ATS Q1 2023 Earnings Call Transcript

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May 22, 2023

There are 7 speakers on the call.

Operator

Good afternoon. My name is Shamali, and I will be your conference operator today. At this time, I would like to welcome everyone to Altice's First Quarter 2023 Earnings Conference Call. I'd like to advise all parties that this conference call is being recorded and a replay of the webcast is available on Altice Investor Relations website. I will now turn the call over to Lily Arteaga, Head of Investor Relations for Altice.

Speaker 1

Good afternoon to everyone on the call today. Joining me this afternoon are Michael Tiedemann, our CEO Kevin Moran, our COO and Christine Zhou, our CFO. Please visit the Investor Relations section of our website at www.alti global.com To view our earnings materials, including our updated investor presentation, which provides more details on the topics discussed on this call, I would also like to remind everyone that certain statements made during the 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. Altice assumes no obligation or responsibility to update any forward looking statements.

Speaker 1

During this call, some comments may include references to non GAAP financial measures. Full GAAP reconciliations can be found in our investor presentation and related SEC filings. With that, I'd like to turn the call over to Mike.

Speaker 2

Thank you, Lily. Good afternoon, everyone, and thank you for joining us today for our Q1 2023 earnings call. The Q1 of 2023 was transformational for Altice. We entered the public markets through the completion of our business combination On January 3 and in parallel, we strengthened our balance sheet with a $250,000,000 credit facility. For a brief summary of our Q1 performance, on a consolidated basis, Alti generated revenues of $58,000,000 Adjusted EBITDA of $11,000,000 and ended the Q1 with $67,000,000,000 in assets under management and advisement.

Speaker 2

Our net loss for the quarter was $90,000,000 reflecting large one off items related to the transactions and non cash fair value changes totaling $89,000,000 Normalized for these unusual items, Adjusted net income attributable to Altice was $1,300,000 or $0.02 a share. Since the year end 2021, Shortly after announcing the deal, we've grown our total assets by 12%, generated steady growth in our Wealth Management business, Later in the call, I'll provide more details on our financial performance. But I will say clearly, we still have And as a management team, we have established a clear path for value creation for 2023 and beyond. We're centralizing our operations and business development teams to enhance top line growth, addressing our cost structure to expand margins and executing on strategic acquisitions that will accelerate our business in the years to come. We're excited about this strategic pipeline of opportunities we look forward to this next phase of growth.

Speaker 2

Before diving deeper on that path, I do want to reintroduce the firm to our public With leading impacted multifamily office capabilities and robust alternative asset management platform, which includes both public and private real estate investment capabilities. For over 20 years, Altice Companies have structured their respective businesses to We combine the service mentality of a dedicated family office client base access to some of the most sophisticated solutions available worldwide. Our business is focused on 2 pillars, Investment Solutions and Wealth Services, both of which are established and reinforced by a growing foundation of recurring revenues. For the Wealth Management business, our recurring revenues are generated from the comprehensive solutions and services we provide to large families, foundations and institutions. These clients are distributed across the United States, Western Europe, Asia and Latin America.

Speaker 2

Due to the breadth of our differentiated platform, we believe we will continue to attract teams, talent and ultimately clients to serve. As it stands today, our Wealth Management business is one of the few global multifamily offices and the only one publicly listed. We've established the leading impact investment platform, which will continue to be a key driver of growth in future years as it is seamlessly integrated into our offering. Our Asset Management business Generates recurring revenues by providing growth capital, infrastructure solutions and marketing support to alternative managers and real estate platforms. 2, and be an active growth equity partner to these specialist managers.

Speaker 2

We believe our long history of successful operators differentiates us from Other sources of capital in our conversations when we approach these talented managers to discuss future partnership with Altice. Historically, these strategies have also generated co investment opportunities for our real estate, public and private market platforms. Currently, Altice operates in 22 cities across 10 countries and has a senior leadership team With depth and a proven track record of successfully integrating Teams and driving growth post integration. The industrial logic behind the forming of Altice was to address and participate in macroeconomic of Global Wealth Today on a projected path to more than $600,000,000,000,000 in 2026. Approximately $70,000,000,000,000 of Market is changing hands and transitioning to younger generations, namely Gen X and millennials.

Speaker 2

These generations are more focused on impact and value based investing, Innovation Economy and ultimately receiving those services from an independent advisory firm that aligns with their core principles. Additionally, we see increasing demand for alternatives across investor classes From institutional investors to family offices to ultra high net worth individuals, demand for alternatives have come into full focus over the past few years. The alternative management total addressable market is estimated to grow to $23,000,000,000,000 by 2026, representing 11% CAGR since 2011. Altice is serving a large and expanding market with a unique set of solutions. Even amidst recent market volatility, we have more conviction than ever in our founding thesis is the industrial logic of our combination.

Speaker 2

With that said, interest rate hikes and ongoing market volatility present an opportunity us to lean into our strength and go deeper into our core business, wealth and asset management. We spent close to 15 months Closing the business combination and Emerge as a public company in a very different market. The cost of debt capital has more than doubled, The banking system has come under intense pressure and private markets are undergoing a period of repricing rarely seen. For Alti, this 15 month period meant the 3 private businesses bore much of the cost burden associated with operating as a public company without the benefits of being 1. We lack the ability to execute strategic transactions as we went through the audit and SEC review period.

Speaker 2

Additionally, due to regulatory restrictions, we were unable to execute on growth and cost synergies, which will be an important offset to public company costs. Despite these headwinds, our Wealth Management business has grown steadily and our alternative strategies are consistently producing uncorrelated Since closing the business combination in January, Our executive team has gained expanded visibility into our entire organization. I'll now ask Kevin, Our Chief Operating Officer to detail the 90 day review we've recently completed.

Speaker 3

Thank you, Mike. We have now concluded our 1st operating quarter as ALTE and senior leaders have spent a lot of time visiting our offices worldwide. In January, we began a global analysis to assess the best ways to optimize our platform. This review has been guided by the following principles. 1st, leverage our competitive advantages and collaborate to accelerate organic growth.

Speaker 3

2nd, achieve organizational efficiencies and right size our cost Sure. 3rd, execute accretive acquisitions to generate top line momentum. And lastly, to streamline our capital structure. I'll provide more color on each of these. We believe a key to our success will be consistently generating organic growth.

Speaker 3

Both our Wealth and our Asset Management businesses generate recurring revenues, which are foundational to Alti. We will continue to invest in growing these revenue streams. Our Wealth Management business will benefit from industry consolidation within our core markets across the United States, Europe and Asia, As well as the tailwinds we laid out earlier in the call, as a global multifamily office with centralized operations, We are uniquely positioned to serve the increasing client demand for cross border solutions. ALTE is able to provide local services, Within Asset Management, we will continue to build innovative solutions focused on alternatives in real estate, which will generate recurring revenues from committed long term capital basis. Our focus on making growth equity investments into Specialty Managers is a differentiator.

Speaker 3

Our global presence in decades of operation position us well to be a destination for talent in years to come. As we invest into our strengths, we may exit non core assets to generate capital to recycle into our strategy. Turning now to organizational efficiencies and cost structure. We're implementing a number of initiatives to improve organizational efficiencies And 3rd, implementing equity compensation for a broad base of employees. We expect the initiatives executed will result in approximately The initiatives I've outlined are underway and we expect them to offset a significant portion of the recurring public company costs.

Speaker 3

This plan sets us on the path to reach our stated long term EBITDA margin target in the mid-30s. In addition to accelerating organic growth and optimizing our cost structure, we are also pursuing strategic investments to strengthen our platform. Since our listing in January, we have hit the ground running and have executed 3 transactions. On the asset management side, We increased our stakes in 2 of our external strategic fund managers. Arkan, a Hong Kong based Asian Credit and Special Situations Manager And Zebedi, a London based European Long Short Equities Manager and Investors Choice Award winner in 2022.

Speaker 3

We've increased our positions by 3% and 5%, respectively, reflecting our conviction and their ability to continue to outperform their peers across market cycles and our ability to help them grow. Both Zebiti and Arcan have proven track records of strong performance, particularly in the most challenging market conditions. Existing and prospective clients value the expertise and differentiated approach they take, and we are thrilled to deepen our positions as we further our long term relationship. On the wealth management side, last week we were excited to announce Altice's expansion into Singapore through the acquisition of AL Wealth Partners, a multifamily office with approximately $1,000,000,000 in assets. This transaction grows our presence in Asia and specifically in Singapore, which has emerged as a global financial capital for Wealth Management.

Speaker 3

Since 2017, The number of family offices in Singapore has grown more than 9 times from approximately 80 to over 700 today. The firm was founded in 2007 by Antonio Hui and Leonardo Drago, focused on the needs of ultra will be fully integrated into our wealth management platform. The existing team will continue to lead the business on the ground We believe our Singapore office will serve as a great example of the local global dynamic Mike described earlier. We are excited about these additions to Altice platform and are confident they will create long term value for our shareholders. Our final area of focus during the strategic review has been our capital structure.

Speaker 3

The SPAC vehicle accomplished 2 of its three goals. First, we were able to create a world class board and governance structure, while attracting key talent. 2nd, we were able to merge 3 businesses and complete our public listing in one fell swoop, which would not be possible under traditional IPO. That said, the high redemptions resulted in little capital on our balance sheet due to market conditions at the time of close. Despite raising a pipe of $165,000,000 in order to secure the necessary liquidity to fuel strategic growth, We executed a $250,000,000 senior credit facility led by BMO.

Speaker 3

As seasoned portfolio managers ourselves, we are acutely aware of the complexities that our capital structure presents to prospective investors, specifically as it relates to the warrants and short term limited liquidity of the shares. To that end, we recently announced a warrant for share exchange, which will alleviate the warrant overhang while increasing our public float. We also filed the registration statement for the 19,000,000 Pipe shares. We conclude on the 90 day review. We have simplified our branding to aid in long term client awareness and eventually realized the full brand potential of our combined businesses.

Speaker 3

As of April 19, We rebranded to Altice, TDEMAN Global, positioning us for an eventual transition to Altice. Near term, we deemed it prudent Iconic brands embrace simplicity as they become synonymous with the industries in which they do business. Our goal is that Altice will achieve that same iconic status as a leading wealth and alternative management firm worldwide. Now I'll turn the call back to Mike to discuss our financial performance.

Speaker 2

Thank you, Kevin. I want to note that our results are presented as a comparison between predecessor and successor companies as required by the accounting guidelines. In our case, TDM Wealth Management Holdings is the predecessor company and Altice is the successor. As such, the year over year results are not directly comparable. In the Q1, Altice AUM and AUA increased 3% sequentially to $67,000,000,000 reflecting a strong performance in the Wealth Management business.

Speaker 2

Wealth Management experienced a 7% quarter quarter increased to $46,000,000,000 driven by new business wins, inflows from existing clients and market performance. Our business development efforts generated more than $1,000,000,000 in new client flows and we benefited from approximately $600,000,000 in incremental assets from existing clients. The positive performance of both equity and fixed income markets in the Q1 also contributed to the asset growth. In Asset Management, AUM and AUA declined 6% sequentially to $21,000,000,000 reflecting of certain assets in the U. K.

Speaker 2

Public real estate business and the reduced NAV reflecting the weakness in the public sector real estate. This is partially offset by stable flows and positive performance in the alternatives platform and all the strategies remain above their high watermark preserving their earnings power. In total, Altice generated revenues of $58,000,000 in the Q1. Revenues in our Wealth Management division, which consists entirely Management and advisory fees were $31,000,000 for the quarter. In Asset Management, revenue was $27,000,000 of which 2 thirds were recurring.

Speaker 2

On a consolidated basis, 84% of Altice total revenue in the Q1 was from recurring fees, which include management and advisory As well as the management fee component from our GP Stakes and Alternative business. Our global team is intently focused on growing our recurring revenue base and consistent Free cash flow, enabling Altice to successfully operate across all economic cycles being able to consistently reinvest into our business, Maintain a healthy balance sheet and preserve liquidity to make select acquisitions will be critical to remain a leading firm in our business lines. Operating expenses in Q1 were $101,000,000 reflecting $50,000,000 of one time expenses related to the transaction as well as significant investments in our public company infrastructure. These one time expenses comprised of $31,000,000 in non cash $17,000,000 of transaction related expenses, mostly professional fees. The investments in public company infrastructure, which we began to incur in 2021, are not yet offset by the revenue or cost synergies of our business combination.

Speaker 2

Further, our results not yet reflect the growth initiatives we began implementing since closing. We're playing the long game, and we know that our decisive actions since our listing will set us up to realize the full potential of our merger. Below the line, our other expenses include $39,000,000 related to non cash increase in fair value associated with investments and earn out and warrant liability driven by our share price appreciation in the quarter. Adjusted EBITDA, as mentioned earlier, was $11,000,000 resulting in a margin of 19% for the period. Our margin was impacted by lower level of fees earned by transaction activity in real estate and merchant banking, as well as increased costs from our investment in public company infrastructure.

Speaker 2

The initiatives to achieve revenue and cost synergies are beginning to be implemented And we've only recently resumed our inorganic growth strategy. We're confident that as our growth strategies take hold and the cost saving initiatives start flowing through results, Altice will be well positioned to expand margins and generate shareholder value. Turning now to our balance sheet. Our $250,000,000 5 year BMO credit facility is comprised of $150,000,000 revolving credit facility and $100,000,000 of term loan. At quarter end, we had drawn $133,000,000 and our last 12 month EBITDA leverage multiples 2.4 times.

Speaker 2

We believe Altice is well positioned to grow its global platform to achieve operating scale. Our Strategic review will allow Altice to further lean into its strength, continue to organically grow recurring revenues, prioritize accretive growth opportunities and position the platform for continued success. At this time, we're committed to achieving our long term goals of high single digit annual growth rate in assets, Low teens annual top line growth and adjusted EBITDA margin expansion into the mid-30s. In closing, I'd like to acknowledge our clients who've put their trust in Alti on our path to becoming a public company and our employee base remain focused on their service to them. 2023 will be a year where we set the table for the next decade of growth And Fortify our 2 primary businesses, Wealth Management with a leading impact platform and Alternative Asset Management, including public and private real estate.

Speaker 2

Our exceptional team will continue to drive organic growth and capitalize on strategic acquisitions in the coming quarters. As a reminder, our employees are significant shareholders in Altice, which creates strong alignment with the broader investor base. With that, we'd like to now open up for questions. Operator?

Operator

Thank you. At this time, we will be conducting a question and answer session. And our first question comes from the line of Wilma Burdiss with Raymond James. Please proceed with your question.

Speaker 4

Hello, good evening. Quick question for you guys on the float. So the float looks like it's On track for 22%. It sounds like the Pipe shares were registered and then that also benefits somewhat from The warrant exchange program. Could you give us a little bit more detail on the warrant exchange program?

Speaker 4

And is it still ongoing? What's kind of the goal there?

Speaker 5

Hi, Wilma. Thank you. This is Mike and thank you for your interest in Altice. Yes, the warrant Program is ongoing. The exchange is ongoing as well as we are continuing to prepare for the filing of the S-one.

Speaker 5

So we're anticipating that to be in the Q2. And yes, 22% is the total free flow Once both are complete.

Speaker 4

Are the pipe shares trading at this time or Maybe I misunderstood.

Speaker 5

No, they're not trading at this time.

Speaker 4

Not yet, not yet. Okay, got you. And then could you talk a little bit about the EBITDA margin, I think is 19%. Just talk about how that compared to your expectations? And hopefully, I guess just give a little color on when we should expect to see Altice working through some of the public company costs?

Speaker 5

Yes. When we think about the investment that we continue to make in public company cost and operating As a global business, the offsets really are through the synergies. And so when you think about the timeframe of Cost synergies running through the system, it's a combination of system synergies plus streamlining of functions across the firm and So we are intently focused on executing that and it's also it's hugely important as a Human Capital Company to make sure that you're thoughtful that you do that in a measured and precise manner. And so that's really where the 90 day review Came into play, but we are we sort of assume this is the beginning of that process and the beginning of the improvement of that. We've been making, as we mentioned in our remarks, investments in public company infrastructure over the prior 15 months really without Being public and being able to synthesize 3 businesses into 1 and the cost structures of 3 into 1.

Speaker 4

Thank you. And then just if you could talk about the $1,700,000,000 of new client inflows in Wealth Management. I guess, does that include the $1,000,000,000 from the acquisition of AL Wealth Partners? And how did that No,

Speaker 5

it doesn't be yes, no, Ale just completed in the beginning of Q2. These were this was actual new net client wins as well as additional client additions. So we've had appeared and I will say if you've ever been trying to generate new business while Undergoing any kind of corporate combination that is a headwind that you face. So we're extremely proud of what our team was able to accomplish Given all of that, not to mention listing in the process, so this has been a real achievement by the business development team and also a statement that Clients and prospective clients see the capabilities we have as a global firm and all the resources that we have to work with them and serve them.

Speaker 6

Wilma, this is Christine Zhao. Just to give a little bit more of data support to which Mike described, New client acquisition continue we continue to see very strong momentum. This quarter actually we have over 1,000,000,000 Alon from new client acquisition across our Global Wealth Management platform, and we also have existing client inflows, net inflows About $600,000,000 and very low attrition. So it really demonstrates the resiliency of our Global Wealth Platform.

Speaker 4

Great. And then last one for me. If you could give some color on the investment in the core funds in the asset management side, That would be great.

Speaker 5

So the investments in the 2 transactions?

Speaker 4

Sorry, just if you could just talk about the investment performance and some of the funds in that investment?

Speaker 5

Investment performance, sorry. Yes. So just looking back at 2022, the alternative platform Four principal funds had exceptional years and obviously a very challenging backdrop. 3 of the 4 were positive. The lowest performing was down 31 basis points against A marketplace of Asian credit that was down mid teens to 20s depending on the index.

Speaker 5

So it's substantially Solid and also another example of the risk management capability of these teams. And in the Q1, All four strategies are positive as well, anywhere from about 50 basis points to 2.5%.

Operator

And we have reached the end of the question and answer session. And Therefore, I will now turn the call back over to CEO, Michael Teiteman for closing remarks.

Speaker 5

Great. Thank you, Shamali. If there are further questions, and I imagine there might be, we invite you to contact us with any of the questions that you have or schedule follow-up calls. And I'd be remiss not to thank our clients once again across the entire firm And very importantly, the Altice team members and employees who have continued their Hard work and dedication to the clients we serve and also to the firm. The management team is obviously confident that we have the right initiatives in place In order to execute our growth strategy, achieve margin expansion and deliver long term shareholder value for years to come.

Speaker 5

And we look forward to giving you Providing you with Q2 update later this summer. And with that, we'll say goodbye. Thank you.

Operator

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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