Canaccord Genuity Group Inc. Reports Third Quarter Fiscal 2017 Results

TORONTO, February 9, 2017 /PRNewswire/ --

Excluding significant items, third quarter earnings per common share of $0.03^[1] 

(All dollar amounts are stated in Canadian dollars unless otherwise indicated) 

During the third quarter of fiscal 2017, the quarter ended December 31, 2016, Canaccord Genuity Group Inc. (Canaccord Genuity, the Company, TSX: CF) generated $208.1 million in revenue. Excluding significant items ^[1]_, the Company recorded net income of $6.3 million or net income of $2.9 million attributable to common shareholders ^[2] (earnings per common share of $0.03). Including all expense items, on an IFRS basis, the Company recorded net income of $4.5 million or net income of $1.2 million attributable to common shareholders^[2] (earnings per common share of $0.01).

The results for the quarter included certain non-recurring charges in the aggregate amount of $6.0 million related to costs associated with the rationalization of our office space in Toronto, costs associated with the transition of new investment advisors onto the Company's wealth management platform in Canada and charges in connection with the acceleration of certain stock-based awards and contractual compensation payments.  These costs were recorded as general and administrative expenses in Canaccord Genuity Wealth Management (North America) ($0.7 million) and as premises and equipment and incentive compensation expenses in Corporate and Other ($5.3 million).  These costs have not been excluded for purposes of calculating adjusted net income (referred to as net income excluding significant items^[1]).

"While the long term impact of recent developments in the U.S. and UK remains to be seen, we are encouraged to see more investors putting capital to work in the growth sectors of the global economy, a development that has given us a positive near-term outlook for our business," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "As activity levels improved, we have maintained a strong focus on driving down overall expenses to enhance profitability across our operations. In addition, we have made meaningful progress to advance our global wealth management strategy which will further contribute to long-term earnings stability."

Third Quarter of Fiscal 2017 vs. Third Quarter of Fiscal 2016 

• Revenue of $208.1 million, an increase of 14.4% or $26.3 million from $181.8 million
• Excluding significant items, expenses of $200.3 million, a decrease of 1.9% or $4.0 million from $204.2 million ^[1]
• Expenses of $202.4 million, a decrease of 62.0% or $330.1 million from $532.5 million^[3]
• Excluding significant items, diluted earnings per common share (EPS) of $0.03 compared to a loss per common share of $0.25 ^[1]
• Excluding significant items, net income of $6.3 million compared to a net loss of $19.1 million ^[1]
• Net income of $4.5 million compared to a net loss of $346.4 million^[3]
• Diluted EPS of $0.01 compared to a loss per common share of $3.91^[3]

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1. Figures excluding significant items are non-IFRS measures.  See Non-IFRS measures on page 5.

2. Net income (loss) attributable to common shareholders is calculated as the net income (loss) adjusted for non-controlling interests and preferred share dividends.

3. Expenses in Q3/16 included an impairment charge of $321 million related to goodwill and other assets.

Third Quarter of Fiscal 2017 vs Second Quarter of Fiscal 2017 

• Revenue of $208.1 million, an increase of 7.5% or $14.5 million from $193.6 million
• Excluding significant items, expenses of $200.3 million, an increase of 5.0% or $9.6 million from $190.7 million ^[1]
• Expenses of $202.4 million, an increase of 5.0% or $9.6 million from $192.8 million
• Excluding significant items, diluted EPS of $0.03 compared to a loss per common share of $0.03 ^[1]
• Excluding significant items, net income of $6.3 million compared to net income of $2.0 million ^[1]
• Net Income of $4.5 million compared to net income of $0.2 million
• Diluted EPS of $0.01 compared to a loss per common share of $0.05

Year-to-Date Fiscal 2017 vs. Year-to-Date Fiscal 2016 

(Nine months ended December 31, 2016 vs. Nine months ended December 31, 2015) 

• Excluding significant items, revenue of $606.7 million, an increase of 3.4% or $19.8 million from $586.9 million^[1]
• Excluding significant items, expenses of $584.9 million, a decrease of 0.8% or $4.7 million from $589.6 million ^[1]
• Revenue of $607.9 million, an increase of 3.6% or $21.0 million from $586.9 million
• Expenses of $591.4 million, a decrease of 36.0% or $332.2 million from $923.6 million^[3]
• Excluding significant items, diluted EPS of $0.05 compared to a loss per common share $0.15 ^[1]
• Excluding significant items, net income of $16.5 million compared to a net loss of $3.9 million ^[1]
• Net income of $12.2 million compared to a net loss of $335.9 million^[3]
• Diluted EPS of $0.01 compared to a loss per common share of $3.78^[3]

Financial Condition at End of Third Quarter Fiscal 2017 vs. Fourth Quarter Fiscal 2016 

• Cash and cash equivalents balance of $470.2 million, an increase of $41.9 million from $428.3 million
• Working capital of $455.9 million, an increase of $74.6 million from $381.3 million
• Total shareholders' equity of $735.6 million, a decrease of $14.3 million from $749.9 million
• Book value per diluted common share of $4.85, a decrease of $0.14 from $4.99^[4]
• On February 9, 2017, the Board of Directors considered the Company's dividend policy in the context of the market environment and business activity and approved a continued suspension of the quarterly common dividend.  This suspension will be reviewed quarterly and a determination made on the basis of business conditions and profitability.
• On February 9, 2017, the Board of Directors approved a cash dividend of $0.24281 per Series A Preferred Share payable on March 31, 2017 with a record date of March 17, 2017, and a cash dividend of $0.359375 per Series C Preferred Share payable on March 31, 2017 to Series C Preferred shareholders of record as at March 17, 2017.

SUMMARY OF OPERATIONS 

Corporate 

• On October 27, 2016, the Company closed a private placement of convertible unsecured senior subordinated debentures in the aggregate principal amount of $60 million.  The Company intends to use the net proceeds to finance growth in its wealth management business in Canada through the recruitment of Investment Advisors and for general corporate purposes.  The debentures bear interest at a rate of 6.50% per annum, payable semi-annually on the last day of June and December each year commencing December 31, 2016.  The debentures are convertible at the holders' option into the Company's common shares at a conversion price of $6.50 per share.  The debentures will mature on December 31, 2021 and may be redeemed by the Company, in certain circumstances, on or after December 31, 2019.
• On August 11, 2016, Canaccord Genuity Group Inc. announced the filing of a normal course issuer bid (NCIB) to purchase up to a maximum of 5,587,378 of its common shares in accordance with the requirements of the TSX through the facilities of the TSX and on alternative trading systems during the period from August 15, 2016 to August 14, 2017. The purpose of any purchase under this program is to enable the Company to acquire shares for cancellation. The maximum number of shares that may be purchased represented 5.0% of the Company's outstanding common shares at the time of filing the NCIB. A total of 99,800 shares have been purchased and cancelled under the terms of the NCIB during the nine months ended December 31, 2016.

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4. See Non-IFRS Measures on page 5. 

Capital Markets ^[5] 

• Canaccord Genuity participated in 84 investment banking transactions globally, raising total proceeds of C$10.8 billion^[5] during fiscal Q3/17
• Canaccord Genuity led or co-led 24 transactions globally, raising total proceeds of C$762 million^[5]   during fiscal Q3/17
•  Significant investment banking transactions for Canaccord Genuity during fiscal Q3/17 include:
  • AUD$24.9 million for Doray Minerals Ltd. on the ASX
  • £329.0 million block trade for Playtech plc on the LSE
  • C$186.0 million block trade for a holder of Great Canadian Gaming Corporation on the TSX
  • US$30.0 million for GenMark Diagnostics, Inc. on NASDAQ
  • AUD$62.6 million for Cooper Energy Ltd. on the ASX
  • £38.0 million for Rathbone Brothers plc on the LSE
  • US$75.0 million IPO for Obalon Therapeutics, Inc. on NASDAQ
  • C$66.5 million for InPlayOil Corp on the TSX
  • C$29.0 million for Pro Real Estate Investment Trust on the TSXV
  • C$40.3 million for Alterra Power Corp on the TSX
  • US$322.0 million for Twilio Inc. on the NYSE
  • US$123.0 million IPO for iRhythm Technologies, Inc. on NASDAQ
  • US$172.5 million for Advanced Accelerator Applications S.A. on NASDAQ
  • US$134.6 million IPO for AquaVenture Holdings Limited on the NYSE
  • C$400.00 million IPO for Aritzia Inc. on the TSX
  • US$40.0 million IPO for Everspin Technologies, Inc. on NASDAQ
  • AUD$25.0 million IPO for Dreamscape Networks Limited on the ASX
  • C$25.0 million for Aurora Cannabis Inc. on the TSXV
  • C$20.0 million for iAnthus Capital Holdings Inc. on the CSE
  • US$80.5 million for Kratos Defense & Security Solutions, Inc. on NASDAQ
  • C$50.0 million for Supreme Pharmaceuticals Inc on the CSE
  • US$16.5 million for Palatin Technologies on the NYSE MKT
  • AUD$26.5 million for Dacian Gold Limited on the ASX
  • C$60.0 million IPO for CanniMed Therapeutics Inc. on the TSX
  • US$126.5 million IPO for Xencor, Inc. on NASDAQ
  • US$35.7 million IPO for TiGenix on NASDAQ
• In Canada, Canaccord Genuity participated in raising $233.7 million for government and corporate bond issuances during fiscal Q3/17
• Advisory fees recorded during fiscal Q3/17 were $17.1 million, a decrease  of $21.8 million or 56.0% compared to the same quarter last year
• During fiscal Q3/17, significant M&A and advisory transactions included:
  • Kier Group plc on the £75 million sale of its infrastructure engineering and environmental consultancy business to WSP Global Inc.
  • Catapult Environmental Inc. on its private equity sponsorship by ARC Financial Corp.
  • TransGlobe Energy Corporation on its C$80 million Canadian Asset Acquisition
  • Only About Children on the divestment of a majority stake to Bain Capital Private Equity
  • PEMCO World Air Services, Inc. on its sale to Airborne Maintenance and Engineering Services, Inc., a subsidiary of Air Transport Services Group, Inc.
  • InPlay Oil Corp. on the reverse take-over transaction of TSX-listed Anderson Energy Inc., the closing of a C$47 million asset acquisition and raising C$70.3 million of gross subscription receipt proceeds.
  • SynCardia Systems, Inc. on its sale to affiliates of Versa Capital Management, LLC pursuant to §363 of the U.S. Bankruptcy Code
  • Abénex Capital  on the disposal of Vulcanic  to Qualium
  • ECI Partners on the acquisition of Edenhouse
  • Fläkt Woods on its disposal to Triton Partners

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5. Transactions over $1.5 million. Internally sourced information.

Canaccord Genuity Wealth Management (Global) 

• Globally, Canaccord Genuity Wealth Management generated $68.5 million in revenue during Q3/17
• Assets under administration in Canada and assets under management in the UK & Europe and Australia were $36.1 billion at the end of Q3/17^[4], an increase of 5.0% or $1.7 billion at the end of the previous quarter and an increase of 5.1% or $1.7 billion at the end of fiscal Q3/16

Canaccord Genuity Wealth Management (North America) 

• Canaccord Genuity Wealth Management (North America) generated $32.8 million in revenue and, after intersegment allocations and before taxes, recorded a net loss of $0.5 million during Q3/17.  As noted above, incremental costs associated with the transition of new investment advisors onto the Company's wealth management platform in the amount of $0.7 million were recorded during the quarter and are reflected in this net loss for the quarter.
• Assets under administration in North America were $12.0 billion as at December 31, 2016, an increase of 15.8% from $10.3 billion at the end of the previous quarter and an increase of 32.5% from $9.0 billion at the end of fiscal Q3/16^[4]
• Assets under management in North America (discretionary) were $2.5 billion as at December 31 2016, an increase of 107.3% from $1.2 billion at the end of the previous quarter and an increase of 100.2% from $1.3 billion at the end of fiscal Q3/16^[4] (included in assets under administration)
• Canaccord Genuity Wealth Management had 139 Advisory Teams^[6]end of fiscal Q3/17, unchanged from September 30, 2016 and a decrease of one team from December 31, 2015

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6. Teams are normally comprised of one or more Investment Advisors (IAs) and their assistants and associates, who together manage a shared set of client accounts. Advisory Teams that are led by, or only include, an IA who has been licensed for less than three years are not included in our Advisory Team count, as it typically takes a new IA approximately three years to build an average-sized book of business. 

Canaccord Genuity Wealth Management (UK & Europe) 

• Wealth management operations in the UK & Europe generated $34.5 million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $8.1 million before taxes during Q3/17^[1]
• Assets under management (discretionary and non-discretionary) were $23.4 billion (£14.1 billion) as at December 31, 2016, an increase of 0.8% from $23.2 billion (£13.6 billion) as at the end of the previous quarter and a decrease of 4.7% from $24.5 billion (£11.9 billion) as at December 31, 2015^[4].   In local currency (GBP), assets under management at December 31, 2016 increased by 3.3% compared to September 30, 2016 and by 18.2% compared to Q3/16.

Non-IFRS Measures 

The non-International Financial Reporting Standards (IFRS) measures presented include assets under administration, assets under management, book value per diluted common share and figures that exclude significant items. Significant items include restructuring costs, amortization of intangible assets acquired in connection with a business combination, impairment of goodwill and other assets and acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions, as well as gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations. Book value per diluted common share is calculated as total common shareholders' equity adjusted for assumed proceeds from the exercise of options and warrants and conversion of convertible debentures divided by the number of diluted common shares outstanding including estimated amounts in respect of share issuance commitments including options, warrants and convertible debentures, and, commencing in Q1/14, adjusted for shares purchased under the NCIB and not yet cancelled and estimated forfeitures in respect of unvested share awards under share-based payment plans.

Management believes that these non-IFRS measures will allow for a better evaluation of the operating performance of the Company's business and facilitate meaningful comparison of results in the current period to those in prior periods and future periods. Figures that exclude significant items provide useful information by excluding certain items that may not be indicative of the Company's core operating results. A limitation of utilizing these figures that exclude significant items is that the IFRS accounting effects of these items do in fact reflect the underlying financial results of the Company's business; thus, these effects should not be ignored in evaluating and analyzing the Company's financial results. Therefore, management believes that the Company's IFRS measures of financial performance and the respective non-IFRS measures should be considered together.  

Selected financial information excluding significant items^[1]

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