Fiera Capital Corporation (FSZ) Earnings Call Transcript & Summary

Thank you. Good morning and welcome to the FIERA Capital conference call to discuss financial results for the second quarter of 2026. I will now turn the conference over to Amin Moussavian, Senior Vice President, Head of Treasury and Investor Relations. You may begin your conference.

Thank you and good morning, everyone. Welcome to the FIERA Capital Conference call to discuss our financial and operating results for the second quarter. Copies of our press release, MD&A, and earning presentation are available on FIERACapital.com under Investor Relations. This morning, we have with us Maxime Menard, Global President and Chief Executive Officer Lucas Pantillo, Executive Director, Global Chief Financial Officer and Head of Corporate Strategy. Gabrielle Castiglio, Executive Director and Global Chief Operating Officer. Following the opening remarks, we'll have a question and answer session. Comments made on today's call, including replies to certain questions, may deal with forward-looking statements which are subject to risk and uncertainties that may cause actual results to differ from expectations. Please refer to the forward-looking statements on page two of the presentation and periodic reports that we have filed with the regulatory authorities. I will now turn the call over to Max.

Good morning and thank you for joining us today. The second quarter was challenging from a flows perspective as we experienced larger than expected outflows from our sub-advised mandates, along with elevated client rebalancing. However, we remained focused on executing against our strategic priorities. As a result, we saw positive mobilization. across several areas of the business, including growth in our private markets platform, continued traction within our key distribution channels, and improving investment performance across a number of our flagship strategies. I'll begin with a review of assets under management and flows for the quarter. Total assets under management ended the quarter at $163.5 billion, up approximately 2.1% from the end of the prior quarter, a strong markets appreciation more than offset net outflows. markets AUM of $141.2 billion increased 2.4% from the prior quarter, as strong market growth was partly upset by net outflows. Excluding some advised mandates, public markets net outflows totaled $2.2 billion in the quarter, largely due to client rebalancing across both equity and fixed income strategies. During the quarter, we won new mandates and captured net inflows from financial intermediary relationships established within the last 18 months. Growing exposure to the financial intermediary space continues to support organic growth and a more consistent flow profile. As we announced earlier this week, NICSMART has been appointed Lead Portfolio Manager, Canadian Large Cap Equities. NIC has previously served as a co-lead of our Canadian Large Cap Strategies and has been involved with the flagship strategy since inception. providing continuity of investment knowledge, fundamental research, and portfolio oversight. Nick and his team will be supported by the broader Canadian equity team, Fier's institutional investment platform, and the governance of our global investment office, which oversees performance, investment risk, and resourcing. These changes came on the heels of the action we took, which we believe necessary to protect our clients, employees, the firm, and the integrity of our investment platform. Our standards of professional conduct apply to everyone at Fiera Capital, regardless of seniority or commercial status. importance. Now, looking at the sub-advisory AUM, outflows were $5.3 billion in the quarter, reflecting a single U.S. client that transferred assets directly to Pinestone, which we pre-announced in the previous quarter, along with rebalancing from clients in the U.S., AMIA, and Asia. As As previously announced, we are aware of one remaining client request to transfer approximately $1.5 billion of AUM directly to Finestone in the second half of the year. We continue to expect direct transfer in 2026 to be lower than prior year. Turning to our private market platform. Private markets AUM increased 0.5% during the quarter and 1.4% year to date. Reflecting net inflows and market appreciation, we raised close to $100 million in new mandates during the quarter, primarily into our real estate and private credit strategies. Net inflows totaled more than $115 million, which was largely offset by return of capital in our closed-end fund business. During the quarter, we launched a note feeder that allows life insurers to access our private credit strategies. This new investment vehicle has been generating good traction and we expect demand will grow over time. With approximately 20% of our AUM tied to life insurers, we see good opportunity in this space. During the quarter, more than $500 million of capital was deployed into new projects, bringing total deployed capital to $800 million year to date. Our pipeline and undeployed capital remained strong at $1.9 billion. We also began deploying capital into our Canadian Built Opportunities Funds and expanded the strategy with new clients which is expected to fund in the third quarter we see good opportunity to bring on potential clients over time in this innovative structure We continue to view private markets as a key driver of long-term value creation. As part of a strategic plan during the quarter, we aligned private markets with the firm-wide investment governance model, consistent with the structure established in public markets. Under this model, investment teams are aligned under the Global Investment Office, strengthening investment oversight and collaboration. This change will enable us to fully leverage FIERA scale and capture multi-assets opportunities across all platforms. Now, taking a look at our Canadian franchise, we are continuing to allocate resources towards growth within the Canadian retail channel through relationships. with financial intermediaries. We were recently granted four SMA platform approval with our well-known Canadian advisor, which follows last year SMA platform addition with a prominent Canadian wealth manager. One of our flagship equity strategies was also added to a large Canadian LIFCO investment platform during the quarter. Within our Canadian business, outside of our sub-advised AUM, we continue to see momentum in net organic growth supported by efficient distribution and our multi-strategy platform. Looking outside Canada, in AMIA, our integrated fixed income strategies captured net inflows of close to $200 million in the quarter, reflecting our success within the insurance market. Starting to investment performance, we saw meaningful improvement during the quarter across several of our key equity strategies. Notably, our large cap equity strategies produced strong absolute returns, with most outperforming their respective benchmarks and peers in the period. continuing to offer competitive results over long term. Our emerging market strategies delivered another quarter of benchmark outperformance, further building on an impressive track record of top quartile returns and alpha generations across one, three, and five-year periods. Despite the recent headwinds and the market-related challenges faced by our quality-focused equity platform over the past few quarters, we are encouraged by the results of the current quarter. We remain focused on sustaining this momentum and returning to the high standard of long-term outperformance that is as historically defined. platform. Within fixed income, our strategies continue to deliver strong absolute and relative performance with 91% of our fixed income AUM outperforming respective benchmarks over the one year period. Looking at private markets, our real estate core and small cap industrial funds continue to perform well in the quarter, supporting continued demand for the real estate strategies. Private credit also delivered strong performance, supporting strong client interest in the strategy. With that, I'll turn the call over to Lucas to walk us through the financials in more detail.

Thank you, Maxim, and good morning, everyone. As Maxim acknowledged earlier, we a challenging second quarter with larger than expected outflows. However, we continue to optimize our cost structure. On a year-to-date basis, we were able to offset the revenue headwinds from lower sub-advised AUM through reduced SG&A expenses. resulted in a stable adjusted EBITDA margin. Turning first to the revenues and key drivers by segment. Total revenues of $155.1 million in the second quarter increased 1% from the prior quarter, reflecting higher commitment and transaction fees and higher performance fees recognized in private markets. This was offset by lower base management fees from public markets, primarily from lower sub-advised AUM. Total revenues were down 5% year-over-year, largely reflecting lower base management fees in public markets. share of earnings in joint ventures and lower commitment and transaction fees. On a year-to-date basis, total revenues were down 5%, mostly due to lower base management fees in public markets. During the quarter, performance fees were $2.1 million, primarily from our private credit and infrastructure strategies, showing strong signs of recovery from the prior quarter and down slightly by $400,000 compared to the second quarter of last year. Year-to-date, performance fees of 2.1 million compared with 2.7 million in the same period last year. and then transaction fees was 3.7 million, up 2.4 million compared to the prior quarter, reflecting higher fees earned from our real estate and private credit strategies. and declined $1.5 million compared to the prior year quarter due to lower fees earned from real estate strategies from clients in EMEA. Year to date, commitment and transaction fees of $5 million compared with $7.7 million in the prior year period. Share of earnings from joint ventures and associates was approximately $200,000 in the quarter, compared to close to $1 million in the prior quarter. and 2 million in the same quarter last year. Share of earnings in joint ventures and associates can vary from quarter to quarter as a result of the long-term nature of the underlying joint venture projects with Fiera Real Estate UK. Year to date, share of earnings from joint ventures and associates of 1.1 million decreased compared with 4.6 million for the same period last year. Other revenues were $4 million for the quarter, flat from the prior quarter, and down $5.3 million in the same quarter last year. Year-to-date, other revenue of 7.9 million were largely in line with the 8.4 million in the same period last year. Looking more closely at base management fees, in private markets, base management fees were $49 million in the second quarter, largely flat compared to both the prior quarter and the same quarter last year. Year-to-date, private market space management fees of $98 million declined slightly from the prior year period, reflecting lower fee rates, partly offset by higher deployed AUM. In public markets, base management fees of 96 million declined 2% from the prior quarter, largely due to lower average AUM. While ending AUM increased quarter over quarter, average AUM was down 1% sequentially. Due to the timing of significant market volatility in the first and second quarters, along with outflows from sub-advised AUM. Year over year, public markets base management fees declined 3%, reflecting a lower base management fee rate, primarily due to asset mix, and a lower base management fee rate as a result of lower subadvised AUM, partly offset by an increase of our average total AUM. Year-to-date, public markets base management fees of $194 million declined 5% from the prior year period, reflecting a lower base management fee rate, primarily due to asset mix shift from lower subadvised AUM. Now turning to expenses. SG&A expense, excluding share-based compensation, were down 3.6% year over year, and on a year-to-date basis, expenses were down $13 million, or 5.5%. The decline in expense reflects cost savings from continued optimization effort along with lower sub-advisory fees paid. SG&A expenses excluding share-based compensation were $113.1 million in a quarter, up 2.3% from the prior quarter, primarily due to the timing of variable compensation costs, partly offset by lower sub-advisory fees and professional fees. Adjusted EBITDA was 42 million for the quarter, down 2% from 42.7 million in the prior quarter. the EBITDA margin was 27.1% in the quarter, down from 27.9% in the prior quarter. Decline reflects the timing of variable compensation, which I previously mentioned, partly offset by higher revenue. Year over year, adjusted EBITDA declined $3.7 million, reflecting lower revenues, partly offset by lower SG&A expenses. On a year-to-date basis, adjusted EBITDA of 84.7 million declined 4.4 million from the same period last year. However, as previously highlighted, our adjusted EBITDA margin remains stable at 27%, supported by continued optimization and disciplined cost control. Turning now to net earnings. On an adjusted basis, net earnings of $23.9 million were approximately fat from the prior quarter and were down $3.3 million from the same quarter last year. collecting lower revenues, partly offset by lower SG&A expense, and lower interest on long-term debt. To date, adjusted net earnings of $47.4 million were down 10% from the same period, largely reflecting lower revenues, partly offset by lower SG&A excluding share-based comp, and lower interest expense. On a diluted per share basis, adjusted net earnings were 21 cents for the quarter, flat from the prior quarter, and down 3 cents from the same quarter last year. Looking at cash flow and capital allocation, we generated the last 12 months free cash flow of $93 million, down $3 million from the prior quarter, primarily due to lower distributions received from joint ventures and higher dividends paid to non-controlling interest. This was largely offset by lower interest paid on long-term debt. Compared to the same period last year, last 12 months free cash flow increased by 18 million. The increase reflects higher cash from operating activities, primarily from the timing of working capital items, along with lower interest paid on debt and lower lease payments. During the quarter, 134,000 shares were repurchased for approximately $700,000. On a year-to-date basis, we have repurchased close to 700,000 shares for $3.9 million. Subsequent to quarter end, we renewed our NCIB to purchase up to 4 million shares over the next 12 months. continue to believe the shares are significantly undervalued at the current levels. Dividend payout ratio relative to our 12-month free cash flow remained steady from the prior quarter at just under 50%. Turning to the balance sheet, net debt ended the quarter at $723 million, up $23 million from the prior quarter. The increase reflects primarily the remaining purchase of the 25% interest in FIERA infrastructure, along with the increase in the amount of interest in the previous quarter. along with certain other fees during the quarter. Net debt ratio was 3.8 times compared with 3.6 times in the prior quarter, and 3.7 times in the same quarter last year. We expect net debt to decline in the second half of the year, as the first half is usually impacted by higher cash outflows, mainly related to annual bonuses and variable compensation. Finally, the board approved a quarterly dividend of 10.8 cents per share payable on September 17th, 2026 to shareholders of record as of August 20th.

With that, I'll turn the call back to Maxime. Thank you, Lucas. We remain focused on driving progress across each pillar of our strategic plan. to shape private markets to be a growth driver by aligning investment teams under the Global Investment Office and expanding solutions that align with evolving client demand. Our distribution efforts are focusing on higher conviction opportunities and we are gaining traction on flows through deeper relationships with the financial intermediaries partners. Improvements in investment performance, particularly within our flagship strategies, demonstrate the value of our investment teams, discipline, and differentiating the investment process. We remain focused on delivering consistent, long-term outcomes for clients, which we believe is the most important driver of our organic growth over time. Lastly, we have confidence in Nick and the team, and we are fully committed to supporting them through this transition. We will continue to invest in the people, resources, and capabilities necessary to ensure the Canadian equity team remains well positioned to build on its track record and continue to deliver value for clients.

I will now turn the call over to the operator for questions. Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. If you'd like to withdraw your question, press star 2. One moment please for your first question. The first question comes from Etienne Ricard from BMO Capital Markets. Please go ahead.

Thank you and good morning team. Maxime, you've listed your top two priorities as distribution and performance. What would you say has been the biggest change in the way Sierra assesses performance? and expense distribution since you took on the CEO role.

Yes, so that's really good questions. So let me start first with distribution. I think you go back a few years back when we regionalized the distribution and the model that was assessing the different opportunities in the different markets, and trying to be more prescribed or at least customize the distribution offering in the different markets for a different number of reasons. First, the level of competitiveness in the different markets is different. Our ability to gain market share is different. Our brand recognition is different. and the investment platform or the offering comes at a different level of sophistication or evolution, depending on where we're at. And what I mean by that is in Canada, we are clearly a high standard of brand recognition. We have a multi-asset platform. We already have a significant market share, and we have a fully developed distribution model. So when you think about all of the pillars to make this a success, I would say Canada is at full throttle in terms of our ability to execute, and we've seen significant results from a gross perspective over the last few years. And we've also seen an evolution, again, not all of this is calculated by a net net organic growth or gross organic, but it's also by how we see the evolution within our ratings from the consultant perspective, the knowledge in our solution-based platform, and also the introduction of new channels, including the intermediaries where you've seen some significant market share over the last few year. When we go in markets like the US, the AMIA, or the Asian market, you enter a whole different space of competitiveness of which we have to adapt. adapt and adjust depending on our offering. And then based on these different offerings, we have seen some significant improvement in our consultant rating, in AMIA particularly, where our team has done great work there in introducing the FIER name, introducing the specific solutions where we think we could have success and driving sales through new channels, namely, the insurance where we've had some success in the fixed income and others. And same goes for the US, largest market from an AUM perspective, fast moving product development evolution and a very difficult market to gain market share. We've had success. It's limited to our distribution to be more nimble, to be focused, and execute extremely well. So we've seen, again, an evolution of our rating within the consultant. We've seen an evolution in the number of meetings. And we're tracking well in terms of the pipeline in these different markets.

And specific to Canada, for what strategies have you seen the best interest and conversely for what strategies has it been more challenging?.

Well, so Canada, again, the multi-assets is really our key differentiator when it comes our ability to compete. Very few other firms have a full spectrum of investment platforms the way we do and have a fit fully integrated. Additionally, that we have now brought private markets within our platform from an operating standpoint. So we see a large demand within multi-assets. And that's also a function of the market. We have to go by sort of the demand from a consulting standpoint, from the institutional standpoint. And what we've also seen is core Canadian real estate is a very demanding asset class from a performance standpoint and Obviously, a Canadian large cap is a very performing asset class. We were seeing a lot of flows. Right now, because of a style-driven situation, the performance is a little bit out of favor, but we're still seeing a lot of appetite for that kind of strategy. So in Canada, with sum it up into a market, multi-asset platform and core strategies where we see our performance and really good performance.

And in private markets, what trends are you seeing in terms of redemption activity and the willingness to invest more? capital in this space? Institutional we've seen.

There hasn't been a huge movement away from private markets, quite the opposite. When you look on the forward basis, I think the next three to five years will have significant appetite within what we call the real assets, which would include infrastructure and real estate. There's also a big demand within the private sector. credit space so the institutional demand within the you know particularly the pension side there's there's still lots of appetite for these different asset class I would say less so within the private equity space but again private credit in the a and the infrastructure real estate real assets there's there's good demand accelerated demand over the last five years. And again, I think overall, the private markets will continue to have an increasingly important part of the asset allocation for the pension owners and the pension level market and the mid-market. When it comes to the retail, you know, there's been a lot of noise around The retail here in Canada, the US, generally I think there's been a lot of appetite over the last few years for the retail or individual investors to access private markets and it has created lots of flows. But I think right now there's a bit of a pullback in the retail market for the appetite for private markets. And we see it in asset allocation and also some of the other funds, not only us, but some of our peers as well, seeing a slowdown in flows within the private wealth or retail market to the private market solution. Thank you very much.

thank you your next question comes from bart dziedzierski from rbc capital markets please go ahead.

Great, thanks and good morning everyone. I wanted to stick with the private markets theme. You know, Max, you called it as a growth engine, but when I look at new mandates and net organic growth year to date, it's sort of flat. And just want to see what's driving that. And then in terms of the outlook, like we've seen really strong funding. fundraising from the public peers, including in private equity. So can you square up your more benign comments around private equity for what we're seeing in the broader market? Thanks.

Yes, so private market in general for us is a growth area, not only as a single strategy but through our multi-assets. You've got to remember that when we do tactical asset allocation or even multi-assets balance mandates where we have... a good majority of the business coming through. There's a significant allocation to the private markets. Some of the growth we've seen lately have been through customized solution, as you remember the mandates that we went through last year One of the unions in Canada, what we call the Canadian Opportunities Fund, has been and extremely well-structured solutions for the market. And as part of that... original group of unions, there's been additional members joining and as a result, we forecast and foresee within our pipeline additional assets coming in through this piece of the business. In terms of my comment to the private equity, these are just industry standards statistics that I've I've been looking at in terms of forward looking and private equity came as the one that was showing the less growth. relative to credit in terms of the opportunities for the private market business. So there's always obviously the element of performance. We look at private markets and many of the instances, particularly for multi-assets and and private wealth as an alternative to fixed income. There are higher yield opportunities with a premium on liquidity. That has been a high differentiating factor for us within the private wealth business. And when you get into the multi-asset, mid-market institutional, that's also something. that we find extremely appealing in terms of total returns. So private markets has played that role. very well over the last few years and continues to be a part of the asset allocation that is preferred over a fixed income solution or a fixed income allocation, and that gives a higher yield. So with all these components, we continue to think that this is a part of our franchise that will continue to take an important part of our revenue on a go-forward basis and also additionally bring additional AUM. So it is a long cycle from a sales perspective. I've assigned individuals, and as I talked in the past, we have dedicated individuals that now sell private markets. The emphasis is to make sure that we have the high-caliber individual, the high-caliber and high-quality conversation with pension owners, pension clients to penetrate that market. But with all that said, we're not the only one to see this opportunity, and there's a fast market evolution, fast product evolution within the private markets, and we have to keep on innovating and making sure we bring forward the right products. the right solution and again the feeder note that we talked about for the insurers is an example of this. So within the global investment office we spend a lot of time thinking about what's next, what's coming, what's the right product and then.