AlTi Global, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Unless noted, financial amounts below are in U.S. dollars. AlTi provides wealth management and strategic alternatives services and reported approximately $71.0 billion of combined AUM/AUA.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $50.8 million | $58.0 million |
| Operating income (loss) | $(14.7) million | $(43.4) million |
| Net income (loss) | $21.7 million | $(90.3) million |
| Net income (loss) attributable to AlTi | $29.3 million | $(68.7) million |
| Basic / diluted EPS | $0.38 / $0.18 | $(1.19) / $(1.19) |
| Adjusted EBITDA (non-GAAP) | $6.8 million | $10.8 million |
| Net cash used in operating activities | $(15.5) million | $(61.0) million |
Revenue consisted mainly of $46.2 million in management/advisory fees, $4.2 million in investment distributions, $0.2 million in incentive fees and $0.3 million in other fees. Management/advisory fees were nearly flat year over year: growth in Wealth Management was offset by lower Strategic Alternatives fees. Revenue fell 12% overall, principally because investment distributions declined $5.9 million, reflecting lower European equities incentive distributions, and other transaction fees also decreased.
The reported $21.7 million consolidated net income included a $39.5 million gain from the remeasurement of earn-out liabilities and a $5.9 million gain on the TRA. The company still recorded an operating loss. Adjusted EBITDA, a non-GAAP measure, declined about 37% year over year. Q1 2023 included substantial Business Combination-related costs and legacy equity compensation, so period comparisons are affected by unusual items.
Balance sheet, liquidity and capital
- At March 31, 2024, total assets were $1.30 billion, total liabilities $401.6 million, and total shareholders’ equity $898.3 million. The company also reported $115.1 million of Series C preferred stock as mezzanine equity.
- Balance-sheet cash and cash equivalents were $134.2 million, including $4.2 million of restricted cash. Cash-flow reporting shows $137.6 million including cash held for sale.
- Debt was $187.5 million gross, or $183.7 million net of deferred financing costs. The $126.0 million revolver and $61.5 million term loan bear floating rates; the revolver’s weighted-average rate was 9.5%. Q1 interest expense was $4.8 million.
- Cash increased during the quarter mainly from $115.0 million raised in the Constellation preferred-stock investment and proceeds from the LXi advisor sale. Operating cash flow remained negative.
- Management said it believed funds were sufficient to support operations and meet obligations for at least 12 months from the May 10, 2024 issuance date. This assessment is subject to risks and assumptions.
Changes, outlook and notable items
- Wealth Management AUM/AUA was $53.5 billion, up from $51.0 billion at year-end 2023; Strategic Alternatives AUM/AUA was $17.5 billion. Wealth AUM rose with market performance, partly offset by net client outflows and a change in billing methodology. Strategic Alternatives AUM/AUA was approximately $17.5 billion, including $7.5 billion on the alternatives platform and $10.0 billion in real estate.
- AlTi completed the sale of LXi REIT Advisors on March 6 for approximately $33.1 million fixed consideration and potential contingent consideration. It reported a $0.2 million disposal gain in Q1; related intangible impairment had been recorded in 2023. The sale of Family Office Services for approximately $20.1 million closed May 8, 2024.
- Management said it expects operating expenses to continue trending down in 2024 and sees potential operating leverage from cost savings and growth initiatives. It gave no formal quantitative revenue or earnings guidance. Management cited strong equity markets, client wins and AUM/AUA growth, while noting high interest rates and difficult real estate conditions.
- In February 2024, AlTi amended its credit agreement. Leverage and interest-coverage covenants were waived for the March and June 2024 quarters, subject to minimum EBITDA and liquidity requirements; pricing increased during the waiver period. Other borrowing and asset-sale proceeds restrictions apply. The company reported $14.0 million of unfunded revolver commitments, but that figure should not be assumed to represent unrestricted borrowing availability.
- Constellation invested $115.0 million for Series C preferred shares carrying a 9.75% cumulative, compounding dividend, and received warrants for 1.53 million Class A shares at $7.40 per share. A separate Allianz investment of $250 million was expected to close in Q2 2024, subject to approvals and other conditions; Allianz also had an option for up to $50 million for strategic acquisitions.
- After quarter-end, AlTi announced acquisitions of East End Advisors, Pointwise and Envoi. The filing gives initial or estimated consideration of $76.4 million for East End, $7.0 million for Pointwise and approximately $25.2 million for Envoi; Envoi was expected to close July 1, 2024. These transactions may affect liquidity, leverage and share count.
- AlTi reported material weaknesses in internal control over financial reporting and concluded disclosure controls were not effective as of March 31. Remediation was underway; management could not estimate its cost or assure successful remediation. The filing also describes corrected immaterial prior-period errors and reclassifications; no restatement was deemed necessary.
- Potentially material Home REIT-related claims and UK FCA investigations concern historic services by legacy Alvarium entities. The claim letters did not quantify damages, and AlTi said exposure could not be reliably estimated. The FCA investigation also covers historic HLIF-related services. AlTi said it intended to defend claims and cooperate with the regulator.
Important facts for investors to verify
- Whether operating cash flow turns positive and whether cost reductions improve operating results, rather than relying on noncash fair-value gains or adjusted measures.
- Actual borrowing availability and covenant compliance under the amended credit agreement, including minimum liquidity and EBITDA requirements and the effect of asset-sale proceeds.
- Closing, terms and use of proceeds for the proposed Allianz investment, any additional Constellation investment, and the announced acquisitions.
- Progress and potential financial or reputational impact of the Home REIT claims and FCA investigations, and the transition of HLIF management.
- Remediation of the disclosed internal-control material weaknesses and the reliability of future financial reporting.
- Future AUM/AUA, fee revenue and real estate valuations, including the effects of market movements, billing changes, disposals and any lagged investment valuations.