Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AlTi Global Inc (ALTI, Financial) reported a 15% growth in assets under management (AUM) in their wealth management business, reaching $56 billion.
- The company successfully closed four significant transactions in the last four months, expanding their platform both domestically and internationally.
- AlTi Global Inc (ALTI) secured a $250 million investment from Allianz X and $150 million from Constellation Wealth, enhancing their financial backing and growth potential.
- 99% of the company's Q2 revenues were from recurring fees, indicating a stable revenue stream.
- The adjusted EBITDA margin for the wealth management division improved to 23% in Q2 from 18% in the prior quarter, showcasing operational efficiency.
Negative Points
- AlTi Global Inc (ALTI) reported a net loss of $9 million in Q2 2024, compared to a net income of $28 million in Q2 2023.
- Revenues decreased by 4% compared to the second quarter of 2023, reflecting challenges in maintaining top-line growth.
- The strategic alternative segment saw a significant revenue drop to $9 million in Q2 from $17 million in Q2 2023, largely due to lower management fees and reduced transactional fees.
- The company is undergoing a review of its real estate co-investment and fund management businesses, which could lead to further asset runoff and uncertainty.
- Consolidated normalized operating expenses were $46 million, showing only a slight decrease despite ongoing cost-cutting efforts.
Q & A Highlights
Q: Could you just talk a little bit more about the EBITDA margin improvement in wealth management? What are the drivers and what do you expect in the coming quarters? Thanks.
A: Good morning, Wilma, Steve here. We expect as we fully integrate it and with ongoing coming on board that those businesses are accretive and they will contribute to growth in EBITDA margin going forward. Now that we have the Allianz investment on board and looking at our pipeline moving forward, we are looking at businesses that generate margins above the 11% recorded in the second quarter. So as those transactions occur, we would expect margin improvement to be driven by that M&A activity.
Q: Alternatives AUM down, is that largely due to the repositioning of the real estate business? And I think you guys just touched on it, but it sounds like you might have more reviews in the real estate portfolio. Could you go into a little more detail there?
A: On a year-over-year basis, yes, it's been driven by the repositioning in the real estate business and the sale of LXi. We were still consolidating the AHRA Home REIT public rate as well in the second quarter of 2023, which also impacts year-on-year comparisons. After the Allianz investments closed, we have started a review of the real estate co-investment and the private fund businesses. This review, expected to be completed by the end of the third quarter, will consider all options in terms of the strategic direction of those businesses, which could result in runoff in those businesses.
Q: Could you just talk about how much capital you have left to deploy from this point and discuss the pipeline, what you're seeing in terms of possible M&A?
A: In terms of the capital deployment, we have not used any of the Allianz capital thus far, so we have that entire capital amount to deploy. We think of inorganic growth in three ways: individual advisers or producers, teams that can be hired away, and firms to be acquired. We have a pipeline across all three of those. The integration of three businesses is largely behind us, and now we are orienting everything around growth. There are opportunities to densify in jurisdictions where we already operate, which helps accelerate and drive margins, and we are evaluating new jurisdictions as well.
Q: Operating expenses came in a little bit better than our model. Is this a decent run rate or how should we think about the coming quarters? Will there maybe be some additional expenditure on looking at M&A opportunities?
A: There are still some moving pieces in our reported operating expenses. We've seen a significant reduction in reported operating expenses over the past year. As we move forward and embark on additional M&A activity, you'll see a mix of reductions in legacy operating expenses and some additional transaction costs and additions from entities we're acquiring. The current run rate is probably fair for the short term, but we continue to work on reducing longer-term amounts of professional fees and advisor spend.
Q: I wanted to make sure I got the revenue guidance on wealth management correct. Did most of the increased quarter-to-quarter from $36.8 million to $40.9 million in revenues come from the acquisitions?
A: Yes, this was a quarter where we were exiting family office services intra-quarter, so we had one-third of the quarter revenues roughly in the quarter. You have that as a reduced revenue amount, and then you have the addition of East End, with Envoi beginning July 1. Q2 specifically in the states is a large outflow for taxes, so it is common to see an exaggerated outflow number from the business, which is offset by new business wins.
Q: Is there a way to estimate the run rate revenues we'd be looking at in the third quarter given the acquisitions that have already closed?
A: As we move forward, I would expect a marginal increase related to the acquisition of Envoi, which closed on July 1. This would be on the management fee line, while other lines related to incentive fees depend on the underlying performance of the investment.
Q: When you said you are conducting a review of the real estate funds, is it all under review or primarily the real estate public and private funds?
A: It would be the real estate public and private funds that are under review.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
