Beneficient Price & Performance (BENF)

Good morning, everyone, and thank you for joining us for Beneficent's fiscal third quarter twenty twenty five conference call and webcast In addition to the call and webcast, we issued an earnings press release that was posted to the Shareholders section of our website at shareholders.trustbend.com. Today's webcast, as the operator indicated, is being recorded and a replay will be available on the company's website. On today's call, management's prepared remarks may contain forward looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Actual results and future events could materially differ from those discussed in these forward looking statements because of factors, described in our earnings press release and the risk factors section of our Form 10 ks and in subsequent filings make with the Securities and Exchange Commission. Forward looking statements represent management's current estimate and Beneficient assumes no obligation to update any forward statements in the future. Including tangible book value attributable to Ben's public company stockholders. Please refer to our earnings press release, which is available on our website for important disclosure including reconciliation to the most comparable GAAP financial measures. On the call today are Brad Hepner, the CEO and Chairman and Greg Gazelle, Chief Financial Officer.

I'll hand the meeting over to Brad Hepner. Go ahead, Brad. Thank you, Dan. Good morning, everyone, and thank you for joining us.

I'm here this morning to share with you the accomplishments that the Beneficient team has achieved over the last quarter. As we work to build on our previous successive two quarters of positive GAAP earnings per share. For fiscal year to date, as of 12/31/2024, Ben has earned $10.3 of basic earnings per share and $0.12 of fully diluted earnings per common share. I will lead off with key platform developments designed to accelerate our capabilities for delivering both Liquidity and primary capital to investors in and managers of alternative assets While preparing for the future emergence of digital alternative asset markets, Over the past quarter, we have strengthened our team and continued to execute our liquidity and primary capital We continue to educate the market regarding Ben's unique business model. Our technology platform and our growing service offerings that we believe have the potential to drive shareholder value. Ben was created to provide fiduciary products and services that deliver liquidity, and primary capital for holders and managers of all types of alternative assets. In addition to serving general partners who manage and sponsor alternative assets, We are developing our business to focus on the target markets of high net worth individuals and small to mid sized institutions.

These markets have been underserved when it comes to exiting alternative assets prior to their maturity. We believe this market includes an unmet demand for liquidity of over $60,000,000,000 annually for smaller investors and institutions, plus another more than $150,000,000,000 annually in general partners seeking liquidity for their limited partners through restructurings and continuation vehicles in the secondary markets. Unfortunately, the traditional process especially for our targeted market of smaller investors seeking liquidity, It's incredibly complex. It's expensive. And it's time consuming if liquidity can be found at all. Our internally developed proprietary FinTech platform we branded as Alt Access expedient and caustic extension online tool to complete these important transactions online in a matter of days to weeks if it's desired. In addition to demand for liquidity from alternative assets, our market faces a substantial demand for more primary capital into new alternative assets. The PEI data shows that it has been taking an average of eighteen months for general partners to raise their private equity funds. Now that's approximately double what it took them just three years ago. We believe we now have a solution to help address that need as well. These are the foundations of our business and we've produced profitable progress for our stockholders of $0.12 of earnings per common share for the nine months ended 12/31/2024, which we believe will accelerate our capabilities going forward.

I'll now move on to the fiscal third quarter highlights. In October, we announced the addition of banking, legal, compliance veteran Patrick Donagan to our Board of Directors, which I discussed on our last call. In November, we announced the addition of Karen Wendell to our Board of Directors. She currently serves as President and CEO of Tokenization blockchain and cybersecurity advisory firm Trust Chains. Karen brings deep expertise in the digital asset markets technology M and A cybersecurity, corporate governance, blockchain and DeFi space. Our expertise provides unique decision making skills for Board level strategic and tactical requirements. She's held executive and board roles in U. S. And global private and public company In addition to being an independent director, Ben appointed her to serve on our audit products and related party transactions, and enterprise risk committees of our Board of Directors. Now in December, we announced that Ben entered into an agreement to acquire Mercantile Bank International Corporation subject subject to certain closing conditions. In connection with this important proposed acquisition, we announced the hiring of Louise Jones as Managing Director of Capital Markets and Custody Operations for Beneficence. Louisa's career on Wall Street spans four decades. Including being the youngest woman to hold a seat as a member of the New York Stock Exchange.

Among her responsibilities she will manage the integration of Mercantile Bank, and she will spearhead Ben's capital markets activities as well as oversee expansion of the company's fee based alternative asset custody business, including the launch of a depository receipt companion line. Transactions that we completed in our fiscal third quarter include this proposed acquisition of Mercantile Bank, which is a proposed Puerto Rico which is a Puerto Rico based international financial entity known as an IFE. Puerto Rico is a leading jurisdiction working in conjunction with the OCC to provide expanded authorization for IFB IFE banks to engage in activities such as asset management, clearing services, and digital asset market solutions among other key areas. It is licensed and regulated by the Office of Financial Institutions of Puerto Rico. Anne may provide specific banking and other financial activities for persons, entities and organizations around the globe that are non residents.

We believe this acquisition will enable us to offer an expanded range of companion custody clearing and control account fee based services that complement our existing businesses on a broader scale.

Which we expect has potential to generate additional cash flow in the near term. The objective of this acquisition is to deliver additional custody services for international investors and digital asset investors, generally have a higher fee rate structure and potential for higher margins than traditional custody services. We also believe the proposed acquisition of an IFE has the in ways that may open new international opportunities, allowing us to Further, democratized the market for a liquid alternative assets. And IFPs authorized activities may include custody, clearing, payments and related traditional and digital asset market products and services. As approved by the OCIF, IFEs can also offer traditional banking services. Such as correspondent deposit Lending investments and trusts. We anticipate the proposed acquisition if and when completed would position Ben to offer alternative asset custody services that include among other potential items a companion line of business focused on issuing depository receipts to assist holders of foreign investments gain access to the capital markets in international jurisdictions. And may yield higher fee assessments than more traditional custody offerings. Also in late December, as part of a separate transaction, we entered into an agreement to revise the liquidation priority of Beneficient Company Holdings LP.

That's a subsidiary of the company. We refer to as BCH. In order to among other things enhance and further enhance our current and future shareholder value. Especially for Ben's public comment stockholders and to drive long term growth. Pursuant to the agreement, the holders of the preferred equity of BCH agreed to amend the governing documents of BCH. Allow the company's public company common stockholders to share in through the indirect ownership of the company and BCH the liquidation priority, previously reserved only for the preferred equity. We anticipate this transaction will result in creating tangible book value attributable to Ben's common public company stockholders.

Which we believe will provide substantial value for our stockholders and enhance long term growth opportunities. Additionally, we anticipate this transaction has the potential to be a catalyst for closing future liquidity transactions and demonstrates our commitment to delivering shareholder value. Also during the fiscal third quarter, we continued to strengthen our capital structure increasing our permanent equity by $35,000,000 through a redesignation of certain preferred equity. To permanent equity. Furthermore, during the fiscal third quarter, we closed a $1,400,000 primary capital commitment transaction. Our originations team is now focused on progressing future prospective transactions now. Both liquidity and primary capital We look forward to building on this initial momentum all through 2025 as we continue to evaluate additional opportunities that align with our strategic objectives. These developments continue to provide meaningful enhancements to our business model. And improved on the and improvements on the competitive dynamics we believe we already possessed. I am very proud of our efforts over the last three quarters to broaden our capabilities and improve the product offerings of the business. And welcome new experienced talent to our management team and our Board of Directors. Taken steps to improve our financial position and are back to originating new financing.

These steps have culminated in bannering $10.3 of basic earnings per share and $0.12 of fully diluted earnings per share to date as of our third quarter ending 12/31/2024. With these improvements in motion, we will continue to work to educate the market who we are [indiscernible] and on the value and growth opportunity we represent for our shareholders. Now with that, I will turn the call over to our CFO, Greg Gazelle, to go over our operating and financial results. Thank you, Brad. Let's now turn to our quarterly results and financial position of 12/31/2024. First, I'll start with a few highlights from the quarter. We reported investments with a fair value of 334,300,000.0 up sequentially from $329,100,000 at the end of our prior fiscal year. These investments serve as collateral for BIN Liquidity's net loan portfolio 260,600,000.0 and 256,200,000.0 respectively. -ten 20,000,0.0 and negative $5,570,000,0.0 in the prior year. GAAP revenues principally reflect mark to market adjustments on the investments that serve as collateral to Ben's loan portfolio. Operating expenses declined 38% to $1,390,000,0.0 in the as compared to $2,250,000,0.0 in the same period for On a year to date basis, excluding the non cash goodwill impairment and the loss contingency release, in each period as applicable Operating expenses were $5,320,000,0.0 in as compared to $11,170,000,0.0 in Permanent equity improved from a deficit of $14,830,000,0.0 as of June 30, 2024 to a positive 1,430,000,0.0 as of Dec. 31, 2024, through a combination of transactions, redesignating approximately 160.5 of temporary equity to permanent equity and additional capital from equity sales and liquidity transactions offset by net loss allocable to permanent equity classified securities of $690,000,0.0 during the applicable period.

Reported GAAP net loss attributable to Ben's common shareholders for the current year of $860,000,0.0 and GAAP net income of $5,190,000,0.0 for the year to date period which led to a basic loss per share of $1,.32 for the current quarter and basic earnings per share of $1,0.3 for the year to date period. I should also note that in our conversion [indiscernible] difference relates to the impact from the conversion of our preferred A-zero and A-one equity that is largely held by insiders on our Board and management team. We announced the transaction on Dec. 23, 2024 to revise the liquidation priority of BCH. And provide tangible book value and other benefits to Bend's public common company shareholders, which on a pro form a basis amount to $920,000,0.0 of tangible book value to BIM's public company stockholders using Dec. 31, 2024, [indiscernible] And we announced a net agreement to acquire Mercantile Bank in exchange for an aggregate purchase price of $150,000,0.0 as Brad described. Next, we'll move on to our primary business segments. Fin liquidity, which generates interest revenue for supplying liquidity off the balance sheet and Bent custody, which produces fee revenue for the use of the platform and trust services.

As typical, I will be focusing my discussion on these business segments as it's their operations along with During the BIM liquidity recognized $1,130,000,0.0 of interest income a decrease of 5.7% from the quarter ended primarily due to a higher percentage loans being placed on non accrual status partially offset by the effects of compounding interest on the remaining loans. In liquidity recognized $3,410,000,0.0 of interest income for the nine months ended Dec. 31, 2024, down 6% compared to the prior year period primarily resulting from higher level of non accrual loans among prepayments, partially offset by new loans originated. [indiscernible] Operating loss for the was 290,000,0.0 a decline from operating income of $290,000,0.0 for the quarter ended Sept. 30, 2024, The decline in operating performance was due to a higher intersegment credit losses in the current fiscal period as compared to the quarter ended Sept. 30, 2024. Operating loss was $50,000,0.0 for the nine months ended Dec. 31, 2024, improving from an operating loss of $180,000,000,0.0 the prior year period. The prior year period loss was primarily driven by non cash goodwill impairment totaling $170,000,000,0.0 and credit losses largely related to securities of our former parent company. Adjusted operating loss was $50,000,0.0 for the nine months ended Dec. 31, 2024, compared to adjusted operating loss of $1,180,000,0.0 in the prior year period, with the improvement in adjusted operating loss primarily related to lower credit loss adjustments recognized in the current fiscal year and lower employee compensation due to lower headcount.

Moving on to Ben custody. Now with alternative assets and other securities held in custody, increased to $38,510,000,0.0 as of compared to $38,120,000,0.0 as of March 31, 2024. The increase was driven by $140,000,0.0 of new alternative assets held in custody and unrealized gains on existing assets principally related to NAV adjustments based on updated financial information received from the Fund's investment manager or sponsor during the period, offset by distributions during the period. Revenues applicable to Ben custody were $540,000,0.0 for the compared to $540,000,0.0 for the quarter ended Sept. 30, 2024. Similar amounts of revenue the period were a result of stable NAV of alternative assets and other securities held in custody at the beginning of each applicable period when such fees are calculated, Revenues were $1,620,000,0.0 for the nine months ended Sept. 31, 2024, down 14.7% compared to the prior year period primarily due to lower NAV alternative assets and other securities held in custody. Operating income for the decreased to $350,000,0.0 from $430,000,0.0 for the quarter ended Sept. 30, 2024. The decrease was primarily due to credit losses related to certain fees collateralized by us securities of our former parent company. Additionally, there was no cash there was no non cash goodwill impairment in the as compared to non cash goodwill impairment $30,000,0.0 for the quarter ended Sept. 30, 2024.

Operating income was $910,000,0.0 for the nine months ended Sept. 31, 2024, compared to operating loss of $53,880,000,0.0 in the prior year period. With the increase in operating income principally related to significantly larger non cash goodwill impairment in the prior year period of 55,460,000,0.0 as compared to $340,000,0.0 in the current fiscal year. Adjusted operating income for the was $480,000,0.0 compared to adjusted operating income of $460,000,0.0 for the quarter ended September 3024. The increase was due to slightly lower operating expenses principally related to lower employee compensation due to lower headcount. Adjusted operating income for the nine months ended Dec. 31, 2024 was 1,390,000,0.0 compared to adjusted operating income of $1,580,000,0.0 in the prior year period with the decrease in adjusted operating income primarily due to lower revenues related to lower NAV of alternative assets and other securities, held in custody, partially offset by slightly lower operating expenses during the As of Dec. 31, 2024, the company had cash and cash equivalents of $410,000,0.0 and total debt of $12,290,000,0.0 Distributions received from alternative assets and other securities held in custody totaled $1,930,000,0.0 for the nine months ended Dec. 31, 2024, compared to $3,840,000,0.0 for the same period of Total investments at fair value of $33,430,000,0.0 at Dec. 31, 2024 supported M liquidities loan portfolio.

Concludes my prepared remarks on the financials. We will now open the call to questions from our covering research analyst, Operator, will you please give the instructions Q and A. Thank you. Our first question today will come from the line of Michael Hey, everyone. Good morning. First, I know you recently closed the primary capital commitment with ADAS asset management. But just be curious to get your perspective on how important the recently announced public stockholder enhancement transactions will be, just in terms of facilitating reaccelerating exchange trust activity and then just related to that, would you expect a more meaningful step up after the transactions have been approved and completed later this year. Thanks. Hi, Michael. It's Brad Hepner. I'll answer your question here. We have been as you're maybe aware, we have been out of market with the Exchange Trust product line. For the better part of fifteen months. And so we introduced back into the market the Exchange Trust product line as far as closings go. We have kept people informed about it during that period of time. But as far as closing that product line, with potential parties We reentered the market here just a few weeks ago. [indiscernible] last month.

And just prior to a year end rather. And as part of that, we wanted to be able to introduce the capital stack enhancements, delivering additional tangible book value to our common shareholders for the purpose of being able to point to the parties our counterparties in it that there is a meaningful tangible current tangible book value and how that grows over time. We do believe as you suggest, we do believe that that is going to be an attractive economic element for our 1 attractive economic for our counterparties. In the transaction. And so we are pointing them to that transaction to that announcement. And I believe that once it is The formal completed process is done and that transaction is in it will lead to additional transactions being done and the ability to for us to accelerate closings in the near term. So I think it is a very positive development and is being very well received in the market and should help us fully completed. Got it. That's helpful. And then just second, I know, in aggregate, the loan portfolio was essentially [indiscernible] on a sequential quarter basis. So just any color on maybe some of the underlying moving parts during the quarter as it relates to unrealized marks or deal flow and or distributions?

Greg, would you like to provide a first answer and then I'll follow-up with a little more color as well. Your microphone may be on mute here. Sorry. Yes. Sorry, we were on mute mute. Yes, as you noted, Michael, the sequentially, the the investments that collateralized the loan portfolio was basically flat period over period. As a percent, I think the unrealized gains came in at 6%, 7% of our as an unrealized gain for the quarter on an annual basis. Distributions for the we're about where we, I think, expected it, maybe a little less. With about, I think, dollars 4,000,000 or so, dollars 5,000,000 distributions for the quarter that really offset those unrealized gains on the portfolio. And I'll add a little more color as well. As we move into the December '31 marks and so forth and get a little more understanding of how valuations may change as of the end of the calendar year. Those that's typically a time in which there's a driver. We will start to see the valuation movements here. Coming up really in the next month or two. As it relates to year end private company marks, The election results have a positive impact on what our expectations are.

So we are particularly enthusiastic about what we're seeing Yes. Under the new administration for opening up the capital markets for more M and A. [indiscernible] putting putting a positive direction and momentum for IPOs, which will lead to [indiscernible] both we expect gains and realization events And then you have the offsetting impact of watching what the the economics related to the tariff strategies may have on on either delaying those realization events [indiscernible] [indiscernible] having suppressing the expected gains out of the transaction. So we're moving into that period of time. With some positive, very positive momentum behind us given the the direction that the markets have taken, the expectations of the underlying general partners who manage these investments in particular, We have a very large portfolio of over 800 different portfolio companies and many of them are primed for realization events. Which we expect to have some some unrealized appreciation to be recognized upon those realization events. Great. That's helpful. Thanks for taking my questions.

Thank you. 1 moment for the next question. And the next question will come from the line of Ashish Shah of Sidoti. Hi. I'm here for Brandon and thank you for taking my questions. Can you tell me about your timeline around when the liquidity transactions could pick up and what factors may provide the upside or the downside to your expectations?

Sure. The timeline that we expect here is the approval of the BCH transaction that I discussed in my remarks will be coming and when that is done, we expect An uptick in the transactions that are being worked on right now with counterparties and also additional interested parties coming in. We've, as I said, have just really reengaged with all the counterparties since completing the BCH transaction. So it's really in the [indiscernible] we need to go ahead and move forward with getting that transaction all completed. That does require proxy votes. And that's all being worked on right now and then we would an uptick as you put it of more frequent and the greater volume of transactions closing here in the near term.

Right. Thank you. And can you provide detail on how the underlying alternative asset collateral portfolio is performing more broadly? And do in that? Can you comment on the distribution activity and how that impacts your outlook?

Yes. I'll pick up where Greg provided some of this insight. Here in his last remarks. In the In our ending December '31, we saw unrealized depreciation of in the neighborhood of 7%. We saw a similar percentage in distributions. That's why you see the portfolio remaining fairly unchanged on the balance sheet. And that comes on 2 previous quarters of similar type results. Very similar type results. With the expectation of The U. S. Economy, We would expect the distribution rates through 2025 We would expect those to increase. And we would expect realization events to be the driver behind that. And that we would expect those realization events to reflect a more positive outlook on the U. S. Economy that we would hope will generate a greater level of unrealized appreciation being realized. So seeing some additional pent up value in the portfolio finally being realized and realizing that in the distributions. So our expectations for 2025 based on the outlook of The U. S. Capital markets is much more or is greater than what we experienced in the calendar year 2024. And again, that's based on the overall outlook of The U. S. Economy and The U. S. Capital markets.

You so much for taking my questions.

Thank you.

And that does conclude today's Q and A session. I would like to go ahead and turn the call back over to Dan Callahan for closing remarks. Please go ahead.

Yes. Thanks to everyone for participating on the call and webcast today. Again, a replay will be available on our website at shareholders.trustbend.com. Have a great rest of your day and thanks again.

Thank you for joining today's conference call. The call is concluded and you may disconnect.