Oppenheimer Holdings Inc. (OPY) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Oppenheimer Holdings Inc. [Operator Instructions] It is now my pleasure to turn today's meeting over to Albert Lowenthal, Chairman and CEO of Oppenheimer Holdings, Inc. Mr. Lowenthal, the floor is yours.

Thank you, operator. Good afternoon, ladies and gentlemen. I want to welcome you to the 2022 Annual Meeting of the Corporation. This meeting is being held virtually for the third year in a row. I am Bud Lowenthal, and I will be chairing the meeting. It is now 4:30 p.m., and I would ask that the meeting come to order. I ask Mr. Dennis McNamara, the Secretary of the Corporation, to act as Secretary of the meeting; and Mrs. Ericka Ortiz-Indart of Computershare Shareholder Services, our transfer agent, to act as Inspector of Elections. Mrs. Ortiz-Indart has executed an affidavit to execute her duties as the inspector faithfully. I direct that the secretary attach the affidavit to the minutes of this meeting. We have posted to our virtual meeting site a copy of our recent proxy statement and our annual report for the 2021 fiscal year, consisting of the annual report and the SEC Form 10-K. And I hope that each of you had an opportunity to review them. The first order of business today will be to address the meeting's formalities, after which I will make a presentation regarding our fiscal year 2021 in the first quarter of 2022. The notice calling this meeting, together with the proxy statement, was mailed to shareholders on March 21, 2022. I have before me an affidavit of mailing of William Valentin of Computershare relating to the proof of mailing of the notice calling this meeting and the proxy statement in accordance with the bylaws of the corporation, and I direct that this affidavit of mailing be filed with the minutes of the meeting. I have before me a certified list of the holders of the Class B voting stock at the close of business on March 11, 2022, the record date fixed by the Board of Directors for the purpose of determining the stockholders entitled to vote at this meeting, which has been certified by [ Sharon Barton ] of Computershare Shareholder Services, our transfer agent. The list indicates that there are 99,665 shares of Class B voting common stock entitled to vote at this meeting. The list will be open for inspection by any stockholder of the corporation for the duration of this meeting. The Inspector of Elections report has now been received. The number of shares of Class B voting common stock represented in person by stockholders at the meeting is 0. The number of shares of Class B voting common stock represented by proxies received from stockholders is 98,078. Being a sufficient representation for a quorum, the total number of shares of closed Class B voting common stock represented at the meeting represent approximately 98% of the issued and outstanding Class B voting common stock of the corporation. Legal notice of the meeting having been given and a quorum being present, I now declare the meeting lawfully called and convened and ready for the transaction of business. I propose to proceed with the formalities of this meeting before addressing you with respect to the year ended December 31, 2021, and the current year and answering any questions you may have. The first order of business is the nomination and election of directors. The nominating Corporate Governance Committee in accordance with its charter has recommended that 9 persons named in the proxy statement, all of whom currently serve as directors, be renominated as directors. I would now ask a holder of Class B voting shares to nominate the slate of nominees named in the proxy statement for election as directors of the corporation.

I nominate the following persons for election as members of the Board of Directors of the corporation to serve until the next Annual Meeting of Stockholders or until their successors have been elected and qualified. E. Behrens, T.M. Dwyer, W. Ehrhardt, P. Friedman, T.A. Glasser, A.G. Lowenthal, R.S. Lowenthal, A.W. Oughtred, R.L. Roth.

Is there a second to the motion?

I second the motion.

Are there any other nominees? If not, I will entertain a motion that nominations be closed.

I move that nominations be closed.

Is there a second to the motion?

I second the motion.

Each holder of shares of Class B voting common stock entitled to vote will have the right to one vote for each share recorded in his or her name. The 9 nominees for director receiving the highest number of votes shall be elected. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the vote button on your screen now. [Voting]

The inspector's report having been filed, I report on the voting as follows: each of the 9 nominees for director has been elected to serve as a director of the corporation until the next Annual Meeting of Stockholders or until his or her respective successor has been elected and qualified. Each nominee having received at least 98,064 votes in favor of his or her election. I now propose to move to the ratification of the appointment of auditors for this fiscal year. The Audit Committee of your Board of Directors has, pursuant to its charter, the sole authority and responsibility to appoint independent auditors subject to ratification by the stockholders. The Audit Committee has selected Deloitte & Touche LLP for appointment as the corporation's independent registered public accounting firm for 2022. Accordingly, I request that a holder of Class B voting common stock move that the selection by the Audit Committee of Deloitte & Touche LLP as the corporation's auditors for the 2022 fiscal year be ratified.

I move that Deloitte & Touche LLP be appointed as the corporation's independent registered public accounting firm for the corporation's 2022 fiscal year at a remuneration to be fixed by the Audit Committee.

Is there a second to the motion?

I second the motion.

Each holder of shares of Class B voting common stock entitled to vote will have the right to one vote for each share recorded in his or her name. To pass, this matter requires the approval of a civil majority of the votes cast by the holders of Class B voting stock represented in person or by proxy at this meeting. Any Class B common stockholder who wishes to vote in person by ballot should submit their vote by pressing the vote button on your screen now. [Voting]

The inspector's report having been filed, I report that the appointment of Deloitte & Touche LLP as the corporation's independent registered public accounting firm for the corporation's 2022 fiscal year at a rate of remuneration to be set by the Audit Committee has been ratified, having received 98,064 votes in favor of the proposal. Is there additional business to properly come before the meeting? There being no additional business, I ask that a holder of Class B voting common stock move that the meeting be adjourned. Thereafter, I will address the corporation's results for the fiscal year 2021 and the first quarter of 2022.

I move that the meeting be adjourned.

Is there a second to the motion?

I second the motion.

All in favor, say aye.

Aye.

Aye.

I declare the meeting adjourned. We have now completed the formalities of the meeting, and I will now address the meeting with the results of 2021 and the first quarter of 2022. Again, I would like to welcome you to the Oppenheimer Holdings, Inc. Annual Meeting and present an update on the company. During the year ended 12/31/'21, we posted record revenues of $1.394 billion, an increase of 16% from 2020. Our earnings for the year were $158 million or $12.57 per share. Our book value reached $65.66 share with tangible book value reaching $52.11. At year-end, we had 1,913 employees, of which 996 were financial advisers working out of 92 branch offices. Our clients' assets under administration was $122.1 billion, and assets under management was $46.2 billion, both records. For the year, our Wealth Management business represented 55% of revenues, and our Capital Markets segment was 45%. At quarter end, we were operating out of 93 locations in the U.S. with 993 financial advisers serving our Wealth Management clients and 185 institutional sales professionals working closely with our 38 senior research analysts. We had 6 international offices serving institutional and investment banking clients in London, Hong Kong, Tel Aviv, Munich, Geneva and St. Helier. For the full year of 2021, we showed record revenue of $1.4 billion, net income of $159 million and basic earnings per share of $12.57 per share for the full year 2021, up 29% from $9.73 in 2020. Our EBITDA compounded an annual growth rate of 36.5% over the period from January 1, 2017, until December 31, 2021. Our investment banking revenue increased 95% during the year, driven by higher M&A advisory and equity underwriting revenue. Compensation expense as a percentage of revenue was lower at 63.6% during the current year versus 64.3% last year for the year 2020. For the first quarter, we had reduced first quarter revenue of $252 million and net income before tax of $14 million, with earnings per share of $0.75 per share reflected a significant decline in industry-wide activity and lower net revenues in underwriting, trading and merger and acquisition fees. Advisory fees were plus 10%, an increase from the same period last year due to near record assets under management. Compensation expense as a percentage of revenue was higher at 69.9% during the first quarter of '22 versus 68.5% in the same period last year. Client assets under administration were $117.2 billion, and those under management were $42.7 billion, both at near record levels and up from the same period in 2021. Despite declines in revenue and earnings during the first quarter compared to the same period in 2021, our shareholders' equity was at near record levels of $814 million, slightly below the record reflected -- which reflected -- slightly below the record at the end of 2021, reflective of share buybacks during the period of time. In line with the performance of the overall market and with financial stocks, regrettably, our share price declined both during the quarter and through the beginning of this month. We do not believe this price is reflective of the value of our franchise, nor are the prospects for the company. We remain quite enthusiastic and optimistic about our business. At March 31, our total capitalization at $940 million is at an all-time high. Our broker-dealer regulatory net capital is also at an all-time high of $440 million with excess net capital at $411 million. Our book value per share was $66.45 with tangible book value of $52.58. During the middle of 2021, we raised our dividend rate on a quarterly basis to $0.15 per share, and that's also the amount we paid for the current quarter. During the first quarter, we were active in buying back our own stock. We purchased a total of 377,313 shares at an average price of $42.82. The total paid for those shares was $16.16 million. Today, the shares outstanding currently is the lowest in 20 years at a total outstanding of 12.1 million shares. We will continue to actively buy shares in the open market where we believe they are attractively priced and in the company's best interest. While the FDIC program had record assets in 2021, the level of short-term interest rates remained low and income from the FDIC program was quite limited in terms of total revenues. Today, the current assets are $8.1 billion and customer margin debits were $1.267 billion at the end of the first quarter. It is highly likely that our net interest income will increase significantly as we move through 2022, given the Fed's stated intention to increase the Fed funds rate at all foreseeable meetings. The pie charts reflect the relative revenue contribution for our various segments for the year 2020 and 2021. The contribution from private client was $128 million in 2020 versus $101 million in 2021, reflecting the lower revenue from the FDIC program. Our asset management group contributed $124.2 million in 2020 versus $35.9 million in 2021 due to a lack of contribution from incentive fees from our alternative investments. Capital Markets, however, contributed $125.5 million in 2020 versus $204.1 million in 2021, reflecting a significant expansion in our investment bank during the period through both back issuance as well as underwriting revenues. On this slide, we show the business segment results for the first quarter of 2021 -- 2022, I'm sorry. The pie charts reflect the relative revenue contribution for the first quarter, 2020 and 2021. This year, revenue declined from $373.2 million in 2021 to $266 million in 2022. The contribution from our private client division was $24.3 million in 2021 versus $24.1 million in 2022. Asset management contribution was $7.6 million in '21 versus $9.5 million in 2022 based on increased assets under management. Capital Markets contributed $50 million in 2021 versus $1.2 million in 2022, reflecting a significant decline in our investment bank revenue during the period with the SPAC market closed as well as new issue underwriting at a negligible level. Our wealth management revenue declined from $188 million to $170 million for the first quarter of this year. Assets per adviser continue to increase, ending at $118.1 million per adviser at March 31. Our wealth management profit margin increased 18.9% in the first quarter. Fee-based services continue to grow as a percentage of private client revenue, reaching almost 70% in the first quarter. Assets under management and assets under administration both reflect the decline in valuations in the equity markets generally in the first quarter. Recent volatility and the prospect of higher interest rates continue to depress equity valuations, particularly in sectors of high growth. At quarter's end, assets under administration was $117.2 billion, and assets under management were $42.7 billion. After our Capital Markets segment showed record performance in both revenue and profit contribution for the full year of 2021 with Capital Markets revenue reaching $626 million for the year, the closure of the new issue market and SPAC activity produced a decline in first quarter revenue to $85 million for the quarter compared to $184 million in the first quarter of 2021. The pipeline of activity remains quite strong, but it is dependent on the reopening of markets for new issues and secondary offerings. Fixed income markets are largely closed for high yield and emerging markets as market awaits a stabilization of rates in lieu of tightening across central banks and disruptions caused by the Ukraine war's impact on emerging markets. We remain highly optimistic about our competitive position to continue to attract new clients and service existing investment banking clients. To summarize, while current volatility and uncertainties impacting our near-term business, record operating results for 2021 due to the strength of the importance -- and the importance of the wealth management capital markets business, we have near record client assets under administration and assets under management and our wealth management business. Our balance sheet is stronger than ever with near-record stockholders' equity and a liquid balance sheet. While we have reduced first quarter gross revenue, net income and earnings per share, it reflected a significant decline in industry-wide activity and lower net revenue in underwriting, trading and M&A fees. Looking forward, the company remains well positioned to provide client advice through significantly changing market environment with the repricing of asset classes based on uncertainty in interest rates, inflation, oil prices, foreign trade relationships as well as midterm elections coming up at November of this year. We will continue to pursue organic and inorganic growth opportunities in core businesses while continuing to look at the independent channel. Our interest rate-sensitive businesses are poised to do well in a rising interest rate environment, both our margin lending as well as FDIC revenues. We will continue to opportunistically purchase outstanding shares in the open market as we see fit. We thank you for your attendance at the meeting today. And Mr. McNamara, do we have any questions?

We have no questions.

Thank you all for attendance, and we will close the meeting.

This concludes the meeting. You may now disconnect.