Q1 2024 AtlasClear Holdings Inc Earnings Call
Operator: Good morning, and welcome to our first quarter 2024 earnings conference call. With us today are John Shibley, Atlas Clear's Executive Chairman, and Craig Reinhauer, Atlas Clear's President.
Good morning, and welcome to our first quarter 2024 earnings conference call with US today are John Shively, Atlas clears executive Chairman and Craig right now or.
Operator: During this call, we will make forward-looking statements about our beliefs and estimates regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K. The actual results may differ materially from any forward-looking statements that we make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them, except as required by law.
Speaker Change: That was clear as president during this call we will make forward looking statements about our beliefs and estimates regarding future events and results. Those forward looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K.
Speaker Change: Actual results may differ materially from any forward looking statements that we make today.
Speaker Change: Forward looking statements.
Speaker Change: Speak only as of today, and we do not assume any obligation or intend to update that except as required by law in an effort to provide additional information to investors. Today's discussion will also include references to certain non-GAAP financial measures reconciliations and other explanations of those non-GAAP financial measures.
Operator: In an effort to provide additional information to investors, today's discussion will also include references to certain non-GAAP financial measures. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release, available on the company's investor relations site.
Speaker Change: Can be found in today's press release available on the company's IR site.
Speaker Change: Yeah.
Craig Reinhauer: Thank you everyone for joining us for Atlas Clear's first earnings call to the public. The transition to a public company was an important milestone for AtlasClear, and we were able to celebrate this momentous occasion by ringing the New York Stock Exchange bell on March 6th. We have achieved this through a lot of hard work and dedication, and I would like to take this time to thank all of our employees for this incredible accomplishment.
Thank you everyone for joining us for Atlas players first earnings call as a public company the.
Speaker Change: The transition to a public company was an important milestone for outlets glare and we were able to celebrate this momentous occasion by ringing the New York Stock Exchange Bell on March six we have achieved this through a lot of hard work and dedication and I would like to take this time to thank all of our employees for this incredible culture.
Craig Reinhauer: The team and I are excited to share our first quarter results as well as provide you with an overview of our business and future growth strategies. With that, I'll begin my remarks with a look at our first quarter highlights.
Speaker Change: The team and I are excited to share our first quarter results as well as provide you with an overview of our business and future growth strategy with that I'll begin my remarks, with our first quarter highlights.
Craig Reinhauer: In the first quarter, we successfully closed the D-SPAC transaction and began trading on the New York Stock Exchange's Amex on February 12. At the operational level of Wilson-Davidson Company, our first quarter was profitable, and we anticipate increasing that profit moving forward. We expanded the scale of our income-generating activities with increased margin lending, increased stock loan business, and announced a new line of investment banking. Now, before I talk about some recent business developments, since this is the first time we are discussing our quarterly results in a conference call format, I wanted to spend some time discussing Atlas Clear's market opportunity and value proposition.
Speaker Change: In the first quarter, we successfully closed the destock transaction and began trading on the New York Stock Exchange Amex on February 12.
Speaker Change: At the operational level Wilson Davidson company, our first Florida was profitable and we anticipate increasing that profitable moving forward.
We expanded the scale of our income generating activity with increased margin lending increased stock loan business and announced a new line of investment banking.
Speaker Change: Now before I talk about some recent business development.
Speaker Change: This is the first time, we were discussing our quarterly results in a conference call format.
Speaker Change: Wanted to spend some time discussing atlas clears market opportunity and value proposition.
Craig Reinhauer: At Atlas Clear, our goal is to build a cutting-edge technology-enabled financial services firm that will create a more efficient platform for trading, clearing, and settlement banking, with evolving and innovative financial products that focus on financial services firms. We believe we are positioned to provide a modern, mission-critical suite of solutions to our clients, enabling them to reduce their transaction costs and compete more effectively in their business. Our target client base for our prime banking and prime brokerage services includes financial services firms, generally with annual revenues up to $1 billion, including brokerage firms, hedge funds, pension plans, and family offices that are not adequately served by today's larger correspondent clearing firms and banks. The larger clearing firms have raised their minimums to a point where it is difficult for this segment of the market to meet the requirements for access to their clearing offices.
Speaker Change: At Atlas clear our goal is to build a cutting edge technology enabled financial services firm that will create a more efficient platform for trading clearing settlement banking with evolving and innovative financial products to focus on financial services firms.
Speaker Change: We believe we are positioned to provide a modern mission critical suite of solutions to our clients, enabling them to reduce their transaction costs and compete more effectively in their businesses.
Speaker Change: Our target client base for our Prime banking Prime brokerage services includes financial services firms generally with annual revenues up to $1 billion.
Speaker Change: Including brokerage firms hedge funds pension plans and family offices that are not adequately served by today's larger correspondent clearing firms and banks.
Speaker Change: The larger clearing firms have raised their minimum to a point where it is difficult for this segment of the market and meet the requirements for access to their clearing offerings.
Craig Reinhauer: Small financial services firms are best forced to find alternative solutions to continue to service their client base. However, the practice of obtaining these services through intermediaries results in additional fees and a loss of transparency and control for such financial services firms. Through the acquisition of Wilson Davis, a corresponding clearing firm, and our proposed acquisition of Commercial Bancorp, a Federal Reserve member, we will have acquired capabilities to provide specialized clearing and banking services to financial services firms, with an emphasis on domestic and international markets currently under service by larger vendors.
Speaker Change: Smaller financial services firms are best forced by an alternative solutions to continue to service the client basis.
Speaker Change: It's of attaining these services through intermediaries results in additional fees and a loss of transparency and control for such financial services firms.
Speaker Change: Through the acquisition of Wilson Davis, a corresponding clearing firm and our proposed acquisition of commercial bank or Federal Reserve remember, we will have acquired capabilities to provide specialized clearing and banking services to financial services firms with an emphasis on domestic and international markets currently under serviced by larger vendors.
Craig Reinhauer: Once properly integrated, anticipated synergies between Commercial Bancorp, post-successful regulatory approval, and Wilson Davis are expected to allow for lower cost of capital, higher net interest margins, expanded product development, and greater credit extension for our current and future client base. Now, I want to discuss the market opportunity. We estimate total revenue of execution, clearing, and prime services in the industry to exceed $150 billion annually.
Speaker Change: Once properly integrated anticipated synergies between commercial bank or post successful regulatory approval and Wilson Davis are expected to allow for lower cost of capital higher net interest margins.
Speaker Change: Banded product development and greater credit extension for our current and future client base.
Speaker Change: Now I wanted to discuss the market opportunity, we estimate total revenue execution clearing and prime services industry to exceed 150 billion annually today Atlas clear has the capabilities that it went to <unk>.
Craig Reinhauer: Today, Atlas Clear has the capabilities that would answer unmet needs compared to competitors. We believe our technology platform and specialized clearing and banking services will be mission critical to our clients, given the complexities of investing infrastructure, the complications around collateral and capital requirements, and the complicated regulatory landscape. We expect to benefit as new FinTech firms launch and existing firms scale, potentially outpacing legacy financial firms in their own categories. We believe consumer expectations for a one-stop shop for their investing, banking, spending, insurance, and borrowing needs are driving the convergence of financial services.
Speaker Change: Answer unmet needs compared to competitors, we believe our technology platform and specialized clearing and banking services will be mission critical to our clients given the complexity of investing infrastructure, the complications around collateral and capital requirements.
Speaker Change: Complicated regulatory landscape.
Speaker Change: What do you expect to benefit as new Fintech firms launch and existing firms scale potentially outpacing legacy financial firms in their own categories.
Speaker Change: We believe consumer expectations for a one stop shop for their investing banking spending insurance and borrowing need is driving the convergence of financial services as a result financial companies that traditionally operated as a single product specialists for example savings focused platforms. Our lending focus platforms are now seeking to integrate.
Craig Reinhauer: As a result, financial companies that traditionally operated as single product specialists, for example, savings-focused platforms or lending-focused platforms, are now seeking to integrate trading and investing capabilities into their broader offering. Now, I'd like to go over our four growth strategies in detail. Growth strategy number one, growing our base of clients organically. Our technology platforms, combined with the rapidly accelerating demand for cost-efficient, our expected drive growth and our prospective client base. For new market entrants, we believe the efficiencies of our prospective turnkey solutions and the speed at which we expect to be able to bring a client's offering to market will position us to win new clients. Growth strategy number two, growing our clients' revenue. We believe we will succeed when our clients...
Speaker Change: Trading and investing capabilities into their broader offering.
Now I'd like to go over our four growth strategies in detail.
Speaker Change: Gross strategy number one growing our base of clients clients organically.
Speaker Change: Our technology platforms combined with the rapidly accelerating demand for our cost of equity is expected to drive growth in our prospective client base.
Speaker Change: For new market entrants, we believe the efficiencies of our perspective turnkey solutions and speed at which we expect to be able to bring our clients offering to market will position us to win new clients.
Growth strategy number two.
Speaker Change: Growing our clients' revenue, we believe we will succeed when our clients succeed the more assets surfaces or transaction for customers director Architected platform more revenue, we and our clients would be able to generate.
Craig Reinhauer: The more assets, services, or transactions the customers direct through our prospective platform, the more revenue we and our clients would be able to generate. Through innovation, we also expect to enhance our product offerings and add more products, capabilities, and functionality for our clients, which, in turn, should allow such clients to drive growth into their businesses. Additionally, we see an opportunity for us to develop new financial products to provide to our clients and their customer base, thereby increasing their revenue.
Speaker Change: Through innovation, we also expect to enhance our product offerings and add more products capabilities and functionality for our clients, which in turn should allow such fine to drive growth in other business.
Additionally, we see an opportunity, whereas to develop new financial products to provide to our clients and their customer base, thereby increasing their revenues.
Craig Reinhauer: Growth Strategy Number Three, Pursuing Potential International Expansion Opportunities. While we expect our operations will be initially U.S. focused, we see an opportunity to grow our business and total addressable market by expanding into international markets. As we assess international opportunities, we believe our core competencies and operational excellence position us well to win in new markets, many of which are experiencing secular tailwinds similar to what we are seeing in the U.S., for example, in the growth of mobile and digital solutions.
Speaker Change: Gross strategy number three pursuing potential international expansion opportunities.
Speaker Change: While we expect our operations will be initially U S focus we see opportunity to grow our business in total addressable market by expanding into international markets as we assess international opportunity, we believe our core competencies and operational excellence position us well to win in new markets, many of which are experiencing secular tailwind somewhere.
Speaker Change: We are seeing in the U S. For example growth of mobile and digital solutions. Initially we plan to focus on serving international clients seeking access to the U S markets.
Craig Reinhauer: Initially, we plan to focus on serving international clients, and growth strategy number four, identifying and executing strategic acquisitions. We expect to selectively pursue acquisitions that we believe will create value for our shareholders. We plan to evaluate acquisition opportunities based on a number of strategic parameters, including their ability to enhance our product capabilities, broaden our client reach, drive further scale, increase our presence in new geographies, and generate attractive financial returns. Going forward, we have a lot to be excited about.
Speaker Change: Gross strategy number four identifying and executing strategic acquisitions.
Speaker Change: We expect to selectively pursue acquisitions that we believe will create value for our shareholders. We plan to evaluate acquisition opportunities based on a number of strategic parameters, including their ability to one enhance our product capabilities to broaden our client reach three drive further scale.
Speaker Change: <unk> increased our presence in new geographies and five generate attractive financial returns.
Speaker Change: Going forward, we have a lot to be excited about management has worked hard to secure additional capital into the broker dealer to take advantage of the clients. We believe are available to us should we be successful in securing the capital will be better positioned to onboard additional introducing brokers and to accelerate our growth.
Craig Reinhauer: Management is working hard to secure additional capital for the broker dealer to take advantage of the clients we believe are available to us. Should we be successful in securing the capital, we'll be better positioned to onboard additional introducing brokers and accelerate our growth. We have a very strong management team, led by Bob McVeigh, an industry veteran of more than 35 years. In addition to Bob, we have exceptional team members within our broker-dealer organization and a very experienced board of directors.
Speaker Change: We have a very strong management team led by Bob Mcvey and industry veteran with more than 35 years. In addition to Bob we have an exceptional team members within our broker dealer organization and a very experienced board of directors.
Craig Reinhauer: We believe our technology suite will allow us to compete in a space that is efficiency unmatched in the market. We will be rolling out part of our PAX Square code in Q2. And we believe this rollout will have immediate positive results on the bottom line by making our account opening and fully paid lending offerings faster and more robust. Finally, we cannot overstate how excited we are to have Wilson Davis and its unique licensing set at the core of our company.
Speaker Change: We believe our technology suite.
Speaker Change: Allow us to compete in that space and efficiencies unmatched in the market, we will be rolling out part of our packs where code in Q2, and we believe this rollout will have immediate positive results to the bottom line by making our account opening fully paid lending offerings faster and more robust finally, we cannot overstate. How excited we are to have Wilson Davis and its unique licensing.
Speaker Change: That is the core of our company, we have a fully licensed correspondent clearing firm that will allow us over time to provide a full suite of products and potential new products to our client base. This will allow us to bring additional value and flexibility to an ever changing financial worlds meet our clients' needs.
Craig Reinhauer: We have a fully licensed correspondent clearing firm that will allow us, over time, to provide a full suite of products and potential new products to our client base. This will allow us to bring additional value and flexibility to an ever-changing financial world to meet our clients' needs. So to summarize, we believe we have built a compelling prime brokerage model that's well positioned to fill a gap in the capital markets, where smaller institutions, broker-dealers, and asset managers have been at a disadvantage.
Speaker Change: So to summarize we believe we have built a compelling prime brokerage model is well positioned on filling a gap in the capital markets were smaller institutions broker dealers and asset managers have been at a disadvantage our successful industry track record strategically experienced leadership team and accretive acquisition opportunities position.
Craig Reinhauer: Our successful industry track record, strategically experienced leadership team, and accretive acquisition opportunities position us well for long-term growth. Now, I'll turn over the call to John so he can provide a review of our financial results from the first quarter.
Speaker Change: This well for long term growth now.
Speaker Change: Now I'll turn it over the call to John So he can provide a review of our financial results from the first quarter John.
John Shibley: Thanks, Craig. Our key financial model drivers for Wilson-Davis for quarter one 2024 on a pro forma basis comparing Q1 2023 versus Q1 2024 for Wilson-Davis on a stand-alone, non-GAP basis include first commissioned and related execution. For commissions and related execution fees, we increased from 1.3 million in the first quarter of 2023 to approximately 1.8 million in the first quarter of 2024. This was a 27.9% increase.
Thanks, Craig are.
John So: Our key financial model drivers for Wilson Davis quarter, one 2024 on a pro forma basis, comparing Q1 2023 versus Q1 2024 for Wilson Atlas on a standalone non-GAAP basis include first commissions and related execution fees.
John So: For commissions and related execution fees, we increased from $1 3 million in the first quarter of 2020 free to approximately $1 8 million in the first quarter of 2024. This was a 27, 9% increase.
John Shibley: Second, the stock loan revenue. For stock loan revenues, revenues from stock loans increased significantly quarter over quarter. In Q1 2023 for Wilson Davis, stock loan revenue was negligible, but management increased this line to approximately 3% of revenue for Q1 2024, other interest income. Interest income increased approximately 9% in 2024, quarter one or quarter one 2023. This is largely due to increases in our money market balance. The stand-alone company, Wilson-Davidson Company, was profitable, with $125,000 in net income. We anticipate improving that going forward.
John So: Second the stock loan revenue for stock loan revenues revenues from stock loan increased significantly quarter over quarter in Q1 2023 for Wilson to hear this.
John So: Stock loan revenue was negligible, but management increase this line to approximately 3% of revenue for Q1 2024.
John So: Other interest income.
John So: Interest income increased approximately 9% in 2020 for quarter, one over quarter one 2023.
John So: This is largely due to increases in our money market balances.
Speaker Change: As a Standalone company Wilson Davidson company was profitable for 125000, net income and we anticipate improving that going forward.
John Shibley: Some of our primary areas of focus for revenue growth following the acquisition of Wilson-Davis were commissions, stock loans, and other forms of interest income. As evidenced, Quarter 1 reflected improvement in all three of these segments, and we anticipate increasing those lines of revenue moving forward. Again, on a stand-alone pro forma basis, we are profitable, recognizing over $125,000 in net income in Quarter 1, and we are in the very early stages of executing our growth plan.
Speaker Change: Some of our primary areas of focus for revenue growth. Following the acquisition of Wilson, Davis, where commissions stock loan and other forms of interest income.
Speaker Change: Evidenced quarter, one reflected improvement in all three of these segments and we anticipate increasing those lines of revenue moving forward again on a standalone pro forma basis, we are profitable recognizing over 125000 in net income in quarter, one and we are in the very early stages of executing our growth plans.
John Shibley: Now I'd like to turn to our consolidated results for the three-month period ended March 31, 2024. At the consolidated level, we recognized a net loss in Q1 of approximately $86.2 million. That loss includes expenses for changes and the fair value of the notes we used to close the acquisition of approximately $6.7 million. An additional negative write-down of approximately $68.5 million in assets on the acquisition and over $9 million in regulatory and professional expenses. In simplest terms, we bit the bullet for the significant transaction-related expenses in Quarter 1.
Speaker Change: Now I'd like to turn to our consolidated results for the three months period ended March 31 2024.
Speaker Change: At the consolidated level, we recognized a net loss in Q1 of approximately $86 2 million.
Speaker Change: Net loss includes expenses for changes in the fair value of the notes we used to close the acquisition of approximately $6 7 million in additional negative write down of approximately 68, and a half million in assets on the acquisition and over $9 million in regulatory and professional expenses.
Speaker Change: In the simplest terms, we bit the bullet for the significant transaction related expenses in quarter one.
Speaker Change: I think it's important that going forward. These expenses will not be recurring in the company who has a large net operating loss, which you can use to manage tax consequences as it expands the operating profit of its primary subsidiary Wilson Davis to summarize at the operational level, we delivered a solid first quarter in 2024.
John Shibley: We think it's important that going forward, these expenses will not be recurrent, and the company has a large net operating loss, which it can use to manage tax consequences as it expands the operating profit of its primary subsidiary, Wilson Davis. To summarize, at the operational level, we delivered a solid first quarter in 2024. Perhaps most importantly, we see revenue growth across three of our primary drivers, with notable growth in stock loan revenue and a 27.9% increase in commissions quarter over quarter.
Speaker Change: Perhaps most importantly, we recognize revenue growth across three of our primary drivers with notable growth and stock loan revenue and a 27, 9% increase in commissions quarter over quarter. We are encouraged with the momentum that we're seeing in the business and we will remain laser focused on filling a gap in the capital markets with smaller institutions broker dealers.
John Shibley: We are encouraged by the momentum that we are seeing in the business, and we will remain laser-focused on filling a gap in the capital markets where smaller institutions, broker dealers, and asset managers have been at a disadvantage. We believe we are well positioned for a successful 2024, and we look forward to delivering a prosperous year. I would like to thank you all for your time, and now we'll turn the call back to the operator.
Operator: Thank you. Ladies and gentlemen, this concludes our call today. We thank you for your interest and your time. You may now disconnect your line.
And asset managers have been at a disadvantage.
Speaker Change: We believe we are well positioned for a successful 2024, and we look forward to delivering a prosperous year.
Speaker Change: I would like to thank you all for your time and now I'll turn the call back to the operator.
Speaker Change: Thank you ladies and gentlemen, this concludes our call today, we thank you for your interest and your time you may now disconnect your lines.