AlTi Global Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 15, 2023

There are 5 speakers on the call.

Operator

Greetings, and welcome to the Ulti Teterman Global Second Quarter 2023 Earnings Call.

Speaker 1

At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Lily Arteaga, Head of Investor Relations. Thank you.

Speaker 1

You may begin.

Speaker 2

Good afternoon to everyone on the call today. Joining me this afternoon are Michael Tiedemann, our CEO And Reed Parmele, our Interim CFO and Global Controller. We invite you to visit the Investor Relations section of our website at www atalti global.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 may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward looking statements involve known and unknown risks and uncertainties, There are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements.

Speaker 2

Altice 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.

Speaker 3

Thank you, Lily. Good Good afternoon, everyone, and thank you for joining us today for our Q2 2023 earnings call. In the Q2, Alt T 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 Q1 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.

Speaker 3

Another important goal in 2023 was to increase our public float and simplify our capital structure, both 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, Alti generated revenues of $52,000,000 of which 95% represent recurring revenues, adjusted EBITDA of $11,000,000 and ended the 2nd quarter With $69,000,000,000 in assets under management and advisement. Our net income for the quarter was $29,000,000 And adjusted net income normalized for 1 off items was $2,000,000 We are confident that our diversified platform is well positioned to is well positioned to capitalize on opportunities in any economic environment. This is evidenced by the sequential growth we reported across Key operating and financial metrics.

Speaker 3

We delivered steady asset growth in the 2nd quarter. On a trailing 12 month basis, we've increased Total assets by 15%. Our 2nd quarter performance was led by 7% sequential asset growth in Wealth Management, the majority of which is organic. In parallel, we have successfully maintained asset levels across all alternatives platform despite strategy specific headwinds in the short term. However, the hallmark of our asset management strategies is resilience.

Speaker 3

We 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 environment and ensure we capitalize on opportunities as we lean into our strengths. As a reminder, we spent the 1st 90 days as a public company identifying our near term strategic pillars, which include Leveraging our competitive advantages to accelerate organic growth and execute disciplined accretive acquisitions And simplifying the organization through cost savings initiatives as well as capital structure and business. These priorities are complementary in nature, address 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.

Speaker 3

We'll now offer an overview of our 2 operating segments. Starting with Wealth Management, in April, we completed the acquisition of AL Wealth Partners, A multifamily office based in Singapore with approximately $1,000,000,000 in assets under management. This accretive transaction grew our presence in Asia And specifically in Singapore, this has emerged as the global financial capital for Wealth Management. We believe that Singapore 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 of a Lugano based multifamily office that has been part of the legacy Alti Wealth Management platform since 2019.

Speaker 3

This firm is approximately $1,000,000,000 in assets and offers exposure to the Northern Italian market, an important region for our global wealth platform. The steam is already largely integrated into the Ulti 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've completed expand our client base, continue to build upon our recurring revenues and will drive margin expansion. Organically, we generated 4% sequential asset growth in Wealth Management this quarter.

Speaker 3

Our team is producing strong performance as evidenced by robust client wins globally. Additionally, Alti has emerged as a destination of choice Leading ultra high net worth multifamily offices and premier wealth management firms seeking strategic investment. These firms are located globally in important wealth hubs and are looking for a partner that can offer a fulsome set of solutions to their current and prospective clients. Firms are looking to unlock growth while maintaining and enhancing high quality client experience. In summary, we are delivering substantial growth in our Wealth Management business, opportunities to grow are global and our outlook is strong.

Speaker 3

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.

Speaker 3

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 Lord Andy Hay, former Global Head of Knight Frank's Residential Business to chair our 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.

Speaker 3

Earlier in the year, We also increased our stake in 2 of our affiliated managers, Zebedi, a long short equity managers based in London and Arkan, In Asia Credit and Special Situations Fund based in Hong Kong. Both 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 events driven business, The Q2 proved to be challenging. The sector faced unprecedented and coordinated resistance from regulators and reduced deal flow due to the and the environment has improved measurably in the 3rd quarter. Our public real estate strategy the decline in market capitalization in the 2nd quarter trading at a discount to NAV despite excellent financial performance.

Speaker 3

In the 2nd quarter, UK listed REITs traded down in mass due to persistent inflationary pressures and resulting interest rate hikes in the UK. Subsequent to quarter end, the assets have begun 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 $16,000,000 in 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 and A cost reductions, vendor rationalization and professional fees associated with our public listing.

Speaker 3

In the coming months, we will continue executing on these initiatives, while 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 and L and contributing to enhanced margins. While on this topic, I also want to mention that as we continue to streamline our platform and invest into our strengths, we may exit certain non Shareholders and encourage long term ownership. In June, we completed a warrant for share exchange, which increased the share count by approximately 5,000,000 shares and alleviated the warrant over. We also finalized the registration of 19,000,000 Pipe shares.

Speaker 3

These efforts quadrupled our public float Approximately 22% of shares outstanding and significantly enhanced liquidity for all of our fellow shareholders. I'm pleased to report that in June, we completed the issuance of celebratory grants associated with the company's public market listing. This resulted in And issuance of approximately 4,000,000 additional shares to all ALTI employees. This is another important step in aligning ALTI team members With our broader ownership base as we foster an ownership culture of the firm. With that, I want to turn the call over to our Interim CFO and Global Controller, Reed Parmalee for a review of our financial performance in the quarter.

Operator

Thank you, Mike. I want to note that our results are again presented as a comparison between predecessor and successor company as required by the accounting guidelines. In our case, TDM Wealth Management Holdings is the predecessor company and Altium is the successor. As such, the year over year results are not directly comparable. As Mike mentioned, we are pleased with the performance in the quarter as the results reflect the successful execution of our growth strategy and are beginning to show the benefits of our cost savings initiatives.

Operator

In the second quarter, Altium AUM and AUA increased 3% sequentially to $69,000,000,000 reflecting continued strong performance in the Wealth Management business. Wealth Management experienced a 7% quarter Over quarter increased to $49,000,000,000 driven by our acquisition of AO Wealth Partners, solid market performance and robust new business wins. Net new client flows were $430,000,000 largely driven by significant wins across international businesses as well as growth in the U. S. In Asset Management, AUM and AUA declined 4% sequentially to approximately $20,000,000,000 reflecting primarily redemptions in our alternative platform and a decline in market Capitalization of our public real estate strategy, both stemming from the market headwinds.

Operator

In total, Altice generated revenues of $52,000,000 in the second quarter. Revenues in our Wealth Management segment, which entirely consist of management and advisory fees in the 2nd quarter, were $34,000,000 This represents a robust 87% was recurring from management and advisory fees as well as the management fee component from our affiliated managers included in distributions from investments. Sequentially, asset management revenues reflected lower asset levels On a consolidated basis, I am pleased to report that 95% of our total revenue in the quarter which generated from recurring fees. This is a key milestone as we strengthen our foundation and position Altice to profitably operate We also made progress on the expense front, where we are starting to see the results of our cost savings initiatives. Sequentially, the results also reflect a significant reduction in one time expenses.

Operator

Operating expenses In Q2 were $93,000,000 compared to $101,000,000 in the previous quarter. Results for the quarter include a non cash One time impairment charge of approximately $29,000,000 related to the accounting deconsolidation of AHRA, Approximately $15,000,000 in one time costs related to the transaction and organizational streamlining and approximately $3,000,000 in non cash equity compensation expense. Normalized for these items, Operating expenses would have been approximately $46,000,000 in the period, resulting in an operating margin of approximately 12%. The improvement in profitability reflects a decline in compensation expenses as well as reductions in recurring professional fees and T and E expenses. We expect non recurring costs to continue to trend downward as cost and growth initiatives take hold throughout the remainder of the business.

Operator

Below the line, other income of $55,000,000 reflects a non cash $66,000,000 gain From the change in fair value of earnout liability as a result of share price appreciation, this was partially offset by changes in the fair value of Investments in the tax receivable agreement as well as interest expense. As mentioned earlier, adjusted EBITDA was 11,000,000 Importantly, our adjusted EBITDA margin improved sequentially by 2% from 19% in Q1 to 21% in Q2. We believe this increase in profitability demonstrates the merits of our growth and cost savings initiatives, which will position Alti 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 teens annual top line growth and adjusted EBITDA margin expansion to the mid Turning to our balance sheet. We continue to be in a stable capital position due to our 250,000,000 5 year BMO credit facility, which is comprised of a $150,000,000 revolver and a $100,000,000 term loan.

Operator

At quarter end, we had drawn $171,000,000 and our last 12 month EBITDA leverage multiple is 3.4 times. Now, I'll turn it back to Mike for some closing remarks.

Speaker 3

Thank you, Reed. We believe Alti is well positioned to grow its global platform to achieve operating Our strategic review has enabled Altice to further lean into its strengths, continue to organically grow recurring revenues, Prioritize accretive growth opportunities, increase profitability and position the platform for continued success. I'm pleased with the team's progress against our strategic initiatives, which speaks to Altice's commitment to driving profitable growth and maintaining high standards of financial performance. We remain confident that we have the right talent, suite of solutions and plan to capitalize in the years to come. With that, we'd like to now open up for questions.

Speaker 3

Operator?

Speaker 1

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Wilma Bertus Raymond James. Please proceed with your question.

Speaker 4

Hey, good evening. I've got a few questions, so I'll just Anyway, I guess first transaction expenses improved Pretty significantly, I think $11,900,000 so down quite a bit from 17.8 Quarter over quarter, could you just talk a little bit about the trajectory for these rolling off?

Speaker 3

Yes. Hi Wilma. Thank you. Thank you Wilma. And I'm going to let Reed answer specifically, but The transaction expenses from the de SPAC and warrant exchange Are largely behind us, but there will continue to be other transaction expenses.

Speaker 3

Sure.

Operator

So hi, Wilma. Those costs are largely behind us, so we would expect to trend towards 0 in Q3. What Mike mentioned related to future deals, we expect To incur transaction expenses in the coming quarters, in particular related to Lugano, which we purchased in August. So those will be of a much smaller scale than those we incurred for the Deepak.

Speaker 4

Got you. Could you break out well, is there any way to break out how much was related to the warrant exchange?

Operator

Sure. The warrant exchange was roughly 2,000,000

Speaker 4

Thank you. EBITDA margin improved quite a bit quarter over quarter 21%. We Understand you're 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 But kind of maybe trajectory over the next few quarters?

Speaker 3

Yes. Clearly, the as we've Brad, the business itself the core business itself is doing well on a lot of levels and even Despite some of the headwinds that we'll talk about within Asset Management and the streamlining of the business is really critical. And so the combination of the 2 will lead to inflection of the business and that's what we're anticipating in these coming 2, 3, 4 quarters that lay ahead of us.

Speaker 2

Got you.

Speaker 4

And then the wealth management net flows looked pretty strong. Is this a good last quarter, I think it was

Speaker 3

Wilma, the what's the key point to highlight between Q1 and Q2 It's really the diversity. So Q1 was largely U. S. And Q2 was more driven from international. And so that We see that as obviously an important dynamic that the company can offer.

Speaker 3

Predicting quarter to quarter is very But we have a great pipeline both in the U. S. And non U. S. With both traditional wealth and impact Prospects, so we're excited about the future, but the real differentiation between the two quarters aside from size was the domicile Where the growth came from.

Speaker 4

Got it. Thank you. And then The ANO Wealth deal appears to be performing very well. Can you just talk about the pipeline for similar deals?

Speaker 3

Lugano would be a similar deal. So what we just executed, we'll have more information on that Our next or more detail on that in our next call. There are firms of similar and larger size that we do Come in contact with, there's some excellent firms in both in jurisdictions in which we already operate, as well as others that we would consider strategically operating from. But It's hard to find great operators who fit culturally, have the client profile that we have, have the identical operating And both Lugano and Singapore are 2 great examples of that.

Speaker 4

And then for the merger arbitrage fund, you noted that in 3Q, the Conditions appear to have improved a little bit. Maybe you could go into a little bit more color there.

Speaker 3

Yes. It's a substantial improvement in 2 important ways. 1, both of us are out of their specific controls, so interest rate environment And the inflation environment that has been driving the interest rate environment is leveling off. That enables M and A activity, Rolling forward the next 12 months, 18 months, the calculation of debt costs will be something that will be easier for Firms to model, so just in terms of deal activity, we expect an improvement. You're beginning to see that already.

Speaker 3

The most important In the last really 6 to 9 months is the regulatory environment. We've never seen before regulators coordinating. These were they were the regulators were suing all types of deals, not just ones that were monopolistic in nature. So The courts have been very favorable against the regulators and that has really changed the backdrop for Anyone considering doing a deal and certainly those investing into merger opportunities. So spreads are getting into normalized, which is very good thing.

Speaker 2

Thank you.

Speaker 4

And then maybe I I misheard you, but I thought there was a quick statement in there about just 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 you could reposition out of and into.

Speaker 3

Yes. So, invariably, we're going to evaluate All pieces of our business and as part of streamlining some degree, say simplifying, but Mining either jurisdictions that we operate in, regulatory entities that we have. One of the Goal for this year is to have that in a very clear direction as we enter 2024 to have less regulated entities And to be oriented towards one that we are growing and ones that are 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 would like to own and so we are entertaining bids for a few of those to generate capital then reinvest back into our core.

Speaker 4

Got you. Thank you very much. And then last question, maybe you could just give a little bit of Color similar to what you mentioned on the merger arbitrage fund on the outlook for the other core investment strategies?

Speaker 3

Yes. So the other in terms of sorry, I just want to make sure I understand exactly.

Speaker 4

Yes, Performance, maybe just talk a little bit about how they're performing in pre Q and what you expect to report?

Speaker 3

Yes. So Q2 For the Asia credit strategy, it was a challenging environment in the Q2 for their marketplace, worse than the index Would indicate because they have a range of credit, which does expand into distress. So they did a very good job Preserving capital and retaining liquidity to buy into that weakness. There hasn't necessarily been a quick recovery in Q3, 3, but the profile and the earnings profile of their investments is quite robust. So as you roll the clock forward, the next 12 months, we're actually very Encouraged by that strategy and the team's ability to survive challenging markets and retain earnings power going forward.

Speaker 3

Our long short equity is equity or long short equity fund is really non directional. And as an example made 20 some odd percent in a 20 down year last year. So they really are non correlating strategy. Their opportunity set is really week to week in terms of how they move and maneuver themselves to take advantage of it. And arbitrage, as I mentioned, did very well relative preserving and has recovered quite nicely in Q3, as I mentioned earlier.

Speaker 3

Bridge Lending strategy is it's an unbelievable backdrop, particularly as you look at the regional banks And there are capital challenges. So being a private lender into real estate or just generally private credit strategy There's a lot of tailwinds and obviously a lot of investor interest. So that's a strategy that we're really focused on and making sure that we're able to grow that over the coming 12 to 24 months.

Speaker 4

Okay. Thank you guys very much.

Speaker 3

Thank you, Loma. There are

Speaker 1

no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Speaker 3

Thank you, operator. We invite you to contact us with any questions or if you have any Need for a scheduled follow-up call, we'd be happy to have one. And I want to thank the Ulti team members around the world who are fellow shareholders for their hard work as we advance this 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 a healthy and happy rest of the summer.

Speaker 3

Thank you.

Speaker 1

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time

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Key Takeaways

  • Altice reported Q2 revenues of $52 million with 95% recurring revenues, adjusted EBITDA of $11 million, net income of $29 million and ended the quarter with $69 billion in AUM/AUA, reflecting 15% trailing-12-month asset growth.
  • The company is executing on its strategic priorities of streamlining operations, growing its recurring-revenue base and simplifying its capital structure (public float now ~22%), positioning itself for sustainable margin expansion.
  • In Wealth Management, Altice acquired $1 billion AL Wealth Partners in Singapore and agreed to purchase the remaining stake in a $1 billion Lugano multifamily office, driving 4% sequential organic asset growth and strengthening its Asia footprint.
  • Its Asset Management segment held AUM flat despite real estate headwinds, is pivoting toward private real estate and bridge-lending strategies, bolstered its leadership with Lord Andy Hay and increased stakes in outperforming funds Zebedi and Arkan.
  • Cost-savings initiatives are on track for $16 million of annualized net savings (fully realized in H1 2024), and the adjusted EBITDA margin improved from 19% in Q1 to 21% in Q2, laying the groundwork for further margin gains.
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Earnings Conference Call
AlTi Global Q2 2023
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