Avantax (AVTA) 10 Aug 232023 Q2 Earnings call transcript

Welcome to the Q2 2023 Avantax Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Dee Littrell, Director of Investor Relations. Please go ahead.

Thank you, and welcome, everyone, to Avantax Second Quarter 2023 Earnings Conference Call. avantax.com. close, and our Investor supplemental of website market posted release Relations following our release the information at afternoon, we earnings issued and section Yesterday on the Executive I'm Officer; Officer. joined Chris today Walters, and Mehlman, Chief by Marc Financial Chief

me begin, that everybody that let forward-looking current date. today's of only as Before the contains statements remind we discussion speak

by press SEC current As We update our could to differ events including such, results forward-looking expectations. refer recent and actual Please and required Form they our and some obligation include more Form and risks these release to law. most except our XX-Q uncertainties. statements, our from specific no risks filings, information and our and of uncertainties, XX-K assume materially on for as

discuss today. and will both measures financial non-GAAP GAAP We

supplemental GAAP Our and at website information financial measure the earnings of on discussed of non-GAAP are avantax.com section Relations the each measure. and to financial applicable release Investor our include reconciliations full available nearest

hand me to let Chris. that, the With over call

flows year. count see asset on net positive financial count productive continued Thank we you, as management sixth professions. We quarter growth another to stabilization our record of are of wealth report in a toward We've in pace and our operational and pure-play Good professional in business, to pleased two delivered also quarters that maintained financial across key operating strong straight performance metrics. our morning. have Dee. I'm most

inflows of second rate experience and quarter. strong retention the remaining in continue We in production attrition XX.X% to assets minimal resulting above our

organization. a significant to more efficient progress and We towards have streamlining provide make also operations continued scalable to our

to asset regard flows. With

by financial asset and same-store net professionals the growth existing of Our sixth retention straight quarter positive flows sales. through our was with driven

the noting this start as we just same-store high QX quarter. new as few worth putting us a over QX in we great days for not to as off flows QX, received $XXX expected, in it's first of in quite saw million that were While sales

In additional acquisition flows, by we also now employee-based national addition in first under organic external APP which to associated into expanding our brought than of assets our new RAA, our management. more of has net and the $X.X billion positive assets closing presence

wealth recruited and our million an growth we recruiting and incremental efforts from added that to financial approximately extremely $XXX From robust program professionals partners newly have our new and our recruited a primarily XX existing moment. professionals Marc professions. financial XX assets drive into to will in new pipeline, in also perspective, helps asset unite recruited which financial strategic and newly We added to tax professionals, a get

model. of are this approach financial professionals our was plans. to financial and Overall, increasingly tax-focused for of comprehensive clients indicator wealth and quarter a turning to management Existing their strength more strong tax-inclusive Avantax the a prospective

of our Financial of best-in-class. strong retention, In professional production trend parts production QX, business. performance multiple retention. we to be continued which exceeding XX% retention This we driven believe by is the on continues

and metrics. Our to client operations team, superior continued services processing which achieve service and

their firms and Our help performance. professionals partners to largest strategy Elite that maximize with team our them closely business financial their

insights which growth critical growth. their provides team, consulting and support our Our to to professionals data-driven financial solutions

and are value to financial that and unique and financial provide their use, the out teams Our clients. can to easier and professional experiences digital prioritize end intuitive experience technology build product more that our continue professionals to

more to coming the tax of about and our will enable future the clients developments easily with be will management. toward affiliates year, the even excited financial are CPA wealth their serve of some that We professionals end which

execution group Marketing allows off professionals marketing support SigniFI, take program, our innovative to small that helps their financial Our Mastermind professionals marketing like team entirely. model, in-house market collaborative which and marketing financial through coaching agency their firms plate our

in on our strategies to focused professionals have and Elite initiatives successful for growth program, coaching participating growth of these the graduates accounting as our as promising outperforming programs program their practice our which which our more Rise by proven future. financial financial for professionals than and a peers, management the firms, addition, are accelerated expectations. is our such coaching professionals our has sign financial This for In peer-to-peer

their upcoming numbers our We've shown year's in than this will by year's others. and conference Finally, professional and growth last last for Growth interest. later Connect take more ramped registration surpassed has financial attendees Dallas already summer place up rate strong

over advisory We on first a our Avantax acquisition not This million the Now Wealth we in management and independent that our wealth in look of manages forward $XXX client to shift. assets. the to of firm Summit affiliated firm and completed mix represents others an RIA future. with Minnesota-based Advocates, acquisition

brokerage under advisory just continued enabled net high This by new Our assets strong client of a of management same-store watermark setting accounts. of XX% at from growth shy assets. partially was advisory with new assets inflows total sales

of strong into year, and look remainder are for firms We opportunities for fit heading to the pipeline APP. continue have recruiting the good acquisition that a for we'll a

to TaxAct separation. Now on

initiatives to quarter Services happy begin track on TaxAct progress savings Agreement, to TSA, Finally, numbers. have or report our on is in expected the reflected to this complete to already Transition separation continued I'm fourth the our being post-sale in quarter, and with that relation to efficiency we

be Marc, I'll over remarks. after happy Now and we'll prepared turn questions answer the to to it

Chris, and morning, you, Thank everyone. good

During to a has and for the on XXXX foundation second beyond. team created build strong continued quarter, we the the

assets trend continued percentage for and of total advisory of accounts records the We client assets. a revenues as breaking and

strong and the XX.X%. sixth we Chris quarter a flows of mentioned, As saw asset net rate positive continued production retention for consecutive

business. out diluted provide I the of we the management, meaningful net analysts non-GAAP regarding performance share that income company's like that while non-GAAP per our the brought results, investors this to believe and the back public net income investors point second and and reporting information will quarter to We would have assisting reviewing Before company into valuation guidance. with

full supplemental measure. applicable earlier, earnings the release noted reconciliations include nearest our those As GAAP financial to information and of

profound financial of should elements ending year a and business, a reset the financial TSA and apparently with cash backdrop expectations. the interest our our fully end this of less said, rate many noisy more has operations now the of business. Fed of of markets, we Term the the been rising change This business operational predictability amidst for TaxAct our quarter, complete, the the campaign in separated in client from nearing the and That actions performance. noise Loan sorting planned its A and hiking continued drawn, business our as we of been macro of continued has done and reset volatility XXXX equity the have to many

planned taken quarter, third of acted in added have to million nearly this those surpasses $XX it actions, savings, rate efficiency efficiencies. the actions on annual As rate the in annual run to year, earlier when relates run which we million $X cost

focus, We managing to behind in play are our well TSA on and we do base us, almost continuous of so. cost our light have with committed pure to ability and the focus focus the

We outcomes. an will will this share Investor we schedule to financial more focus Day to and later to plan year, expected our long-term areas at share have medium- where we

from due the The to primarily production first bolstered revenue approximately sweep quarter previous net XX% Now our up sequentially increase the XXXX. of results. additional of and of revenue retention the quarter cash approximately was million asset X% Total new quarter second by year, from rate financial of million to and is strong flows. year-over-year up second $XXX.X discuss $XX.X

This Adjusted or per net share. the Non-GAAP EBITDA $X.X million $XX.X income last income compares $X.XX period the period diluted was GAAP for million continuing diluted same or per to from share million for was continuing for diluted million last compares was share. operations or from $X.X net $X.X per from the last non-GAAP same $XX.X million net same This $XXX,XXX $X.XX continuing year. $X.XX versus income year. share year. diluted per or period operations to of operations $X.XX

the quarter to details positive total regarding first asset with our at to up advisory first quarter with client the XXXX of We of this improvements XX.X%. from inflows. of advisory due assets also percentage high That as billion X% new billion. $XX.X assets quarter. the quarter market approximately quarter other and A total the performance sequentially ending assets approximately ended record sequentially $XX.X a by from a were of Fee-based X% assets is up client few net second

Net asset with were the million the for million total $XXX into of inflows quarter $XXX advisory quarter. flows net client for assets having

remains assets were first of the million second recruited quarter quarter of the pipeline is a Newly $XXX decline strong. million approximately $XXX as for recruitment XXXX our in The timing issue XXXX. versus

million August we $XXX store over assets. sales have in committed Through X, new

to accounts. onboarding a assets recruited newly due This of size of variability basis. continue will client the We is with quarter-to-quarter our partially the recruits and experience to new on

of growth number recruited seen Our historically. year between pipeline achieving on have expectations result would based offers to currently full historical in the we've recruit out than in and X% And we remains X.X% annual our of norms, assets. stronger

end as our in At approximately from the April the industry. the at cash billion of second billion This of $X.X $X.X down is down of the of sweep slightly reported end from quarter billion. line balances the $X.X the quarter, and rest first we were having with largely the

started half mix have reposition money clients market treasuries of of such products last during year. the discussed As their stabilize the assets higher as first as yield to funds balances cash quarter, and to

for and down May X%, quarter, second were these the During respectively. X% in assets month-over-month declines and approximately June

billion in difference balances fee August due cash the of the we of advisory the quarterly As in $X.X with to sweep of from had roughly bulk end July. the quarter X, the charge

period, for income. fact, past entered XXXX. into June a allow in which call, and and During implementing place float earnings discussed $X.X the started our P&L putting These possibility was June. essence, have over first program quarter effect our went us approximately will contracts million, to million, in sweep the hedges into in charge We, between we May into which defer expire X.X%. over X.X% in on of for the quarter hedges cost hitting resulting that, this $XX XX-month of derivative first XX, cash just monthly of to we elected The this

about on for equivalent $XXX.X less and of of We point cash cash loan. debt downside the financial the the with protection outstanding ended sweep frame equivalents it to these of million hedges, term below quarter sheet, X.XX total and our To million on balances strong impact with executing our $XXX.X X.X%. balance on is a earning

net our QX, of was X.Xx. end ratio leverage the At

our For term, X.Xx. net X.Xx ratio and be to leverage expect medium we between the

authorization, repurchase our second an million. price a repurchase for established of $XXX the to our X.X aggregate shares million quarter, approximately $XX.X continued with of stock million During under approximately repurchase common we purchase

XX, XXXX, approximately $XXX repurchase had under we As million of our June authorization. remaining

repurchased price purchase of for aggregate and shares approximately of our X, X, million. an Additionally, approximately stock X.X million we between $X.X July XXXX XXXX, August common

As $XXX million approximately on we of had August our X, authorization. XXXX, remaining

which expense, a more interest Earlier modest this of assumed for year, I repurchases. amount shared guidance stock

So year. shares than XXXX, a August total of earlier through X, XX.X far approximately what we significantly we greater repurchased in is this million which anticipated

the in a loan moment As than term faster as interest new on updated a a expense share A expected, our borrowed in resulting forecast, result, of I'll guidance. part we

simpler interest delayed drawn, draw fully loan expense now term will the With forecast. A be to

Our acquisition professionals. program of capital of capital shareholders allocation long-term a to business to executing our fuel returning independent mix be financial to continue our growth in and priorities investing on

to Our priorities. likely appropriate the capital purchasing share less allocation repurchases in amount forward as moving than we other quarter adjust relative second purchased be our the will as communicated

turn let's XXXX year With full that, outlook. to our

sweep improvement balance adjusting our those well sales, as softness factors, market balance cash cash issued some for as exchanges. account sweep for a previously our downside are guidance lower expected with hedging instance, of to some XXXX the transaction in from X offsetting activities and We

between million. million end $XXX.X full of XXXX. million QX $XXX We between X% expect $XXX EBITDA per of These and and $XXX.X market from the and growth revenue million figures year quarter assume of adjusted

in flows relates increase, it Funds can additional revenues, changes of the balances. year XXXX. for the cash are throughout performance XX commission are and to of we and or timing that remainder transaction-based asset cuts revenue and recent we include rate points occurred including drive in late July basis the Factors Fed hikes of profit the assuming XXXX, no As rates, which outcomes

We we million GAAP between non-GAAP $X.XX $XX net $XX share. net between million between per $X.XX between per be income, non-GAAP to and GAAP and income diluted be $X.XX net anticipate per of expect and $XX With per $XX.X and to share million to earnings diluted and share. income respect share to million $X.XX

be delivering year of sale mentioned relating to expect than items items cost and we of cost closer As higher other earlier, previously transition related to TaxAct the million. $XX onetime to matters expecting be number onetime to to anticipated, incurred savings, the the this

of million incurred quarter. of dollars to in it in the the be of expenses much earlier, year this the originally anticipated below-the-line just several As change mentioned with much balance us, is expected behind of third

concludes prepared This our remarks.

Operator? over We call the will turn now the Q&A. for to operator

Cantor Instructions] question first Josh comes from [Operator Fitzgerald. Our Siegler from

Nice to see KPIs. strong the

As some more FPs towards you continue actively the mix FPs, insight us how could shift I more more give acquiring you're wondering targeting and these if productive to FPs was of them? profitable you successfully on

recruiting our years, Yes. in has couple shift strategy pretty We've talked notable. of about which been the over last

all So historically, the that unlicensed the were or of business, tax financial professionals business. virtually the we broaden recruited that professionals into

focus, we're We segments have the are that One bringing there but unlicensed continue management the X management tax offered to we professionals continues that into wealth tax to now have a business. great wealth that never target. be

broker-dealers. there proposition that where compelling positioned we're them. for We other to of The second assets that uniquely at are other they is broker-dealers. from and tax thousands bring well segment professionals, fit And value win them believe them our is license fortunately,

third firms. And sit broker-dealers existing professionals rapidly there's at collaborating through interest in businesses who great finally, more and then other a wealth accounting of segment growing their tax with have that

X expanded because our shifted great we've all by value proposition resonates that groups. we as so well we're and segments targeting, And so success the seen with

Great. And you how you're valuations? prepared considering the more you future. mentioned through in Can That's and market then seeing right thinking in very helpful the your now what you're in M&A color. about talk remarks,

you Sure, to Josh, again. and it's hear good from

currently going affiliated external did Wealth we Avantax the financial that close acquisition. to But So Chris Management. first remarks, as with independent mentioned our professionals during focusing is are the on M&A prepared our continue

folks aligned to note are the to thing The profile looks that particular there of is the much firm that Avantax. this currently like very

our achieve just M&A to those culturally align so trying And continue with mission. going a is on as what strategy we're who to here focusing

firm those What to As size choose us. type is can to with align and I remain it that relates share don't valuations, say they of fairly the publicly. for we consistent we

question next from Research. Our comes Alex from Barrington Paris

the math, quite for guidance, been that. I of TaxAct's off, non-GAAP that executive you already first noisy, appreciate regard, million or because et you're $XX related that's your cetera, additional as guiding guidance $XX.X reorganization, transition said. and so my In in you've on million within had done by

into And be would forward you than So less say, it said, as that, QX? you it's has be been year-to-date. Marc, going to going that did heavily concentrated

the That's number actions reflects just earlier this The new lot we've that of correct. year. a taken

of Some of the a is executive bit transition a back and forth.

at of time quarter. But what's exact sharing is to best But us. most guidance, your to the at so originally yes, of And hit those were the going point, left much we're behind question, this that of actions are estimates. third the taking

net looking through going about the of -- exactly of by then the through hedge you math. hedges work the understand are we're that it million. cost And Okay. while to of going on How XX-Q in is topic terms to runs P&L? how the I your $XX

through revenue we recognize expense? that a that? Does revenue? a straight-line sweep to model is to on in Or going that come How basis. contra for interest should that cash You're

a that's simple run the item. to answer revenue going Yes, is contra of most as

And so typical it that's taking it hit same the X.XX I to on in accounting point of sort why the as all keep basically bucket, math. a described

X next -- place. $XXX,XXX for in revenue sweep be So will profit our not the color years. each month less we had what then basically cash and And

-- cutting, streamlining TSA? to all post earlier then you relaying And accelerate in which by the the year that I'm TaxAct, then my been you've operation, doing largely Did on -- conclusion the memory I the that's would here see. quarter. end year this cost long, say the of just you of And TSA be the done going forecast

into accelerate. So mentioned, some say were we efficiencies I have necessarily our in to say building What don't it's take able as to I back holding wouldn't already third quarter. would is model. we now actions us continually the anything from going

in the quarter shared a But regular on and fourth actions we've savings, absolutely cost we'll hitting start start what so taking later remarks, And our can terms prepared we basis. during now this into the annualized of quarter.

Great. And management this follow-up then your Congrats just unaffiliated M&A. first on acquisition quarter. on one wealth

the were the you I you think call, that affiliated announced looking when strategy independent on beyond last fees. kind your of

you that more you're might two or there? year-end, do update -- one said what You before any

affiliated And independents. the then secondly,

you XX pipeline couple I think there? the made acquisitions And active of last been you those there Have over like year-to-date? of the years. look what's

Yes.

couple independent robust, quite this the transactions of advisers. years. at been fortunately, of over We've And you right? as pipeline existing So a noted, done is Avantax we've now XX-plus

throughout this done to number that forward, transactions the as expect We a we of move early we've and of part year. continue

And continue for activity that to is expect one think Some do we our I move bulk to that financial of of existing M&A have about be we've for talked the the the of them plans that place. so prop as succession in not because needs filling we planning, professionals, succession of M&A value forward right? big we're

deals looking to aligned the And a align the be of off administrative there from of that some they've are part to more responsibilities. and some are but business with us value some a realize both some built, platform and the tightly That grow be business move for bulk as to and has well to we then activities. see. quite materially, that on continue will But that see healthy of grown we're of pipeline the the going off-platform as

end on the year, at least external the would Specific of any we Alex, this close to to deals more one question your year. before other expect

for Thanks That's Great. the helpful. guys. additional color,

comes Kurnos Company. Benchmark The question next from Dan Our from

you Can mean particular why you see we're sort the hedging by of just program, a this talk ended starting been find program with of up trying just to bit this hedging I collar, end some normalization to particular well mix. guys sweep right you of little obviously, communicated the Marc, of cash the process pretty Great. sort has through balances.

of obviously, for of stable environment us you now. prognosticators Fed of sort none like but a of seems have And sort sort

So and sort maybe of thoughts ultimate just on some sort the solution? timing incremental right of why this color is

Sure.

If it cuts a in time, assumed place forward that as end swap the of in put resulted So early XXXX. of like short-term the before the in curve financial cuts the had a fixed as meaningful time a well a to or a of number at hedges had fixed year at contract rate the impact. funds of putting in have hedge would Fed we number

in with the consistently what curve was that was really not alignment And Fed forward saying.

chose weren't we we operating which therefore, in were go, on So meant to where rates that to float, rather, within a essence, a taking we were going bet range. but comfortable

for macro downside were Ultimately, what event going during unlikely prevent X We happened was looking to during wanted what protection. COVID. some revenues from we sweep to like

we it cost was what a amount modest X-year protection, a that period. and So us got over

maintaining In taking downside way that think terms the a of go. about without forward, going where bet is rates are going protection it on we to necessarily

And we place. hedges is as long we so that we're really going as that instruments, to and to game the in particular that consistently have And fair focus on the protection. time derivative or hedge are monitor any where left downside we maintain

I FC congrats additional the X stabilization. That's time, the it. for Appreciate the you. just have color. this said way, really should last helpful. of sort Got on maybe Chris, by

guys of of I to later you've improve efficiency. in kind are an trying seen products the to sort platform ask new know you year? important I I that's coming been know out kind always point. you, the just focal and of some want

been the here love a hear like It's you're even seeing of of fully some with margin, on to sense just a So how the kind get but you good probably get what forming the of side equation pretty are or over you've deeper on plan thinking at deeper integrated about, tax guys of the trying further that. and optionality strategic there? to kind to love

about And strategy? thoughts on you as chance tangent into I'll AI any product -- a since give kind implementing it to about call, or on is everybody suite the other your of talk asking every

AI our times one applications in been the least at use at doing on the size AI. multiple also right, they're a out the but we management monitoring didn't will and that across and in have of going a would may We'll elements partners, very really at fast that. mentioned of We and that what potential there follower. business. a development our be be I is firms dozen wealth remarks. applications, are the front monitoring forefront or will important scale, of sector technology AI AI, with We our We're will any use more say think few of more not we efficiency right, to leverage developing enable functional be have our the and

more elements. And when functional I say

use being industries. there realized there's efficiencies right, through of effective software in are many is So development, already that tools, across

Our teams with are already experimenting that.

business. are real see it, fast monitoring be that and that things And it for so closely benefit, we in implementing and work using we'll can we selectively our see

So question, our your look will we financial them and part more and from feedback that which efficient. experience about about our professionals our the of get across professionals technology, holistically be a help things of other ton is the we financial more end generally clients,

a a and rigorously bit road trying each more. are fair experience product have prioritized improve We to map,

things easier with do the taxes the clients. for more opportunities to specific our there's both opportunities those with tax management, wealth that can the of their clients specific rapidly opportunity as as the we of to make book, excited within about of identify is really more magnitude it financial we that intersection wealth One believe that well we're professionals and

help over And think XX we that will areas financial months, make we grow of more so the professionals really to can progress next our exciting great the X one it's rapidly. that on

it. just housekeeping. Got if Marc, could And X last I

and at your but been doesn't it finding know, costs revised and couch initial we and cushions nickels don't actions actually know QX talked of you And have you like about may being thought. of I land, better you few guys I XQ projections in that would on to sort some able good ultimately Just streamlining. there. the the on even side pretty cost here of sound a the equation, some than forward have take where

So get into I'm and be are kind if incremental to that have just once efficiencies have on you 'XX curious now? identified any we or there if update identify of you -- beyond able might

Sure.

Day details take expense I and be like. to our provide As would said 'XX, our we're we a Investor where to we'll think that time in compete. this an most for and remarks think of share be get looking views base what sort terms on have later year, able closer actions going headed updated how I look may to of I during we to would our us it prepared perfect where that is the market to more is also firm

the taken tender And and now profitable we as would you on be operating out, actions having updated a as our are as to whether would a with now share a point the or focus expect to lot growth. place, And other TSA we with expect part financial pure-play the with corporate of have it of on of are us continuously behind focused that. offers that, in reflection it us, we us wealth attention health go. the just you, to driving where on you business business largely But what position

in. So to excited dig we're really

conference showing final I this questions further Chris will remarks. over the time. back no for am to turn I Walters, at

your and quarter. joining to you for all interest next speak We'll Avantax. today you in us Thank Great.

today's you Thank conference. concludes for This participating.

You now may disconnect.