CI Financial Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2024

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the CI Financial First Quarter 2024 Earnings Conference Call. All lines have been placed on mute during the presentation portion of the call I would now like to hand this conference call over to our host, Todd McAlpine, CEO of CI Financial. Please go ahead.

Speaker 1

Good morning, everyone, and welcome to CI Financial's Q1 earnings call. Joining me is our CFO, Amit Muni. Together, we will cover the following: an overview of the highlights of the quarter a review of our financial performance during the quarter a discussion on our near term obligations and the progress separating our Canadian businesses in Coriant, an update on the progress against our 2024 strategic initiatives, then we will take your questions. Our adjusted EPS of $0.86 per share is up 6% quarter over quarter reflecting the strength in capital markets, growth in the U. S.

Speaker 1

Business and the benefit of recent share repurchases. Adjusted EBITDA per share attributable to shareholders increased 16% from the Q1 last year and 6% quarter over quarter to a record of $1.60 per share. We generated free cash flow of $1.01 per share. Capital allocation remained active during the quarter. We deployed $51,000,000 to settle existing M and A liabilities.

Speaker 1

We returned $31,000,000 to shareholders through our dividend and this was the Q1 that investors benefited from the 11% dividend increase that we announced last year. In April, we completed the $85,000,000 substantial issuer bid announced in February, repurchasing approximately 4,900,000 shares. The Board also declared a dividend of $0.20 per share payable in October, reflecting the normal cadence of declaring dividends 1 quarter ahead. Our Canadian Retail Asset Management business experienced $1,300,000,000 in redemptions in the quarter, driven by 3 factors. 1, 40 percent of our assets are in balanced funds, which is the category with the highest redemptions in the industry in the quarter.

Speaker 1

2, investors began to anticipate the Bank of Canada cutting rates, which resulted in slowing allocations to cash like products. And 3, the Q1 is normally a slower flow quarter for CI. Our wealth businesses in both Canada and the U. S. Continued to generate positive inflows in the Q1, again highlighting the strength and resiliency of those businesses.

Speaker 1

We continue to execute against our 3 strategic priorities to modernize asset management, expand wealth management and globalize the company. Investment performance across the platform remains strong with nearly 3 quarters of our AUM outperforming our peers on a 3 year basis. The sustained strong performance highlights the impact that the transformation we made from a series of competing boutiques into an integrated global asset manager has had for our clients. We improved the positioning of our product offering which resulted in 13 fund mergers and the launch of several innovative products including our Global AI ETF earlier this week. We continue to have success growing and servicing high and ultra high net worth clients in Canada and CI's Northwood family office was named the best multifamily office in Canada by Family Wealth Report.

Speaker 1

Coriant had another strong quarter delivering adjusted EBITDA growth of 8% compared to the 4th quarter. I'll now turn the call over to Amit to discuss our financial results.

Speaker 2

Thank you, Kurt, and good morning, everyone. Turning to slide 4. Our global assets ended the quarter up 7% to $474,000,000,000 driven by positive markets across all three segments as well as net inflows into our U. S. And Canadian Wealth segments.

Speaker 2

Turning to our financial results on the next slide. I'll focus my comments on our adjusted results. Adjusted net income for the quarter increased to $133,000,000 or $0.86 per share. Adjusted EBITDA also increased to $246,000,000 for the quarter and our adjusted EBITDA margin was 41.4%. Turning to the next slide, I'll highlight the segment results.

Speaker 2

Asset Management EBITDA increased to $160,000,000 and margins were 61.3%. Canada Wealth EBITDA was roughly flat at $20,000,000 and margins were 9.1%. The slight decreases in margins were due to seasonal expenses related to compensation. Also recall, we noted last quarter that margins in Q4 were slightly elevated due to year end adjustments to incentive compensation. In the U.

Speaker 2

S, pre NCI EBITDA increased 8% to $108,000,000 and margins expanded to 43%. EBITDA increased 26% from the Q1 of last year, which is greater than the investor group's preferred return. Turning to the next slide, I'll walk through the changes in revenue. Revenues on a comparable basis increased 5% to $699,000,000 Asset Management revenues were up $7,000,000 as the effect of net outflows and fairly flat fee capture were offset by higher average AUM due to positive markets. Canada and U.

Speaker 2

S. Wealth management fees increased due to higher asset levels from positive flows and positive markets. There were no acquisitions during the quarter. Turning to the next slide, we can review major changes in our expenses. On a comparable basis, total expenses increased 5%.

Speaker 2

SG and A increased primarily due to seasonal taxes from bonus payments for last year. Advisor and dealer fees increased due to higher revenue earned in our Canada Wealth segment. Interest expense increased due to additional borrowings to fund acquisition related obligation payments and the substantial issuer bid. Depreciation and amortization increased due to higher depreciation of hardware and computer equipment as part of integration and new leased office space at Coriant. Looking forward for the next few quarters, we anticipate interest and lease finance expenses to be in the range of $50,000,000 to $51,000,000 in the second quarter due to higher balances on our credit facility due to settling of acquisition related payments and U.

Speaker 2

S. Lease costs. We also anticipate higher depreciation and amortization reflecting the impact from integration capital expenditures. Lastly, SG and A costs in our Canada Wealth segment are expected to be in the $1,000,000 to $2,000,000 range higher in Q2 as part of investing in our custody platform. We expect cost synergies from these investments in early 2025.

Speaker 2

More information is in the appendix of the presentation. Turning to Slide 9, we can review our debt and leverage. Net debt was $3,600,000,000 for the quarter due to payoffs of our acquisition related liabilities and negative non cash currency mark to market on our U. S. Denominated debt.

Speaker 2

Our net leverage was 3.5 times on a reported basis. The fair value market value of our debt at the end of the quarter was $2,900,000,000 which results in a net leverage ratio of 2.8 times. Thank you. And let me turn the call back to Kurt.

Speaker 1

Thanks, Amit. As we highlighted last quarter, Canada's obligations related to U. S. M and A are rapidly running off. During the Q1, we reduced the final outstanding obligations from $280,000,000 to $235,000,000 In the Q2, we will reduce these obligations by over $100,000,000 with the remainder being settled by the end of January.

Speaker 1

Canada will soon be in a position of having 100% of its cash flow to allocate across buybacks and debt reduction in addition to our dividend. On prior calls, we talked about our plans to fully separate our Canadian and U. S. Businesses. As we discussed last quarter, the debt is the final piece.

Speaker 1

We've already fully separated the equity, the governance and the operations. Coriant has established its own board and day to day operations are run by a dedicated management team in Miami. We continue to make progress in working through the final steps to fully separate the debt and have made significant progress in the last 90 days. In February, we announced the establishment of a credit rating at Coriant. We were rated A- stable by pro.

Speaker 1

This quarter, we received covenant relief on the 20252027 notes that had restrictive covenants preventing Coriant from borrowing standalone. Following the July maturity of our 2024 notes with similar covenants, the U. S. Will be in a strong position to take on 3rd party debt if we choose. Establishing access to independent Coriant debt in the near term will help facilitate inorganic growth opportunities.

Speaker 1

While we are only a few months into 2024, we continue to make strategic progress in each of our businesses. In Asset Management, we've been active on the product front, both streamlining our existing lineup and launching innovative new strategies, including the Global AI ETF which started trading earlier this week. Our private market solution continues to gain traction as it is addressing an unmet need in the marketplace while providing Canadians with access to the world's leading alternatives managers. In addition, we've maintained strong financial discipline with EBITDA margins essentially flat in a quarter with seasonally higher expenses. In Canadian Wealth, we continue to strengthen our position serving the high and ultra high net worth segments of the market.

Speaker 1

As I mentioned, CI's Northwood family office, which we acquired in 2022 remains a leader in the space, winning the 2024 Family Wealth Report Award for the best multifamily office. As Amit touched on in his remarks, we are investing to further scale our custody platform and leverage technology to provide a better client experience. We continue to work towards onboarding the remainder of our wealth assets and are having constructive conversations with a number of third parties. At Coriant, we are making progress against our strategic plan and the investments we've made to scale and fully integrate our business are showing in our financial results. Our EBITDA grew 8% quarter over quarter, Our net flows remain strong and our solutions such as tax and trust are growing rapidly.

Speaker 1

In addition, it has created growth opportunities for us that were not present in the early stages of building Coriant. We are very excited about what the remainder of 2024 holds for all three of our business lines. By executing over the last few years, our 3 stage strategic priorities, we've been able to transform each segment of our business and position them for success. We expect to continue to see the benefits of that transformation in 2024 and beyond. We thank you for your interest in CI and we'd be happy to take your questions.

Operator

Thank Our first question comes from the line of Kyle Voigt of KBW. Your line is now open. Please go ahead.

Speaker 3

Hi, good morning. Maybe first question just on the separation of the two businesses. You noted good incremental progress in the quarter, including amending the debt covenants. I guess, can you just clarify what else needs to occur to fully separate the businesses and expect the timing around that? Is it just the roll off of the debt that I think you mentioned, which I think happens in July?

Speaker 3

And then given that we have a schedule for the remaining M and A liabilities for the Asset Management segment and since the U. S. Business is now in a position to take on debt, can you just remind us how you're thinking about target leverage in U. S. Business specifically and where you're comfortable taking that to should you find the right acquisition opportunity?

Speaker 1

Sure. So, thanks, Kyle. So kind of as it relates to the first question, the debt is the final piece of the separation of Canada from the U. S. Business as I mentioned, board, management, day to day operations.

Speaker 1

The business is fully separatable now or essentially IPO ready kind of put otherwise. But we continue to make progress against growing the business to strategic priorities and things like that. As it relates to the debt, having access to debt at Coriant on a standalone basis is important to us. We haven't given guidance

Speaker 4

yet as

Speaker 1

it relates to how we think about leverage at Coriant. But if you look at the earnings generated by the business, the transactions that take place kind of in the industry and our spending patterns, I think you'd see that we have great free cash flow being generated by the U. S. Plus access to a modest amount of leverage will allow us to grow at a very good pace inorganically as well. So we'll provide more color as we get a little bit closer to it, but I wouldn't anticipate, Coriant running at high leverage.

Speaker 3

Understood. And then just a second question on the Canadian wealth business. You noted some of the incremental investment that you're making that's going to ramp G and A

Speaker 5

a bit into 2Q and for the remainder

Speaker 3

of this year. Guess, can you just provide a little bit more details on what you're investing in there near term? And then maybe could you frame the size of the cost or the revenue synergy opportunity from those investments as you look out to 2025 and beyond?

Speaker 1

Sure. So just as a reminder for everybody, so when we initiated the strategy, we had a custody business in Canada that had about $1,000,000,000 of assets, limited capacity for scale and growth and obviously a servicing and support infrastructure that was reflective of the $1,000,000,000 of assets, not the aspirations. So a few years ago, we made some investments in that business to grow and scale it and you've seen through our results that in a short period of time through external and internal conversions, we've grown from a $1,000,000,000 to north of 25,000,000,000 and we're now positioning the business to effectively grow from $25,000,000,000 to north of $100,000,000,000 And as a result of that, there's some incremental investments as it relates to servicing and technology that we're making in advance of those upcoming conversions. So some of those expenses are temporary as it relates to preparing for the transition and some of those will remain expenses to service a much larger asset base that's poised for growth overall. We haven't given guidance as it relates to the revenue impact, but you've obviously seen the revenue and the earnings of our wealth business increase as the custody has been implemented and scaled up and we'd expect to see similar ish experiences as we continue to scale the assets.

Speaker 3

Great. Thank you very much.

Speaker 1

Thanks, Kyle.

Operator

The next question comes from the line of Graham Ryding of TD Securities. Your line is now open. Please go ahead.

Speaker 4

Just wanted to touch on the credit side. Like I know that your intention here, it sounds like, is to raise debt at the Coriant level, and you have a U. S. Rating now. But there was also recently an update from Moody's on your credit rating for CI Financial.

Speaker 4

So I just wanted to get your thoughts on how much of a priority is it for you to maintain your investment grade at the CI Financial level? And do you feel like that has is going to have any impact on your desires to sort of raise debt down in the U. S?

Speaker 1

So I would say, as it relates to we've talked about at length kind of the priorities of the business. And I would say, we look at each business effectively on a standalone basis, right? So for Canada, the priorities are to settle the remaining obligations as it relates to, Coriant, which are in the final stages of being fully met. And then we have priorities. So then Canada's cash flow will be singularly focused on share buybacks and debt reduction.

Speaker 1

As always, we take a dynamic approach to capital allocation and where shares are trading today, buyback would take precedent over deleveraging right now. But as you've seen, we've been able to rapidly reduce our share count and the opportunity to buy shares with every substantial issuer bid that passes, the overall pool of opportunity gets reduced. And then from Coriant's perspective, the goal is obviously to not have Coriant rely on Canada's cash flow as it relates to funding future acquisitions. And effectively, we had a couple of structural impediments ultimately in place that prevented us from doing so, which we're effectively at the final stages of doing right now. So credit rating, I guess, will be a function of how the credit agencies kind of view the deleveraging and then the impact that borrowing at Coriant ultimately has on the rating.

Speaker 1

So we're running the business to deliver the best possible return for our shareholders, kind of balancing those priorities. And then the rating itself, obviously, will be a function of how people assess those priorities. But what I would say is we're getting near the end of the obligations for Coriant, and then CI will be singularly focused on its Canadian obligations and then Coriant will be focused on its obligations.

Speaker 4

Okay. Okay, understood. At the you flagged that there was organic growth both in Canadian wealth and U. S. Wealth in the quarter.

Speaker 4

Is there anything you could sort of quantify for us to give us some sort of context?

Speaker 1

Nothing to report, I guess, specifically. Growth was strong in both businesses. And we highlighted it just to show the resiliency. Obviously, the asset management business, products being sold through intermediaries, products come in and out of favor, market cycles. But when you're in the wealth management business, you're obviously owning the client relationship.

Speaker 1

So the relationship stays and the use of products will increase or decrease. And so we're growing the businesses despite the market volatility or the impact.

Speaker 4

Okay. And my last question just would be on the asset management side. You flagged your alternatives product offering in the retail channel. Can you just give us some context of sort of how that's progressing and how many platforms you've been improved on or just some color on the progress on that product launch?

Speaker 1

Sure. So kind of the basis for the product, just as a reminder for everybody. So if you look at the Canadian marketplace, institutions are typically allocating some balance of 60% of their investments to public markets, 40% to private markets or seventy-thirty or something in that context. Canadian retail, which is obviously the same end consumers of the pensions are typically allocating 0. And that was in our opinion a function not of the product making sense in one channel and not in another, but it was effectively a structure or wrapper in an administration process plus access to world's leading managers that were prohibiting that from happening in retail.

Speaker 1

So, as you know, we launched the 1st private markets fund to fund in the space. As soon as we launched the fund, we immediately started our marketing efforts everywhere, where we had approval. So, it's really a 2 pronged approach of growing the fund and funds from the platforms that we're on today and we continue to be very active in dialogue, but also working towards getting those approvals on the national platforms as well. So, it's really a 2 pronged approach. We do have a dedicated alternative team.

Speaker 1

There's 12 people on that team that are entirely focused on our private market strategies, and we're making really good progress. So I'll keep everyone posted as we continue to grow and scale and innovate that business line.

Speaker 4

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

Speaker 1

Thanks.

Operator

The next question comes from Nick Priebe of CIBC. Your line is now open. Please go ahead.

Speaker 6

Okay, thanks. Just wanted to drill into the pattern of Canadian retail flows. I think you had partly attributed the outflows in the quarter to a concentration of redemptions and balanced funds as well as cash products. Are you able to give us a general sense of whether those impacts were relatively balanced or was one a bit larger than the other? I'm just wondering because those 2 product categories obviously garner different margins.

Speaker 1

Yes. I would say balanced was a little more impactful, I mean, both in terms of assets and obviously economics, just given the difference in fee

Speaker 7

rates. Okay. Okay.

Speaker 6

And then I think you also alluded to Q1 being a bit of a normally slower flow quarter. I was kind of thought of it as a bit of a seasonally stronger period just because of the RFP season. Can you just elaborate on the nuance around the Q1 that you're alluding to there?

Speaker 1

Yes. It's a great question. It is from an industry perspective seasonally stronger. If you look at our flows historically for the Q1 tends to be seasonally lighter. We attribute that to obviously we're not a bank.

Speaker 1

We don't benefit from the call it in branch seasonality of the RSP investments. And then unlike some of our insurance peers, we don't have a retirement platform where you typically see kind of spikes in RRSP investments kind of in and around bonus season. So for whatever reason, it just isn't a quarter that historically we benefited from the flows in the same way as you mentioned that the industry does and more specifically banks and those with retirement platforms.

Speaker 6

Got it. Okay, that's interesting. And then just last one for me. How should we think about the dividend policy going forward? Like is there a kind of a target payout ratio, that you're contemplating?

Speaker 6

Is that something that's revisited at year end? I'm just kind of wondering how you're thinking about that.

Speaker 1

Yes. So we're constantly allocating or managing dynamically our capital allocation priorities. So let me say, we're fully committed to the dividend that we have in place today. And then the question becomes across the 3. So as I mentioned, Canada really has 3 different priorities.

Speaker 1

Do we buy back shares? Do we delever? Do we increase the dividend? Buyback. But as things change, there's certainly opportunities for dividends to increase.

Speaker 1

I mean, if you look at the reductions that we've made in the share count, the total dividend obligation that we're making is smaller despite the increase just given the overall reduction in share count. So certainly if you were looking at it from a payout ratio as we continue to reduce the share count, there's certainly room even holding our payout ratio and then obviously room to increase that payout ratio as we go. But it's not like we have a set fixed percentage that we're managing to right now. We're really just trying to maximize shareholder value, where we see the greatest opportunity. So we thought the dividend hike last year was important and we'll continue to monitor it going forward.

Speaker 6

Got it. Okay. All right. Thanks for taking my questions.

Speaker 2

Thanks,

Operator

Our next question comes from the line of Tom McKenna of BMO Capital Markets. Your line is now open. Please go ahead.

Speaker 5

Yes, thanks and good morning. Just looking at Slide 10, the M and A obligations, Am I correct in assuming that those are those obligations are essentially pay you raise debt and then you pay those obligations. Is that the primary that's what it would look like was happening with respect to your cash flow statement. Is that right that the payments of those have been funded largely by debt?

Speaker 1

I mean, it's fungible, Tom. I mean, we did a buyback as well. So I guess if you're looking at the debt slightly increasing, I mean, you could attribute it to the obligations or you could attribute it to the buyback, but it's

Speaker 2

Yes. It's Tom. Cash is fungible, right? So we use our credit facility to both fund our existing working capital needs where we have bonus payments that go out in the Q1. So we use our credit facility and free cash flows to fund all of

Speaker 1

those types of obligations.

Speaker 5

And the $106,000,000 next quarter, is that large is that going to be borrowed or is that going to be paid with free cash flow? I'm just trying to think of how to think about debt going forward and the uses of the free cash flow here.

Speaker 2

Yes. So it will be a combination of both. And as Kurt said in his comments, right, that we take a dynamic approach to capital and we'll figure out the right way of allocating that, whether it's to delever or buyback stock or use our free cash flow to pay down these obligations.

Speaker 5

Okay. And why then why not just you why take on additional debt to fund them? Why not just fund them with free cash flow and maybe slow down share buyback? Just take us through some of the thought process on with respect to that. Sure.

Speaker 1

So I mean, we're very comfortable with our debt levels. As Amit had mentioned, debt was 3.5 turns. If you net out FX noise, it was 3.4. And if you take a look at the market value of the debt, which is reflective of the price that we can buy back that debt, we're at 2.9 turns. So kind of regardless of the lens that you look at it, we're very, very comfortable with the debt levels that we have in place today.

Speaker 1

We believe the opportunity to buy our shares given where we're trading is much more accretive for our shareholders than not buying shares. So from that standpoint, we're looking at it, how do we deliver the best outcome possible for our shareholders and we feel that if we have an opportunity to buy shares at the price in and around where we're trading, we feel that that's the best trade for the shareholders that we have. But as we said, that's dynamic, right? So if share price increases rapidly, then the priorities will rapidly shift towards deleveraging through the buying back of our 2,501 bonds that have the greatest embedded gain for our shareholders. So we're constantly looking at it and monitoring it.

Speaker 1

We just struggle to see I mean, we look at the business performance that we've continued to generate, the growth that we've experienced in our business segments, the outsized growth we have in the U. S. And just see a phenomenal opportunity to buy shares. So with that as a backdrop being comfortable with the leverage that we have in place, we see it as an easy decision to make that the primary capital allocation priority. So at times that will cause leverage to increase or decrease depending upon how our stock is trading and the opportunity to buy the bonds.

Speaker 5

Yes, understood. And with respect to being able to raise debt at Coriant level, do you see yourselves as using that to fund organic inorganic growth? And maybe you can talk about some of the opportunities you're seeing out there in the marketplace?

Speaker 1

Sure. So CI is in the final stages of its obligations to Coriant, right. If we think of these as we do operationally separate businesses. So kind of on a go forward basis when these obligations run off, which I think is the 1st week of January, Coriant will be to the extent that Coriant is doing M and A, Coriant will be funding that M and A from its free cash flow and from debt that we ultimately take on to grow the business. I mean, we've I think we've proven that we can acquire well, we can integrate well and drive growth across the integrated platform.

Speaker 1

So as long as exceptional businesses come to market that are ultra high and high net worth focus with great underlying fundamentals that see the value of our private partnership and highly differentiated approach, we're going to be in the market and to the extent that they're not, we're not. But for us, the most important piece was to make sure that Coriant was ready to kind of operate entirely on its own with the debt being the final piece. So, I don't think of it as debt readiness is the first step, right? Taking the debt is a function of the opportunities that are presented in front of us. And I do see a good market ahead for M and A.

Speaker 1

I think that the market is opening up. I think some high quality firms are starting to have conversations. It's so hard to tell obviously in M and A, how things break. But I do anticipate having some good opportunities in front of us in the coming months.

Speaker 5

Okay, thanks.

Speaker 1

Sure.

Operator

The next question comes from the line of Stephen Volund of Raymond James. Your line is now open. Please go ahead.

Speaker 8

Thanks. I just want to follow-up a little bit on Tom's question there in terms of what comes first. I mean, obviously, no acquisitions this quarter. But like you said, you're debt ready. So would that be the first part as you go out to market knowing that you're closing on an acquisition or you close on an acquisition and simultaneously you go out to the market with debt.

Speaker 8

I mean, is it a signal that if you raise debt in the U. S. That M and A is coming? Not

Speaker 1

necessarily, no. I mean, it's really kind of we're working through the steps, right? So kind of I guess the easiest way to think of it is Canada right now and I've mentioned a few times, we see the greatest opportunity for shareholder value creation through our buyback. And that's given just strictly a function of where our stock is trading relative to the underlying fundamentals of our business. We've been active buying.

Speaker 1

We expect to continue to be active buying. That could change. But the Canadian cash flow is constrained to our buyback, our deleveraging and our dividend depending upon that mix. And at Coriant, it's really entirely focused on delivering the business results and pursuing M and A. So I would say, if you see a Coriant bond offering, I guess, this very specifically answer your question, I wouldn't necessarily imply that the bond offering is specifically tied to a particular opportunity.

Speaker 1

It could be, but it wouldn't be it wouldn't necessarily be tied to it. Also, one thing to note, a lot of the acquisitions in the space, right, it's a highly fragmented market. There's lots of different firms in the space. There tends to be frequency of acquisitions, but not a lot of extremely large acquisitions as well. So a particular raise that we do might take into account opportunities for future acquisitions and things like that as opposed to coming to market to specifically fund a single transaction.

Speaker 8

Okay. And you mentioned there's some good possibilities out there in the U. S. I mean, all this capital structuring, it hasn't prevented you from like seeing a deal that you want to do and you said, no, we're going to push back and wait till we get the business is separated and the balance sheets like basically you just saw nothing that was attractive enough to push the pull the trigger on in the quarter?

Speaker 1

Yes. I mean, it's we're active in the market. I would say the priority has been finalizing the separation of the businesses. So we've effectively kind of gone through, call it, a series of steps. So we founded the Coriant Business 4 years ago.

Speaker 1

First step was really around acquiring the highest quality firms in the industry period. We wanted to build an exceptional foundation of the best firms in the industry. That was step 1. Step 2, launching the private partnership and driving the integrated model. And today, as I've talked about in previous quarters, we have a fully integrated model.

Speaker 1

So every element of our business is integrated and centralized, which was obviously a heavy lift and we're there now. The next step was as we pursue acquisitions, people are coming into the fully integrated model on day 1. So if we bought a business 3 or 4 years ago, we would assume it as is and then work to integrate it over time because of the efforts that the team has made across the business, we're able to integrate on day 1, which is great. So all of that's in place. And then the 4th piece was making sure that Coriant was ready to take on debt when it makes sense.

Speaker 1

But I guess so there wasn't an acquisition, I guess, to very directly answer your question that said we would have done this, but we've opted not to do it because we wanted to wait. There was nothing because we obviously have opportunities. If we wanted to CI could temporarily lend money to Coriant and just clean it up with a bond raise. So it wasn't necessarily that. Okay.

Speaker 8

That's all my questions. Thanks. Thanks, Kurt. Thanks.

Operator

The next question comes from the line of Geoff Kwan of RBC. Your line is now open. Please go ahead.

Speaker 7

Hi, good morning. Maybe just tacking on, Kurt, to your comments on Corianton. I think to your point of there may be just more smaller deals as opposed to bigger ones. From a debt perspective then, does it make sense to have a credit facility, do deals kind of build up the leverage through the credit facility and then term it out with a bond deal? Or does it make sense to do it vice versa to the bond deal and use that?

Speaker 1

Yes, it's a great question, Jeff. I mean Acquisition? Yes, it's a great question. It would really just depend. I mean, if call it the readiness factor most likely would involve having an established credit facility in place, right?

Speaker 1

So, as we kind of work through the final steps that we're talking to establishing a facility where Coriant can borrow on its own makes a lot of sense. And then as you mentioned as the facility because of the nature of the deals starts to let's just say scale up to a certain level, it would make sense for us to roll that debt. So that's likely what you would see unless there's, let's just say, a flurry of activity that coincides with the separation where there's clarity on how much we're looking for and then we may we might prioritize a turn to raise as you suggest instead. So, it really just a function of the timing and then the pipeline and the obligations.

Speaker 7

Right. Okay. And just my second question is just with the separation of Canada and the U. S. Just wondering, is there any rationale of moving Canada wealth into Coriant, where not only would you have geographic separation, but you'd also have kind of a pure play asset separation of wealth and asset management?

Speaker 7

Or is there something synergistic or some other reason why it makes sense to have Canada Wealth with the asset management business?

Speaker 1

Yes, it's a good question. I mean, I think of it as we have 3 different businesses. We have a Canadian asset manager, a Canadian wealth manager and Coriant. So I really think of I mean Coriant is kind of set up as a separate entity, but Canadian wealth is separate from Canadian asset management as well. They have separate strategic priorities, fully dedicated management teams, initiatives that they're working on.

Speaker 1

So I guess, as long as the company is integrated, we think of them as 3 different business lines. And let's just say at the point of separation, could you instead of splitting the business geographically, could you split the business by business line? Sure. And it could go either way today because of the efforts we've made to separate them into 3 different businesses.

Speaker 7

Okay. Thank you.

Speaker 1

Thanks.

Operator

We now have a follow-up question from Graham Ryding of TD Securities. Your line is open. Please go ahead.

Speaker 4

Yes. Just one more if I could. Once you sort of get past these contingent liabilities payments that are largely due this year, you are going to have a fair amount of free cash flow you can decide to allocate towards either buybacks or paying down debt. If your shares are trading at that point at sort of a similar multiple as they are today, how would you think you would allocate that free cash flow towards those two options? I'm just wondering if you feel it's worth testing the market towards paying down debt as opposed to buybacks and seeing if the multiple response positively to that?

Speaker 1

Yes, it's just a sequencing thing. So if the scenario you're saying is fast forward a year, all the obligations are met and the stock's trading where it's trading and the buying back opportunity in the bonds is the same, we're buying the stock. And so it just becomes a sequencing thing, right? Like there's not an unlimited number of shares available to buy. And so we would say if the stock is trading where the stock is trading, the priority would be the buyback.

Speaker 1

And if the stock increases. So it's just a sequencing thing. I mean effectively we're going to do both. Like as we've said, the Canadian business isn't funding U. S.

Speaker 1

Acquisitions and we're not interested in large acquisitions in the Canadian marketplace. We feel great about the businesses we have and the growth trajectories that we've put them on. So then it's really just a sequencing thing, so which one ultimately comes first. But we just see it and we look at this through a lot of different lenses that a dollar today generated in Canada, the best place to deploy it at the share price today is to reduce the share count. And the second that changes to that dollar being more valuable to pay down the debt, we will pivot and focus on the debt.

Speaker 1

I mean, we look at as Amit mentioned, we look at our debt as it relates to the fair market value, right? I mean, that's the price to buy the bonds back today. So when we're looking at reducing it, we're comparing today's share price to the ability to purchase the bonds at the current prices and we still see more value right now in the share buyback. But like I said, once it changes, you'll quickly see our priorities change from one to the other.

Speaker 4

Okay. That's it for me. Thanks.

Operator

As there are no additional questions waiting at this time, I'd like to hand the conference back over to Kurt MacAlpine for closing remarks.

Speaker 1

Just want to thank everyone for their participation in today's call. We look forward to speaking with you all next quarter.

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Earnings Conference Call
CI Financial Q1 2024
00:00 / 00:00