Earnings call transcript: Canaccord Genuity misses Q1 2025 forecasts

Canaccord Genuity Group reported its earnings for the first quarter of 2025, revealing a notable miss on both earnings per share (EPS) and revenue forecasts. The company reported an EPS of $0.13, falling short of the forecasted $0.2174, marking a 40.2% negative surprise. Revenue also came in below expectations at $448.45 million, compared to the anticipated $471.1 million. Following the earnings release, the stock reacted negatively, dropping 6% in after-hours trading. According to InvestingPro data, the company currently shows strong fundamentals with an overall Financial Health score of "GREAT," despite recent volatility in stock price movements.

Key Takeaways

• Canaccord Genuity’s EPS and revenue both missed forecasts significantly.
• The stock price declined by 6% following the earnings announcement.
• The company experienced growth in commissions and fees, as well as principal trading revenue.
• Ongoing strategic expansions and technology investments were highlighted.

Company Performance

Canaccord Genuity Group’s performance in Q1 2025 showed mixed results. While the company achieved a 5% year-over-year increase in consolidated revenue, the figures did not meet market expectations. The growth was driven by a 17% rise in commissions and fees and a 46% increase in principal trading revenue. Despite these gains, the overall financial performance was overshadowed by the missed earnings and revenue forecasts.

Financial Highlights

• Revenue: $448.45 million, up 5% year-over-year.
• Earnings per share: $0.13, an 8% increase quarter-over-quarter.
• Adjusted pre-tax net income: $33 million, up 4% sequentially.
• Firm-wide compensation ratio: 60%.

Earnings vs. Forecast

Canaccord Genuity reported an EPS of $0.13, significantly below the forecast of $0.2174, resulting in a negative surprise of 40.2%. Revenue was also lower than expected, at $448.45 million versus the forecast of $471.1 million, marking a 4.81% shortfall. The magnitude of this miss is notable compared to previous quarters, where the company had generally met or exceeded expectations.

Market Reaction

Following the earnings announcement, Canaccord Genuity’s stock price declined by 6%, closing at $9.87. This drop reflects investor disappointment with the company’s performance against forecasts. The stock is currently trading closer to its 52-week low of $7.45, indicating a challenging sentiment in the market.

Outlook & Guidance

Looking ahead, Canaccord Genuity remains optimistic about its wealth management business, anticipating continued fee growth and margin improvement. The company is targeting single-digit growth for the fiscal year, bolstered by strong corporate earnings and improved market conditions. Strategic expansions and technology investments are expected to support future growth.

Executive Commentary

Dan Davio, Chairman and CEO, expressed confidence in the company’s direction, stating, "We anticipate continued fee growth across our wealth management business in line with the broader market momentum." CFO Nadine Ahn added, "We are making strong progress across firm-wide cost efficiency initiatives."

Risks and Challenges

• Market volatility and policy uncertainty could impact future performance.
• Increased competition in the wealth management sector.
• Potential delays in M&A activity, particularly in small and mid-cap sectors.
• Economic pressures from global trade dynamics.

Q&A

During the earnings call, analysts focused on the valuation of the UK wealth incentive plan and the consolidation of the Canadian wealth market. Questions also addressed the softer performance in M&A advisory services in the US, with executives expressing optimism about significant improvements in the coming quarters.

Full transcript - Canaccord Genuity Group Inc (CF) Q1 2026:

Conference Operator: Good morning, ladies and gentlemen. Thank you for standing by. I’d like to welcome everyone to the Canaccord Genuity Group, Inc. Fiscal twenty twenty five First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise.

Following the speakers’ prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. If you have any difficulties hearing the conference, please press star and then 0 for the operator assistance at any time. As a reminder, this conference call is being broadcast live online and recorded.

I would now like to turn the conference call over to Mr. Dan Davio, Chairman and CEO. Please go ahead.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Thank you, operator, and welcome to those of you joining us for today’s call. As always, I’m joined by our Chief Financial Officer, Nadine Ahn. Our remarks today are complementary to the earnings release, MD and A and supplemental financials, copies of which have been made available for download on SEDAR plus and on the Investor Relations section of our website at cgf.com. Nadine will also be referring to our investor presentation available on our website and through the online portal for this conference call. Within our update, certain reported information has been adjusted to exclude significant items to provide a transparent and comparative view of our operating performance.

These adjusted items are non IFRS measures. Please refer to our notice regarding forward looking statements and the description of non IFRS financial measures that appear in our MD and A. And with that, let’s discuss our first quarter fiscal twenty twenty six results. Our first fiscal quarter was characterized by rapidly changing market conditions, which were primarily driven by trade and policy uncertainty. Following the announcement of substantial U.

S. Tariffs on key trading partners, global markets initially sold off, but quickly reversed in news of the ninety day pause. For the three month period, we reported consolidated revenue of $448,000,000 which improved by 5% year over year, but declined by 3% sequentially. Our wealth business delivered consistent top line growth contributing 54% of total revenue for the quarter with new quarterly records in The UK and Australia. Revenue in our Capital Markets division declined modestly when compared to the previous quarter and the same period a year ago, but the market disruption in early April had a notable impact on the revenue mix.

Broad market M and A activity during the quarter was tilted towards large cap deals, while policy and trade uncertainty stalled deal completions for many of the small and mid cap focused sectors that we serve. As a result, the revenue contribution from our advisory segment fell 276% sequentially, with the sharpest impact observed in our U. S. Operations. Our trading businesses benefited from elevated volumes on both sides of the downturn, which partially offset the shortfall in advisory revenue.

This shift in revenue adversely impacted overall profitability in this division, particularly in our US business, as trading costs rose in line with elevated volumes, while earnings from higher margin advisory work declined. Revenue from capital raising activities improved substantially on a sequential basis, but came in modestly below the same quarter of last year, which was an exceptional period for this segment, largely driven by a more active underwriting environment in Australia and Canada. We completed 93 transactions during the quarter raising over $16,000,000,000 for growth clients. Although transaction volume declined year over year, the average size of the transactions increased by 80% indicating growing demand within our core focus sectors. The value of client assets in our wealth management division benefited from the market rebound despite the initial decline that was in line with the abrupt market downturn in April.

We ended the quarter with a record $125,000,000,000 in client assets driven by rising market values and complemented by recruiting and organic inflows. Despite some catalyst driven outflows amid shifting risk appetite early in the quarter, net organic flows remain positive and the percentage of fee based asset revenue contributions continued to trend higher. The adjusted pre tax net income contribution from the division increased by 23% year over year, significantly outpacing revenue growth for the same period. We anticipate further gains over the next six months as ongoing organic growth initiatives and our recent recruitment and acquisition activities contribute meaningfully to our pretax profit margins. Our wealth management talent pool also continued to expand with new advisor teams onboarded in Canada and Australia and robust pipelines developing in both regions.

In The UK and Crown dependencies, we bolstered our capability by adding investment professionals and specialist teams through targeted recruitment and strategic acquisitions. Efforts to contain our firm wide non compensation expenses have continued, though the pronounced shift in our revenue mix tempered the effects of these efforts, resulting in a more modest pre tax margin improvement during the period. Although our first quarter profitability fell below our expectations, we’ve had a productive start to the fiscal year. Early indicators point to steady momentum in our wealth management businesses, improving levels of client engagement, pipeline development and execution across the organization. Reflecting this confidence, our Board of Directors have approved a quarterly common share dividend of 8.5¢.

And with that, I will turn things over to Nadine.

Nadine Ahn, Chief Financial Officer, Canaccord Genuity Group: Thank you, Dan, and good morning, everyone. I’ll start with the performance highlights on page four of our investor presentation. Firmwide revenue improved by 5% year over year to $448,000,000 The year over year increase was primarily fueled by a 17% increase in commissions and fees revenue to $239,000,000 and a 46% increase in principal trading revenue to $37,000,000 driven by substantially higher trading volumes during the three month period. Turning to expenses. As Dan mentioned, we are making good progress to reduce our non compensation expenses, but certain expenses have remained elevated.

Slide seven in our investor presentation provides a breakdown of our first quarter non compensation expense drivers. Firm wide, non compensation expense increased $6,000,000 or 4% year over year to $146,000,000 The largest driver of the increase relates to fixed or less controllable expenses, which were up 8,000,000 during the quarter, primarily from foreign exchange, which accounted for 53% of the total increase, and higher premise and equipment costs related to our new flagship offices in Vancouver and New York, as well as new branch locations in The U. K. And Australia. We anticipate that the year over year variance in premises and equipment expenses will begin to taper off in the second half of the fiscal year as we pass the one year occupancy milestones in each location.

While investments in targeted growth have continued, development costs declined year over year as the prior period included technology investment to support our organic growth in The UK and Crown dependencies. This reduction was partially offset by higher trading expenses, driven primarily by increased activity in our IEG group, and to a lesser degree by recent acquisitions within our UK Wealth business. While we are making meaningful progress to curb discretionary spending across the organization, professional fees remained elevated due to our ongoing remediation efforts in The US and the recent conclusion of two enforcement matters in Canada. Promotion and travel costs were also modestly higher this quarter, driven by recent conference participation and expanded client engagement. Compensation expense increased 6% year over year, primarily driven by stronger revenue, higher performance based payments in our Canadian wealth business, and the impact of certain fixed compensation costs in the Capital Markets division, which were amplified by lower revenues in The US and UK.

Our firm wide compensation ratio was within our desired range at 60%. Our effective tax rate declined by five percentage points year over year, largely due to the impact of a higher share price on deferred tax assets associated with our share based compensation. Firmwide profitability and earnings per share for the three month period were flat on a year over year basis. On an adjusted basis, pretax net income of $33,000,000 improved by 4% sequentially, and earnings per share of $0.13 improved by 8% compared to the most recent fiscal quarter. I’ll discuss the drivers of this result within the overview of our segment results.

Our wealth management businesses earned revenue of $243,000,000 representing the sixth consecutive quarter of a record revenue for this division. The increase was primarily driven by higher commission and fee revenues from all regions. Our wealth business in The UK and Crown dependencies contributed record quarterly revenue of $126,000,000 up 17% year over year and 7% sequentially. Slide 12 provides an overview of client asset flows in this business. Measured in local currency, client assets increased by 9% year over year to a record £38,000,000,000 Net flows remained positive, but robust inflows were partially offset by a small number of catalyst driven outflows early in the quarter.

Assets now comprise 64% of total assets in The U. K. Wealth business, an improvement of three percentage points compared to the same period of last year. On an adjusted basis, this business delivered $30,000,000 in pretax net income for the first quarter, representing a 31% year over year increase. The adjusted pretax profit margin also improved by 2.5 percentage points to 23.6%.

And finally, normalized EBITDA of £21,000,000 for the three month period reflects a year over year improvement of 8.5%. Our Canadian wealth business contributed first quarter revenue of $94,000,000 an increase of 5% year over year, the decline of 6% sequentially. The impact of the early quarter downturn and the resulting sharp decline in the market value of client assets adversely impacted commissions and fees revenue recognition, which typically lags AUA growth. Client assets reached a new record of $45,000,000,000 at the end of the three month period. As outlined on slide 11, higher market valuations were a major contributor to this increase.

Consistent with trends in our UK business, net flows remained positive, although early quarter volatility triggered some circumstantial withdrawals that partially offset inflows. The business continues to advance its strategic goal of growing fee generating asset contributions, which represented 55% of total assets at the close of the first quarter. Growing our fee generating asset share enhances revenue stability and supports our priority of improving asset quality and enhancing client value. Compensation expense in this business rose by $5,000,000 year over year due to increased share based compensation, driven by the absence of a prior year recovery of certain share based awards. The increase also reflects higher advisor payouts tied to our revenue mix during the three month period.

First quarter adjusted pretax net income in this business was flat compared to the first quarter of last year at $9,200,000 Adding back non cash development charges, normalized EBITDA in our Canadian wealth management business for the quarter was $16,000,000 a decline of 7% year over year, largely reflecting the impact of the previously discussed compensation expense and the modest reduction of corporate financing and interest revenue. And finally, our Australian wealth business generated record revenue of $23,000,000 increasing 25% year over year and 11% sequentially. Measured in local currency, client assets grew to a record of $10,000,000,000 an increase of 37% year over year and 6% sequentially. This represents the fourth consecutive quarter of record assets under administration, underscoring our momentum in the region. This business generated first quarter adjusted pretax net income of $2,000,000 an increase of 52% year over year and 96% sequentially, the highest result since our 2022.

Profitability in our Australian operations is improving, albeit at a moderated pace, as we prioritize investments to fuel long term growth. The adjusted pretax margin for the first quarter improved by 1.5 percentage points year over year and by 3.6 percentage points sequentially to 8.2%. Turning to our Global Capital Markets division. As Dan mentioned, the tariff related market disruption led to a shift in the revenue mix in this division, resulting in a lower contribution from higher margin advisory revenue, which was partially offset by increased contributions from the trading and commissions and fees segments. Consolidated revenue of $200,000,000 decreased by 3% year over year and by 6% sequentially.

Notwithstanding a strong and diverse pipeline, a decrease in M and A completions contributed to a revenue decline of 27% year over year and 46% sequentially to $49,000,000 for the advisory segment. The decline was most pronounced in our U. S. And U. K.

Businesses. The technology sector remained active, while the consumer sector was most impacted. Advisory revenue in our Canadian business increased on both a sequential and year over year basis, as efforts to improve the longer term revenue profile of this segment continue. I will also note that as advisory activity has become a more meaningful component of our capital markets business in Australia, we have begun reporting this revenue segment separately, beginning with the current quarter. Contributions previously classified under Investment Banking in fiscal twenty twenty five have been restated accordingly.

Corporate financing revenue of $62,000,000 increased by 56% sequentially, but declined by 4% year over year against an exceptional performance in the prior year, which was most notable in our Australian business. While the mining sector was the largest contributor in this segment, improving activity in our other core sectors have extended into the current quarter. Revenue from principal trading increased by 52% year over year to $38,000,000 and 88% of this amount was contributed by our U. S. IEG business, which benefited from increased trading volumes as a result of the heightened broad market volatility early in the quarter.

We remain on track to complete the sale of this business in the current fiscal quarter. And finally, the contribution from the Commissions and Fees segment improved by 8% year over year to 41,000,000 The adjusted pretax net income from our Capital Markets division amounted to $5,500,000 for the quarter compared to $13,000,000 in the same period a year ago. Improved contributions from our Canadian and Australian businesses were partially offset by losses in our US and UK operations. Non compensation expense in our US business reflected elevated general and administrative costs tied to our previously disclosed enforcement matter, alongside higher premises and equipment expenses as noted earlier. Despite cost discipline, profitability in our UK business was impacted by the downturn in M and A completions during the quarter, in addition to the continuing trend of subdued corporate financing activities in the region.

On a consolidated basis, the adjusted pretax profit margin in our Capital Markets division saw a modest improvement versus the prior quarter. However, lower advisory revenues and increased trading costs constrained our growth objectives. Ongoing progress in our cost efficient initiatives, coupled with the recovery in advisory and corporate financing activities, is expected to support the achievement of our targeted margin improvement for this fiscal year. We are making strong progress across firm wide cost efficiency initiatives with efforts expected to continue. As we accelerate both organic and inorganic growth strategies and execute effectively for our clients amid improving business conditions, we remain confident in our ability to enhance firm wide profit margins and deliver our targeted single digit growth for the current fiscal year.

Turning to the balance sheet, we maintain sufficient working capital to support our strategic priorities and expanded business activity, while preserving the flexibility to reallocate capital as market conditions evolve. With that, I will turn things back to Dan.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Thanks, Nadine. Our second fiscal quarter is off to a productive start, with the market conditions largely aligning with the outlook we shared in June. Investor sentiment is already improving, supported by strong corporate earnings, improved clarity on tariffs and signs of stabilization in the equity markets, which are conducive to stronger deal flow. Looking ahead, we anticipate continued fee growth across our wealth management business in line with the broader market momentum. We also expect continued margin improvement as we leverage the benefits of recent acquisitions and our growing talent pool.

Client engagement remained high across our capital markets verticals. We are seeing improved CEO confidence in our core sectors, which supports decisive action and execution, even while we navigate the complexities of geopolitical risk and shifting trade dynamics. Our advisory pipeline looks resilient and provided the environment holds, we anticipate a constructive environment for our corporate finance activities. Although the IPO market has yet to fully reopen, the backdrop continues to improve. Our proven leadership in this space positions us well to capitalize on emerging opportunities.

Next week, we’ll be hosting our forty fifth Annual Growth Conference in Boston, which will be our largest ever. We’ve hit new records for registration with an impressive mix of private and public companies and investors from all four continents, which is a strong indicator of improving confidence across dynamic growth sectors and the investors who follow. With that, Nadine and I will be pleased to take your questions. Operator, please open the lines.

Conference Operator: Ladies and gentlemen, we’ll now conduct the question and answer session. If you would like to ask a question, please press the star then the one on your telephone keypad. If you would like to have a question, press the pound key. There will be a brief pause while we comply the Q and A roster. Your first question comes from David Pierce from Raymond James.

Please go ahead.

David Pierce, Analyst, Raymond James: Morning. First question is just sort of a tidy up question. The incentive plan true up for UK Wealth, not the first time we’ve seen it, but was slightly more impactful this quarter. Can you remind me what causes that to move up or down?

Nidhi, Unspecified, Canaccord Genuity Group: It’s high, it’s Nidhi. It’s primarily due to the valuation of The UK wealth. In addition, we kind of accrue into that new valuation, so it’s another three months of accrual into that number, which would be higher given an increased value of UK Wealth Management.

David Pierce, Analyst, Raymond James: So you just have a market based valuation that you apply based on, I don’t know, EBITDA and then depending on what

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Correct. Okay. Correct.

David Pierce, Analyst, Raymond James: Okay. That that’s helpful. Sticking with maybe moving to to wealth in Canada, we saw one of your wealth competitors here in Canada announced an agreement to be acquired. Maybe a good time to ask, like, what’s your view on the wealth market from consolidation M and A standpoint in Canada? At the very least, it looks like the cost needed to run these businesses is going up, which suggests scale is becoming more important.

Do you expect that will drive more consolidation? And then what role do you think Canaccord will play in that?

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Yeah, I mean, as you know, we’ve grown our Canadian wealth business over the last nine years from $8,000,000,000 to $45,000,000,000 of assets. We reported $16,000,000 of EBITDA this quarter in our Canadian wealth business. You know, there’s not a lot of independent competitors, I guess if you consider the insurance companies independent, I don’t, Then you’d say there’s lots of independent competitors. But there’s really upscale. There’s us and Wellington Altus now with Richardson trading to Industrial Alliance.

If there’s a group of advisors who don’t want to work for a large institution, being at a bank or an insurance company, there’s not a lot of full service offerings for them. We’d be the only one, quite frankly, attached to a capital markets business. So we love our competitive position in Canada. We continue to have an active pipeline of recruits. We brought on another advisor in Calgary this last quarter.

We brought on over 60 teams of advisors to our platform over the last several years and over $20,000,000,000 of assets in doing that. So we think our model of organically growing our business and giving the tools to our advisors to continue to grow the business works very well, as well as competitively recruiting in this space when quite frankly, there’s just not a lot of alternatives, especially high quality alternatives for the high quality investment advisors to go to. So we love our competitive position and where we stand and you know, this transaction, you know, hopefully it’s a good thing for the Richardson family. They were, you know, that’s a, that’s a business that struggled to grow over the last eight years, it was $30,000,000,000, you know, five, six, seven years ago and it’s 40 today. It was a business that struggled to grow and obviously they felt that there was a better home for that.

Does that answer your question? Because I can’t quite remember what your question was.

David Pierce, Analyst, Raymond James: Yeah. No. It it was more around just sort of the m and a team and granted, obviously, there’s a as you said, there’s not there’s only a few select number of independents remaining. So but maybe just sticking with Canada web, like, what are you seeing just from, a competitive standpoint in terms of recruitment? Is the market growing more competitive in terms of trying to attract advisors?

Dan Davio, Chairman and CEO, Canaccord Genuity Group: I think it’s the same. The deals that we offer investment advisors to come here haven’t changed materially. The pipeline of activity is probably as robust as it’s ever been in terms of bringing people over. So nothing’s changed. Think if anything, the competitive environment for recruiting brokers, if that’s your question, with Richardson part of a bigger firm now or to be part of a bigger firm probably improves.

It probably becomes less competitive, not more competitive. They didn’t, you know, they were attracting some brokers as well, obviously, but so I’d argue it becomes again, if you don’t want to work at a bank, you have very few a bank or insurance company, you really have very few alternatives. The banks still control 90% of the full service wealth assets of $2,500,000,000,000 or $45,000,000,000 it would just be a small dent in the marketplace for us to grow to 100,000,000,000. It would be 5% of the market then.

David Pierce, Analyst, Raymond James: Helpful. Thank you. I’ll pass the line.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Thank you.

Conference Operator: Thank you. And your next question comes from Michael MacKoo from TD Securities. Please go ahead.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Hi, good morning. Just stepping in for Graham here. First question, just to stick with the Canada wealth theme, revenue came in a little bit lighter than our forecast. Is there anything you would call out that was maybe a particular drag on fees in the quarter?

Nidhi, Unspecified, Canaccord Genuity Group: Hi, it’s Dean. Yeah, thank you. It really related to the fact that we saw the markets come off so significantly in April when the AUA came down. So we expect that to improve as we’ve seen the markets significantly move up. As you’ve seen, we’ve hit $45,000,000,000 in assets at the end of the quarter.

We did have a dip at the April, and so that just recalled our fees to come down. Most of our book is paid on a monthly basis.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Okay, so just the average AUM, okay, understood.

Nidhi, Unspecified, Canaccord Genuity Group: Correct.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Also just, the 2,500,000.0 provision toward the legal provision, Was that related to the ongoing U. S. Matter? I saw the net pool came down, but there was a further provision to it. Was that related?

And just any broader update on that on the regulatory matter, you have one? Yes, that’s what that provision was for, it was for the ongoing regulatory matter in The US and we have no significant update. Again, it’s kind of, it’s not completely in our hands, right? There’s changes with undersecretaries and secretaries and heads of departments and there’s a lot of transition going on post the election there. So it’s hard for us to predict the timeline.

We continue to have constructive dialogue, but ultimately getting to a settlement, we don’t have any substantive update. Okay, understood. Thanks for that. And just one more quick one, I may, just outlook on M and A advisory in The U. S.

In particular, given it was a little bit softer this quarter, understanding the macro themes taking place right now. Just what’s your outlook for the next couple of quarters? You know, and again, thanks for asking just the next couple quarters, because we actually have visibility on that. Yeah, strong. You know, we expect a significant improvement in our M and A revenue over the next couple of quarters, it feels like things just got pushed out as opposed to debt.

That’s what it feels like. Right, perfect. That’s all for me. Thank you.

Conference Operator: There are no further questions. Mr. Davio, you may proceed your conference.

Dan Davio, Chairman and CEO, Canaccord Genuity Group: Thanks everyone for joining us in the dog days of August. We understand there’s a bunch

Dan Davio, Chairman and CEO, Canaccord Genuity Group: of other companies reporting in

Dan Davio, Chairman and CEO, Canaccord Genuity Group: our sector this morning. So I appreciate you making time, I appreciate some of our analysts are double booked. But we’re always available certainly for questions later on. Our next update is in November. So thank you very much for joining us.

Conference Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation. Please disconnect your lines. Have a great day.

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