AlTi Global Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 6 speakers on the call.

Operator

Good afternoon. My name is Rocco, and I will be your conference operator today. At this time, I would like to welcome everyone. After the speakers' remarks, there will be a question and answer session. I'd like to advise all parties that this conference call is being recorded everyone and a replay of the webcast is available on Alti Tielemans Global's Investor Relations website.

Operator

I will now turn the call over to Lily Arteaga, our Head of Investor Relations for Alt. Tietaman Global. Please go ahead.

Speaker 1

Good afternoon to everyone on the call today. Joining me this afternoon are Michael Tietaman, our CEO everyone and Steve Jarrod, our CFO. We invite you to visit the Investor Relations section of our website at www.alti global. Everyone to our earnings materials, including our updated investor presentation. I would like to remind everyone that certain statements made during the call everyone.

Speaker 1

May be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Everyone. Forward looking statements can be identified by the use of words such as anticipate, believe, continue, estimate, expect, everyone. Because these forward looking statements involve both everyone. Known and unknown risks and uncertainties are important factors that could cause actual results to differ materially from those expressed everyone.

Speaker 1

Altice assumes no obligation or responsibility to update any forward looking statements. Everyone. During this call, some comments may include references to non GAAP financial measures. Full GAAP reconciliations can be found in our earnings presentations everyone and related SEC filings. With that, I'll turn the call over to Mike.

Speaker 2

Good afternoon, everyone, and thank you for joining us today for our Q3 2023 earnings call. In the quarter, we continued to make progress on our strategic initiatives everyone to set ourselves up for a strong 2024 and beyond. Some of these initiatives, particularly the work to restructure and reposition certain businesses everyone. We have impacted our GAAP earnings this quarter, but are consistent with our stated 2023 goal of simplifying the business with a focus on recurring revenues. Everyone.

Speaker 2

We've continued to right size the organization, simplify our business lines and initiate processes to reduce the number of regulated entities. Everyone. We've done this while securing important client wins and adding key revenue generating talent. Since the listing, everyone. We reported healthy AUM, AUA growth amidst the pressured market environment, particularly in the 3rd quarter.

Speaker 2

Everyone. We firmly believe that the combination of wealth management and asset management differentiates us from pure play firms in both sectors everyone and provide a growing base of recurring diversified revenues. On a trailing 12 month basis, everyone. Total assets under management and advisement increased 13%. And within wealth management, these have grown 23% in the last year, everyone to the company's shareholders and shareholders.

Speaker 2

We are also pleased to be in the position of our target clients. Everyone. In speaking about wealth management, I'd be remiss not to mention our first All T family retreat held in Lisbon at the end of September. Everyone. The event was attended by nearly 50 clients and prospects from 11 countries.

Speaker 2

This demonstrates our unique ability to build connections and a global community amongst our families everyone to provide differentiated cross border services in the process. What our clients appreciate is that we are a global platform with sophisticated institutional quality solutions that operates with the attention, care and customization of a specialized boutique family office. Everyone. Turning now to our Q3 performance. Alti generated revenues of $49,000,000 97% of which were recurring revenues, everyone.

Speaker 2

We are now officially flat to the 2nd quarter when removing revenues from AHRA that were included in Q2, but we exited the business effective June 30. Everyone. Year to date, we have generated revenues of nearly $160,000,000 We believe these results generated largely through organic client wins everyone. We are starting to reflect the power of our franchise, which will continue to flow to an improved bottom line as we look forward to 2024. Everyone.

Speaker 2

Despite these top line results, we reported GAAP net loss of $171,000,000 for the quarter, primarily due to non cash goodwill impairment charge everyone that is largely related to decisions taken this year to restructure or exit unprofitable transaction oriented business lines in our Asset Management segment. Everyone. The results also include several other non cash items that negatively impacted GAAP earnings. In addition, our adjusted EBITDA was negative $3,000,000 in the quarter, resulting in a year to date EBITDA of $19,000,000 However, as noted previously, our reported financials for GAAP and adjusted EBITDA include certain line items that we do not believe reflect the underlying performance everyone and importantly do not impact the cash flows generated by the business. Steve Yarid, who recently joined LT as our CFO will provide more details in his remarks.

Speaker 2

Everyone to the operator. Turning now to our enterprise strategy. We've been focused on continuing the execution of 2 principal initiatives for 2023, which will carry on to the next calendar year, leveraging our competitive advantages to accelerate organic growth and execute disciplined accretive acquisitions. Everyone and secondly, simplifying the organization, which will in turn enhance the cost saving initiatives mentioned in the previous calls. Everyone.

Speaker 2

Now I want to offer more detail about the ways we're executing these initiatives across both of our business segments. Everyone to the Wealth Management segment. Results reflect our ability to capitalize on our competitive advantages and we've achieved strong organic and inorganic growth since everyone to the beginning of the year. Our Wealth Management business is well integrated, sharing best practices, leveraging expertise and services across offices everyone to the operator and collaborate on global opportunities. As a result of this collaboration and expanded service offering, everyone.

Speaker 2

Net new client flows have been $1,600,000,000 year to date. This reflects significant contributions from the U. S. Business as well as solid performance internationally. Everyone.

Speaker 2

The majority of our client wins in 2023 have invested on average over $60,000,000 in billable assets with us. Everyone to the clients, which range from ultra high net worth individuals, family offices, non profits and foundations, everyone. We also specifically cited Altice's ability to offer holistic wealth management as a deciding factor. Our range of comprehensive services everyone to the operator for questions. This concludes investment advisory, trust planning, family office services, cross border wealth advice everyone to the company's financial results and unique access to impact and value based investment opportunities.

Speaker 2

Notably, 40% of the assets received in the quarter were related to impact strategies. Everyone. As I mentioned on our last call, in the Q3, we purchased the remaining ownership stake of the Lugano based multifamily office everyone that have been part of the legacy Alti Wealth Management platform since 2019. This firm has approximately $1,000,000,000 in assets and offers exposure everyone to the Northern Italian market, an important region for our global platform. This transaction, paired with our acquisition of AL Wealth Partners in Singapore our customers to broaden and densify our platform in key U.

Speaker 2

S. And international wealth markets. We've identified a robust pipeline of strategic opportunities within wealth management that align with our competitive advantages. Our platform continues to be the destination of choice for ultra high net worth our firms that are looking for a comprehensive global solution set to appeal to their current client base. These firms are also seeking the ability to accelerate their growth by leveraging the everyone.

Speaker 2

Since our listing in January, we've made great strides in positioning our Asset Management segment for the long term. That said, everyone. This progress and the solid underlying performance of the business in the quarter was partially offset by the impacts of our efforts to strategically reposition the business. Everyone. We have concentrated on growing our core asset management businesses, which produce strong predictable management fees from alternative asset classes, everyone to the operator to discuss our financial results.

Speaker 2

We have a clear advantage. We have also changed the strategy of the real estate co investment platform to make the business more scalable and profitable everybody by rightsizing the team, exiting and restructuring certain deals and entities as well as simplifying the fee structure of the business. Everyone. Additionally, we scaled down our strategic advisory business and exited our U. K.

Speaker 2

Broker dealer business given their transactional nature. Everyone to our un correlated strategies that make up our alternatives platform are performing well. This includes our European Long Short Equities Manager and Asia Credit our Special Situations Fund, both of which outperformed their respective benchmarks by more than 5% in the period. Additionally, the event driven strategy exhibited strong performance almost everyone up nearly 5% in the quarter. These core strategies are the foundation of our alternatives platform, everyone, which is positioned to preserve capital specifically in the face of volatile capital markets.

Speaker 2

Despite the strong underlying business performance, our revenues. Revenues were down due to a decrease in AUM, AUA levels reflecting primarily the impact of high interest rates on the global real estate market everyone to the company's leadership position and strategy specific pressures in the first half of the year. We are confident that continued execution of our diversified strategies everyone, combined with the restructuring of the business and the launch of new strategies, will result in a strong fundraising opportunities in asset management going forward. Everyone. In particular, we have some important new run fundraising initiatives underway that will leverage our track record of providing capital and services to asset our management firms in exchange for equity stakes in our business.

Speaker 2

I'll now highlight a few strategic initiatives. Everyone to the operator. Subsequent to quarter end, we signed a definitive agreement for the sale of LJ Fiduciary, our Isle of Man and Switzerland based trust our Corporate Administration Services business as well as our London based Private Office Services business. Everyone. We're pleased with this transaction as it's an important step in streamlining the operations and focusing on more profitable core recurring revenue businesses.

Speaker 2

Everyone and I look forward to reporting more about this sale on our Q4 call. We are on track to achieve our stated goal everyone to the floor of at least $16,000,000 in total net savings on an annualized basis following the strategic review announced during our Q1 call. Everyone. As a result of this review, we restructured certain businesses across both Asset and Wealth Management, consolidating our facility footprint, our shareholders to the company's financial statements, rationalize certain vendors and reduce professional fees, including those associated with our public listing. Everyone.

Speaker 2

We expect the impact of these cost saving initiatives to be fully reflected in our Q2 2024 results. Further, everyone. We kicked off our 2024 budget and capital planning process. We're going to take the opportunity to build on the progress made this summer to further streamline and improve our operating leverage. Everyone to the operator.

Speaker 2

In addition to driving organic and inorganic growth initiatives, the budgetary process will be laser focused on further cost rationalization everyone to the company's financial performance and continued rightsizing, particularly in professional fees. We believe there's a significant opportunity to further meaningfully reduce our professional fee spend as we move past the listing process and reach maturity as a public company. Everyone. We are confident that the steps we've taken to date in 2023 and going forward are positioning the firm for long term growth over the next decade. Everyone.

Speaker 2

With that, I want to turn the call over to Steve Yarid, our CFO, for further details of our financial performance in the quarter. Everyone. As most of you know, Steve joined our management team in mid September. He has extensive financial services expertise and has been a public company CFO for over a decade. Steve has already been a major contributor to our financial efforts.

Speaker 2

Steve, I'll hand it over.

Speaker 3

Thank you, Mike. Everyone. This is an exciting time at Ulti, and I couldn't be more enthusiastic to hit the ground running as we execute against our strategy. Everyone. Before we review the results, I want to note that the results of our regulatory filings are presented as a comparison between predecessor and successor company everyone to the company's financial results.

Speaker 3

In our case, TDMAN Wealth Management Holdings is the predecessor company and Ulti is Lee's successor. Everyone. As such, the year over year results are not directly comparable, and my comments will be focused on quarterly performance. Everyone. As Mike discussed, underlying business fundamentals remain strong as Ulti executes against its strategic priorities to achieve top line growth everyone and organizational efficiencies, both of which will accelerate our path to margin expansion and enduring shareholder value.

Speaker 3

Everyone. We are executing various initiatives that we expect will reflect the platform's growth potential going forward. Our multi generated revenues of $49,000,000 in the 3rd quarter, and we are pleased to report that 97% of our revenue was generated from recurring fees. Revenues in our Wealth Management segment, which consists entirely of management and advisory fees, were $35,000,000 in the 3rd quarter. Everyone.

Speaker 3

This represents a 2% increase compared to the 2nd quarter. In Asset Management, revenue was $15,000,000 everybody. 90% of this top line performance is from recurring management and advisory fees, including the distributions from our alternatives platform. Everyone. Sequentially, asset management revenues reflected lower asset levels, consistent with macro environment pressures impacting the real estate sector generally everyone to the company's financial results and addemptions in the alternatives platform, resulting in lower management fees.

Speaker 3

This impact was particularly evident in our REIT business management fees, which are calculated based on average market capitalization, declined 7% quarter over quarter. Everyone. Incentive fees were higher reflecting the crystallization of fees related to redemptions in the event driven strategy in the quarter. Everyone. Slightly higher distributions from the alternatives platform were offset by lower other income as the prior quarter included fees from 2 closed transactions, everyone.

Speaker 3

Our GAAP results for the quarter were significantly impacted by the $154,000,000 goodwill impairment charge everyone to the Asset Management segment. As mentioned earlier, the charge reflects changes in strategy and repositioning of certain businesses within the segment. These decisions combined with ongoing conditions impacting markets, including the prevailing interest rate environment resulted in the need to test goodwill for impairment. Our financial results. Foreign currency translation impacts and certain transaction and deal related expenses were 48,000,000 everyone.

Speaker 3

As mentioned earlier, adjusted EBITDA was negative $3,000,000 We do not believe that adjusted EBITDA reported this quarter accurately depicts the fundamental performance of the business. Everyone. To put this into context, our results this quarter include several items driven by GAAP accounting, most of which are not expected to be recurring everyone. As part of the business combination, GAAP requires this loss to be included in earnings. However, we recently restructured these arrangements everyone to the operator to eliminate this non economic currency exposure, and it will not reoccur going forward.

Speaker 3

In addition, everyone. The strong underlying performance of the asset management event driven strategy for the quarter is not captured in Q3 earnings or EBITDA, everyone to the operator of the company's call. As Mike noted, we expect to recognize these fees in the Q4 everyone. Further, the core businesses are performing well. Everyone.

Speaker 3

Based on the initiatives already undertaken this year and those that we expect to embark on in connection with the 2024 budgeting process that was recently kicked off, everyone. With that, we'd like to now open up the call for questions. Operator?

Operator

Thank Today's first question comes from Wilma Burtis with Raymond James. Please go ahead.

Speaker 1

Hey, good evening. First question,

Speaker 4

could you go into just a little bit more detail on the impairment? Everyone. I know you went into some detail, but maybe just help us understand what it relates to specifically.

Speaker 5

Everyone. Sure. Thanks, Wilma. This is Steve Yarid. Nice to talk to you.

Speaker 5

So the impairment was the result everyone to the review that we were required to do as a result of some strategic decisions we made at the end of the second quarter. Everyone. So we went through and did an exercise to review the repo cash flows for the reportable segment for asset management. And as we discussed on the call, we did exit a couple of businesses within that segment everyone. And we scaled down and repositioned and right sized another one of those businesses.

Speaker 5

So specifically, our private real estate business, we made some adjustments to the and there were 2 other businesses that were effectively exited. So as you can imagine, the reinforced our cash flows were different than what we originally forecasted when we did the combination back at the beginning of the year. And as a result of that, the updated valuation of the effectively the market value of the segment

Speaker 4

I guess, could you talk about how much of it's related to the specific divestitures versus just the kind of ongoing piece that's really Yes. That makes sense, but maybe just maybe quantify it a little bit.

Speaker 5

Sure. So I don't have the specific attribution in front of me, but the probably about 70% of it relates to the exited businesses And maybe the remaining 30% of it relates to the rescaling of the private real estate business. Everyone. So that I think it's $153,000,000 charge. Probably these numbers are just directional, about 70%

Speaker 2

everyone. And Wilma, importantly, it's consistent with our strategy to really orient the business towards recurring revenues. And So the 2 businesses were more transaction oriented in nature. So in our strategic review that was that plus cost

Speaker 4

Got you. Is there going to be any, I guess, cash component of for those pieces of business they were sold

Speaker 5

So the businesses were exited, they were effectively wound down. They weren't sold.

Speaker 4

Okay. So, well done. Okay. Okay. Got you.

Speaker 4

Great. Thank you. And then how should we think about the run rate our expenses. So I think $73,000,000 that was about $10,000,000 higher than we had modeled. We're We're kind of expecting the mid-forty range by mid-twenty 24.

Speaker 4

So is that how we should think about that trajectory?

Speaker 5

So we wanted to get go through that with you a bit offline. When you're looking at $73,000,000 are you looking at

Speaker 4

expenses came in where you expected versus what you had expected and then and how should we think about it going forward?

Speaker 5

Sure. No, actually, I'm looking at our income statement. I could see where you're getting the 73% number. So look, I think overall, The trend line in many of the expenses was actually pretty good in the Q2. So, as far as professional fees goes, you saw a decrease there.

Speaker 5

And you can't see this from the face of our income statement, but the actual underlying salary compensation expenses were down relative to the prior quarter. What you're seeing though there quarter over quarter in compensation is the impact of a non recurring sort of compensation charge was more of a purchase our accounting adjustment related to a prior acquisition. And so that's increasing that expense in this quarter compared to the run rate. And across the board, you're also seeing that the other G and A and other fee expenses in that section, They were inflated by about $4,500,000 in the quarter due to this FX charge. So when you adjust for some of these items, the more normalized what we consider normalized expenses, everyone.

Speaker 5

As we talked about on the call, backs out the FX and the other what we consider non recurring adjustments and some other items back to that $48,000,000 and that's closer to what we think our longer term run rate would be. And then as we move forward from there, everyone. As I mentioned in my remarks, we're really getting into the 2024 budgeting process right now and we see everyone. We'll be setting the baseline for 2024. But as we move away from the listing and all the expenses associated with the listing

Speaker 4

everyone. I guess, maybe I think your prior guidance or everyone. What you guys were indicating was implying around, like I said, mid-40s toward the end of I mean, is this kind of wind down of the business, does that have any impact? Does that improve the run rate? Or how should we think about that?

Speaker 5

Everyone. Yes. I'd say once we get through we talked about that $16,000,000 the full impact of that won't be fully recognized in our results until everyone. The Q2 of 2024. So once we get to that point and we also are working on sort of the next round of, I guess rationalization of things like professional fees.

Speaker 5

I think that's when you're really looking at the sort of mid-40s Run rate is a realistic call.

Speaker 4

Got you. And it doesn't it's not going to be have any benefits from The wind down or

Speaker 5

Yes, that's included in that. And those some of those things relate to severance costs and the like and just because of the way severance law or employment law works in certain jurisdictions, it's not like it comes off your books straight away. Everyone. It takes a little bit of time for some of those things to come through. In addition, we have benefits coming through from facilities everyone.

Speaker 5

And we are changing the footprint of our facilities. And so that takes a little bit of a time to come through and some trailing expense associated with that in the Q3 and there'll be a little bit of that in the Q4 as well. But once we get into the beginning of 2024, we'll start to see the benefit

Speaker 4

Could you talk a little bit about the global real estate market? It seems like the AUM was down a little bit on interest rates. Any areas or any Regions you're concerned on, or I guess on the other side of that coin, any places where there's opportunities?

Speaker 2

Everyone. Yes, that's a great question. And I'll start with the real estate private real estate and equity side, I. E. Equity our investments into private real estate.

Speaker 2

For starters, the market was for the better part of a year, very challenged everyone. We in the Q4 just did really we think it is an excellent transaction in London by our team. This is the first transaction we've done in quite some time. There is more interest in capital now freeing up And assets are beginning to clear. So you're also seeing that reflected in this quarter, not Q3, but in Q4, you're beginning to see inflationary pressures globally abate and you're starting to see the publicly listed REITs, everyone in particular the one that we own recover quite quickly.

Speaker 2

So the underlying fundamentals of these REITs and underlying fundamentals of These yielding assets and the assets themselves, the mark to market value has been all over the place and there was obviously immediate pricing in the public markets and a pricing gap in private markets that now has really begun to close. But in general,

Speaker 4

everyone. Got you. Thank you. And then just maybe give a little bit more color into the wealth management pipeline. It seems like there's been a few Really nice wins in the last couple of quarters.

Speaker 4

Anything in the pipeline or are there attractive deals there?

Speaker 2

Yes. So the I'll answer that organically, which is client pipeline, because the client pipeline We have a really robust and collaborative team working across everyone to the jurisdictions across offices and it is really bearing fruit in terms of how we're presenting ourselves, the ways in which we everyone to the next question and answer session. So on the organic side, we're very optimistic about our future and really feel we have a very our competitive model. On the inorganic side there, we are a destination, as we mentioned. We're a firm that has a unique platform, our global footprint, our range of services.

Speaker 2

These are In the industry, it is a unique structure with breadth that most do not have. So when a everyone. The firm that deals with the ultrahighnetworth client is evaluating making a strategic decision. We are a very credible everybody. As they evaluate that, the first thing they're going to think about is, will my clients be well served, merging into or being acquired by this firm.

Speaker 2

Everyone. So we do have a pipeline. There are less firms, it's not a high volume opportunity set, but there are some high, high quality firms that have been competitors of ours for years

Speaker 4

everyone. Got you. Thank you very much.

Operator

Thank you. Everyone. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Michael Teitelman for any closing remarks.

Speaker 2

Everyone. Okay. Thank you, operator. We invite you to contact us with any questions you have or schedule follow-up calls. Everyone.

Speaker 2

As mentioned on the call, we are positioning the Alti platform for the long term and we see a lot of exciting opportunities in both wealth and asset management as we close 2023 and enter 2024. Everyone. I'm immensely proud of our team. We're all fellow shareholders and working diligently to execute our strategic priorities. Everyone.

Speaker 2

Our talent is what will make Alti the leading platform across Wealth and Asset Management in the years to come. Everyone. We look forward to connecting with you in the future for the New Year and wish you all a happy, healthy holiday season. Thank you.

Operator

Everyone. Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Powered by Quartr

Key Takeaways

  • Altice generated Q3 revenues of $49 million, with 97% recurring revenue and flat sequential performance when excluding the exited AHRA business.
  • Reported a GAAP net loss of $171 million, driven by a non-cash goodwill impairment related to restructuring and exiting unprofitable transaction-oriented businesses.
  • Trailing 12-month assets under management and advisement rose 13%, with Wealth Management up 23% year-over-year and $1.6 billion in net new client flows YTD, including 40% in impact strategies.
  • Core Asset Management alternatives strategies outperformed benchmarks by over 5% in Q3 (including event-driven up ~5%), while the real estate platform was reshaped for scalability amid high-rate market pressures.
  • On track for at least $16 million in annualized cost savings by Q2 2024, targeting a mid-$40 million expense run rate as listing-related and non-recurring costs wind down.
AI Generated. May Contain Errors.
Earnings Conference Call
AlTi Global Q3 2023
00:00 / 00:00