the director nominees. [Voting]

It is now in order to proceed with the appointment of auditors. I propose a motion to appoint Ernst & Young LLP, chartered professional accountants, as auditors of the company for the ensuing year and authorize the directors to fix their remuneration. Please vote now. [Voting]

D'Arcy, have we received any further nominations or any questions or comments online?

No, Mr. Chair, we have not.

Our final item of business is an advisory resolution on the company's executive compensation approach. The Board considers this to be an important part of our shareholder engagement process, and we commit to reviewing the results of the vote when considering future decisions related to executive compensation. D'Arcy, have we received any questions or comments online?

No, Mr. Chair, we have not.

Please vote now. [Voting]

That concludes the official business portion of our fiscal 2023 Annual General Meeting. I will pause for a moment while the voting concludes. [Voting]

Thank you. I now declare voting on all matters closed, and I declare the formal meeting concluded. On behalf of my fellow directors, I would like to take an opportunity to formally welcome our newer Directors, Amy Freedman and Rod Phillips and extend a warm welcome back to Terry Lyons. We are very much looking forward to continuing to work closely together to advance the best interest of you, our valued shareholders. Before I turn things over to Dan, I would like to say a few words about our business performance and outlook in the context of the market environment. Canaccord Genuity has had a decade-long commitment to serving the unique needs of small and mid-cap companies, entrepreneurs and investors. As an organization, we occupy an important role in supporting the global growth economy, which tends to be underserved by other market participants. Despite the many headwinds throughout our 2023 fiscal year, we did not waver from our commitment to providing market-leading services and expertise tailored to the unique needs of this important segment. Over several years, we have carefully structured our business to ensure that we can provide continuous service and differentiated opportunities for these clients through market cycles. We have invested materially in growing our wealth management businesses across the United Kingdom, Canada and Australia. We have also substantially grown our M&A advisory capabilities, which has helped to offset the sharp declines in capital raising activity. In doing so, we have successfully raised the floor of our returns in a difficult environment. As evidenced in our fiscal 2023 results, these businesses have provided much needed resilience in earnings power, which has helped to offset the impacts of the sustained downturn that impacted many of our capital markets activities. If you have been following us for several years, you will be well aware that our capital markets business is capable of providing incredible upside when markets are accommodative. When that happens, we have returned excess capital to our shareholders in the form of enhanced common share buybacks. Given the reduction in capital markets activities over the past fiscal year and our strategic activities, we were less active in our buyback activities during fiscal 2023. Having said that, we maintained a common share dividend that is consistent with prior years, a testament to the stability that our wealth management businesses have provided. Throughout the fiscal year, we continued to focus on innovation, technology, talent and further advancements to the underlying processes and systems, which support our interactions with all of our stakeholders. In April, our industry experienced the first banking crisis since 2008. While regulators move swiftly and effectively to prevent a broader contagion, it amplified the conversation about risk management across our industry. A robust risk management program has been at the core of our strategy for many years. We are fortunate to have a diversified business with minimal concentration risk and ample liquidity coverage. Our business is in good financial health, and we undertake due diligence to ensure that the clients and counterparties with whom we choose to work, meet financial strength requirements, prudently monitor and manage all client activity to ensure compliance with best practices and regulatory requirements. This ensures flexibility to operate effectively throughout a range of economic environments. The market outlook for the year ahead remains uncertain, and we know there will be challenges along the way. Having said that, we are fortunate to be navigating this prolonged period of uncertainty from a position of strength, which allows us to be opportunistic and pursue opportunities for targeted and disciplined growth. Looking forward, I have every confidence that Dan and our global operating committee have the skills and experience to guide our company through any new obstacles while continuing to deliver outstanding experiences for our clients and employees in an increasingly complex world. To my fellow shareholders, I thank you for your continued support. And with that, it is my pleasure to turn you over to our President and CEO, Dan Daviau.

Thank you, David, and thank you to all who have joined us today. Without question, fiscal 2023 has been an incredibly challenging year. Our industry was confronted with a backdrop of significant geopolitical turmoil, high inflation and rapid rate increases, which impacted investor confidence and activity levels in all our key markets. The small and mid-cap sectors and investors that we serve were particularly impacted by this downturn. When confronted with persistent headwinds, the business mix that helped us deliver record performances in prior years, performed in line with our expectations. Contributions from our expanded wealth management and M&A advisory business helped offset the dramatic reduction in capital raising activity. Our Wealth Management division has proven to be an important source of earnings, power and stability. All CG wealth businesses contributed to our firm-wide profitability, and we ended the fiscal year with client assets of $97 billion. Despite a modest reduction in asset values, we continue to experience positive inflows, bolstered by our acquisition and recruiting efforts and we are attracting a greater share of wallet from our existing clients, reflecting increased demand for advice in challenging markets. Solid M&A activity in our core sectors also helped to offset the impact of decade-low new issue activity, a testament to our targeted acquisition effort in this segment and the support we have provided to ensure these professionals can excel on our platform. And finally, despite the decrease in market participation across our industry, CG sales, trading and specialty desk remained steady, providing liquidity for our clients and supporting increased volumes during bouts of market volatility. We -- our full year profitability was impacted by several factors, which included a material reduction in new issue revenue. The mark-to-market impact of sharp declines in the market value of several inventory positions incurred earlier in the fiscal year and the incurrence of several large isolated charges. While we are disappointed that we did not meet our profitability targets for the year, our business remains on solid ground, even with the continued headwinds in the new issue market and ongoing economic uncertainty. In the context of a continued difficult market, we are managing our expenses very carefully. At beginning of our new fiscal year, we began an intensive process to examine each area of our business and establish a more cost-effective organizational structure without compromising our market position or the client experience. Our efforts should better position us to achieve our historical profitability ranges in a normalized revenue environment, continue investing strategically in the business and return capital to our shareholders. This process has led us to think critically about the number of people that we need to advance our strategic priorities while helping our clients reach their goals. We recently undertook a reduction of approximately 4% of our global workforce, primarily in our North American capital markets business with some additional departures in IT, operations and other support roles. As a result of this initiative, the company expects to record a restructuring charge of approximately $10 million in our second fiscal quarter. Importantly, these changes will not impact our day-to-day operations or how we serve our clients. We are also planning for continued upward pressure on information technology and compliance expenses, which are expected to increase in all geographies. We remain steadfastly committed to ensuring that Canaccord Genuity continues to exceed our clients' expectations, while we strive to achieve the best possible results for our shareholders. In February, a management-led group, including myself and our Chairman, David Kassie, and officers and employees together holding approximately 21.3% of the issued and outstanding shares of our company, formerly launched a bid to acquire all the outstanding common shares of the company at a price of $11.25 per share, which represented a significant premium and certainty of value for our shareholders in a volatile market. We entered this process with the core understanding of the opportunity, but also the risk. Unfortunately, certain conditions to the offer, including regulatory approvals for change of control were not received in time to permit completion of the offer prior to its expiry. We're continuing to explore a range of opportunities to enhance value for our shareholders. I assure you that we will not entertain or commit to any option that could jeopardize the stability or competitive positioning of our business. To ensure that our decision and actions are always in alignment with our shareholders, we have long-standing programs in place to increase equity participation at all levels of our business. At present, we estimate that almost 40% of our common shares are held by CG employees. Given the industry slowdown and the diversification away from higher-risk growth assets, I'm truly pleased with the performance of our teams in all regions and businesses. Throughout the fiscal year, we continue to defend and build upon the excellent market position in all CG regions and verticals. And we have also continued to invest in the growth of all our wealth businesses. Additionally, ongoing investments in our technology and infrastructure position us to scale when volumes return. We have proven that we can be incredibly agile and productive in a broad range of challenging environments, and this one is no exception. Each of our businesses and all the disciplines that support them have navigated persistently difficult markets in a much more constructive and positive way than in past downturns. Importantly, we've come through an incredibly difficult period with our core strategy intact, and this strategy is supported by the 2,700 CG colleagues spanning 4 continents who live up to our shared values in every interaction. Together, we remain fully committed to operating our business in the best interest of our clients, employees and public shareholders. To my fellow shareholders, I thank you for your continued support and confidence in our business. We look forward to working with our new Board of Directors as we continue to explore a range of opportunities to increase the value for our company as we have always done. With that, David, Dan and I will be pleased to take your questions.

Thank you, Mr. Daviau. We will now proceed to the question period.

Mr. Chair, the Lumi portal for questions is now open to shareholders and guests. There are none at this moment, but I would recommend pausing for a moment to allow guests to put the questions through the Lumi portal. Mr. Chairman, there are no questions on the -- from guests or shareholders. So I'll turn it over to you to conclude the meeting.

Okay. Well, thank you, everyone, for joining us today, and we hope to see you the next year. Thank you. That concludes the meeting.