The Bank of Nova Scotia (NYSE:BNS) Q4 2025 Earnings Call December 02, 2025 08:15 AM ET Speaker0Good morning and welcome to Scotiabank's Q4 results presentation. My name is Manny Grauman, and I'm Head of Investor Relations. Presenting to you this morning are Scott Thomson, Scotiabank's President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Phil Thomas, our Chief Risk Officer. Following our comments, we'll be glad to take your questions. Also present to take questions are the ...

Financial Data and Key Metrics Changes - The company reported revenue of $189.7 million for Q1 2025, representing a 15% year-over-year increase and a 4% sequential increase [6][13] - Adjusted EBITDA reached $40.7 million, accounting for 21.5% of revenue, which is a 61% increase from $25.2 million in the prior year [6][18] - Free cash flow was $37.8 million, exceeding typical seasonal patterns due to favorable timing with larger customer invoicing [6][18] Business Line Data and Key Metrics Changes - Subscription-based revenues grew by 18% year-over-year and 5% sequentially, making up 81% of total revenue [14] - Services and other revenues declined by 7% year-over-year, primarily due to a reduction in professional service revenues [14] - Total annualized recurring revenue (ARR) increased to $847 million, up 11% year-over-year, driven by strength in subscription ARR, which grew to $720 million, up 14% year-over-year [15][16] Market Data and Key Metrics Changes - The company signed a Tier one relationship pricing deal with a bank to enhance commercial relationship profitability across lending and deposit products [7] - Expansion activity within the existing customer base was significant, with a top 50 U.S. bank signing an expansion deal for risk and fraud solutions [8][10] - The company continues to see strong renewal activity, signing renewals with three of its top 10 largest customers [10][11] Company Strategy and Development Direction - The company emphasizes the importance of fraud management as a growing priority for financial institutions, which is expected to drive future bookings [22] - The focus on deposit gathering remains critical, especially in the current macroeconomic environment, which has been a tailwind for sales efforts [12] - The company aims to maintain operational efficiency while investing in innovation to meet evolving customer needs [18][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's durability due to the mission-critical nature of its products and a strong, diverse customer base [11][20] - The company anticipates a solid pipeline for the remainder of the year, with strong renewal and expansion opportunities [12][20] - Despite macroeconomic uncertainties, management believes the company is well-positioned to navigate potential challenges while prioritizing long-term customer success [20] Other Important Information - Gross margins improved to 57.9%, up from 54.9% in the prior year, driven by a higher mix of subscription-based revenues [17] - Total operating expenses were $77 million, or 40.7% of revenue, showing improvement from 44% in the prior year [18] - The company raised its full-year revenue guidance to a range of $776 million to $783 million, representing year-over-year growth of 11% to 12% [19] Q&A Session Summary Question: Insights on fraud management traction - Management noted that fraud management is a differentiator in both new deals and expansions, with significant opportunities for growth in this area [26][28] Question: Confidence in renewal opportunities for 2025 and 2026 - Management confirmed that the confidence is based on the number of logos up for renewal, indicating a similar opportunity set compared to previous years [29][30] Question: Macro assumptions in raised outlook - Management stated that the raised outlook did not incorporate different macro assumptions, maintaining confidence in the 2025 numbers [35] Question: Credit union market focus - Management highlighted strong performance in the credit union sector, with a focus on diversifying their offerings to include more commercial customers [38] Question: Cash flow performance and future expectations - Management indicated that the strong cash flow in Q1 was partly due to a large customer switching to annual payments, which may not be repeated in Q2 [72][74] Question: Subscription growth versus ARR growth - Management explained that subscription ARR is a leading indicator for subscription revenue, with expected patterns reflecting previous years [104][106]

Financial Data and Key Metrics Changes - The company generated net income of $4,200,000 or $0.43 per diluted share in the quarter, representing substantial increases from the prior quarter [9] - Tangible book value per share increased by 1.6% this quarter [9] - Gross revenue increased by 3.4% from the prior quarter, driven by increases in both net interest income and noninterest income [14] Business Line Data and Key Metrics Changes - New loan production was $71,000,000 in the first quarter, offset by $72,000,000 in loan payoffs, resulting in a slight decrease in total loans [11] - The average rate on new loan production was 6.89%, higher than the average rate on loan payoffs, contributing positively to the loan portfolio yield [11] - Total deposits were up slightly from the end of the prior quarter, with inflows of noninterest bearing deposits from existing clients and new relationships [12] Market Data and Key Metrics Changes - The company saw a $144,000,000 decrease in assets under management in the first quarter, primarily due to net withdrawals in fixed fee accounts [13] - The company maintained a conservative approach to new loan production, focusing on disciplined underwriting and pricing criteria [6] Company Strategy and Development Direction - The company aims to grow its Trust Investment Management business, having added a new Head of Wealth Planning from Goldman Sachs [21] - The management is focused on improving profitability and operational efficiency, with expectations for continued positive trends in asset quality and net interest margin [20] Management Comments on Operating Environment and Future Outlook - Management expressed that while profitability is improving, they are not satisfied with the current performance level and are focused on further enhancements [20] - There is uncertainty regarding the macroeconomic outlook, which could impact loan demand later in the year [20] Other Important Information - The company successfully resolved its two largest OREO properties, resulting in a net gain [9] - Noninterest expense decreased by $1,000,000 from the prior quarter, primarily due to a write-down recorded in the previous quarter [17] Q&A Session Summary Question: Can you isolate any interest recoveries on a dollar basis? - Management noted that there was a $200,000 increase in amortized loan fees that contributed to the uptick in loan yields [26][27] Question: What is the spot rate on deposits and average margin in March? - The spot cost of deposits was 2.98%, and the cost of funds was approximately 3.05% [29] Question: What is the outlook for nonperforming loans? - Management expects to sell one remaining OREO property this year and anticipates collecting on a substantial nonperforming loan through collateral sale [31][32] Question: Will there be a significant increase in expenses due to new hires? - Management indicated that while expenses are expected to remain flat, new hires may take time to become accretive to the bottom line [73] Question: What is the target for return on assets (ROA)? - The target is to return to a 1% ROA, with expectations for improved profitability as the company grows [42][43]