Canaccord Genuity Group's (CCORF) CEO Dan Daviau on Q3 2016 Results - Earnings Call Transcript

| About: Canaccord Genuity (CCORF)

Canaccord Genuity Group, Inc. (OTCPK:CCORF) Q3 2016 Results Earnings Conference Call February 12, 2016 8:00 AM ET

Executives

Dan Daviau - President and CEO

Brad Kotush - EVP, CFO and Chief Risk Officer

Analysts

Sumit Malhotra - Scotia Capital

Paul Holden - CIBC

Geoff Kwan - RBC

Operator

Good morning. My name is Sean and I will be your conference operator today. At this time, I would like to welcome everyone to the Canaccord Genuity Group Incorporated Fiscal Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.

President and CEO, Mr. Dan Daviau, you may begin your conference.

Dan Daviau

Thank you Sean and thanks everyone for participating on our conference call today. With me on this call is Brad Kotush, our Chief Financial Officer and Chief Risk Officer. I am going to being by providing an overview of fiscal third quarter results for the period ended December 31, 2015. Afterwards both Brad and I will be pleased to answer questions from analysts and our institutional investors

A reminder that our remarks and responses during today's call may contain forward-looking statements that involve risks and uncertainties related to the financial and operating results of Canaccord Genuity Group, Inc. The company's actual results may differ materially from management's expectations for various reasons that are outlined in the cautionary statement and the discussions of risks in our MD&A. In encourage you to review our earnings release, MD&A and supplementary financial information, all of which were made available last night. These documents can be found on SEDAR or on our Investor Relations section of our website at canaccordgenuitygroup.com.

Before I provide an overview of third quarter results, I'd like to take an opportunity to say that the performance we're reporting today is not what we're accustomed to seeing for our industry or for our business. Importantly our results -- our result does not reflect the vision we have for our company going forward. We are making significant progress to reposition our business for stronger bottom line performance. We continue to have a strong balance sheet, which protects our execution capability and our ability to sustain our business during periods of market weakness.

While a number of our peers appear to be retrenching we believe we're facing a tremendous opportunity to refocus our business and emerge as the dominant independent global mid-market investment bank and wealth management business. We're moving aggressively to streamline our company and improve operating efficiencies. During the quarter we took steps to rationalize our global infrastructure and exit some underperforming business lines which led to a restructuring charge of $4.3 million. While the developments announced today will negatively impact our results in the near term, we expect to realize over $30 million in annualized savings in the next fiscal year.

We continue to explore opportunities to significantly reduce our fixed cost base and stabilize our business for the future. Our Board of Directors has also made the prudent decision to suspend our quarterly common share dividend. We remain committed to returning capital to our shareholders and look forward to reinstating this dividend payment under more positive market conditions, when profitability returns.

During the period we also incurred goodwill impairment charges of $321 million, with respect to our global capital markets operations. While we continue to see material value in these operations over a cycle, accounting standards require a fair market test at the time we proceed -- at the time when we proceed to be at the bottom of the cycle. This is effectively a mark-to-market test at December 31st.

I will provide you an overview of our performance for the most recent fiscal quarter. For the third quarter of 2016, Canaccord Genuity Group Inc. earned revenue of $181.8 million. Excluding significant items, the company reported a net loss of $19.1 million, which translated into a loss per common share of $0.25. The net loss was particularly attributable to certain -- primarily attributable to certain software development charges, an impairment loss on our investment in Canadian First Financial Group and higher compensation expenses as a percentage of revenue. Our compensation expense ratio increased to 71% during the quarter, partly attributed to a dramatic drop in revenue when compared to our most recent fiscal quarter, in addition to our investment in maintaining our production capability for the future.

Many of our initiatives we have announced this quarter are aimed at bringing our fixed compensation expenses down, as we refocus our business and invest selectively in our core focus areas. We continue to have a sufficiently strong balance sheet to execute on our business plan with $408 million of working capital and cash and cash equivalents of $413 million.

And now turning to the performance of our capital markets business. During the third quarter Canaccord Genuity participated in 60 transactions to raise proceeds of $13 billion for our clients. Our global capital markets division generated revenue of $122.1 million during the three-month period, an increase of 18% from the same quarter a year ago. The largest increase in revenue was our U.S. operations which reported an increase of $7.9 million mostly as a result of higher principal trading and advisory fee revenue. We've worked hard to better align this business with our global efforts and drive improvement in our cross-border sales and trading capability.

Revenue in our Canadian capital markets operations increased by $4 million compared to Q3 2015, mainly due to one large advisory assignment. Wealth investment banking activity in the region hit its lowest level since 2001. Canaccord Genuity remains in its position as the top independent book runner in the region for the 2015 calendar year. We will continue to leverage our strategic position in this market to deliver on our mission to be the dominant independent investment bank in Canada.

In the U.K. and Europe, our capital markets operations generated $29.3 million of revenue during the period, an increase of 24% compared to the same period last year. This revenue increase was offset by higher expense levels, primarily related to compensation expense. The restructuring initiatives we announced today will create a leaner, agile, more focused mid-market securities and investment banking business in this geography capable of delivering stronger returns over the next fiscal year. Revenue in our Asia-Pacific capital markets business increased by 15% compared to the same period a year ago, driven by an increased activity in our Australia operations. We continue to leverage the strength of this business to drive integration across that region.

We're working to align our core offerings across our global capital markets operations, to compete globally in our core focus sectors, increase cross-selling opportunities and ultimately grow our business profitably. This market has presented a tremendous recruiting environment and we're selectively adding to our capabilities in areas we know we can compete and win. We're also fortunate to have cultivated a pipeline of activity in all of our primary markets and are well-positioned to successfully execute on these mandates when market conditions permit.

Now turning to the performance of our global wealth management business. Globally Canaccord Genuity Wealth Management generated revenue of $61.8 million during the quarter. We continue to focus on steadily improving reoccurring revenue growth from our wealth management operations in Canada and the U.K. and Europe. While we continue to experience growth in our fee based and proprietary asset management offerings, the ongoing weakness in investment banking activity put pressure on commissions and fees for our Canadian wealth management business.

For the third fiscal quarter this business generated revenue of $25.6 million, a decrease of 9% from the same period last year. As a result of our cost reduction initiatives expenses for the three months period decreased by 11% and total expenses as a percentage of revenue decreased by 1.6 percentage points when compared to the third of last year. Despite challenging market conditions we maintain a strong focus on attracting and retaining high quality advisors, investing in training programs and building a comprehensive suite of high quality products to help advisors grow their business.

I'm pleased to say that the investment in our proprietary range of GPS portfolios has surpassed $280 million an improvement of 210% since the beginning of this fiscal year. Our U.K. wealth business -- our U.K. wealth management business is proving to be an important asset for our firm with significant value creation opportunities. This business generated revenue of $35 million during the third quarter, an increase of 17% compared to the third quarter of last year. Client holdings in our in-house investment management products exceeded $1 billion and are attracting growing interest from domestic intermediaries and international fund companies. We continue to actively review opportunities to strategically expand this business to improve its contribution to our performance.

In closing I'd like to thank our global teams for their hard work and commitment through this challenging period of adjustments. We are acutely aware that we are operating in a new reality. Canaccord Genuity has an outstanding set of assets to draw upon, a more integrated business model, an established track record of delivering world-class ideas and solutions for our clients, ample working capital and a leadership team that is closely aligned with our shareholders. Looking ahead we expect to maximize shareholder value by creating a more efficient and aligned global business. We are making disciplined investments in our key focus areas, so that we can optimize our client relationships and provide meaningful opportunities for our employees.

With that we would be happy to answer any questions from institutional investors and analysts. And Sean please open the lines.

Question-and-Answer Session

Operator

Thank you sir. [Operator Instructions]. Your first question comes from the line of Sumit Malhotra from Scotia Capital. Your line is open.

Sumit Malhotra

First question is the around the goodwill charge and it's for Brad. So when I look at the goodwill and intangibles on the balance sheet this charge today is for about half of the amount that you have in total. Can you help me understand how we should think about the balance? I know that this is not a capital item in terms of affecting your working capital, but just from a balance sheet and book value perspective I want to make sure I am thinking about it correctly.

Brad Kotush

Sumit as you have seen in this last quarter we did take a substantial charge in relation to those goodwill and intangible assets and what we have done as part of that is ensure that even in the current market environment that those assets are still fairly valued on our balance sheet.

Dan Daviau

So Sumit we have got about $215 million of goodwill and intangibles on our balance sheet now.

Sumit Malhotra

Yes. Something like it was $200 million, $300 million or something in that range, yes. So is that all for the wealth management businesses now?

Brad Kotush

It's a mix of Canada and the U.K. and other wealth businesses Sumit. So capital markets is 92, U.K., Europe [12] in the Channel Islands so that gets to 215.

Sumit Malhotra

This is stuff as I say it's more for the balance sheet and book value, but the impact on fund capital isn't there and maybe you guys mentioned to the bigger question. Again we talked last quarter about where the company was comfortable with managing in terms of the capital position and the number that Brad had offered was a floor if you will of around $250 million. You still have a considerable cushion on that. So I'd be interested in your thought process and maybe what the Board's view as on kind of the dividend, because the savings to you don't seem to be that substantial given where your capital is right now?

Dan Daviau

I wasn't CEO when the Board came up with the initial dividend paying policy, but it was always intended to be as a percentage of net income and return of a chunk in net income. When we look at the environment today and our net income production capabilities where we didn’t make money this quarter. So albeit that there's a rationale for stability in dividend, our policy would suggest that we cut the dividend this quarter and I think that's what the Board decided, well I know that's what the Board decided.

Sumit Malhotra

Let's move on to a different topic and that will be around your wealth business in North America. Obviously this has always been more of a transaction oriented franchise and when you have markets like we have had of lately I don’t get surprised in seeing the loss moving higher again. From your perspective now that you have had some time in the seat and an opportunity to survey everything, obviously a lot of big moves announced this last night in the release. What is your view on the future of this business within Canaccord? Is it something that you see as key to your operations going forward or is it another business that you think should be under review in terms of where it fits?

Dan Daviau

If you share our vision Sumit, that we want to be the dominant independent investment bank in Canada, our wealth business is core to that strategy, fundamental core to that strategy, because we intend to compete with the largest bank and non-bank owned competitors in this country. So having a strong wealth business is important. And in a time of change in the industry, which I think you'll acknowledge we are under, having a very stable platform is very attractive to other investment advisors if they look for new homes and we think we provide that right now. So clearly two things impacted our wealth management business, yes transactions because they are a subset of our -- investment advisors are transaction oriented and when capital markets activity goes to very, very low numbers some of that plays out into our wealth management business.

But the other -- even the advisors that are asset based advisors and get paid on assets, I mean assets are down. The market is down and we can see our assets being down and therefore our fees associated with those assets are down. Those two things contribute virtually 100% of the reduction in our wealth business. So we are cautiously optimistic that both things will improve. But more important in that that we continue to attract very strong investment advisors. We are seeing very good activity on that side, we are speaking to lots of people, but we also want to make prudent decisions that are right not only for our balance sheet but also ultimately earnings accretive as we bring on additional advisors.

Sumit Malhotra

Last one for me and I think in the last detailed answer you maybe spoke to some of it. Obviously a lot of conversations happening right now, taking place right now about the brokerage business, and in particular the health of the independents. On the small end of a scale you have seen some of your competitors close their doors and unfortunately there may be more of that to come. From your perspective and from a recruiting standpoint, how do your conversations with individuals been in terms of where your platform is positioned in the market environment that that maybe with us for some time?

Dan Daviau

Now you are talking, is that a capital markets related question?

Sumit Malhotra

Yes, that's more capital markets.

Dan Daviau

If you were out -- number one we are seeing an incredible level of very, very good professionals who would like to join us. We've made a number of selective additions, recently we have increased our ETF capability. We have brought on mining specialty sales, we brought new people onto our banking platform. We brought on Pat Burke to run our Canadian capital markets. We have coordinated -- we brought on a whole new team in Calgary of people that would have been difficult to attract in a different market environment. So we continue to add very, very good people and there is a reason for that. You are right that the capital markets may stay weak for a period of time in Canada. But as we come out at the other side, I see this is a really compelling opportunity. An opportunity to firmly establish ourselves as the dominant independent in Canada and there is massive strategic value to be that, Sumit. Like if you were sitting there as the largest and strongest independent in this country you will also really make a fair amount of money. We have made as much as $130 million a year in our Canadian capital markets business. Pretax profit, on an average over the last five years we've made $60 million to $70 million of pretax profit in our Canadian capital markets business. Being a strong independent in this market will always be home fort and the stronger we are and stronger we use this environment to become to position ourselves well the happier I am.

Sumit Malhotra

Thanks for your time.

Operator

Your next question comes from the line of Paul Holden from CIBC. Your line is open.

Paul Holden

Thanks. Good morning. First question I wanted to ask you is with respect to the planned cost savings of $30 million a year, how we should be thinking about that and look let's say in the unfortunate circumstance that revenue over the next fiscal year looks something like what we saw in this past quarter. With that $30 million of planned cost savings would that get you to roughly breakeven, is that to the high, kind of size that up?

Dan Daviau

Yes is a short answer again. But there's a lot of revenue sensitivities, Paul. So it should get us much closer.

Paul Holden

And then sort of on the same line of question, let's say parts of revenue will go through another 12 months at the current market conditions, how should we be thinking about your incentive comp there? Given the decision you made this past quarter like if we are going through fiscal 2017 we don't see that lift in revenue that we had all like to see will incentive comp look more like how it has historically more in the low 50s or are we going to look at something that's more in the high 50s?

Brad Kotush

Ultimately it's not a sustainable business model to have an incentive comp in the high 50s. So I can answer, we can both answer that question the same way. This next quarter, the quarter that we are currently in, we don't see our incentive comp moving substantially from what we just reported. Now it's dependent on market conditions and revenue, but January went obviously a difficult month for everybody in the capital markets. So but into next year I think we have made the moves that we need to make to materially change our incentive comp structure. A lot of that $20 million of that $30 million in cost savings is comp and a chunk of that is incentive comp. So we see our ability to bring it down and in the majority of -- a big chunk of that $20 million was our U.K. operations. If you look at our incentive comp ratios in Canada and the U.S. generally speaking pretty in line. Where we run into inflated incentive comp numbers is primarily in the U.K. and that's primarily where we have taken a big chunk of the costs out.

Paul Holden

And then maybe on the topic of the U.K. capital markets, there is obviously buying Collins Stewart number, really those big acquisitions for the firm. And there have been some good quarters subsequent to that acquisition, but I'd say overall given the relatively healthy amount of underwriting in that business on a number of quarters, may be U.K. capital markets have kind of underperformed expectations. Is that a fair comment? Would you say it's kind of punched a little bit below its weight and if so are there any sort of plans to maybe bring that back to where it should be punching?

Dan Daviau

Let me take a half step back and then I will take two steps forward. I mean we spent $400 million to buy Collins Stewart. Our wealth business in the U.K. which is part of the Collins Stewart acquisition is worth 2.5% of assets $24 billion in assets. The acquisition of Collins Stewart now wasn't under my watch or I have gotten no -- I don't have a [indiscernible] but the acquisition of Collins Stewart was a good idea. We've made money on that acquisition. That wealth business is worth more than what we have [phased] for the entire business for sure. Notwithstanding the goodwill write-off we just took on our U.K. capital markets business, our wealth business is materially underrepresented in our balance sheet. So you can call that C$400 million or C$500 million. So that's the half step back.

To go forward I mean there was a fair amount of optionality I would argue in our U.K. capital markets business and you guys know that that's a business that I am slowly becoming much more comfortable and understanding. And when I say optionality, we try to be everything to everybody in that market and that's not the right strategy for us. We are a global mid-market investment bank. We need to focus on six or seven sectors where we can compete and dominate globally. So a big chunk of the cost reduction that you saw come out of the U.K. was to focus that operation. Focus it like we focused our U.S. operations. So maybe our highs may not be quite as high but our lows certainly shouldn't be as well.

From our U.K. perspective we're focused into a number of sectors that we can compete globally on, whether it's healthcare, tax sustainability, mining, oil and gas, those sectors where we can do very well and we can dominate the U.K. environment in those sectors. So I remain comfortable about that. But we've taken our headcount from the high 400s to the mid-200s in our U.K. operations through a series of cuts. We've taken our operating costs from $72 million down to sub $62 million with the currency working against us. So there is -- we've done a lot of measures to right size that U.K. business to get it to where it can be consistently profitable.

The U.K. market has been difficult exact same way the North American market is difficult. Typical you would see a fair amount of geographical diversification in our results, unless we are not completely exposed to Canada. We are not completely exposed to the U.S. or completely exposed to the U.K. We have had an awkward situation for the last four months where all of the markets have gone exactly the same direction, exactly at the same time from a new issue perspective and an M&A perspective. So we don't have some of the diversification we have had in the past.

U.K. remains an important part of our strategy going forward. It allows us to compete incrementally in some of the sectors that we've done very well in as our result of our presence in the U.K. and our dominance in the U.K. and we tend to market both our companies and our products globally in all of those markets. So we hope to do better. We've made some selective hires in the U.K. recently, particularly on the research side. We have brought on new healthcare bankers, new technology analysts, financial analysts. So we continue to selectively invest in that market but only in the sectors that are integrated global. That's a long answer to a short question, Sumit.

Paul Holden

It's a good answer, it's a helpful answer. So onto I guess the positive news story which is U.K. wealth then continues to be a positive story even during a tough quarter. The one thing with U.K. wealth is that it's still not optimized in terms of size and profit margin, right? You highlighted kind of the opportunity to increase the scale of that business and the margins associated with it over time. So how do you go about doing that today given that reason [careful] to make acquisitions is obviously challenging and if you can't necessarily execute on that growth strategy would you contemplate "going the other direction" and monetizing the value of that business?

Dan Daviau

Yes. I mean we haven't been capital constraint on the acquisitions in what we have to-date. We either have -- we have either been able to look at debt alternatives down in our capital markets business or use our broader capital or potentially partner with somebody to buying assets. So we -- capital hasn't been the constraint on the acquisitions we have looked at to-date. If we look at a bigger acquisition then clearly we would have to assess our capital raising needs, not at the Group level, not at the public company level, but rather down below at the wealth level. Our wealth business -- those businesses are valued at 15 plus times EBITDA. If we were to raise capital it will be down at that level even through a partnership with somebody or actually a shared ownership deal with somebody.

So imagine we found someone the exact same size as us and the math in those businesses are compelling, one plus one really equals three, like literally the math is one plus one equals three. So if we found an opportunity to do a one plus one equals three I'd rather one and a half than one and we would partner with somebody to do the deal with there. The answer to your second part of your question is, yes, we don't contemplate selling that business. We think that stability to our earnings is important and we think we are -- the management team that we have running that business is excellent and we have a real core competency in running that business.

Paul Holden

Okay. Thanks for your answers. It's enough questions for me there.

Operator

Your next question comes from the line of [indiscernible] from Citi Securities. Your line is open.

Unidentified Analyst

Maybe I can just start with the restructuring cost savings, the $20 million in incentive comp that you have targeted. Si there a certain amount of revenue that's implied behind that or how do you get to that number?

Brad Kotush

The instructions when we looked at some of the cost-cutting measures that we undertook was do not cut revenue, do not cut into the revenue. So I -- like some of this is back office cuts, maybe half of it and some it is front office cuts. But even on the front office cuts I mean generally speaking this was underperforming. Unlike some of our other competitors that have announced cuts. we didn't close offices, we didn't shut material business lines, only the real business line we shut was our retail bond business in the U.K. which is a relatively small business with a increment -- with very, very small incremental revenue impact. So the answer to your direct question is we don't perceive to have any real revenue impact from those cuts.

Unidentified Analyst

But I guess do you need a certain amount of revenue to be able to keep incentive comp $20 million lower next year? Is there a certain revenue outlook implied behind that?

Brad Kotush

No.

Unidentified Analyst

And then just wondering, sticking with the incentive comp side. On the U.K. fiscal year-to-date I have noticed that your revenue is down slightly, your headcount reductions have come down quite materially yet the incentive comp I think is up slightly. I'm just wondering, if you could walk me through -- if anything in particular is driving that?

Brad Kotush

In the U.K. you have relatively large fixed costs, fixed salaries, we call it incentive comp, but it's fixed and in a declining revenue environment you have to adjust your headcount and you are always your tail to a certain degree in that exercise. So I mean the cuts that we are announcing today or the salaries associated with those cuts rather are still going to be two three months to play out probably.

Dan Daviau

Actually there is a deficit that was created that needs to be balanced which is one of the charges and the headcount that you see will be lower and it's just a matter of reestablishing I guess of try and get back to a lower compensation ratio equilibrium.

Unidentified Analyst

And the headcount reductions are they spread pretty evenly across the geographies or can you give us a bit of context as to where you are targeting the 125 reductions?

Dan Daviau

Yes. I will venture to say half is coming from the U.K. and again most of the back office cuts have come out of Canada, I think that's where a big chunk of our back office is. But besides that reasonably balanced. So about half out of the U.K. of the remaining half two-thirds out of Canada and a third out of the U.S.

Unidentified Analyst

The adjusted EPS loss per share of $0.25, it looks like there was a couple of arguably one-time items that were not included and not announced. Your software development charge and then also the write down for [CFF]. Is there any reason why that was not included in your sort of -- your excluded -- or your sorry, adjusted number?

Brad Kotush

It didn’t meet our definition that we have been using for the past sort of 10 years, Graham, so it didn’t seem appropriate for us to expand that definition. We've explained why those are one-time items. But we thought it would be prudent to be consistent in how we are defining those significant items.

Unidentified Analyst

It looks like you have signed a decent mandate for Tahoe Resources recently, an advisory mandate. I am just wondering if we should expect that to be coming through in fiscal Q4 or approximately after that?

Dan Daviau

Yes. I think that's going to close post fiscal Q4 probably into Q1. But it's nice to see a broader recovery in the mining sector. I mean we have maintained a huge investment in our mining practice both from an investment banking perspective and a sales and trading perspective and a research perspective. As I mentioned before we have recently hired mining sales and trading professionals, specialists. So we continue to invest in that. You have seen some activity with Franco-Nevada and others recently. So you we are cautiously optimistic that activity is going to start up. We do have a number of other large assignments that we expect in this quarter, that we announced, that we were an advisor on the COM DEV sale, that would be a this quarter transaction and that we have a number of other M&A mandates that would be closed this quarter as well.

Unidentified Analyst

And those other mandates can you give us an idea of the size of those? Are they comparable?

Dan Daviau

A variety of different sizes. I mean we have got a pretty active M&A business as you know. COM DEV will be the single largest fee in this -- from a Canadian capital markets perspective this quarter.

Unidentified Analyst

On that same [fee] there has been some speculation that just some M&A activity in the energy space just around distress deals could be a factor. Do you subscribe to that view or are you seeing any potential evidence to your pipeline that that could be definitely a dynamic that plays out as we look into calendar 2016?

Dan Daviau

We are hopeful. You don’t know. We have an active restructuring business as you're probably aware and there is an -- we are not the only people with active restructuring business, so there is a number of mandates we are looking at. Yes, things have to -- the other shoe has to drop in that space. So we are cautiously optimistic that will play out. As you have seen we have made a reinvestment in our Calgary franchise and brought on a couple of new people in there and they are obviously very busy and they have set a large deal pipeline like everything in Calgary for the last little while. We will see how executable it ends up being but they certainly have a large pipeline of activity.

Unidentified Analyst

That's it for me. Appreciate the comments there. Thanks.

Operator

Your next question comes from the line of Geoff Kwan from RBC. Your line is open.

Geoff Kwan

Just wanted to maybe clarify some of the comments and other questions you have had earlier. Going back to looking at the comp ratios side and looking more from a total comp perspective. Just wanted to better understand I guess how to think about how it evolved during different parts of the cycle? So I mean if we continue to see kind of chance markets like this, I know you talk about next quarter the comp ratio will probably look similar to this quarter. But is that -- if we see this persist over a number of quarters, where would the comp ratio kind of look like and then conversely when times are getting really good how do you think about where the comp ratio might gravitate towards?

Dan Daviau

Geoff I think in the future we talked about having some reductions in that incentive compensation ratio going forward. We talked about sort of $20 million over the geographies. We talked about revenue preservation in terms of making that change. So we would again take a look and if it was negative we would make some further changes we don’t -- that we think we are at the bottom of this cycle. So we have made some prudent changes. It's just that they are not all going to come into effect until Q4. What typically happens in a higher revenue environment is they will go back to more normalized compensation ratio and I can just go back and look through our comp ratio history in relation to revenues. So when we have higher revenue environments we are going to have a lower comp ratio.

Geoff Kwan

So just with, Dan, coming on [indiscernible] comp ratio is with respect to good times would be generally consistent with historical, is that a fair statement?

Dan Daviau

Yes. I think so. I'd say the only thing that could evolve over time is comp that's more tied to our net income as opposed to our revenue and that obviously when you are trying to do the math and you play out how could that work from a comp ratio perspective, it would mean that -- you wouldn't see to a certain degree the same variability that we have seen in the past with comp ratios swinging so wildly in good times and bad times. So clearly the idea is for our senior managers here to be aligned with our net income as opposed to our revenue. And from a shareholders' perspective that seems a lot more shareholder friendly and from my perspective as the CEO I certainly want my senior people around this organization aligned to net income as well.

Geoff Kwan

Okay. And then just going back to on the cost savings on the comp side, that $20 million, I think you said most of its coming out of incentive comp. Do you have something a little bit more specific on how much that ratio would be versus -- the incentive versus call it the base compensation?

Dan Daviau

I don't have that right on the top of my head. I mean Brad do you want to guesstimate?

Brad Kotush

We will just get back to you Geoff, it's probably the best way to do it.

Geoff Kwan

Okay, sure. And just little best of final question I had was just more broadly speaking around that $30 million that you flagged on the cost savings. If the revenue environment does persist like it is right now, were the cuts made in the context of the current environment staying this way or if it stays this way do you actually maybe need to consider making some further changes on the cost side of business?

Dan Daviau

I think what you have heard us say today is that we have made the cuts appropriate for the environment today. I don't think we had impacted our revenue, certainly not in many material fashion impacted our revenue through the costs cutting that we have done today. Like we have said we have got a lot of new people in a lot of new positions, as they get comfortable with the business. We would have made these cuts regardless of the market environment today. These are cuts that were coming even if we post a very strong quarter. It's just simply how we are going to be doing business going forward and there is a strong culture on costs that may have not existed in this organization to the same degree in the past. So people are going to continue to look where we think we can cut both G&A and other expenses as well as potential comp savings going forward. So I can't say that we are done. I can say that we have a new culture of cost containment. So people are looking at it all the time.

Geoff Kwan

Okay, sorry. Maybe just to think about it in another way. So the cuts and the changes that you are making today are under the assumption that the current environment probably persists for the next little bit in other words that things get better we will see that operating leverage work in your favor.

Dan Daviau

Correct. These costs don’t reappear.

Geoff Kwan

Okay. Thank you.

Operator

There are no further questions at this time. I would now like to turn the call back to Mr. Daviau for closing remarks.

Dan Daviau

Well thank you everybody. I know this has been a challenging market environment, and a challenging quarter and I appreciate your patience with us as we -- as the new team starts and is geared up and certainly look forward to things going forward. We do perceive real value out there today. You expect me to say that, but even just between our working capital that sits on our balance sheet and our value of our U.K. wealth business there is significant value in our company.

Certainly my intention is to continue to acquire stock. I will be buying stock today in the marketplace as I am sure that several of our other senior managers will be doing. I think we all buy in to the vision that significant value is there and certainly this is a good time to support our company. So I thank you very much for your time and attention today and available later to answer questions if you have some more.

Operator

This concludes today's conference call. You may now disconnect.

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