Beneficient (BENF) 2026 Q3 法說會逐字稿

Hello, and thank you for standing by. Welcome to [Beneficient's] third-quarter 2026 earnings conference call. (Operator Instructions)

I would now like to hand the conference over to Dan Callahan. You may begin.

Thank you, operator. Good afternoon and thank you all for joining us for Beneficient's fiscal third-quarter 2026 conference call and webcast. In addition to the call-in webcast, we issued a results press release today that was posted to the Shareholders section of our website at shareholders.trustben.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 in future events could materially differ from those discussed in these forward-looking statements because of factors described in our earnings press release and in the Risk Factors section of our Form 10-K and in subsequent filings we make with the Securities and Exchange Commission. Forward-looking statements represent management's current estimate, and Beneficient assumes no obligation to update any forward-looking statements in the future.

Today's call also contains certain non-GAAP financial measures, including adjusted operating expense. Please refer to our earnings press release, which again is available on our website for important disclosures regarding such measures, including reconciliation to the most comparable GAAP financial measures.

Hosting the call today will be Beneficient Interim CEO James Silk. Following his remarks, Greg Ezel, Chief Financial Officer, will provide some financial highlights. I'll turn the call over to James. Take it away, James.

Thank you, Dan. Good afternoon, everyone, and thank you for joining us. Before I get into the third quarter, I'd like to address the passing in December of Tom Hicks, who's been a member of the Board since 2017. Tom was a legendary figure in American business, a pioneer in private equity, and a dedicated leader who brought extraordinary vision, discipline, and experience to Beneficient. We appreciate his many contributions to the company, and his guidance and friendship will be missed.

Pete Cangany, a Board Member since 2019, was appointed Chairman of the Board effective December 15, 2025. In addition to his experience with Ben as a long-standing Board Member, Pete brings deep experience from a more than 30-year career at Ernst & Young, including as a partner from 1993 until his retirement in 2017. We are fortunate to have his leadership along with all members of the Board, and they are closely engaged in setting Ben's go-forward strategy as we seek to unlock value in private assets.

For the past several quarters, the Beneficient management team has been working through a number of challenges related to the separation from our former CEO. These challenges have required significant resources and management attention. But we believe executing on our plan to address these challenges is a necessary step to better position the company to realize and execute on its business strategy.

The company continues to see strong market opportunity, and during our fiscal third quarter, we were able to accomplish numerous critical items to stabilize and strengthen our core business that we believe better positions the company to close additional liquidity and GP Primary Commitment financings in the future. In December, we closed our first new GP Primary Commitment financing since June of last year, signaling our dedication to our business strategy and continued market interest in company products.

Our third-quarter results are also indicative of our continued focus and discipline on operational financial management. We continue to prioritize creating an efficient technology and AI-enhanced services platform, a platform designed to allow the company to operate more efficiently with a focus on delivering steady, profitable deal flow and growth. This increased focus is demonstrated by a reduction in adjusted operating expenses of 6.5% year over year and 18% year to date, excluding one-time and non-occurring expenses.

We've also worked to pay down the company's payables. To achieve this, we generated approximately $50 million in gross proceeds through asset sales and equity redemptions. That capital has, among other things, allowed us to systemically reduce debt, including approximately $27.5 million that was ultimately owed to a Texas state bank.

We believe these actions have collectively strengthened our financial position. And going forward, we will continue to focus on expense reduction as well as potential simplifications of our capital structure to deliver long-term shareholder value.

In January, we received notification from Nasdaq that we have regained full compliance with Nasdaq continued listing requirements. Given the circumstances, this was no small feat as we completed an annual audit. We filed financials for multiple periods in a compressed time frame. We engaged in extensive external reviews. We improved our balance sheet equity, and we increased the stock price to satisfy Nasdaq's minimum listing requirement. Throughout this process, the company maintained regular contact with the exchange, submitted plans, regained compliance, and executed on those plans.

We are also very pleased to have reached the final court approved settlement related to the GWG Holdings litigation and to have done so within the limits of our existing insurance policies. Collectively, these milestones represent a turning point that allows us to focus more fully on driving growth and enhancing the value of our liquidity solutions.

In addition to resolving the GWG matters, we have cooperated fully with the United States District Court for the Southern District of New York on matters relating to our previous CEO. Our former CEO's criminal trial related to his conduct is scheduled for early April 2026.

We are considering all options that the company may pursue related to our former CEO's conduct, including bringing litigation against our former CEO, his entities, and other parties for potential financial, equitable, and/or other relief. Of specific note, the company intends to vigorously pursue claims regarding the validity of over $100 million in debt purportedly owed to an entity related to our former CEO.

Looking forward, we are working on a number of initiatives that we believe will broaden our financing options, increase our capacity to grow our loan portfolio backed by alternative assets, and ultimately improve the returns for our stockholders. This includes focusing on our core mission of liquidity and primary capital, implementing simpler, more streamlined approaches to providing these services, and broadening our deal flow opportunities and capabilities. As we head further into 2026, we believe we will be well positioned to better leverage our infrastructure and maximize the robust and diverse markets we serve.

Building a stable base for growth has been a priority of management since my return to the company. By addressing the key issues I mentioned earlier, we believe we are now able to bring more of the company's resources to growing the core business, and I look forward to providing more details on that in the coming quarters.

Now I'd like to turn the call over to Greg Ezell, Beneficient CFO, to go over some of the financial highlights. Following Greg's remarks, we'll take a few questions from the analyst community. Greg?

Okay. Thank you, James. Let's now turn to our quarterly results and financial position as of December 31, 2025. As James stated earlier, due to circumstances surrounding the resignation of our former CEO, we were unable to grow our investment portfolio through new financings other than one transaction that closed in December for approximately $3.0 million in NAV.

We reported investments with a fair value of $206 million compared to $291 million at the end of the prior fiscal year. These investments serve as collateral for Ben liquidity's net loan portfolio of $188 million and $244 million, respectively. Asset sales or equity redemptions of certain investments held by the Customer ExAlt Trust resulted in an aggregate of $50 million in gross proceeds on a year-to-date basis, which have been used to pay down certain debt and provide working capital.

As of December 31, 2025, Ben's loan portfolio was supported by a highly diversified alternative asset collateral portfolio providing diversification across approximately 150 private market funds and approximately 430 investments across various asset classes, industry sectors, and geographies, a breakdown of which is available in the accompanying earnings release as well as on our shareholder website.

GAAP revenues were $18.7 million for the current quarter and $3.3 million for fiscal 2026 on a year-to-date basis. The positive GAAP revenues were driven by a $44.1 million increase in fair value of a derivative asset related to the appreciation forfeiture provision included in the conversion of preferred stock to Class A common stock by Mr. Hicks and Mr. Silk.

Adjusted revenues, which excludes the derivative asset fair value adjustment, were a negative $25.4 million for the current quarter and $40.8 million negative on a year-to-date basis. This derivative asset settles in January 2028 and will be fair value each period until then. Upon settlement, a portion of the Class A common stock issued to Mr. Hicks and Mr. Silk could be returned to the company based on the terms of the appreciation forfeiture provision.

Operating expenses were approximately $15 million compared to approximately $14 million in the prior-year third quarter and included a $1.7 million non-cash accrual. Excluding this non-cash item, operating expenses declined 6.5% period over period. On a year-to-date basis, excluding the non-cash and related items in each period as applicable, operating expenses were approximately $44 million as compared to $53 million for the first three quarters of fiscal 2025, a decline of 18%.

Next, we'll move on to our primary business segments: Ben liquidity, which generates interest revenue for supplying liquidity off the balance sheet; and Ben 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 corporate and other that accrues to Ben equity holders.

Ben liquidity recognized $8.2 million of interest income during the third quarter of fiscal 2026, a decrease of 3.6% sequentially, primarily due to a higher percentage of loans being placed on non-accrual status, partially offset by the effects of compounding interest on the remaining loans. Year to date, Ben liquidity recognized $25.5 million of interest income, down 25.2% compared to the prior-year period, primarily driven by lower loans net of allowance for credit losses resulting from higher level of non-accrual loans and loan prepayments, partially offset by new loans originated.

Operating loss for the fiscal third quarter was $29.2 million, a decline from an operating loss of $0.8 million sequentially. The decrease in operating performance was due to higher intersegment credit losses in the current fiscal period as compared to the quarter ended September 30, 2025, due to larger declines in NAV arising from updated financial information received from the fund's investment manager during the period and asset sales transacting generally at lower prices as the percentages of NAV during the quarter than in prior quarters, which has resulted in lower relative loan paydowns.

Year to date, operating loss was $36.0 million versus operating loss of $0.5 million in the prior-year period. The increase in the operating loss is partially a result of the lower revenues period over period, plus an increase in the intersegment credit losses in the current fiscal year as compared to the same period in the prior year.

Turning to Ben custody, NAV of alternative assets and other securities held during the third fiscal quarter was $230.2 million as of December 31, 2025, compared to $338.2 million as of March 31, 2025. The decrease was driven by disposition of certain alternative assets, distributions, and unrealized losses on existing assets, principally related to adjustments arising from updated financial information received from the fund's investment manager during the period or the fair value of investments deemed probable to be sold at an amount that differs from that, offset by $14.8 million of new originations.

Revenues applicable to Ben custody were $2.9 million for the fiscal third quarter compared to $3.1 million for the quarter ended September 30, 2025. The decrease was a result of lower NAV of alternative assets and other securities held in custody at the beginning of the period when such fees are calculated, along with certain upfront in segment fees that are amortized into revenue over time being fully amortized in a prior-year period.

Operating income for the third fiscal quarter decreased to $2.0 million from $2.3 million sequentially, largely attributable to the decline in revenues applicable to this operating segment as described above and slightly higher employee compensation and benefits expense.

Year-to-date revenues were $10.2 million, down 36.9% compared to the prior-year period, largely the result of lower NAV of alternative assets and other securities held in custody, along with certain upfront intersegment revenues that are amortized into revenues over time, being fully recognized in a prior period.

Operating income was $7.4 million for the nine-month period compared to operating income of $9.1 million in the prior year. While revenues declined in the current year period as compared to the same period in the prior year, operating expenses declined by $4.3 million, reflecting non-cash goodwill impairment in the prior-year period of $3.4 million and intersegment provision for credit loss of $1.3 million. No such impairment or credit losses recorded -- were recorded in the current year period.

Adjusted operating income was $7.4 million for the nine-month period compared to $13.9 million in the prior year. This decline is principally related to lower revenues in fiscal 2026 as compared to the same period in the prior year.

As of December 31, 2025, the company had cash and cash equivalents of $7.9 million and total debt of $100.3 million. Distributions received from alternative assets and other securities held in custody totaled $11.3 million for the nine months ended December 31, 2025, compared to $19.3 million for the same period of fiscal 2025. Total investments at fair value of $205.8 million at December 31, 2025, supported Ben liquidity's loan portfolio.

This concludes my prepared remarks on the financials. We'll now open the call to questions from our covering research analysts. Operator, will you please give the instructions for Q&A?

Thank you. (Operator Instructions) Michael Kim, Zacks.

Sorry. Can you hear me okay?

We've got you, Michael.

Hello, this is Chuck. Hi, it's actually Giles Haycock. I'm the Managing Director at Zacks Investment Research. Michael's on an airplane. I had a chat with him this morning. I wanted to ask about the core liquidity platform, particularly with the sort of high net worth and smaller institutional clients.

Could you give us a quick update on how you're approaching channels like advisors, family offices, private banks, and how you're thinking about marketing and awareness building there?

Well, I think the -- as you mentioned on the call, the focus has been on really stabilizing and develop that platform for sort of roll out as we move forward. I do think the -- going forward, it will be a focus on the -- really, the family office and the advisor network as well as continuing to provide follow-up through our AltQuote product which is on our website, which provides a sort of quick and easy access into a preliminary indication of interest on the assets. So we'll have more to, I think, announce on that as we move forward, but that's really where we're going directionally.

Thank you very much for that. And then on the legal side, you mentioned the litigation briefly. Was there sort of any forward momentum or anything investors should keep in mind from a sort of balance sheet or debt perspective with regards to the litigation?

We're not going to comment too much about litigation as mentioned before on the call. The former CEO's criminal trial is set to commence on April 6. We'd anticipate, again, not within our control. It's obviously the US government -- that to take a few weeks, three or four weeks to run its course. And we'll be closely monitoring that situation. And we've -- preparing a variety of different options as that outcome is determined.

And certainly, one thing that we've mentioned before and we'll focus on as part of that is to attack the validity of the debt that is purportedly held by a party related to our former CEO of approximately $120 million or so. But we would expect to likely expand our litigation approach beyond just the debt as well.

Thank you very much for answering the questions.

(Operator Instructions) Brendan McCarthy, Sidoti.

Great. Good afternoon, everybody. Appreciate you taking my questions here.

Just wanted to start off looking at the results in Ben liquidity. Yeah, obviously the revenue -- look, the revenue line on was pretty stable just considering where loans receivable came in at. But can you walk us through the operating loss there? Is that just mostly driven to the asset sales or is that really more so from updated NAV values?

Hey, Brendan, it's Greg Ezell. Yeah, a lot of it, I would attribute it to the asset sales activity that were happening during the quarter. But equally, there were some updated financial information marks that -- kind of a couple of larger negative ones that are attributing to it as well, right? So mainly, asset sale related but also has a flavor coming from GP-reported NAV updates.

Got it. Thanks, Greg. I appreciate that. And it's probably safe to assume that those are probably more just kind of one-off instances, just considering you run a pretty diversified portfolio.

Yes, I believe that is correct.

Okay. And then just looking at operating expenses overall. I'm sorry -- I actually think with the liquidity, offense continues to come down. I think you're at like $13 million for the quarter. Is that a fair quarterly run rate at this point, or do you think you have much more room to continue cutting there?

Yeah, I think it's getting close to fair. There's still a little bit that we're going to try to take advantage of and reducing expenses in that operating segment, and not just in that operating segment, but across the board. But in particular, for Ben liquidity, there still is a little bit of room in there that we think that we can reduce those costs a little bit further in the future.

Got it. And then just wondering -- just curious about the pipeline for liquidity transactions. Yeah, it seems like you've had good momentum in the primary capital space with GPs. Can you talk about the pipeline a little bit?

Yes, we have continued to have discussions and inquiries coming in over the last few months, being out of the market with the financials as we were for a significant period of time as we discussed, put a hold on that. And really, where we are now is sort of following up on the opportunities that we have, both potentially, let's call it, larger-scale transaction or two, but also really trying to -- for the next quarter as we go forward, beginning to sort of act on what we have in front of us which is a fair amount of contacts and potential opportunities.

And we've had some positive experiences with some of our counterparties over the last quarter plus that have participated in these previously. So I think we do have some very solid momentum that we'll be looking forward to providing more information on, particularly as we get through that April period. I think that's going to be an important period of time for the company, given the clarity that it will likely provide or potentially provide to the company on some of these other obligations.

Got it. That's good to hear, James. Thanks for the detail there. Just last question from me on the balance sheet. I think it said you had cash of right around $8 million, total debt of $100 million. Does that $100 million debt include the amount owed to entities related to the previous CEO?

Yeah, it's -- of that $100.3 million, I believe, of debt, all of the balance relates to an entity associated with our former CEO except $3.7 million.

Okay. Well, maybe one last question here. So I know you've done a great job, obviously, navigating the management transition, regaining Nasdaq compliance, cleaning up the balance sheet a little bit. What can investors really take away? What's the near-term priorities for you guys going forward?

The market opportunity is still very strong. I think the near-term priorities for the company, in addition to sort of continuing to resolve some of these outstanding matters, is to begin to demonstrate the validity of the of the business model by executing on some of the transactions that we have in front of us, perhaps not in volume but in terms of how they -- how we're structuring them from the standpoint of potentially approaching them from a more efficient and simplified way and let's just say a clearer description to the market in terms of how those deals attached to the bottom line.

As I said, we'll -- that'll still take, I think, some time to do that in volume, in particular, as you get -- but I think as we get through this spring period, I think that's where, I think, the opportunity really lies. But near term, it's going to be executing on a handful of deals to demonstrate that the market's still there and that the product is still viable and that the way we're thinking about doing these newer deals is a better way to do it, I guess, is the way I'd characterize it.

Got it. Thanks, James. Thanks, Greg. That's all for me.

Thanks, Brendan.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dan for closing remarks.

I want to thank everybody for tuning in today. Again, you can read the press release about the third fiscal quarter and listen to the replay of this webcast on the shareholder website at shareholders.trustben.com. Thanks again and have a great evening.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.