Canaccord Genuity Group Inc. Reports Third Quarter Fiscal 2018 Results

Excluding significant items, third quarter diluted earnings per common share of $0.31⁽¹⁾

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

TORONTO, Feb. 6, 2018 /PRNewswire/ - During the third quarter of fiscal 2018, the quarter ended December 31, 2017, Canaccord Genuity Group Inc. (Canaccord Genuity, the Company, TSX: CF) generated $309.4 million in revenue. Excluding significant items ⁽¹⁾_, the Company recorded net income ⁽³⁾ of $39.2 million or net income of $34.7 million attributable to common shareholders ⁽²⁾ (earnings per common share of $0.31).  Including all expense items, on an IFRS basis, the Company recorded net income ⁽³⁾ of $36.6 million or net income of $32.1 million attributable to common shareholders ⁽²⁾ (earnings per common share of $0.29).

"Record revenue for our third fiscal quarter was a result of strong investment banking and advisory activity in small- and mid-cap equities, coupled with increased contributions from our expanded wealth management platform," said Dan Daviau, President & CEO of Canaccord Genuity Group Inc. "While we anticipate periodic volatility in our capital markets operation, our business is well positioned to capture additional market share in our key markets, while improving recurring revenue growth from our wealth management businesses to deliver greater earnings diversity and operating leverage for our shareholders."

Third Quarter of Fiscal 2018 vs. Third Quarter of Fiscal 2017

• Revenue of $309.4 million, an increase of 48.7% or $101.3 million from $208.1 million
• Excluding significant items, expenses of $259.2 million, an increase of 29.4% or $58.9 million from $200.3 million ⁽¹⁾
• Expenses of $262.6 million, an increase of 29.7% or $60.2 million from $202.4 million
• Excluding significant items, diluted earnings per common share (EPS) of $0.31 compared to diluted EPS of $0.03 ⁽¹⁾
• Excluding significant items, net income ⁽³⁾ of $39.2 million compared to net income ⁽³⁾ of $6.3 million ⁽¹⁾
• Net income ⁽³⁾ of $36.6 million compared to net income ⁽³⁾ of $4.5 million
• Diluted EPS of $0.29 compared to diluted EPS of $0.01

Third Quarter of Fiscal 2018 vs Second Quarter of Fiscal 2018

• Revenue of $309.4 million, an increase of 61.5% or $117.9 million from $191.5 million
• Excluding significant items, expenses of $259.2 million, an increase of 39.2% or $73.0 million from $186.2 million ⁽¹⁾
• Expenses of $262.6 million, an increase of 32.2% or $64.0 million from $198.6 million
• Excluding significant items, diluted EPS of $0.31 compared to diluted EPS of $0.01⁽¹⁾
• Excluding significant items, net income ⁽³⁾ of $39.2 million compared to net income ⁽³⁾ of $3.5 million ⁽¹⁾
• Net Income ⁽³⁾ of $36.6 million compared to a net loss ⁽³⁾ of $7.3 million
• Diluted EPS of $0.29 compared to a loss per common share of $0.11

Year-to-Date Fiscal 2018 vs. Year-to-Date Fiscal 2017

(Nine months ended December 31, 2017 vs. Nine months ended December 31, 2016)

• Excluding significant items, revenue of $700.8 million, an increase of 15.5% or $94.1 million from $606.7 million ⁽¹⁾
• Excluding significant items, expenses of $642.4 million, an increase of 9.8% or $57.4 million from $584.9 million ⁽¹⁾
• Revenue of $700.8 million, an increase of 15.3% or $92.9 million from $607.9 million
• Expenses of $662.8 million, an increase of 12.1% or $71.3 million from $591.4 million
• Excluding significant items, diluted EPS of $0.33 compared to diluted EPS of $0.05 ⁽¹⁾
• Excluding significant items, net income ⁽³⁾ of $44.3 million compared to net income ⁽³⁾ of $16.5 million ⁽¹⁾
• Net income ⁽³⁾ of $26.8 million compared to net income ⁽³⁾ of $12.2 million
• Diluted EPS of $0.17 compared to diluted EPS of $0.01

Financial Condition at End of Third Quarter Fiscal 2018 vs. Fourth Quarter Fiscal 2017

• Cash and cash equivalents balance of $592.9 million, a decrease of $84.9 million from $677.8 million
• Working capital of $513.0 million, an increase of $24.5 million from $488.5 million
• Total shareholders' equity of $766.3 million, an increase of $1.5 million from $764.8 million
• Book value per diluted common share of $5.11, an increase of $0.03 from $5.08 ⁽⁴⁾
• On February 6, 2018, the Board of Directors approved a dividend of $0.01 per common share, payable on March 15, 2018, with a record date of March 2, 2018
• On February 6, 2018, the Board of Directors approved a cash dividend of $0.24281 per Series A Preferred Share payable on April 2, 2018 with a record date of March 16, 2018, and a cash dividend of $0.31206 per Series C Preferred Share payable on April 2, 2018 to Series C Preferred shareholders of record as at March 16, 2018

SUMMARY OF OPERATIONS

Capital Markets

• Canaccord Genuity participated in 141 investment banking transactions globally, raising total proceeds of C$9.1 billion ⁽⁵⁾ during fiscal Q3/18
• Canaccord Genuity led or co-led 59 transactions globally, raising total proceeds of C$1.8 billion ⁽⁵⁾ during fiscal Q3/18
• Significant investment banking transactions for Canaccord Genuity during fiscal Q3/18 include:
• £187.5m for Aberdeen Standard European Logistics Income plc on LSE
• C$184.0 million in two transactions for Aurora Cannabis Inc. on TSX
• £95.0 million for IQE plc on AIM
• C$125.0 million Initial Public Offering for Cannabis Strategies Acquisition Corp. on TSX
• C$92.4 million for Osisko Mining on TSX
• Two transactions totalling US$80.6 million for Helios and Matheson Analytics Inc. on Nasdaq
• £52.2 million for Ediston Property Investment Company PLC on LSE
• C$75.6 million for SolGold plc on TSX and LSE
• US$65.3 million in two tranches for Neovasc Inc. on Nasdaq & TSX
• C$69.0 million for The Hydropothecary Corporation on TSX-V
• £31.0 million for Atalaya Mining on AIM
• AUD$60.0 million for CANN Group Limited on ASX
• C$51.7 million IPO for Titan Mining Corporation on TSX
• US$47.4 million for Savara Inc. on Nasdaq
• US$49.1 million for VBI Vaccines on Nasdaq
• C$43.9 million for Global Blockchain Technologies Corp. on TSX-V
• C$40.3 million for Supreme Pharmaceuticals Inc. on TSX-V
• C$40.0 million for Maricann on TSX
• AUD$35.6 million for Lithium Power International Ltd. in two transactions on ASX
• C$30.6 million for First Cobalt Corp. on TSX
• €18.0 million for Kiadis Pharma NV on Euronext AMS
• C$28.1 million for DMG Blockchain Solutions Inc. on TSX-V
• C$26.5 million for MPX Bioceutical Corporation on CSE
• C$26.3 million for Mogo Finance Technology on TSX
• US$25.0 million private placement for Soluble Systems, LLC
• C$23.0 million for Delta 9 Cannabis Inc. on TSX-V
• US$17.4 million for Akari Therapeutics, plc. on Nasdaq
• AUD$15.0 million for Echo Resources Limited on ASX
• AUD$15.0 million for HRL Holdings Ltd. on ASX
• In Canada, Canaccord Genuity participated in raising $246.3 million for government and corporate bond issuances during fiscal Q3/18
• Advisory fees recorded during fiscal Q3/18 were $32.1 million, an increase of $15.0 million or 87.4% compared to the same quarter last year
• During fiscal Q3/18, significant M&A and advisory transactions included:
• Berkeley Energia on its US$120 million strategic investment from the State Reserve General Fund of Oman
• EMZ Partners on its €150 million acquisition of Ginger CEBTP
• Galena Biopharma, Inc. on its merger agreement with SELLAS Life Sciences Group
• Gaming Nation on its C$44 million sale to Orange Capital
• Health Connect America on its sale to Harren Equity Partners
• LOGiQ Asset Management Inc. on the sale of its retail investment fund business to Purpose Investments Inc. for C$32 million
• Naxicap Partners on the €150 million disposal of Organic Alliance to Céréa Partenaire
• Polaris Materials on its sale to U.S. Concrete for C$309 million
• Qvidian on its sale to Upland Software, Inc.
• Versar, Inc. on its sale to Kingswood Capital Management

Canaccord Genuity Wealth Management (Global)

• Globally, Canaccord Genuity Wealth Management generated $110.9 million in revenue during Q3/18
• Assets under administration in Canada and assets under management in the UK & Europe and Australia were $59.2 billion at the end of Q3/18⁽⁴⁾, an increase of 8.6% or $4.7 billion from the end of the previous quarter and an increase of 63.8% or $23.0 billion from the end of fiscal Q3/17

Canaccord Genuity Wealth Management (North America)

• Canaccord Genuity Wealth Management (North America) generated $48.4 million in revenue and, after intersegment allocations and before taxes, recorded a net income of $7.5 million during Q3/18.
• Assets under administration in North America were $14.5 billion as at December 31, 2017, an increase of 12.9% from $12.8 billion at the end of the previous quarter and an increase of 20.7% from $12.0 billion at the end of fiscal Q3/17⁽⁴⁾
• Assets under management in North America (discretionary) were $2.8 billion as at December 31, 2017, an increase of 5.6% from $2.7 billion at the end of the previous quarter and an increase of 12.3% from $2.5 billion at the end of fiscal Q3/17⁽⁴⁾ (included in assets under administration)
• Canaccord Genuity Wealth Management had 134 Advisory Teams ⁽⁶⁾ at the end of fiscal Q3/18, unchanged from September 30, 2017 and a net decrease of five teams from December 31, 2016

Canaccord Genuity Wealth Management (UK & Europe)

• Wealth management operations in the UK & Europe generated $60.9 million in revenue and, after intersegment allocations, and excluding significant items, recorded net income of $11.6 million before taxes during Q3/18⁽¹⁾
• Assets under management (discretionary and non-discretionary) were $43.8 billion (£25.8 billion) as at December 31, 2017, an increase of 7.3% from $40.8 billion (£24.4 billion) as at the end of the previous quarter and an increase of 87.3% from $23.4 billion (£14.1 billion) as at December 31, 2016⁽⁴⁾. In local currency (GBP), assets under management at December 31, 2017 increased by 5.8% compared to September 30, 2017 and by 83.1% compared to Q3/17 ⁽⁴⁾. The acquisition of Hargreave Hale Limited in Q2/18 contributed to the increase in AUM in Q3/18 over the same quarter in the prior year.

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, acquisition-related expense items, which include costs recognized in relation to both prospective and completed acquisitions,  gains or losses related to business disposals including recognition of realized translation gains on the disposal of foreign operations, as well as certain expense items, typically included in development costs, which are considered by management to reflect a singular charge of a non-operating nature. 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, as applicable, and 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⁾

Fellow Shareholders:

I am very pleased to report that for the third quarter of our 2018 fiscal year, Canaccord Genuity Group Inc. earned revenue of $309.4 million - a record for our organization – and net income ⁽¹⁾ of $39 million, our highest quarterly level in seven fiscal years.

Capital raising and advisory activity in our core focus areas improved markedly during the quarter and the continued strong performance of small- and mid-cap equities has also contributed to growth across our global wealth management businesses.

Against this market backdrop, the outstanding result that we achieved this quarter was driven by execution on various strategic initiatives that we have pursued over the last few years. Record revenue coupled with solid expense management allowed us to deliver a pre-tax profit margin ⁽¹⁾ of 12.7% for the three-month period, our highest in the past eight quarters. This level of operating leverage is directly attributable to the progress we have made to significantly increase scale in our global wealth management operations and our collective efforts to extract greater value from our global capital markets businesses.

Capturing market share in key growth sectors of the global economy

Our capital markets division was the primary driver of our revenue for the quarter, a testament to our excellent market position as a leading independent investment bank and advisory firm for mid-market growth companies. In this highly accommodative market for growth stocks, Canaccord Genuity participated in 141 transactions during the third quarter, to raise proceeds of $9 billion for global growth companies. Our global capital markets businesses earned revenue of $196 million for the three-month period, an increase of 43% year-over-year.

While revenue grew substantially, expenses as a percentage of revenue in this segment decreased by 12 percentage points year-over-year, a result of our alignment efforts which have helped us to strengthen collaboration across regions, drive incremental revenue growth and harness opportunities to lead the market in emerging high-growth sectors. Fiscal year to date, revenue per employee in this business has improved by 54%.

Our Canadian capital markets operation delivered an exceptional third quarter performance. Quarterly revenues from investment banking and advisory activities in this business increased by 265% and 194% respectively compared to a year ago. Canaccord Genuity was the leading independent investment bank in Canada for calendar 2017 by a wide margin for both number of transactions and total amount raised, and this business continues to be active with numerous transactions in the blockchain and cannabis sectors. Additionally, we have begun to see renewed activity in mining and the battery materials space. A return to strong activity levels for small cap equities in these sectors has also helped our capital markets team in Australia deliver another record quarterly performance. In both regions, the increases in investment banking revenue also reflect gains in our warrant and inventory positions, as we have partnered with our clients in current and prior periods and shared in their success.

Lower market volatility has led to a modest decrease in our trading activity, but has also created a healthy environment for advisory activity, which has benefited our businesses in Canada, the US and the UK & Europe. For the third fiscal quarter, our total global advisory fees revenue has increased by 87% year-over-year.

Profitability in our US capital markets has strengthened on the back of our efforts last quarter to realign and strengthen our core capabilities in this region. Third quarter pre-tax profit margin ⁽¹⁾ for this business was 7.7%, a year-over-year improvement of 6.9 percentage points. While clients in the region are still digesting the implications of the recent modernization of the tax code, this development gives us optimism that we will continue to see improving momentum in our core sectors, including healthcare and technology.

Our teams in the UK, Europe & Dubai have continued to be productive on several notable investment banking and advisory mandates that we expect to close before the end of the fiscal year, and our Paris operation has been an important contributor to the positive momentum in this business. Fiscal year to date, revenue generated by investment banking and advisory activities in this business have increased by 59% and 41% respectively, and the pre-tax profit margin ⁽¹⁾ in this business has strengthened by 11.8 percentage points for the nine-month period. In January, the official rollout of MiFID II began, and we were able to execute a seamless transition for clients and our business, thanks to the exceptional commitment of our teams in the region who devoted more than a year of planning.

Independent advice and our globally integrated service model are the hallmarks of our ability to lead the market in key growth sectors of the global economy. Although volatility is an inherent feature of our capital markets business, we will continue to partner closely with our clients as we navigate challenging markets together, and deliver for them when markets are supportive.

Wealth management growth anchored by a stronger foundation

Our strategic shift to strengthening contributions from our global wealth management has been an important driver of our performance and a key element of the stability that we expect to deliver for our shareholders over the long term. Year-to-date, our global wealth management operations have contributed 60% of the fiscal 2018 pre-tax net income for our combined operating businesses.

At the end of our third quarter, total assets under management and administration in our global wealth management operations were $59.2 billion, an increase of 64% compared to a year ago. While a significant portion of this growth is attributable to the addition of Hargreave Hale, more than one third of the increase is from net new assets, advisor recruiting and market gains.

Revenue earned by our wealth management business in the UK & Europe increased 76% year-over-year, to $61 million.  When measured in local currency, assets under management in this business increased by 83% year-over-year and 6% sequentially to £25.8 billion. I am also very pleased to report that our wealth management team in the Isle of Man recently awarded Investment Company of the Year at the CityWealth IFC Awards for the fifth consecutive year.

Although we incurred higher operating expenses resulting from the expansion of this business and our increased headcount, our profit margin continues to be strong. Much of our focus during the quarter was dedicated to integrating these businesses in a manner that will allow us to capture the full value from our operating scale and deliver increasingly stronger benefits for our clients. Looking forward, we anticipate continued margin improvement, as we proceed with our integration efforts over the next 12 months.

Total assets in our Canadian wealth management business grew 21% year-over-year, to $14.5 billion. This increase was primarily driven by increased private client participation in new issue activity, strengthening valuations for small-cap equities and the addition of new advisors to our platform. We have also continued to grow discretionary assets under management, which were 12% higher than the same period last year at the end of the fiscal quarter. The increase in revenue in combination with our efforts to reduce fixed costs helped this business deliver a pre-tax profit margin ⁽¹⁾ of 15.5%, an improvement of 17 percentage points over the same period last year.

We remain focused on developing and supporting our existing Investment Advisor teams while continuing to invest in bringing new ones to our platform. The investments we have made to improve our clients' experience across the platform has contributed to increasing the average book size per advisory team in this business by 25% year-over-year, to $108 million.  Our culture of independence and a platform which encourages advisors to operate in ways that best fit their business and client needs have helped us to further advance our recruiting strategy in this business.

Outlook

We entered the final quarter of our 2018 fiscal year in a constructive environment for our business, characterized by strong equity markets, encouraging economic data globally, and robust client activity which has been supported by higher levels of confidence and the added benefit from US tax reform. While we have just entered a period of abrupt declines from the market highs that we have enjoyed in recent months, we remain encouraged by the solid fundamental landscape and the removal of extreme optimism. The industry at large feels to be on solid footing and our overall pipeline for investment banking and advisory activity remains healthy.

We expect a continuation of financing and advisory activity levels in our core focus sectors and also for emerging growth industries such as cannabis and fintech, where Canaccord Genuity has established dominance in the investment banking and advisory segments. And finally, further positive returns in small- and mid-cap assets are likely to support continued asset growth in our global wealth management operations.

Our business is well capitalized for investment in our key priorities, with working capital of $513.0 million and cash & cash equivalents of $592.9 million at the end of our third quarter.

While we can expect periodic increases in volatility, we are increasingly better equipped to adapt to changes in the climate for equities and deliver greater predictability for our shareholders – even during unpredictable times. We remain committed to evaluating ways to enhance our earnings capabilities across our capital markets and wealth management operations, whether they involve activities aimed at improving our operational efficiencies or growing our market share as we increase our relevance to clients

Kind regards,

Dan Daviau
President & CEO
Canaccord Genuity Group Inc.

ACCESS TO QUARTERLY RESULTS INFORMATION

Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at http://www.canaccordgenuitygroup.com/EN/IR/Pages/default.aspx.

CONFERENCE CALL AND WEBCAST PRESENTATION
Interested parties are invited to listen to Canaccord Genuity's third quarter results conference call, via live webcast or a toll-free number. The conference call is scheduled for Wednesday, February 7, 2018 at 5:00 a.m. Pacific time, 8:00 a.m. Eastern time, 1:00 p.m. UK time, 9:00 p.m. China Standard Time, and midnight Australia EDT. During the call, senior executives will comment on the results and respond to questions from analysts and institutional investors.

The conference call may be accessed live and archived on a listen-only basis at: http://www.canaccordgenuitygroup.com/EN/NewsEvents/Pages/Events.aspx

Analysts and institutional investors can call in via telephone at:

• 647-427-7450 (within Toronto)
• 1-888-231-8191 (toll free outside Toronto)
• 0-800-051-7107 (toll free from the United Kingdom)
• 0-800-91-7449 (toll free from France)
• 10-800-714-1191 (toll free from Northern China)
• 10-800-140-1195 (toll free from Southern China)
• 1-800-287-011 (toll free from Australia)
• 800-017-8071 (toll free from United Arab Emirates)

Please ask to participate in the Canaccord Genuity Group Inc. Q3/18 results call.  If a passcode is requested, please use 4399577.

A replay of the conference call will be made available from approximately two hours after the live call on February 7, 2018, until March 23, 2018 at 416-849-0833 or 1-855-859-2056 by entering passcode 4399577 followed by the (#) key.

ABOUT CANACCORD GENUITY GROUP INC.:
Through its principal subsidiaries, Canaccord Genuity Group Inc. (the Company) is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and capital markets. Since its establishment in 1950, the Company has been driven by an unwavering commitment to building lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. The Company has offices in 10 countries worldwide, including wealth management offices located in Canada, Australia, the UK, Guernsey, Jersey, and the Isle of Man. Canaccord Genuity, the international capital markets division, operates in Canada, the US, the UK, France, Ireland, Hong Kong, China, Australia and Dubai. To us there are no foreign markets.^TM

Canaccord Genuity Group Inc. is publicly traded under the symbol CF on the TSX. Canaccord Genuity Series A Preferred Shares are listed on the TSX under the symbol CF.PR.A. Canaccord Genuity Series C Preferred Shares are listed on the TSX under the symbol CF.PR.C.

SOURCE Canaccord Genuity Group Inc.

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