Welcome to the Beneficient Second Quarter Fiscal 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Dan Callahan, Director of Communications. Please go ahead.

Good morning, everyone. Thank you for joining us today for Beneficient's fiscal Q2 2025 conference call. In addition to this call, we issued an earnings press release that was posted to the Shareholders section of our website at shareholders.trustbend.com. Today's webcast is being recorded and a replay will be available on the company's website. 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-K and in subsequent filings we made with the Securities and Exchange Commission. Forward-looking statements represent management's current estimates and Beneficiant assumes no obligation to update any forward-looking statements in the future. Today's call also contains certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website, for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. On the call this morning are Brad Heppner, our CEO and Chairman and Greg Ezell, Chief Financial Officer. I'll hand the meeting over to Mr. Hepner. Brad, take it away.

Good morning, everyone, and thank you for joining us this morning. In our second fiscal quarter ending September 30, we continued to build on the progress of the Q1 with a number of positive developments. The management team has also been busy meeting with the investment community, including our participation earlier this week at the Corp. Gov. Forum and other investor conferences earlier in the quarter. Interest is high in how Ben is democratizing private equity and delivering custody and transaction services for all types of alternative assets. Ben was created to provide fiduciary products and services that deliver liquidity and services that deliver liquidity, and primary capital for holders and managers of all types of alternative assets. We are developing our business to particularly focus on the target markets of mid to high-net-worth individuals and small to mid-sized institutions who have been underserved when it comes to exiting alternative assets prior to their maturity, in addition to general partners. We estimate that mid- to high net worth investors and small to midsized institutions in the U.S. alone account for more than $2.7 trillion of net asset value, with an annual unmet demand for liquidity of over $61 billion annually, growing now to more than $100 billion within the next 5 years. Further, the markets for general partners seeking liquidity for their limited partners through restructurings in the secondary market is in excess of $100 billion annually. That means that when combined, our platform addresses a demand for secondary market liquidity from mid- to high net worth investors and small to mid-sized institutions and general partners and LPs of over $150 billion per year and growing. The traditional process for these smaller investors seeking liquidity is incredibly complex. It's expensive, and it's time consuming, often taking as long as 15…

Thank you, Brad. Let's now turn to our quarterly results and financial position as of September 30, 2024. First, I'll start with a few highlights from the quarter. We reported investments with a fair value of $335.0 million, up sequentially from $329.1 million at the end of our prior fiscal year. These investments serve as collateral for Ben Liquidity's net loan portfolio of $260.7 million and $256.2 million, respectively, for the same period. GAAP revenues were a positive $8.6 million and $18.6 million for the second quarter and year-to-date periods in fiscal 2025 as compared to a negative $42.8 million and $45.5 million in the prior year. GAAP revenues principally reflect mark-to-market adjustments on the investments that serve as collateral to Ben's loan portfolio. Excluding the noncash goodwill impairment and the loss contingency accrual release in each period, as applicable, operating expenses were $22.0 million in the second quarter of 2025 and $39.3 million in the year-to-date period, which reflects a decline of 31.9% and 55.9% in the quarter and year-to-date periods. The improvement was primarily related to improvements in comp and benefits. Comp and benefits expense was $7.1 million in the quarter compared to $15.4 million in the prior year period and $11.0 million versus $51.2 million for the respective year-to-date periods. The primary reduction is related to lower share-based compensation expense of $5.1 million for the quarter and $31.1 million year-to-date as compared to prior periods. The higher share-based compensation cost in the prior fiscal year were associated with our public listing in June 2023. The reduction also reflects lower headcount in certain areas related to IT development, a more focused sales effort and a higher level of automation throughout the organization. GAAP net income for the current quarter was $9.7 million and $54.1 million for the year-to-date…

[Operator Instructions]. Our first question comes from Michael Kim with Zacks Small-Cap Research. Your line is open.

Good morning. Thank you for taking my question. First, I'd just be curious to get your thoughts on what you may be seeing in terms of demand trends and loan originations. So just wondering if you've seen a step-up in activity just following the introduction of the MAPS pricing system and the Board's more recent authorization of the ExchangeTrust product plan. And then just related to that, any perspectives on your marketing and advertising efforts just to capitalize on that demand?

Good morning, Michael, this is Brad. I'll address your question here. I appreciate your attending today. What we're seeing for the demand is the demand for liquidity from private market assets, it's not abated at all from our vantage point. If anything, as investors continue to allocate to private market assets, the pent-up demand that we've been speaking about for some time continues to grow, and there's still largely unmet by other industry solutions. I've always said I don't believe that there's near enough capital in the industry. The amount of demand, the distributions have been slowing over the last 2 years to 3 years, completely slowing in the industry, and the amount of demand is like a rat going through a snake. We've got a lot here to come out and experience once investors continue to pursue their need for liquidity. Now we're excited to have launched MAPS this past quarter. It came out of beta, and we launched it. We continue to be encouraged by the results that it's going to reduce the time required to underwrite and value private market assets to as little as 15 days. Now that compares to institutional transactions that can take as long as 15 months. That's how long they take. But because we have standardized documentation, that is examined by banking regulators for the integrity and for the safety of our customers. And because we have MAPS, we are now able to reduce that time, and we're hoping to get that down to 15 days. We plan on continuing further developments to MAPS with the potential for increased functionality rolling into 2025. We were limited in our ability to close liquidity and primary capital transactions during our second fiscal quarter. And that's due to us seeking stockholder approval to increase the…

Got it. That's very helpful. Appreciate that, Brad. And then any updates on your new business initiatives that you've previously mentioned around related services and alternative securities lending?

Yes. We continue to work on both of those with a focus -- with a dedicated and focused team. Now I want to reiterate that our -- to answer this question, I think we need to reiterate our total addressable market. It's in the Investor Relations deck. We show that over $2 trillion net asset value is held within Ben's target markets in the U.S. alone. There's over $15 trillion in global alternative investments. I may have said $2 billion. I mean $2 trillion in NAV held in our target markets alone. We do expect liquidity from these target markets -- our market, in particular, to be -- the demand for it to be in the $60 billion range, with an additional $100 billion, growing to about $100 billion over the next 5 years alone. The industry participants, we can expand that overall with a scalable lending platform. This solution could exceed that for the overall liquidity. So, as we see $60 billion growing to $100 billion, if investors could effectively borrow against their portfolios and borrow from commercial banks, for example, we could see that demand be surpassed just by borrowing. And second, more attractive -- not more, but second just as attractive market for us. We believe we're nicely positioned to potentially provide a platform that will help introduce potential lenders, commercial lenders, credit lenders and so forth. To introduce those lenders with private market investors of all sizes seeking to borrow against their alternatives, and we could provide the infrastructure to make that happen. We can provide the lean management systems. We can provide the covenant compliance, and we can sit in the middle providing that. So, we're continuing to have productive conversations with key partners and customers across the private market ecosystem that will hopefully introduce a lending platform and solutions for alternative assets and investors in the first half of 2025. So those are ongoing. Just in summary, I view that to be as big, if not bigger, market than our current market, and our systems are designed to sit right in the middle to facilitate that type of lending off of our AltAccess platform.

Got it. And then maybe just finally, just curious with the new administration coming in, would you anticipate that we could see a renewed cycle of investment focused on starting new businesses and the capital needs to support that trend and how that might potentially drive a step-up in the need for liquidity?

It's great that you asked that question. I just completed a conference here at the Corp Gov Conference. And of course, it's one of the first conferences of the industry following the election. And a lot of discussion on this point, specifically on this point. And I think we first need to start answering this point from the standpoint of what does it mean for liquidity out of alternative asset portfolios. And the general assumption is that we're going to be coming much more friendly capital formation economy in the United States, and that will be led by various regulatory changes that we're already hearing about in the press and reading about in the press. Regulatory leadership changes, I might say. And so, the conference participants are particularly excited about the outcome of that. But that outcome is going to be 24 months away. And the first step of that outcome and the expectation is a much more robust and improved public offering market, initial public offering market. And that then leads to the potential for liquidity, which means that we will see an uptick overall. When you have -- it's very closely correlated. When you have liquidity and distributions coming out of alternative asset portfolios, you also then have a correlated expansion in deals getting done and transactions getting done. Let's keep in mind that we're coming off of about 3 years of very poor fundraising results in the industry, but for the top 10 largest private equity firms, okay? So, it's not like we're coming in with a great big amount of dry powder of money to go to work. First thing we need to start seeing is an improvement in liquidity. Since we're 12 months to 24 months or more like 24 months out, I've actually seen…

Our next question comes from Brendan McCarthy with Sidoti. Your line is open.

Thank you. Good morning, everybody. I wanted to start off on the underlying asset -- alternative asset collateral portfolio. Can you provide some incremental color on how that underlying is performing more broadly? And then are you seeing signs that monetization and distribution are starting to pick up?

Brendan, it's Greg. I'll provide a few comments related to our collateral portfolio, and then Brad will share some views with the industry performance more broadly. I think generally speaking, we're very pleased with the underlying asset collateral performance. Broadly speaking, when you look at the performance, excluding the interest in our parent company that's on our balance sheet, over the last few quarters, including the quarter we reported on today, and three out of the last four quarters, we've seen positive increases in the unrealized NAV of that portfolio. That doesn't necessarily mean that total NAV has increased obviously because of distributions. But over the last two quarters, total NAV with the reduction with distributions have increased. In terms of distributions, as I mentioned in the prepared comments, we have seen a fall in those year-to-date distributions as compared to the same period last year. When you think about that as a percentage of the beginning NAV each period, it does equate to about a 28% decline in the distribution rate, which is well off long-term norms that you might expect for the portfolio. As far as what we're seeing and observing related to potential activity in the collateral portfolio that might lead to distributions in the future, I would describe it as being in the early innings of a potential following of the slower distributions that have been in the alternative asset space for the last few years. Our observations are coming from comments that we're hearing from the general partners in our collateral portfolio, about letters of intent for portfolio sales company starting to be executed, sales processes and/or IPO explorations beginning to happen or being launched, all of which are good signs that future distributions could be coming in the quarters. But as I mentioned, it's in the early innings of that process. And there's obviously a variety of factors that could influence those events actually coming to fruition.

And then Brad, do you want to share some views that you have about the industry?

Yes, I would. If we look -- well, first, Brendan, I want to welcome you to the call and your questions here. I appreciate your taking the time to join us here. The -- if you look at the industry overall, the norms for an alternative asset diversified portfolio, diversified by vintage year in our industry has historically seen a distribution rate of about 16% of net asset value per year. So that's a broadly diversified across many vintage years, across many subclass of alternatives. You should expect about 16% per year on a median basis. Now if you add a band for variability between the years -- each year of about 4% of net asset value, that provides you a band of 12% to 20% of NAV, okay? Good portfolios reach that 20% of NAV. In other words, above median portfolios. Now starting about 3 years ago and specifically for the past 2 years, we have seen industry distribution rates for a diversified portfolio drop to 8%. That's 30% below the low end of the band. It's almost unheard of in the economy. That's 50% of the mid, and it's 60% of the -- I'm sorry, 60% below the high end. Now that doesn't tell the overall story, okay? It's even a little more concerning. The drop is led by below median-performing funds in the third quartile and fourth quartile. They've been producing no distributions to speak of, none. So, it's only your best managed funds that have continued to deliver distributions over the last 2.5 years. That's half, okay? So that's very troubling in the economy. So, a very large base of funds are skewing the performance overall for our private equity shops. Now while we're very disappointed with industry distribution rates that we've seen in this past,…

That's great. Really appreciate the color there. One more question for me. Can you walk us through the transaction that reclassified -- I think it was roughly $126 million of temporary equity to permanent equity? And then can you discuss the benefits from a capital or regulatory perspective?

Yes, Brendan, it's Greg. I'll take that one. It's a good question. So, the transaction itself is simply dividing a portion of the existing preferred Series A security into a new security. So, 50% of the existing balance will remain under the previously existing security and then 50% into a new security that has the same terms as it previously did other than there is not a cash redemption feature related to the new security. So, previously, the preferred security was required to be classified as temporary equity under U.S. GAAP, and that was really due to a combination of 2 factors that -- or features that are held in that security by the holder. It was the cash redemption feature and then also an equity conversion feature. With the move of 50% to a new security that does not have the cash redemption feature, this allows the security to no longer meet the temporary equity classification such that it can be reclassed into permanent equity in our balance sheet. Now the primary benefit really pertains to our compliance with the continued listing requirements of Nasdaq. Those are kind of three features there, which is -- it's a net income component. It's a $35 million market capitalization or a positive permanent equity of $2.5 million, and temporary equity is specifically not included in that $2.5 million positive permanent equity. When you think about our permanent equity, principally due to the large goodwill impairments that we had last year, which drove net losses in our 2024 numbers, it reflected that deficit of $148.3 million that we discussed earlier. So, the reclassification of $125 million from the temporary equity to the permanent equity really moves the company closer to the permanent equity requirement, and that's obviously important to the company. I mean we'll also have to require the company to demonstrate going forward once we get compliant, that we'll be able to maintain compliance for the long term.

There are no further questions. I'd like to turn the call back over to Dan Callahan for any closing remarks.

Just want to thank everybody for attending this morning. And a reminder that the replay of this call will be available on the Shareholders section of trustben.com. And I want to have -- wish everyone a great Friday.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.