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. Today's webcast is being recorded and a replay will be available on the company's website. Today's call 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 Beneficient 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. Heppner. 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 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 Beneficient is democratizing private equity and delivering custody and transaction services for all types of alternative assets. Beneficient was created to provide fiduciary products 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 mid-sized 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 to more than $100 billion within the next five years. Further, the markets for general partners seeking liquidity for their limited partners through restructurings in the secondary market are 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, expensive, and time-consuming, often taking as long as 15 months or more, if liquidity can be found at all. To address this problem, we built our own FinTech platform called Ben AltAccess, with the goal of completing these important transactions online in a fraction of that time, now potentially in as few as 15 days with the introduction of our new machine automated pricing system, or MAPS, for short. It's an application, which I will discuss shortly. In addition to demand for liquidity from alternative assets, our market faces a substantial demand for more primary capital into new alternative assets. For general partners seeking this capital, sourcing has become increasingly difficult, and there are few innovative new solutions to solve this problem. Private equity industry data shows that it has been taking an average of 18 months for general partners to raise their private equity funds, which is approximately double what it took them just three years ago. The good news is that we understand both of these markets and have solutions tailored to their needs, which are the foundations of our business and have now produced two quarters in a row of profitable progress for our stockholders. As a recap, during our first quarter ended June 30, 2024, we provided a number of positive announcements. First, we announced a unique primary capital fiduciary financing product for general partners starting new funds, which we see as a robust, large adjacent related market to our liquidity fiduciary financings. Second, we initiated MAPS, which streamlines the pricing for our ExAlt Loans that are backed by alternative assets. MAPS integrates enhanced algorithmic capabilities designed to handle a higher volume of transactions with greater efficiency and reduced transaction time to potentially as little as 15 days. Third, our Board of Directors approved the ExchangeTrust product plan to complete up to $5 billion of fiduciary financings to Customer ExAlt Trusts through ExAlt trust transactions. And fourth, we reported a profitable quarter, our first as a public company. These developments last quarter provided meaningful enhancements to the operating model of Beneficient and improved on the competitive dynamics we believe we already possess. But our work is not done. In the second fiscal quarter ended September 30, 2024, we continued to build on those successes, delivering a second consecutive quarter of positive fully diluted earnings per share for our common shareholders, which Greg will discuss in just a moment. However, before we get into the numbers, I want to touch on a few key business highlights. First, in September, we announced a transaction that involved reclassification of certain preferred equity such that it improved our permanent equity by $126 million. This improvement to our permanent equity moved from a deficit of $148.3 million to an adjusted deficit of $13.2 million. We will continue through this quarter on our plan toward completing transactions that will turn the deficit into a surplus of permanent equity. Additionally, we undertook a further SEC registration filing to put into effect our standby equity purchase agreement for issuance of up to 203 million shares of Class A common stock, which could provide Beneficient with significant capital. I'm pleased to report that this registration statement was declared effective just three days ago. These transactions are part of our plan to meet important listing requirements as well as to provide a source of capital for completing fiduciary financings backed by alternative assets as well as operating funds for growth and represent a significant expansion of our balance sheet. Next, in October, the company announced the appointment of Patrick Donegan as an independent member of the company's Board. Mr. Donegan brings almost 30 years of compliance, legal, banking, and capital markets experience to Beneficient, having held various senior compliance positions, including as Chief Compliance Officer for bank holding companies and broker-dealers and as an Assistant General Counsel for a securities company. Through his legal experience and compliance officer roles, Mr. Donegan has developed expertise in identifying risks and establishing policies and procedures to effectively manage those risks. Mr. Donegan's understanding of banking and capital markets rules and the related regulatory processes enhances our efforts to maintain industry best practices across our organization. Over the course of his career, Mr. Donegan has obtained 11 FINRA licenses, two certifications from the American Bankers Association, including the Certified Regulatory Compliance Managers designation, and currently holds a Certified Anti-Money Laundering Specialist certification. He serves on multiple committees of the Beneficient Board, including our Audit Committee. Finally, since our public listing in early June 2023, as much as 90% of our company's publicly listed Class A common stock was in the hands of a single holder, the liquidation trust of a prior parent company charged with liquidating their shares in Beneficient. Over the course of the last roughly 12 months, that trust has been consistently in the market, selling a significant amount of the Beneficient holdings. As of their last filing date on October 4, the trust now holds about 8% of our outstanding shares, having sold over 90% of their position into the market. This is a significant reduction to an overhang that has weighed on our stock price performance over the past year or more and resulted in the distribution of our shares across a much broader shareholder base. I'm very proud of our efforts in the first two quarters of fiscal 2025. We have improved the product offerings of the business, been introduced to new adjacent markets in need of our solutions, and streamlined our cost structure to become a leaner, more efficient company, ready for scale. We've taken steps to expand our balance sheet and improve liquidity with our standby equity purchase agreement. We are methodically managing the outstanding regulatory and legal issues, and the headwinds from our largest shareholders selling their stock should be abating. With these improvements in motion, we will continue to work to educate the market on who we are, what we do, and the value and growth opportunity we represent for shareholders. We're moving forward, and I look forward to continuing to report progress on our key initiatives through the second half of this fiscal year. Now with that, I'll turn the call over to our CFO, Greg Ezell, to go over our operating and financial results.

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, 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 reductions in compensation and benefits. Compensation 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 period, which led to basic earnings per share of $2.98 per share for the quarter and $14.58 per share for the current fiscal year for the Class A common stock. On an adjusted basis for segments attributable to Ben's equity holders, we had an operating loss of $2.3 million as compared to a $12.0 million operating loss in the second quarter of the prior fiscal year and a $6.8 million segment operating loss compared to a $32.0 million segment operating loss for the respective year-to-date periods. Permanent equity improved from a deficit of $148.3 million as of June 30, 2024, to a deficit of $13.2 million as of September 30, 2024. Next, we'll move 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 & Other that accrue to Ben's equity holders. During the second quarter of fiscal 2025, Ben Liquidity recognized $12.0 million in base interest revenue, up 10.4% from the prior quarter due to slightly higher carrying value of loans receivable driven by compounding interest, offset by higher allowances for credit losses. Operating income and adjusted operating income for the quarter was $2.9 million compared to an operating loss of $0.5 million for the prior quarter. The improvement was primarily due to lower credit loss adjustments due to better performance of the loan collateral portfolio, along with higher revenue. Moving onto Ben Custody, NAV of alternative assets and other securities in custody at period end was $385.1 million compared to $381.2 million as of March 31, 2024. The increase was driven by unrealized gains on existing assets offset by distributions during the period. Revenues applicable to Ben Custody were flat sequentially at $5.4 million for the quarter. Operating income increased from $4.3 million compared to $1.3 million, reflecting lower goodwill impairment charges of $0.3 million in the current quarter as compared to $3.1 million in the prior quarter. Adjusted operating income for the current quarter was $4.6 million, an increase of $4.6 million compared to $4.4 million for the prior quarter, primarily due to slightly higher revenues and slightly lower cost. At the end of the quarter, the company had cash and cash equivalents of $4.5 million and total debt of $124.1 million. Distributions received from alternative assets and other securities held in custody totaled $5.3 million for the quarter and $12.5 million year-to-date compared to $14.3 million and $26.3 million for the same period in the prior year. That concludes my remarks for the quarter.

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 has 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 is 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 distribution has been slowing over the last 2 to 3 years, completely slowing in the industry, and the amount of demand is like a rat passing through a snake. We have much 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 are examined by banking regulators for the integrity and 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 number of authorized shares of common stock. We received that in October. We do expect to be in a position to begin closing deals again later in this quarter. It takes time for everything that's involved in the new issuance of or authorization of stock that fuels our balance sheet in order to finance these attractive liquidity offerings. But despite this limited ability to close transactions, we've actively been in the market working with our key customer segments. We're creating awareness for Beneficient's products and services. We've addressed three areas in particular that we are seeing very encouraging green shoots for our business, and that includes our digital marketing and advertising strategy that pushes Beneficient content. It includes our proprietary sourcing channels through our GP solutions unit and through the advisory channel. And then, of course, we have become much more active now in industry conferences and events, which lead to their own lead generation for us. Now this market strategy overall has resulted in continued market awareness across all our product suite, specifically our GP solutions primary commitment program and our ExchangeTrust products. So, we're particularly encouraged that we're getting the right results out of all of our efforts in the second quarter. It's now the third and fourth quarter here that we need to bring those home for performance of Beneficient.

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 dedicated and focused team. Now I want to reiterate that our total addressable market. It's in the Investor Relations deck. We show that over $2 trillion net asset value is held within Beneficient'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 in the $60 billion range, with the additional $100 billion, growing to about $100 billion over the next five years alone. The industry participants, we can expand that overall with a scalable lending platform. This solution could exceed that for 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, 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 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 a 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. There's 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 into a 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. Regulatory leadership changes, I might add. The conference participants are particularly excited about the outcome of that. But that outcome is going to be 24 months away. The first step is a much more robust and improved public offering market, and that then leads to the potential for increased liquidity, which means that we will see an uptick overall. When you have liquidity and distributions coming out of alternative asset portfolios, you also have a correlated expansion in deals getting done and transactions getting done. Let's keep in mind that we're coming off of about three years of very poor fundraising results in the industry, but for the top 10 largest private equity firms. So, it's not like we're coming in with a large 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 seen that turning in this economy and actually being felt will lead to a near-term demand for people to get liquidity from Beneficient and other industry participants to get liquidity and then turn it around and invest it back into new alternative investments. So, in brief, in summary, we need to see liquidity going hand in hand for new investments to happen and an expansion of deals getting done. We don't have enough dry powder out there to take advantage of the potential for this golden age. More money has to be realized, and that's where Beneficient can step in. We will help to expedite the realization of that liquidity. That money will be ready to invest back into new transactions and so forth. It needs to be met with an improved public offering market and improved M&A market. It's the first conference I've attended where people are talking about deals getting done out 2 years from now, this machine turning, whereas prior conferences have focused on hunkering down. We don't know how long the storm is going to last. Everyone is feeling like the storm is lifting. So, from my standpoint, we are very encouraged by what we hear from industry participants and what we're already reading in the last 10 days.

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. However, 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 equates to about a 28% decline in the distribution rate, which is well off long-term norms 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 sales processes, and/or IPO explorations beginning to be executed or 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 are obviously a variety of factors that could influence those events coming to fruition.

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

Yes, I would. First, Brendan, I want to welcome you to the call and appreciate your questions. Looking at the industry overall, a diversified portfolio of alternative assets, by vintage year, has historically distributed about 16% of net asset value per year. This is broadly spread across various vintage years and sub-classes of alternatives, so you should expect around 16% per year on a median basis. If you consider a variability range of about 4% of net asset value each year, that gives you a distribution range of 12% to 20% of NAV. Strong portfolios reach the 20% of NAV, which are above the median. However, over the past two years, we have observed industry distribution rates for diversified portfolios drop to 8%, which is 30% below the low end of the range, nearly unheard of in the economy. This is 50% of the median and 60% below the high end. This trend is concerning, particularly because it is driven by below median-performing funds in the third and fourth quartiles, which have produced no distributions at all. Only the best-managed funds have continued to provide distributions over the last 2.5 years, which is troubling. A significant base of funds is skewing overall performance for private equity firms. Despite our disappointment with the recent distribution rates, we see net asset values remaining stable or showing slight unrealized gains, indicating that portfolio values are holding steady or improving. The distributions may not be lost forever; they simply haven't been realized yet, and we are observing some improvement. Our portfolio shows some positive movement in well-positioned, inflation-hedged investments. It will take the emergence of a new economy to convert these unrealized gains into realized distributions. The recent developments we've noted are encouraging for what may come. The slowdown in distributions is linked to, though not caused by, a decrease in deal activity, which is necessary for reinvestment into the economy. Therefore, liquidity will need to catch up, which will take time. Beneficient plays a critical role in providing that liquidity to facilitate fund movement. The one area where we haven't seen this concerning trend is in infrastructure private equity deals, which continue to perform reasonably well, likely due to infrastructure bills that represent the only real economic catalysts recently. In summary, Ben's portfolio is performing comparably to the industry, and we have experienced our distributions. As Greg mentioned, we are seeing projections for more distributions happening more swiftly. However, the industry is encountering its first significant slowdown in distributions overall. We anticipate this situation will change soon, and that is our forecast.

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. 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 previous 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 due to a combination of two features held in that security by the holder. It was the cash redemption feature and 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 reclassified into permanent equity in our balance sheet. The primary benefit pertains to our compliance with the continued listing requirements of Nasdaq. There are three key aspects to consider: a net income component, a $35 million market capitalization, and a positive permanent equity of $2.5 million. Temporary equity is specifically not included in that $2.5 million positive permanent equity. When you think about our permanent equity, due to goodwill impairments 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 $126 million from temporary equity to permanent equity really brings the company closer to the permanent equity requirement, which is important for us. I mean, we will 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 our website. I want to wish everyone a great Friday.

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