CI Financial Q1 2023 Earnings Report

CI Financial EPS Results

• Actual EPS: C$0.74
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

CI Financial Revenue Results

• Actual Revenue: $637.82 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CI Financial Announcement Details

• Quarter: Q1 2023
• Date: 5/11/2023
• Time: N/A
• Conference Call Date: Thursday, May 11, 2023
• Conference Call Time: 9:00AM ET

CI Financial (TSE:CIX) is a diversified provider of wealth management products and services, primarily in the Canadian market. The company had CAD 129.2 billion in fund assets under management, and another CAD 221.5 billion in assets under advisement, at the end of April 2022, making it one of the largest nonbank affiliated asset managers in Canada. The company operates primarily through CI Global Asset Management, which offers a broad selection of investment funds. On the wealth management side, the company operates through CI Assante Wealth Management, Aligned Capital Partners, CI Private Wealth, as well as a growing group of acquired U.S.-based advisors, providing financial advice primarily to high-net-worth individuals and families.

CI Financial Q1 2023 Earnings Call Transcript

Key Takeaways

• CI delivered solid Q1 core results with adjusted EPS of $0.74 flat sequentially, adjusted EBITDA per share up 2%, and a 3% decline in free cash flow per share due to seasonally higher bonus payments.
• Capital allocation was balanced, with $82 million in M&A payments, $34 million in dividends and $22 million of debt paydown, driving net leverage down to 2.7x, the lowest since 2021.
• The platform generated strong net inflows across all segments, including $800 million into Canadian Retail—well ahead of industry breakeven—and continued positive flows in Canadian and U.S. wealth businesses and long-term strategies.
• CI sold a 20% minority stake in its U.S. Wealth business for $1.35 billion at an EBITDA multiple of ~25.6x, valuing the unit at over three times CI’s market cap, with proceeds earmarked for material deleveraging.
• Strategic progress continued with the launch of U.S. trust services, the acquisition of Avalon Advisors ($11 billion AUM), and the sale of a Congress Wealth stake for three times the initial investment.

Presentation

[Operator]

Hello, everyone, welcome to the CI Financial first quarter 2023 earnings call. My name is Chach, I'll be the coordinator for this conference. After the presentation, there'll be a Q and A session where you can ask a question by pressing Star followed by One on your telephone keypad. If you would like to withdraw your question, you may press Star Two. I'd now like to hand over to Kurt MacAlpine, CEO of CI Financial to begin. Please go ahead.

[Kurt MacAlpine, CEO at CI Financial]

Good morning, everyone, welcome to CI Financial's first quarter earnings call. Joining me this morning is our CFO, Amit Muni. Together, we'll cover the following: an overview of the highlights of the quarter, a review of our financial performance during the quarter, a discussion of the minority investment in our US wealth business announced this morning, then we will take your questions. We produced solid core financial results in Q1 that represent a continuation of the strategic progress and momentum we've built since launching our new strategy. Our adjusted EPS of CAD 0.74 is unchanged from Q4, reflecting another quarter of net inflows across all three of our businesses, disciplined discretionary expense management, and the realization of integration synergies in the US, offset by fewer fee days in the quarter, asset mix shift, and higher interest costs.

[Kurt MacAlpine, CEO at CI Financial]

Adjusted EBITDA per share increased 2% from Q4, while free cash flow per share declined 3%, reflecting the seasonally higher draws on our cash in Q1 related to bonus payments. Capital allocation during the quarter was balanced with CAD 82 million of M&A payments, primarily related to prior deals in the U.S., CAD 34 million towards our regular quarterly CAD 0.18 per share dividend, and CAD 22 million of debt paydown. As we will discuss in more detail later, this morning we launched a tender offer for CAD 1 billion of our Canadian bonds and plan to fully pay down and shrink the size of our credit facility, driving a material reduction to our gross and net leverage on a go-forward basis.

[Kurt MacAlpine, CEO at CI Financial]

Our new net leverage of 2.7x is our lowest since 2021 and realizes meaningful progress to our stated leverage target of 1.5x-2x for the Canadian business. Our platform continues to generate net inflows despite the more uncertain economic environment and market outlook. Within Canadian retail, our inflows of CAD 800 million were once again a stark contrast to the break-even flows of the Canadian mutual fund industry. We continued to see demand for our high interest savings strategy and a range of our ETFs. Asset gathering for our long-term strategies continued to outperform our peers, which we attribute to the strategic transformation of our investment management function from a series of multi-boutiques into an integrated global asset manager. Our wealth businesses in both Canada and the U.S. continued to generate consistent and strong positive inflows.

[Kurt MacAlpine, CEO at CI Financial]

We also continued to execute against our three strategic priorities to modernize asset management, expand wealth management, and globalize the company. We further enhanced our capabilities in the U.S. with the formal launch of our trust services. This is an important advancement to better meet the complex and distinct planning needs of our ultra-high and high net worth clients. In late April, we announced the sale of our minority interest in Congress Wealth Management. Congress is a great firm. We had a strong working relationship with the team. However, the minority stake in their ownership structure precluded the firm from fully integrating into CI Private Wealth and maximizing the benefits for clients, employees, and CI. When it closes later this month, the sale will return three times our initial investment in less than three years.

[Kurt MacAlpine, CEO at CI Financial]

In May, we completed the acquisition of Avalon Advisors and welcomed them to CI Private Wealth. Avalon is a Houston-based ultra-high net worth focused RIA with $11 billion of client assets and adds to our considerable scale in one of the fastest-growing states in the country. As we will cover in detail at the end of the call, this morning we announced a minority investment by a group of leading global institutional investors valuing our U.S. business at more than 3x the market cap of our entire company. This value is reflective of what we built in the U.S. since we initiated the strategy in 2020. It also highlights the magnitude of the disconnect between how our stock trades from the underlying value of our business.

[Kurt MacAlpine, CEO at CI Financial]

To put the magnitude of the disconnect in perspective, the 20% minority stake of the business sold represents 5.5% of CI's Q1 consolidated adjusted EBITDA. For that 5.5%, we will receive $1.35 billion in proceeds. Yesterday, based on CI's stock price, we could have bought a 5.5% stake for less than $130 million, or less than one-tenth of the price. The proceeds from the transaction will be used to materially deleverage while maintaining significant strategic flexibility and further value creation potential for our shareholders. I'll now turn the call over to Amit.

[Amit Muni, EVP and CFO at CI Financial]

Thank you, Kurt. Good morning, everyone. Turning to slide four, our global assets ended the quarter up 4% to CAD 391 billion due to positive flows in all three segments, as well as rising markets. We had no acquisitions closed during the quarter. Turning to our financial results on the next slide, I'll focus my comments on our adjusted results. Adjusted net income was CAD 137 million, or CAD 0.74 per share for the quarter. Net revenues increased to CAD 603 million. Adjusted EBITDA was CAD 250 million for the quarter. Turning to the next slide, I'll highlight the revenue drivers for our three segments. Revenues were up 4.1%, primarily driven by higher revenues in our Canada and US wealth businesses. Asset management revenues were essentially flat compared to Q4.

[Amit Muni, EVP and CFO at CI Financial]

Higher average AUM was mostly offset by the change in mix shift due to flows into lower fee duration funds and two less trading days in the quarter. Turning to expenses on the next slide. Total expenses increased 4.8%. SG&A increased primarily due to higher seasonal payroll taxes. Advisor and dealer fees are up due to payouts in our Canadian wealth segment from higher revenues. Interest expense increased due to the full quarter effect of our recently issued bond as well as higher interest rates. We expect to record higher stock-based compensation of approximately CAD 17 million for the remainder of the year, given we were unable to make our annual employee restricted stock award grants as we were in a blackout period pending the transaction announcement this morning. Turning to slide eight.

[Amit Muni, EVP and CFO at CI Financial]

We generated free cash flows of CAD 153 million for the quarter and paid dividends of CAD 34 million. Turning to the next slide, you can see our debt and leverage. At the end of the quarter, our net debt declined to CAD 4.2 billion, and our net leverage was 4.0 times. Thank you. Let me turn it back to Kurt.

[Kurt MacAlpine, CEO at CI Financial]

Thanks, Amit. We're excited to announce a minority investment in our U.S. wealth management business. When we announced the plan to separate the U.S. business from Canada via subsidiary IPO, there was one objective: To deliver value to our Canadian shareholders that was not being reflected in our share price. We believe the price we received highlights the value of the business that we've built in a short period of time while allowing our shareholders to benefit from 80% ownership on an ongoing basis. Consistent with our plans for the IPO, 100% of the proceeds go to the Canadian shareholders. They will be used to materially and immediately deleverage. Since inception in 2020, CI has grown its RIA business to $198 billion of client assets. We have annualized EBITDA of over $275 million.

[Kurt MacAlpine, CEO at CI Financial]

We attribute our industry-leading growth, profitability, and now valuation to a fundamentally differentiated strategy that we've created compared to our peers. One of the most distinctive elements is the private partnership structure that we've created inside of our public company. This approach allows us to operate like a leading professional services partnership, where we collaborate across the firm to maximize the client experience while creating an unrivaled opportunity in wealth creation for our employees. By contrast, most wealth managers operate effectively like a real estate brokerage firm, where advisors share only office space, technology, and a brand, but serve clients individually and get paid via commissions. We continue to focus on expanding the services we provide to our clients, which now includes tax prep, trust services, wealth transfer, family governance, and outsourced CFO capabilities, while integrating our operations to enable growth and deliver synergies.

[Kurt MacAlpine, CEO at CI Financial]

Our M&A strategy is focused exclusively on the highest quality firms in the industry that share our passion for client excellence and our aspiration of building the leading integrated ultra-high net worth wealth manager in the U.S. Turning to an overview of the transaction and our strategic rationale. We've agreed to sell a 20% minority investment in our U.S. wealth business to several leading global institutional investors. That includes the Abu Dhabi Investment Authority, Bain Capital, Ares, Flexpoint Ford, the State of Wisconsin, and others. While our work last year focused on the subsidiary IPO to unlock value for our shareholders, as we progressed through that process, we received constant and significant inbound interest from leading investors. We still intend to IPO the business. However, this path allows us to better accomplish our objective of unlocking more value for our public company shareholders while instantly and meaningfully deleveraging.

[Kurt MacAlpine, CEO at CI Financial]

Slide 14 illustrates the substantial value creation of this transaction. The left side of the chart compares the enterprise value to EBITDA multiple of our peers at 7.8x, CI at 6.3x, and our US business at 25.6x. The right side of the slide walks through the value illumination from this transaction, starting with CI's current enterprise value of $6.4 billion, the implied consolidated enterprise valuation based on a sum of the parts approach of $11.7 billion, and an implied equity value of $7.8 billion. This implied equity value is $5.5 billion more than yesterday's closing market cap. On a per share basis, that equates to an implied stock price of over $42 or an increase of $30 a share from where we currently trade.

[Kurt MacAlpine, CEO at CI Financial]

As I mentioned earlier, the 20% minority stake of the business sold represents 5.5% of CI's Q1 consolidated adjusted EBITDA. For selling that 5.5%, we will receive CAD 1.35 billion in proceeds. Yesterday, based on our closing stock price, we could have bought a 5.5% stake for less than CAD 130 million, or effectively one tenth the price. As I mentioned, this transaction will be a material de-leveraging event. As Amit discussed earlier, our net debt stood at 4x at the end of Q1. Pro forma for this transaction and the sale of Congress, net leverage immediately declines by 1.3 turns to 2.7 turns.

[Kurt MacAlpine, CEO at CI Financial]

We will be taking the combined $1.5 billion of proceeds and paying down the outstanding balance on our credit facility, which stood at under $300 million at quarter end. In addition, we announced a tender offer for $1 billion of our bonds, the entirety of three tranches of our debt maturing in 2024, 2025, and 2027. The cash left over after the tender offering will be held to effectively offset any remaining notes, including our recently issued 7%, 2025 bonds. Following this transaction, none of our debt will have covenants, and the overwhelming majority of our debt will be our 2030 and 2051 US bonds. Our average duration of the debt will be greater than 15 years at a fixed blended coupon of 4%.

[Kurt MacAlpine, CEO at CI Financial]

This investment significantly accelerates our ability to achieve our long-term leverage target of 1.5-2 turns for the Canadian business. To conclude, the minority sale of our U.S. business represents an attractive strategic and financial transaction for CI. We are partnering with some of the world's top institutional investors as we continue our growth trajectory and work to build the leading ultra-high and high net worth wealth manager in the U.S. In addition, we realize significant value for our shareholders based on the industry-leading multiple we received for the business. The proceeds from this offering will position CI to materially reduce debt and deliver on the deleveraging event that we have promised. Most importantly, CI maintains strategic flexibility and control to drive further gains for shareholders as we are still in the early innings for growth and evolution of this business.

[Kurt MacAlpine, CEO at CI Financial]

We thank you for your interest in CI, and we'd be happy to take your questions.

[Operator]

To ask a question, please press star followed by one on your telephone keypad now. If you change your mind and wish to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Kyle Voigt from KBW. Please go ahead.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Hey, good morning. First congrats on the deal announcement, Kurt. I just have a question on the deal-

[Kurt MacAlpine, CEO at CI Financial]

Thank you.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

... structure of the convertible preferred equity. Just wondering, are the minority investors paying for and have rights to a set 20% stake in the future business at the time of the IPO? I guess what I'm getting at is whether the minority shareholders are effectively paying up today for future inorganic growth. I guess another way of asking that is, if there's 0 organic growth in the business between now and 2029, but this business is kind of 5 times larger, let's say hypothetically, because of inorganic growth. Would the minority investors have to pay for that incremental inorganic growth or they'd still be entitled to 20% of that future business?

[Kurt MacAlpine, CEO at CI Financial]

If I, if I follow correctly, I guess your answer is right. Yes. They're the. They would participate, representative to their ownership in that scenario that you've described, representative to their ownership at the stake, at the point of the IPO.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Okay. Understood.

[Kurt MacAlpine, CEO at CI Financial]

I guess if you were saying... Sorry Kyle. As it relates to the capital, one of the things we mentioned as part of our IPO. What excites me about this when we had entered it down the path of a subsidiary IPO, was effectively we were planning on IPO-ing 20% of the business. This achieved that 20% of the business. We were planning obviously to sell to leading institutional investors through that process. This accomplished that as well. We had outlined that all the proceeds were going back to Canada, which they did. We had outlined that the proceeds would be used to delever, which we've announced today, our intentions and our bond tender.

[Kurt MacAlpine, CEO at CI Financial]

We also mentioned that the businesses would be set up from a capital perspective to run independently, right? As I mentioned, all the proceeds go to Canada. Canada maintains its ownership. The U.S. becomes self-sufficient from a growth perspective. I think that's probably what you were getting at is going forward, the U.S. business would be making investments specifically at the U.S. subsidiary level as opposed to being funded by Canada once we've worked through all of our kind of previous commitments there.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Got it. That's actually really helpful. The debt that may be associated with new deals that are added to the U.S. wealth business in the future will be a part of that U.S. wealth business on a go-forward basis. Was that kind of the way to think about it if there's future inorganic growth in that business?

[Kurt MacAlpine, CEO at CI Financial]

Yeah. That's exactly it. Yeah.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Okay.

[Kurt MacAlpine, CEO at CI Financial]

for go forward acquisitions, yeah, the effect that they will be funded by the cash flow and the leverage-taking capability of our US business specifically.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Got it. Understood. Last one for me, and then I'll hop back in the queue. Just wondering if you could just elaborate upon this, the additional rights?

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Of the minority investors, related to the exit process. I know that's noted in the slide deck. Just wondering, is there some sort of guaranteed return if you don't IPO the business? If you can kinda just walk through some of the details there, that would be really helpful.

[Kurt MacAlpine, CEO at CI Financial]

Yeah. I'll just talk about it in more detail, and hopefully this answers your question. We set it up as preferred equity for two reasons. Investors are buying into the subsidiary business of a public company where by definition they have limited rights. Not all the capital that we've received is permanent, which means some of them will need to return it to their own ultimate investors at some point in the future. We set it up this way to ensure that they have necessary liquidity for their shareholders in the future at a valuation that's fair, recognizing the complexity of being inside of a public company as a minority subsidiary business.

[Kurt MacAlpine, CEO at CI Financial]

In terms of the terms themselves, I mean, it was very attractive for us just given the quality of the business we built, plus the scarcity value, which allowed us to structure it in a very friendly way for our shareholders. Their equity votes in line with their ownership. They have 1 board seat as part of our six-person board. In the event, I think this is where you're going, that we're not public in 2030, they do have a liquidation preference to ensure that they have an ability to get their capital back and return to their shareholders at terms that are fair and reflective of the value of the business, whether we IPO or take a different route.

[Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW]

Very clear. Thank you very much.

[Kurt MacAlpine, CEO at CI Financial]

Thank you.

[Operator]

The next question on the line is from Nik Priebe from CIBC Capital Markets. Please go ahead.

[Nik Priebe, Equity Research Analyst at CIBC Capital Markets]

Okay. Thanks. I just thought I'd follow on that last question, just for a bit of additional clarification. I think in the summary of the terms, you suggested that you have the right to buy back the minority investment at the entry value plus a minimum return. What you were alluding to on the exit rates, does the group have the right to sell back that minority investment to you at the same entry value plus the minimum return? Is that what you're alluding to?

[Kurt MacAlpine, CEO at CI Financial]

No. No. They have a right to pursue an exit, that could be via us going public, which is the intended path. As I mentioned, this is a pre-IPO stake. That's the path that we intend to take. In the future, or they have an opportunity to sell their stake, which we could be a buyer of that stake.

[Nik Priebe, Equity Research Analyst at CIBC Capital Markets]

Understood. Okay. As you'd pointed out, you are still in a control position on the U.S. entity, so you would control both the timing of any future IPO, as well as the pricing thereof, correct?

[Kurt MacAlpine, CEO at CI Financial]

Correct. Yeah. In the event that we're not public in 2030, effectively that time period just given, as I mentioned, you know, some of the capital is permanent, some of it's not, so that gives them flexibility to initiate a path to get out. We fully intend to be public well in advance of that.

[Nik Priebe, Equity Research Analyst at CIBC Capital Markets]

Okay. Is there any opportunity or path for the group to expand their ownership position over time, you know, eventually building to a control position? Is this most likely to remain, you know, a minority investment over the, you know, the horizon that you've identified?

[Kurt MacAlpine, CEO at CI Financial]

There's no path to control, or future opportunities that are predefined for them to take up ownership stake. Anything would be done in conjunction with our desire to sell more via a private market transaction if we chose to do that.

[Nik Priebe, Equity Research Analyst at CIBC Capital Markets]

Got it. Okay. All right. Very good. Thanks very much. I'll pass the line.

[Kurt MacAlpine, CEO at CI Financial]

Thanks, Nik.

[Operator]

The next question on the line is from Scott Chan from Canaccord. Please go ahead.

[Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity]

Good morning. I guess, Kurt, this accomplishes a lot of your targets, and I think, you know, suits better than a planned IPO. Just on the parent company level in terms of the long-term leverage, getting down to 1.5, two times is basically what you kinda talked about, I think, last quarter or the quarter before in terms of deleveraging, maybe utilizing a lot more buybacks near term, but just very limited M&A, perhaps bull bonds or if anything in that matter.

[Kurt MacAlpine, CEO at CI Financial]

Yeah. Effectively, when we were planning on the IPO, as I mentioned, this is from our standpoint, kind of a like for like experience for our shareholders. The IPO was, as I mentioned earlier, intended to, all of the proceeds would go back to Canada for the investment that the shareholders of the Canadian company have made in the U.S. A post that Canada retains the 80% ownership that these businesses would set up separate capital allocation priorities. Yes, we went from 4 turns to 2.7. You're absolutely right. Our target for the Canadian business is 1.5 to two turns. We feel like we've made huge progress in a day towards getting a large portion of the way there.

[Kurt MacAlpine, CEO at CI Financial]

Given the limited future capital needs for the Canadian business, after we finalize kind of the outstanding guaranteed payments, for some of the transactions, will be towards predominantly delevering.

[Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity]

Right. When we think about the U.S. side, the equation, and I think you talked about the same thing a couple of quarters ago, but I just wanted to confirm, in terms of, like having very limited debt now generating good cash flow, it really does accelerate your M&A consolidation strategy, and perhaps talk about like medium term, you know, where do you kind of see this business on an inorganic basis, the way you see it now, maybe with the current pipeline and what not?

[Kurt MacAlpine, CEO at CI Financial]

Yeah. It's, it's a great question, and I think. When we entered the marketplace in 2020, we achieved outsized growth both inorganically, which gets a lot of attention, but also organically, as you've seen through the numbers that we've disclosed as well. Our, our focus as it relates to M&A has never been driven by any specific asset target or anything like that. It's, it's driven entirely based upon the quality of the underlying businesses that are coming to market. We, we pride ourselves. We bought the best businesses in the industry, period. I think that's reflected in the scale, the growth, the dynamics of the business that we have in place, and that's our M&A approach going forward.

[Kurt MacAlpine, CEO at CI Financial]

If world-class firms continue to come to market, we're gonna be a buyer of those extremely high quality firms because they will make us a better platform. They can benefit from all the revenue synergies, our expanded client platform, but also the operating leverage that our $200 billion platform presents. In the event that a great firms don't come to market, you know, we don't feel compelled to buy it. We have an amazing business that's generating a lot of earnings for us today that's gonna continue to grow and evolve over time. I would say, Scott, yes, the US subsidiary business is debt-free today.

[Kurt MacAlpine, CEO at CI Financial]

We will have debt taking capacity, but I anticipate, that's not gonna be a quick ramp, from no debt, up to debt, but it'll entirely be driven based upon, quality of businesses available to transact that align with our strategy, our culture, and our partnership model.

[Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity]

With the U.S. banking crisis, is the pipeline a bit softer now, because of the dislocation in financial services down there, or is it really the same?

[Kurt MacAlpine, CEO at CI Financial]

No. It's, 2021 was an unusual year for M&A. I think a lot of that was driven by pending tax changes that were proposed that ultimately didn't go through. That would have effectively caused a lot of entrepreneurs for their dividends and capital gains to be treated as income. A lot of people who were intending to sell their business in 2022, 2023 or 2024 likely pulled that forward to 2021. You saw an unusual amount of deal volume in 2021. I think a lot of it was driven by that. Obviously, it was a good market environment as well. I think primarily driven by these pending changes that would have had serious implications for entrepreneurs. A lot of that's worked through now.

[Kurt MacAlpine, CEO at CI Financial]

You saw 2022 for us being a quieter year, and we'll see where the normal state looks. I haven't seen much, Scott, kind of ramp up or pull back tied to the regional banking crisis specifically. There's a lot of, I guess, brokers at some of those regional banks that might be looking for a new home. I mean, we're a fee-only RIA, so it's a slightly different business model than the, than the commission-oriented brokers that you'd see at some of those banks.

[Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity]

Last question. You know, the implied EBITDA multiple, like, seems in line with some of the other private equity transactions that I've seen over the past couple years. Is there any, like, distribution agreements kind of attached with some of the alternatives as part of the group or any contingencies attached as part of this transaction?

[Kurt MacAlpine, CEO at CI Financial]

No distribution agreements, no contingencies attached.

[Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity]

Okay.

[Kurt MacAlpine, CEO at CI Financial]

Multiple-wise, I think it was the highest we've seen, which is reflective of our industry-leading scale, the most affluent client base, we've come across in our growth profile.

[Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity]

Yeah. Slightly higher for sure. Okay. Congrats, Kurt. Thanks a lot.

[Kurt MacAlpine, CEO at CI Financial]

Thanks, Scott.

[Operator]

The next question on the line is from Graham Ryding from TD Securities. Please go ahead.

[Graham Ryding, Senior Equity Research Analyst at TD Securities]

Hi. Good morning. maybe could you just clarify what the ownership mix is going forward now with CI Private Wealth between yourself, this institutional group, and then the existing minority owners, you know, at the RIA level?

[Kurt MacAlpine, CEO at CI Financial]

Graham, you have some pretty bad static. I think it's your line, not ours. But I believe what you said was the underlying ownership. Effectively the way that we're structured, CI Financial and there's the CI U.S. business. Up until today, we owned 100% of that business. We've sold 20% of the U.S. business to that group of diversified institutional investors. The U.S. business effectively owns, give or take, 80% of the underlying partnership with 20% of the equity value of CI Private Wealth, which is the U.S. wealth management partnership being held by about 237 equity partners.

[Graham Ryding, Senior Equity Research Analyst at TD Securities]

Kurt, understood. The valuation here, I think you flagged it by 3 times your current market cap as of yesterday. Were there any discussions with this group to buy CI overall? Was that even an option or a discussion? Why, why would they take a 20% stake and not the whole business?

[Kurt MacAlpine, CEO at CI Financial]

The discussions were entirely focused on the U.S. wealth management business, which was a consistent transaction with what we were pursuing via our subsidiary IPO. We just swapped our goals we were hoping to accomplish in the public markets, call it with a better outcome in the private markets. That's where the conversation is at this.

[Graham Ryding, Senior Equity Research Analyst at TD Securities]

Okay. This 25.6x multiple, can you give us some frame of context, perhaps a range of how this compares to the multiples that you've been paying over the last few years for like the individual firms?

[Kurt MacAlpine, CEO at CI Financial]

Sure. I mean, philosophically, it's a highly fragmented industry. There's 17,000 or so individual RIAs in the marketplace. So you can imagine. We have the largest integrated RIA in the country. We have the most affluent client base that we've come across by a pretty considerable margin. We have the fastest growth of anyone that discloses that we're aware of. From an operating margins perspective, we do have the highest disclosed margins, I believe, of any wealth manager that reports. If you look at that scale in a fragmented market, that scarcity value, that combination of growth and inorganic growth, that drove a very meaningful multiple differential relative to, you know, what anyone would pay in normal circumstances.

[Kurt MacAlpine, CEO at CI Financial]

I do think it's reflective of the unique nature and the scarcity value of what we've built.

[Graham Ryding, Senior Equity Research Analyst at TD Securities]

Okay, great. One more, if I could. Just your free cash flow going forward, how much of that will be attributable to the Canadian business versus CI Private Wealth? Will it be a similar mix to sort of how your EBITDA is split up? How should we think about free cash flow going forward that you could use to continue to de-leverage Canada?

[Kurt MacAlpine, CEO at CI Financial]

Yeah, Graham, you have a lot of static. I think you're asking about free cash flow. The businesses operate separately. Effectively, we sold 20% of the EBITDA of today's EBITDA, I guess, of the U.S. business. For our free cash flow, I think what you're saying, it's just a little hard to hear, would be reduced based upon the representative ownership stakes that we had sold.

[Graham Ryding, Senior Equity Research Analyst at TD Securities]

Yeah, just is EBITDA mix similar to your free cash flow mix? That was the question.

[Kurt MacAlpine, CEO at CI Financial]

Yes.

[Graham Ryding, Senior Equity Research Analyst at TD Securities]

Great. That's it for me. Thank you.

[Kurt MacAlpine, CEO at CI Financial]

Thanks.

[Operator]

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now. We have no further questions from the lines. I'd like to hand back to management to conclude.

[Kurt MacAlpine, CEO at CI Financial]

I just wanted to take a moment to thank everyone, for interest in CI. We look forward to chatting with you next quarter.

[Operator]

This does conclude today's call. You may now disconnect your lines and enjoy the rest of your day. Thank you for joining.

Participants

Executives

• Amit Muni, EVP and CFO
• Kurt MacAlpine, CEO

Analysts

• Graham Ryding, Senior Equity Research Analyst at TD Securities
• Kyle Voigt, Managing Director and Senior Equity Research Analyst at KBW
• Nik Priebe, Equity Research Analyst at CIBC Capital Markets
• Scott Chan, Managing Director and Financial Services Equity Analyst at Canaccord Genuity