Q2 2023 AlTi Global Inc Earnings Call
Greetings and welcome to all T. Tito main global second quarter 2023 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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Mind you This conference is being recorded.
Now my pleasure to introduce Lilly Archie AGA head of Investor Relations. Thank you you may begin.
Good afternoon to everyone on the call today joining me. This afternoon are Michael teed him in our seal and Reid Parmelee, our interim CFO and global controller.
We invite you to visit the Investor Relations section of our website at Www Dot I'll cheat Dodge global Dot com to view, our earnings materials, including our updated investor presentation.
At this time I would like to remind everyone that certain statements made during this call are not based on historical facts, including any statements relating to financial guidance and maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements involve known and unknown risks and uncertainties.
Important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements.
She assumes no obligation or responsibility to update any forward looking statements.
During this call. Some comments may include references to non-GAAP financial measures.
Full GAAP reconciliations can be found in our earnings presentation and related SEC filings.
With that I'd like to turn the call over to Mike.
Thank you Lily good afternoon, everyone and thank you for joining us today for our second quarter 2023 earnings call.
In the second quarter.
He advanced the strategic priorities, we laid out on our last call and our performance is beginning to reflect these initiatives.
As we discussed on our first quarter call.
We're focused on the primary goals of streamlining our operations and growing our base of recurring revenues.
As we move forward, we are confident that this approach and strategy will drive higher and sustainable margins.
Another important goal in 2023 was to increase our public float.
Simplifying our capital structure.
Of which we accomplished in the first half of the year.
Altogether these steps position the firm for long term growth in the broader financial sector.
For a brief summary of our Q2 performance on a consolidated basis, all T generated revenues of $52 million.
<unk> 95 per cent represent recurring revenues.
Adjusted EBITDA of $11 million and ended the second quarter with 69 billion in assets under management and advisement.
Our net income for the quarter was $29 million.
Adjusted net income normalized for one off items was $2 million.
We are confident that our diversified platform is well positioned to capitalize on opportunities.
Any economic environment.
This is evidenced by the sequential growth, we reported across key operating and financial metrics.
We delivered steady asset growth in the second quarter.
On a trailing 12 month basis, we've increased total assets by 15%.
Our second quarter performance was led by 7% sequential asset growth in wealth management.
You already have which is organic.
In parallel we have successfully maintained asset levels across alternatives platform. Despite strategy specific headwinds in the short term.
However, the hallmark of our asset management strategies is resilience.
Pride ourselves on the ability to preserve capital during turbulent times and generate returns as the environment improves.
We expect our strategic initiatives to accelerate momentum in the current operating at Bob and ensure we capitalize on opportunities as we lean into our strengths. As a reminder, we spent the first 90 days as a public company identifying our near term strategic pillars, which include <unk>.
Leveraging our competitive advantages to accelerate organic growth and execute disciplined accretive acquisition.
And simplifying the organization through cost savings initiatives as well as capital structure improvements.
These priorities are complementary in nature.
Dress the current market environment.
And prioritize organizational enhancements for long term growth and margin expansion.
Our business is built on a solid foundation of recurring revenues, which has been bolstered by our recent acquisitions and investments will now offer an overview of our two operating segments.
Starting with wealth management in April we completed the acquisition of a L ballpark.
Our multifamily office space in Singapore, with approximately 1 billion in assets under management.
This accretive transaction grew our presence in Asia, specifically in Singapore, which has emerged as the global financial capital for wealth management.
We believe that Singapore, it will be a key growth engine for our wealth and asset management business segments over the coming years.
Subsequent to quarter end.
We signed a definitive agreement to purchase the remaining ownership stake Lugano based multifamily office.
It has been part of the legacy L. T wealth management platform since 2019.
This firm is approximately 1 billion in asset and office exposure to the northern Italian market, an important region for our global wealth platform.
His team is already largely integrated into the Alta ecosystem and operating platform, which provides expanded solutions to its current and prospective clients.
We will seek to identify and execute further strategic opportunities within wealth and asset management.
That align with our competitive advantages.
The transactions, we have completed expand our client base continued to build upon our recurring revenues.
And we will drive margin expansion.
Organically.
We generated 4% sequential asset growth in wealth management this quarter.
Team is producing strong performance as evidenced by robust client wins globally.
Additionally, <unk> has emerged as the destination of choice for leading ultra high net worth multifamily offices and Premier wealth management firms seeking strategic investment.
These firms are located globally, an important wealth hubs and theyre looking for a partner that can awesome offer a fulsome set of solutions to their current and prospective clients.
Firms are looking to unlock growth, while maintaining and enhancing our high quality client experience.
In summary.
We are delivering substantial growth in our wealth management business opportunities to grow our global and our outlook is strong.
Turning now to asset management, we largely sustained our AUM levels, despite market headwinds the public and private real estate businesses as well as our real estate bridge lending strategy have been impacted by this historic shift in interest rates and increased cost of capital.
This has led to a temporary reduction of activity in the real estate sector.
However, we see normalization on the horizon and are evaluating opportunities to capitalize on the cycle ahead by focusing on private real estate strategies with long dated and predictable revenue streams.
We have a global opportunity set and have a leadership team in place to capitalize on the near term environment.
Most recently, we've added to this team by bringing on board Andy hate former.
Former global head of Knight, Frank's residential business to chair, a private real estate platform.
We anticipate making additional appointments in the coming months.
And look forward to updating you on future calls.
We are leaning into this current environment as we see a robust opportunity in real estate from stressed and performing credit to equity.
The team is prepared to capture market share in the near to medium term.
Earlier in the year, we also increased our stake in two of our affiliated managers.
Does that body of long short equity managers based in London, and the Arkin and Asia credit and special situations Fund based in Hong Kong.
With funds have consistently outperformed their peers across market cycles and are examples of the types of differentiated strategies, we seek in our asset management segment.
Turning to our event driven business.
Second quarter proved to be challenging.
Sector faced unprecedented and coordinated resistance from regulators and reduce deal flow due to the sharp increase in cost of capital.
This is recently abated due to a favorable outcome in the courts as our team it Didnt Chesapeake.
The environment has improved measurably in the third quarter.
Our public real estate strategy.
The decline in market capitalization in the second quarter trading at a discount to NAV Despite excellent financial performance.
In the second quarter.
U K listed Reits traded down in mass.
The persistent inflationary pressures and resulting interest rate hikes in the U K.
Subsequent to quarter end assets would begin to recover as investors have a better line of sight on the underlying fundamentals and believe interest rates are leveling off.
As inflation abates.
Turning now to our cost and capital structure.
We are on track to achieve our stated goal of at least $16 million and total net savings on an annualized basis.
These initiatives include the restructuring of underlying businesses across both wealth and asset management.
Consolidating our facility footprint.
SG&A cost reductions.
Under rationalization and professional fees associated with our public listing in the coming months, we will continue executing on these initiatives.
Well growing recurring management fee revenue streams and increasing profitability.
We expect the cost saving initiatives will be fully reflected in the first half of 'twenty 'twenty, four creating a simpler P&L and contributing to enhanced margins.
While on this topic, but I also want to mention that as we continue to streamline our platform and invest into our strengths.
We may exit certain non core assets to generate capital to recycle into our core strategies.
In the second quarter, we also significantly improved our capital structure to benefit shareholders and encourage long term ownership in.
In June we completed a warrant for share exchange.
It should increase the share count by approximately 5 million shares and alleviated the warrant over.
We also finalized the registration of 19 million pipe shirts.
These efforts quadrupled, our public float to approximately 22% of shares outstanding and significantly enhanced liquidity for all of our fellow shareholders.
I am pleased to report that in June we completed the issuance of celebratory grants associated with the company's public market investing this resulted in an issuance of approximately 4 million additional shares to all <unk> employees.
This is another important step in aligning all T team members for their broader ownership basis, we foster an ownership culture at the firm.
With that I will turn the call over to our interim CFO and global controller Reid Parmelee for a review of our financial performance in the quarter.
Thank you Mike.
I want to note that our results are again presented at the comparison between credit sector Extensor company as required by the accounting guidelines.
In our case, she didn't wealth management holdings.
As a company and all T et cetera.
The year over year results are not directly comparable.
As Mike mentioned, we are pleased with the performance in the quarter and results reflect the successful execution of our growth strategy.
Beginning to show the benefits of our cost savings initiatives.
In the second quarter.
<unk> increased 3% sequentially and 69 billion.
Reflecting continued strong performance into wealth management.
Wealth management experienced a 7% quarter on quarter increased to 49 billion.
Driven by our acquisition of our wealth partners solid market performance.
New business wins.
Net new client flows were $430 million largely driven by significant across.
Across our international.
As well as growth in the U S.
In asset management anyway in anyway declined 4% sequentially to approximately 20 billion.
Collecting primarily redemption.
Alternative platform and a decline in market capitalization of our public real estate strategy.
Lending credit market headwinds.
In total altra generated revenues of 52 million in the second quarter.
Revenue in our wealth management segment, which entirely consistent management and advisory fees in the second quarter were $34 million.
This represents a robust increase of 8% compared to the first quarter.
And asset management revenue was $18 million.
87% was recurring from management and advisory fees as well as the management fee component from our affiliated managers, including distributions.
Yeah.
Sequentially asset management recognized reflected lower asset level and pressure on the real estate sector.
Headwinds facing event driven strategy and second quarter.
Sequential comparison is also impacted by seasonally weaker distributions from Manhattan.
Reduced feed in a deal driven.
Specifically strategic advisory.
Real estate.
On a consolidated basis I am pleased to report that 95% of our total revenue in the quarter, which generated from recurring fee.
A key milestone as we strengthen our foundation and <unk>.
All key to profitably operate across economic cycles.
We also made progress on the expense front, where we are starting to see the results of our cost savings initiatives.
The results also reflect a significant reduction in one time expenses.
Operating expenses in Q2 were 93 million.
Parents of 101 million in the previous quarter.
Results for the quarter include a non cash one time impairment charge of approximately $29 million related to the accounting deconsolidation at AHRI.
Approximately $15 million in one time cost related to the transaction and organizational streamlining.
And approximately $3 million and noncash equity compensation expense.
Normalized for these items operating expenses would have been approximately $46 million in the period, resulting in an operating margin of approximately 12%.
Improvement in profitability reflects a decline in compensation expenses as well as reductions in recurring professional fees and <unk> expenses.
We expect nonrecurring costs to continue to trend downward.
Cost and growth initiatives take hold throughout the remainder I think.
Below the line other income at 55 million reflects the noncash.
Noncash 66 million gain from the change in fair value of earn out liability as a result of share price appreciation.
This was partially offset by changes in the fair value.
And the tax receivable agreement.
Interest expense.
As mentioned earlier adjusted EBIT turns like 11.
Importantly, our adjusted EBITDA margin improved sequentially by 2% from 19% in Q1 and 21% in Q2.
We believe the increase in profitability demonstrates the merits of our growth and cost savings initiatives, which will position <unk> for continued margin expansion and shareholder value creation in the quarters to come.
We are committed to achieving our long term goal of high single digit annual growth rates in assets low teen annual top line growth and adjusted EBITDA margin expansion.
Eric.
Turning to our balance sheet, we continue to be in a stable capital position.
Of our $250 million five year BMO credit facility, which is comprised of a $150 million revolver and a 100 million term loan.
At quarter end, we had drawn $171 million and our last 12 month EBITDA leverage multiple is three four times.
Now I will turn it back to Mike for some closing remarks.
Thank you Reed.
We believe <unk> is well positioned to grow its global platform to achieve operating scale.
Our strategic review has enabled <unk> to further lean into its strengths.
To organically grow recurring revenues.
Prioritize accretive growth opportunities.
Increased profitability.
And positioning the platform for continued success.
Pleased with the team's progress against our strategic initiatives, which speaks to <unk> commitment to driving profitable growth.
And maintaining.
High standards of financial performance.
We remain confident we have the right talent.
Suite of solutions.
To capitalize in the years to come.
With that we'd like to now open up for questions operator.
Thank you.
Ladies and gentlemen at this time, we will begin ducking your question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
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Our first question comes from the line of Wilma Virtus with Raymond James. Please proceed with your question.
Hey, good evening.
<unk> got a few questions. So I'll just keep going until you stop me, but.
Anyway, I guess first transaction expenses in Peru.
<unk> significantly.
$11 9 million so down.
Quite a bit from $17 eight.
Quarter over quarter over quarter could you talk a little bit about the.
Trajectories for these rolling off.
Yes, hi, Robert Thank you.
Thank you very much.
And I'll, let reed answer specifically.
The transaction expenses from the <unk> back end.
Warrant exchange.
Are largely behind us, but they will continue to be other transaction expenses.
Sure So hi will match.
Those costs are largely behind us, we would expect to trend towards zero in Q3.
What Mike mentioned related to any future deals we expect to.
And Curt transaction expenses.
In the coming quarters.
Related to the Lugano, which make correction August .
Be it at a much smaller scale.
<unk> for the feedback.
Gotcha.
You break out.
Is there a is there any way to break out how much is related to the warrant exchange there.
Sure the warrant exchange with roughly $2 million.
Okay.
Okay.
Okay. Thank you.
Margin improved quite a bit quarter over quarter, 21%.
I understand youre trying to get it up to a higher level, but I guess, maybe just talk a little bit about how that compares to your expectations.
And then that kind of maybe trajectory over the next two quarters.
Yes, clearly the.
As we describe the business itself the core business itself is doing.
Well on a lot of levels, even despite some of the headwinds.
We'll talk about within asset management.
And the <unk>.
Streamlining of the business is really critical and so the combination of the two.
We will lead to an inflection of the business.
That's what we're anticipating in these coming 234 quarters that lay ahead of us.
Gotcha.
And then the note with a wealth management net flows look like.
Pretty pretty strong is this a good you know.
Last quarter I think it was extremely strong kind of maybe a little bit outsized.
Any good way, but.
Is this a good run rate you think for well finish with that Paul.
Okay.
The.
A key point to highlight between Q1 and Q2 is really the diversity. So Q1 was largely a U S. In Q2 was more driven from international and so that we see that is obviously an important dynamic that does occur.
Company can offer.
<unk> quarter to quarter is very challenging to do but we have a great pipeline both in the U S. Non U S.
Traditional wealth impact prospects. So we're excited about the future, but the real differentiation between the two quarters aside from size was.
Domicile of where the growth came from.
Got it thank you.
And then the <unk>.
Well deal appears to be performing very well can you just talk about the pipeline for similar deals.
Lugano would be a similar deal so what we just executed well.
More information on that.
Next for more detail on that at our next call.
There are firms of similar in larger size.
We do.
Come in contact with us.
Excellent firms.
Both in jurisdictions in which we already operate.
Well as others that we would consider.
<unk> operating from.
Got.
It's hard to find great operators, who.
Fifth culturally of the client.
Profile that we have.
<unk> operating ethos in both Lugano in Singapore are two great examples of that.
And.
For the.
Merger arbitrage on you noted that in <unk>.
The <unk>.
Conditions appear to have improved a little bit maybe you could go into a little bit more color there.
Yes.
Potential improvement in two important ways one.
Both of us.
Are there specific controls so interest rate environment.
And the inflation environment has been driving the interest rate environment is leveling off that enables M&A activity, let's call Rolling forward. The next 12 to 18 months.
The calculation of that cost will be something that will be easier for <unk>.
Firms to model. So just in terms of deal activity, we expect the improvement youre beginning to see that already the most important in the last.
Six to nine months as the regulatory environment, we had never seen before regulators coordinating.
These are the regulators are assuming all types of deals not just ones that work.
Monopolistic nature, so that the courts have been very favorable against the regulators and that has really changed the backdrop or anyone considering doing a deal and certainly those investing into merger arb deal. So spreads are getting into normalized wishes very good thing.
Thank you.
And then.
I think maybe I missed.
Mr heard you, but I thought there was a quick statement.
In there about the potential to sell non core assets to reposition to more core investments.
If I understood you right, maybe you could give a few examples of some things.
Research and out of India.
Yes, so invariably we're going to evaluate.
All pieces of our business and as part of streamlining.
Yeah.
Degree say simplifying streamlining either jurisdictions that we operate in regulatory.
Regulatory entities that we have.
One of the goals for this year is too.
Half of that in a very clear direction as we enter 2024 less regulated entities.
And to be oriented towards one that we are growing and ones that are <unk>.
Clearly tied to our core so as we look at.
We have some attractive assets that are more strategically in line with other businesses that our other businesses, we would like to own and so we are entertaining bids for a few of those to generate capital then reinvest back into our core.
Yes.
Got you. Thank you very much and then last question.
Maybe you could just give a little bit of color similar too.
You mentioned on the merger arbitrage fund on the outlook for any other other core investment strategies.
Yes.
The other.
In terms of sorry, I, just want to make sure I understand exactly for performance, maybe just talk a little bit about how they're performing <unk>.
You know what you expect to report.
Yes, so Q2.
For the Asia credit strategy with a challenging environment in the second quarter four.
Their marketplace worse than the index would indicate because they have a range of credit which does.
And in the distress. So they did a very good job of preserving capital and retaining liquidity to buy into that weakness.
There hasn't necessarily been a quick recovery in Q3, but the profile and the earnings.
Profile of their investments was quite robust so as you roll the clock for the next 12 months, we're actually very encouraged by that strategy and the team's ability to.
Survive challenging markets.
Retained earnings power going forward.
Our long short equity Zebedee alongside equity fund is really non directional.
As an example made.
Some odd percent.
Tried down year last year or so.
They really are a non correlating strategy.
The opportunity set is.
Really week to week in terms of how they move maneuver themselves to take advantage of it.
An arbitrage there as I mentioned did very well relative preserving.
It has recovered quite nicely in Q3 as I mentioned earlier.
Bridge lending strategy is.
Unbelievable backdrop.
Particularly as you look at the regional banks.
Their capital challenges, so being a private lender into real estate or just generally private credit strategy as.
There's a lot of tailwind and obviously a lot of investor interest. So that's the strategy that we're really.
Focused on making sure that we're able to grow that over the coming 12 months to 24 months.
Okay. Thank you guys very much.
Thank you there are no there are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Thank you operator.
You to contact us with any questions or if you have any.
Need for a schedule a follow up call we'd be happy to have one.
And I want to thank the <unk> team members around the world are fellow shareholders for their hard work dedication as we advance the strategy that we've laid out today.
I'm confident that our diversified platform is built to perform well in any economic cycle and our progress this quarter illustrates that fact.
We look forward to connecting with you this fall and wish everyone healthy and happy rest of the summer.
Take care.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.