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.

Good afternoon, ladies and gentlemen. I want to welcome you to the 2024 Annual Meeting of Oppenheimer Holdings, Inc. This meeting is again being held virtually. 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 Election. Ms. 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 the meeting. The meeting will first address the formalities as described in our recent proxy statement. We have posted in our virtual meeting site a copy of our recent proxy statement and our annual report for the 2023 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 and answer questions. The notice calling this meeting, together with the proxy statement, was mailed to stockholders on March 18, 2024. 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 this meeting. I have before me a certified list of the holders of the Class B voting stock at the close of business on March 8, 2024, 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 this meeting is 0. The number of shares of Class B voting common stock represented by proxies received from stockholders is 97,306, [ with ] a total of 97,306 shares represented, being a sufficient representation for a quorum. The total number of shares of Class B voting common stock represented at the meeting represents 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, 2023, 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 the 9 persons named in the proxy statement, all of whom currently serve as directors, be nominated. I now will 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 and until their successors have been elected and qualified: Evan Behrens; Timothy Dwyer; Paul Friedman; Teresa Glasser; Stacy Kanter; Albert Lowenthal; Robert Lowenthal; Larry Roth; Suzanne Spaulding.

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 1 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 just 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, and until his or her respective successor has been elected and qualified. Each nominee having received at least 97,306 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 for ratification by the stockholders. The Audit Committee has selected Deloitte & Touche LLP for appointment as the corporation's independent registered public accounting firm for 2024. Accordingly, I requested 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 2024 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 2024 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 1 vote for each share recorded in his or her name. To pass, this matter requires that the approval of a simple 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 2024 fiscal year, at a rate of remuneration to be set by the Audit Committee has been ratified, having received 97,306 votes in favor of the proposal. I now propose to move to the ratification of the adoption of the corporation's 2024 incentive plan as described in the proxy statement. I will now ask a holder of Class B voting stock to move the ratification of the corporation's 2024 incentive plan as described in the proxy statement.

Mr. Chairman, I move that the resolution passed by the Board of Directors on March 1, 2024, adopting the Oppenheimer Holdings, Inc. 2024 incentive plan, appearing as Exhibit A to the proxy statement, providing for the issue of up to 1 million shares of Class A stock be ratified and confirmed and the proper officers and directors of the corporation be authorized and directed to take all such action and execute all such documents as are necessary to implement the terms of the foregoing resolution.

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 1 vote for each share recorded in his or her name. To pass, this matter requires the approval of a simple 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 get their vote by pressing the Vote button on your screen now. [Voting]

The inspector's report having been filed, I report that the resolution passed by the Board of Directors on March 1, 2024, adopting the Oppenheimer Holdings, Inc. 2024 incentive plan appearing as exhibit A to the proxy statement, providing for the issue of up to 1 million shares of Class A stock, has been approved and the proper officers and directors of the corporation having been authorized and directed to take all such action and execute such documents as necessary to implement the terms of the foregoing resolution. Such proposal as having received 97,306 votes in favor thereof. Is there any 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 the meeting be adjourned. Thereafter, I will address those present and answer any questions you may have.

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 now will address the year ended December 1, 2023, and the current year and answer any questions you may have. Thank you for your attention, and I would now like to discuss the results of the company, both for calendar year 2023 in the first quarter of 2024. We move to Slide #4. Oppenheimer is a preeminent wealth manager and an investment bank with wide capabilities and a firm with roots that go back almost 200 years. Our revenues in 2023 were $1.25 billion and 72% of that was from wealth management and 28% from capital markets. Our shareholders' equity has reached over $800 million with book value now at $77.47 per share and tangible book value at $60.41 per share. Our earnings for the full year of 2023 were $2.81 per share, which was negatively impacted by litigation costs and regulatory issues as well as a very sluggish investment banking environment. At quarter's end, we had 2,952 employees, of which 936 were financial advisers. Our assets under administration was a record $124.9 billion, and our assets under management was a record $46.6 billion in fee-based programs. Next slide. The company has a global footprint operating out of 89 branch offices in the U.S. and with offices in 5 foreign financial centers, including London, Geneva, Hong Kong, Tel Aviv, Israel, and on the Isle of Jersey. Outside of the U.S., our operations are in capital markets and investment banking only. Next slide. In 2023, we had revenue of $1.2 billion and net income of $30.2 million. Our basic earnings per share was $2.81 for the full year 2023. Our compensation expense as a percentage of revenue was 62.7% during the 2023 year versus 66.7% during the primary -- during the prior year. This is primarily due to higher interest-sensitive revenues and not directly correlated with compensation. Our higher noncompensation expense for the full year 2023 was largely due to the impact of significant legal costs and an accrual for a regulatory settlement. The effective tax rate for the 2023 was 35.3% compared with 29.5% for the prior year, adversely affected due to the impact of a nondeductible $13 million regulatory settlement during the year. With this expense not included, the adjusted tax rate would have been a mere 27.6%. During the year, the company repurchased 900,518 shares or 8% of the Class A nonvoting common stock outstanding. These were purchased under our previously announced share repurchase program as well as a Dutch Auction tender offer conducted during the year. Next slide. Increased revenue for the first quarter of 2024 was primarily driven by a significant improvement in private placement and underwriting related fees generated by our investment banking group as well as higher advisory fees attributable to a rise in billable assets under management as well as continued strength in fixed income sales and trading. Bank deposit sweep income decreased from a year ago due to lower cash sweep balances. Assets under administration -- under management were both at record levels at March 31, 2024, benefiting from market appreciation and positive net asset flows. Non-compensation expense decreased from the prior year primarily due to lower costs -- legal costs, primarily offset by higher interest expense for the quarter. Compensation expenses increased from the prior year, largely due to a higher base salary expense and higher production-related expenses. During the quarter, the company repurchased 214,723 shares, 2% of those outstanding during the first quarter versus 95,055 during the prior year. Book value and tangible book value per share reached new record highs as a result of positive earnings and share repurchases. Next slide. As shown in the accompanying charts, revenue was $1.248 billion compared to $1.110 billion during 2022. For the quarter, our revenue was $353.1 million compared to $321.7 million in the first quarter of 2023. On net income, our net income for 2023 was $43.2 million compared to $32.4 million on a non-GAAP basis and $30.2 million on a fully reported GAAP basis. In the first quarter of 2024, our revenue -- our income was $26.1 million, up 78% from $14.6 million in the first quarter of 2023. Earnings per share for 2023 was $2.59 versus $2.77 in the prior year. It is $2.81 on a non-GAAP basis. In the first quarter of 2024, our income was $2.50 per share compared to $1.32 in 2023. Shareholders' equity reached $789.2 million, down from $794.2 million in 2022. The first quarter of '23 was a record $801.5 million compared to $800.4 million in first quarter of 2023, both reflective of shares bought back during the period. Next slide. As a chart of our common shares. At April 30, it was $40.05 closing share price. Next slide. At March 31, 2024, we had total assets of $3.25 billion and stockholders' equity of $801 million. Our long-term debt was $113 million, which becomes callable at par beginning in July of this year. Our total outstanding Class A shares was 10,247,000. Our regulatory capital at our broker-dealer was $431 million with excess net capital of $412 million. Book value was a record $77.47 compared to $55.40 a year ago. Tangible book value was $60.41 compared to $41.31 a year ago. We recently declared a $0.15 dividend, which will be payable on May 24 of this month. Next slide. During 2023, we bought back a total of 900,518 shares or 8% of those outstanding. In the first quarter of this year, we bought back 214,723 or 2% of those outstanding. We continue to purchase shares in the open market when the shares are attractively priced and return value to our shareholders. Next slide. Interest and fee revenue have been particularly important since rates began to climb in 2021. While our FDIC balance declined from a high of over $8 billion in 2020, they still produce an important stream of income with $3.2 billion in balances recently. Total revenue for the 12 months ending 3/31 was $160 million. Our margin debits, those being funds linked to clients and margin accounts were $1.222 billion at 3/31, with interest revenue of $78.6 million for the last 12 months. Next slide. Looking at the pie charts, in 2023, we had total revenue of $1.249 billion, with capital markets contributing $345.9 million or 28%. Our Private Client division representing $807 million -- or $801 million or 64% of the total, and of that total, $257.9 million represented sweep income. Finally, asset management contributed $88.4 million or 7% of the total revenues. These totals all compared with 2022 when we had $1.111 billion of total revenue, with capital markets contributing $337.8 million or 30% of the total, private clients representing $675.7 or 61% of the total, of which sweep interest income represented $156.4 million. And finally, asset management contributing $99.2 million or 9% of the total. On a pretax income basis, private client in 2022 continued to $142.3 million and was increased substantially in 2023, contributing $194.4 million. Asset management in 2022 contributed $35.8 million compared to $24.1 million in 2023. Capital Markets in 2023 -- 2022 lost $25.7 million and lost a total of $63 million in 2023. That's all on pretax basis. Next slide. Our breakdown for the first quarter of 2024 versus 2023 is as follows: looking at the pie charts, our first quarter revenue was $353 million in 2024 with capital markets contributing $112.1 million or 32%, private client contributing $213 million or 60% of the total, of which 60 -- $56.9 million came from sweep interest income. And finally, asset management contributed $24.9 million or 7%. Corporate and other contributed $3.1 million. First quarter '23 revenue was $321 million with capital markets contributing only 99 -- $90.3 million or 28% of the total. Private client contributing $203.4 million or 63% of the total, of which $69.5 million was sweep interest income. And finally, asset management contributed $24 million of the total. Pretax income breakdown by segment as private client in the first quarter of '23, representing $54.5 million and first quarter of '24 million was $68.2 million. Asset management contributed $6.5 million in '23, an increase of $7.6 million in '24. Capital markets showed a loss of $15.5 million in the first quarter of '23, and the losses reduced to $6.7 million in the first quarter of 2024. Next slide. Oppenheimer conducts its wealth management through a full-service platform, and we're one of the largest nonbank broker-dealers. Our wealth management revenue represented [ $890 million ] in 2023 versus $775 million in 2022. In the first quarter, revenue was $238 million for private client versus $227 million in the prior year. Assets per financial adviser increased to $133.6 million versus $113.6 million in the first quarter last year. Our profit margin for the private client division and wealth management platform increased to 31.8% versus 26.8% in the first quarter of 2022. Next slide. As you can see from the bar charts, there's been a positive shift to fee-based pricing over a long period of time. In the most recent year, 68% of wealth management revenues now come from fees. Our assets under administration reached a new high of $124.9 billion at the end of the first quarter of 2024. And assets under management or fee-based assets reached a new high of $46.6 billion at the end of the first quarter of 2024. Next slide. For the full year of 2023, capital markets provides 3 areas of revenue: Investment banking, research and broad-based trading to institutional clients in both equities and fixed income. Sales and trading revenues were up 6.5%. Investment banking revenues for the full year of 2023 were down 4.5%. Capital markets revenues were up at $112 million at the end of the first quarter of 2024 versus $90 million a year ago. Total capital markets revenue for 2023 was $345.9 million. In summary, let me talk about first, the company generated positive operating revenues for 2023 despite mix conditions and significantly higher legal costs, driven by a legacy legal matter and nonrecurring regulatory settlement on off-channel communications. During the first quarter of '24, we had record assets under management levels, which drove significant increases in their advisory fees, while a meaningful uptick in private placement and underwriting volumes boosted investment banking revenues for the first quarter. Our balance sheet remains well capitalized with low overall leverage and broker-dealer regulatory capital far in excess of required minimums. During both periods, at the end for all of 2024, we took advantage of periodic dips in our share price to purchase approximately 900,518 shares for the full year 2023 and 214,723 shares in the first quarter of 2024. Looking forward, the company is well positioned to provide client advice amidst uncertainty in interest rates, geopolitical tensions in the Middle East and potential market volatility in a presidential election year. We will continue to pursue organic and inorganic profit growth opportunities in areas complementary to our existing businesses while continuing to look at the independent channel for growth. Moving into the second quarter of 2024, advisory fees are expected to benefit from tailwinds driven by elevated asset under management levels but we also expect interest-sensitive revenues to be pressured through the Federal Reserve pivot and decreased rates later in the year. The company will continue to opportunistically pursue hiring qualified candidates across the platform, including in wealth management and capital markets. I want to thank you for your attendance today, and I want to ask Mr. McNamara whether we have any questions outstanding.

There are no questions outstanding at this time.

I then thank you all for your attendance today and declare the meeting closed.

This meeting has now concluded. You may now disconnect.