Good day, and thank you for standing by. Welcome to the Patria First Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Josh Wood, Head of Shareholder Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Patria's First Quarter 2023 Earnings Call. Joining today are our Chief Executive Officer, Alex Saigh; our Chief Financial Officer, Ana Russo; and our Chief Corporate Development Officer, Marco D'Ippolito. This morning, we issued a press release and earnings presentation detailing our results for the first quarter 2023, which you can find posted on our Investor Relations website at ir.patria.com or on Form 6-K filed with the Securities and Exchange Commission. Any forward-looking statements made on this call are uncertain, do not guarantee future performance and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve inherent risks, including those discussed in the Risk Factors section of our latest Form 20-F annual report. Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we will report and refer to certain non-GAAP industry measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliations of these measures to the most comparable IFRS measures are included in our earnings presentation. Patria generated distributable earnings of $39.1 million or $0.27 per share for 1Q '23. We declared a quarterly dividend of $0.226 per share payable on June 8 to shareholders of record as of May 17. With that, I'll now turn the call over to Alex.

Thank you, Josh, and good morning to everyone. Patria delivered solid results in the first quarter of 2023, delivering $0.27 of distributable earnings per share as we make progress in some key areas and march towards our targets for the year. Post tax distributable earnings were $39 million in the quarter, which included $31 million of fee-related earnings and also $10 million of performance-related earnings. Fundraising in Q1 totaled $390 million, anchored by strong momentum in our Brazil focused products, including contributions from the Brazil feeder for our latest vintage flagship private equity fund, our credit 365 fund, which brings private investments opportunities to individual Brazilian investors and REITs managed by VBI, our real estate platform in Brazil. And importantly, we are making good progress towards significantly larger fundraising results in the next few quarters. Already in Q2, we have secured approximately $370 million of additional inflows, including a follow-on in our core infrastructure fund and additional inflows from VBI, bringing our year-to-date fundraising through April to more than $750 million. That is capital primarily raised outside of our flagship funds, which we expect to contribute more significantly by the close of Q2, including the first closing for our next flagship infrastructure fund. On the people front, we also just announced Marcelo Fedak to serve as our Head of Real Estate, further strengthening the leadership structure across our asset class verticals. Overall, we're happy with the performance in the quarter and continue to feel good about our fundraising target of $5 billion to $6 billion and fee-related earnings guidance of $150 million for the full year 2023. How is that we are able to maintain confidence in our trajectory in spite of volatile market conditions? It's because of the resilience of our business model. We are dependent on deposit-based funding.…

Thank you, Alex, and good morning. Patria's first quarter 2023 results were in line with our guidance of the last call regarding fee-related earnings, and we are able to generate performance-related earnings, which added some upside to the distributable earnings and the dividends. Our fee-related earnings were $31.2 million in first quarter '23 at similar levels to our first quarter '22 of $31.9 million. This result is consistent with our comments that first quarter FRE was likely to be more in line with the 2022 run rate with growth coming in the later quarters of the year. Total fee revenues were $57.1 million in Q1 '23, up 4% from $55 million in Q1 '22 with the positive impact of capital deployment in our drawdown funds and the addition of VBI. This was partially offset by the impact of outflows in open-end credit and public equity funds and the contractual end of the fee terms of another vintage infrastructure fund. Total operating expenses for first quarter '23 were up 12% from first quarter '22, driven by expenses related to recent acquisitions and also increases in compensation and certain costs driven by inflation and the expansion of our platform. This resulted in a consistent FRE level and an FRE margin of 55% in the first quarter 2023. The margin is down from 58% in first quarter '22, but is still in line with our guidance range, achieving our overall FRE guidance for the year implies that the margin will likely rise slightly in later quarters. Performance-related earnings for first quarter '23 were $10 million and were generated for Private Equity Fund V. These performance fees were crystallized in conjunction with the IPO of Lavoro. For this specific case, the limited partner of the fund and Patria agree that as a consequence of…

Thanks, Marco and Ana. This earnings call marks the first step in a new calendar year, and Patria starts 2023 with clear ambitions for growth as we continue our journey as the gateway for alternative investments in Latin America. We continue to operate in a challenging environment, and we must continue to deliver consistent, attractive returns and second to none service to our clients as we scale and expand the investment platform. We have assembled a world-class team across asset classes and functional areas to meet those demands, and I believe we are very well positioned to succeed. We shared our goals over the next few years with you at our Investors Day late last year, so the stage is set. Now it's our job to execute. And assuming we do, I believe there is no question that Patria looks very attractive at today's valuation. I'm proud and privileged to lead this group and to serve our clients and our shareholders. We're now happy to take your questions. Thank you.

[Operator Instructions] Our first question comes from the line of Tito Labarta from Goldman Sachs.

I guess my question, just to follow up a little bit more on the FRE outlook for the year. I know you said you're on track and margin is going to improve a bit from here. But just to think about how that will evolve, right? Because I mean, with the $31 million, you probably have to get maybe about $40 million in the second half of the year to deliver that $150 million target. Would that be just increased fee-earning AUM, like should fee revenues be the driver there? Or do you see improvements here on the margins, right, at margins at the low end of the guidance? If you could just help us think about sort of those dynamics from here on out to be able to reach that $150 million? And then a second question just on the performance-related earnings, good performance in the quarter. Is there room to realize more performance fees this year given the realization of Lavoro, and any color you can give on the outlook for the performance fees for the...?

Tito, this is Alex. Thanks for your questions. And going back to the first question here, yes, it's exactly as you said, we see both increases during the year. As we did raise first close of our flagship private equity fund late last year, we're now investing that fund and you know that we charge fees on invested, and not uncommitted on that fund. And also for our flagship infrastructure fund, as we mentioned, we target to have a first close in this quarter in second quarter of 2023. And then we start investing in that fund, and we also charge on invested capital there. So these 2 are big flagship funds, Private Equity Fund VII that I just mentioned and the first close of Infrastructure Fund V coming in the second quarter, it gives us a lot of dry powder or committed capital but not invested. And as we invest along the year, that should drive revenues up. And those revenues come with basically no cost, right, because we already have the teams in place to manage and invest the 2 funds that I just mentioned. In addition, our Brazil driven strategies, as I try to send the message over the call here, they're doing extremely well in managing to raise and overperform in Latin America, as previously also stated in other earnings calls like this one. We are also overperforming in the Middle East. We're overperforming in Asia, compensating a little bit still the underperformance in the U.S. on the fundraising side. So in general, when we add up all the numbers, we still feel comfortable that we will do and reach the $5 billion to $6 billion of organic fundraising for 2023 and $150 million of fee-related earnings for 2023. In addition, we also see the business…

Our next question comes from the line of Craig Siegenthaler of Bank of America.

Alex, Mark, good to hear that you're still on track with your targets against a tough backdrop. With the U.S. alt managers in this more difficult backdrop, many of the first closes have come in fine, maybe 50% of the target in a pretty short period of time. This can include raises from long-term clients, so it might be viewed a little easier. But the second through final closes have been a lot tougher, both in terms of time and size. So how should I think about this sort of risk when I'm modeling both Private Equity VII and Infra V?

Craig, nice talking to you as well. I hope all is well with you and your family. No, you're right on the dot there. I think the way that we are seeing our flagship fundraising is exactly as you said, we have a big first close, big, I mean, 40%, 50% of the target of the fund and then comes in the second, third close. I think contrary to prior fundraisings, the second, third close coming in smaller amounts and more scattered than one chunky second close that was done more of the norm going back, whatever, several vintages ago. We're seeing that on our Private Equity Fund VII. So we had a big chunky first close, and then we have several other smaller ones, and we are closing on that fund every 2 weeks, every 3 weeks. And as we group a bunch of investors together, we have another close. In addition to that, Craig, what I can say also from Private Equity Fund VII, as I mentioned, as we are also raising money from other locations of the world, we're overperforming LATAM, Middle East, including Israel, Asia and underperforming U.S. We're also having specific vehicles for those regions. So we have a group of Brazilian investors coming in through the Brazilian feeder and a group of then Colombian investors coming from a Colombian feeder and et cetera. So that's why it's also a little bit more patchy, having these smaller closes. But in the end, I feel comfortable from what I see now in my pipeline that we'll continue to fundraise significantly for Private Equity Fund VII, and that then comes from Infrastructure Fund III now. Infrastructure Fund III, the first close, I think, is even stronger than I was expected. And I think also it has to…

I just had one follow-up on Moneda. What new product does Moneda launched since the acquisition? Or said a different way, what existing funds that they had before the merger are now sold to a new client segment? I'm just looking for an update on the specific synergies of where Moneda is leveraging Patria and Patria's client distribution network?

Yes, thanks for your question. On the credit side, I mentioned I think during the call, I should have said it more clearly, I'm sorry, that we are doing a good job fundraising for a product called Credit 365. 365 means that this fund has a 1-year liquidity gate. That's why the 365 attached to the name. And that was a Moneda product, designed products by Moneda's credit team to Brazilian investors. So no, last year, I think we had a lot of the Moneda team understanding the Brazilian market and trying to tailor-made their credit expertise in this example that I'm using to the Brazilian client needs. So we identified several of our client needs in Brazil mid-last year. We started working with these clients, and we already launched one product under this new synergic team that I just mentioned. And that's -- I think that's one of the main reasons that we did associate ourselves with Moneda to use their credit intelligence. I'll talk about public equities but user credit and intelligence to do then develop products for the Brazilian clients. And we see that as a great potential. Of course, as you know, in Brazil, given the high interest rates, credit is a soft after product, right? So I think that's why the credit product is also doing very well. But of course, you have the whole Moneda intelligence behind it. Second, as we raised our Private Credit Fund II in Brazil as well, we already had Private Credit I in Patria. The Moneta credit team did help us a lot and actually expand the addressable market of that product and, therefore, expand the potential size of our Private Credit Fund II. So -- and we are identifying a lot of needs from our Brazilian clients also…

Our next question comes from the line of William Barranjard of Itau BBA.

My question here is regarding the capital market conditions in Brazil. Since the beginning of the year, it has tightened in credit and equity as well. So it would be interesting to understand how this environment is impacting you, be it in terms of opportunities for investments at our overvaluations or an extra care for current invested names that are having maybe a harder time due to tighter credit markets here?

Yes, of course. William, thanks for the question. Yes, interesting that in Brazil, I think the credit markets tightened more because of one specific case that frightened the market in general. As you know, the retailer named Americanas, then Silicon Valley and the First Republic, et cetera. And I think one thing may be added with the other. But I think if I would say, which is reason #1, I think the reason none is more the whole Americanas issue than external issues for the local credit market, as you probably know. Well, let me break down into different verticals here. I'm starting with private equity, our companies are not really leveraged. We have today around 1.3x EBITDA of leverage without considering sellers financing. We have this consolidation strategy, and we do buy some companies using sellers finance, but a big chunk of that sellers finance is linked to escrows and guarantees to contingencies that we pay out year #5, year #6 after closing. So of course, it is sellers financing, we owe that money to the sellers, but we have a very long-term tenure, and it's linked to all these things that I said, contingencies that can potentially become liabilities, guarantees for escrow, et cetera. So it's a very accretive way of leveraging, to be honest. And the average cost that we have on our seller financing is inflation plus 2% in Brazil. So as you know, inflation running around 5-ish plus 2% is around 7%. So it's actually way below even the CDI rate in Brazil. So it's a low cost of -- it's a low leverage as a multiple of EBITDA, and the cost of leverage for that seller financing is also low. And of course, the bank debt are market turns, but we don't have a…

Our next question comes from the line of Domingos Falavina of JPMorgan.

I had a question regarding the net accrued performance specifically on P5. You recognize the performance on the Lavoro deal, which was $10 million contribution to the [15, 16] performance and to the earnings. But you had a markdown of $44 million. I'm curious to know how much of the $44 million is linked to the Lavoro deal?

There are different things -- well, first of all, Domingos, thanks for your question. I'm sorry, I started already answering your question.

It's efficient.

Sorry about that. So we have a huge stock, right, inventory of Lavoro. If you -- the Fund V has approximately $800 million to $1 billion of Lavoro stock. And that inventory to the $40-something million that you mentioned, it's over this $1 billion. So that's why it looks like a big absolute number, but as a percentage of what Fund V has of stock in Lavoro is a small percentage for $40-something million of $1 billion --

Just so that I understand the math here, is it like you had valued it at $800 million more and then you mark down $800 million and then the performance is 20% on that ballpark, $800 million, so --

Yes, exactly.

I'm sorry, $200 million, right? $200 million, it was overvalued at -- $200 million, 20%, $44 million adjustment.

Yes, yes, that's exactly. Yes, let's say, $1 billion. And the numbers are not really different from that, to be honest. Coincidentally, we had $1 billion worth of stock. Fund V had $1 billion worth of stock of Lavoro. And then as -- when we IPO-ed the company, as of the IPO, when we did the IPO in the end of the quarter of the first quarter, from that point onwards, you have to mark the company using the price of the shares. And after the IPO, the prices of the shares traded down and traded down by -- in your example, there by 20% from $1 billion to $800 billion is $200 million less, 20% of that, which is our performance fees, the $40 million. That's exactly right, the example that you're using and the numbers were more or less similar to what you just said. So again, after an IPO, we don't mark the company using our discounted cash flow model. We use the price of the stock. In these de-SPACings, the volatility of the stock is pretty high. The company posted incredible 2022 numbers over 80% increase in EBITDA, 80%. But nevertheless, the stock do trade up and down tremendously during the -- after the IPO. Actually, after the IPO, the stock went up 30% from the IPO price and then went down 20% and then went up 15% or down 10%, but we just have to get the average of the last 10 days, and that's the number that we use for marketing purposes, and that's exactly what you said Domingos.

Super clear. And just so that we have an idea, what else -- like given this is already collecting performance, what other big assets or at least doing in the V, like in terms of notional -- $800 million from Lavoro and what else?

Well, the fund, if we go to the mark of this fund is yielding a 2.2x MOIC, multiple of invested capital net of fees. It's a $1.8 billion fund. So $1.8 billion, 2x to be easy here, $3.6 billion, then $3.6 billion minus the $1.8 billion of cost is 1.8x 20%. So this is a very, very interesting fund for us in that front. It's a large, sizable, scalable front fund and Lavoro is the first company that actually is looking to an exit through this IPO. In addition, we did take one of the companies of Fund V public early '22, which was SmartFit. I think that was -- I think it was already in '22, if I'm not wrong. And SmartFit is, as you -- as a public company, but I can say because the public information is performing extremely well, recovered completely from COVID. You probably know that during COVID, we had to close all the clubs, but we're back to 2019 and better. And so we started selling some of SmartFit shares through block trades. We did sell a small amount in the first quarter around $15 million. We tested the market there. And it did work very well. So these 2 companies are listed and these 2 companies where we do then see follow-on offerings and block trades that will contribute to the liquidity and the DPI, distributable paying capital for Fund V. Then we are in advanced negotiations to sell other assets of Fund V, namely 2: one in the food distribution sector and the other one in the health care sector. So Fund V is a real successful fund for us, Domingos, and we're very happy with it and very happy with the potential performance fee generation of this fund.

Yes. No, I'm sorry, I didn't mean to ask any kind of pipeline. I meant more like just in V. So you have SmartFit, Lavoro, health care, right, and then something in food, those are the main assets?

Yes. We have -- in health care, we have two very important assets in this fund. I'm sorry, Domingos, Athena, which is this integrated health plan with hospitals chain, as you know. And we have also a company called Opti, which is the market leader in optical surgical centers. It's a network of several surgical centers around Brazil. So that's also a very, very important company for Fund V, a very profitable company. So one agribusiness-related company, Lavoro that we mentioned, that went public; 3 health care wellness-related companies, SmartFit that went public, our network of gyms; Athena, the network of hospitals integrated with health plans; and Opti, a network of optical surgical centers. And then last but not least because it's a very important portfolio companies of Fund V, that is, which is a food distribution company. So we -- basically, we buy products from the main food consumer-driven companies, and we sell to restaurants, hotels and small retail shops. So these are the main assets of Private Equity Fund V. It's a very -- again, it's a really, really good fund and they're very excited. All the companies are doing well to very well. And we can go into also private Equity Fund VI, it's a newer fund, but also the companies there doing also very well as well. These are the 2 funds that we're focusing on divesting, Private Equity Fund V coming first because it's an older fund and then coming Private Equity Fund VI.

Our next question comes from the line of Mike Brown of KBW.

Okay. Great. Apologies if this has already been asked, Alex, I joined the call a little bit late, but maybe just one for me on infrastructure. So clearly, that's been a very attractive asset class here, particularly in a high inflation environment that we've all been living in globally. As inflationary pressure starts to wane in many markets and perhaps you actually enter into a rate cutting cycle, how do you anticipate LP interest for this asset class to progress? And does it impact your ability to deploy over time? Just interested to hear your thoughts as we move throughout '23 and into '24.

Yes, I think this is -- this infrastructure fund that we're mentioning again, sorry, Mike, how are you and again start answering your question without saying hi. I'm very sorry about that.

I'm doing well.

And as far as this strategy, the Infrastructure Development Fund, it's a private active approach to infrastructure. So we take on development risk on this fund. So we do win a concession, for example, we then construct the asset and then asset is operational, we sell it. So it does have this private equity component, and that's why it actually does deliver higher returns versus a yield fund. So this mixture of having the downside protection with contracted revenues because you're part of a concession and revenues that are corrected by inflation that you can leverage very accretively because the leverage is of project finance type leverage with the same kind of index that you are correcting your revenue, so you really hedge there. And in addition, you're taking that compression benefits because you're constructing something. So it's -- you have the whole ability to construct something that generates a higher interest rate because of, of course, the challenges associated to constructing something and then the compression ratio because you're selling something that is operational and generates this very healthy cash flow because it's an operational infrastructure asset. I think that characteristic that I just mentioned -- of course, interest rates do change appetite here or there, but we raised very large funds when interest rates were lower. Our Infrastructure Fund IV is a $2 billion fund, and it was raised 4 years ago when interest rates were really low. And now we're having very good appetite for our Infrastructure Fund V where interest rates are a lot higher than they were 4 years ago because of, I think, of this characteristic. And so -- and given the addressable market of -- in LATAM, addressable market for this fund means no concessions and privatizations and these sorts of projects that…

Great. Alex, it sounds like a very robust outlook for the infrastructure here.

No, thank you. Thanks, Mike. I agree. And I just want to get back to one of Domingos points here. Just to be clear, the $10 million of performance fee that we accounted for in the first quarter is the general partner stake of the performance fee, right? The performance fee was $15 million in total, 35% of that was approximately $5 million goes to the team and then 65% that goes to the general partner, which is the $10 million, right? So just for clarification purposes here. So when we talk about the $10 million, it means that 65% already. We already netted out the 35% that goes to the team, okay? So just to be clear. All right. Operator, any more questions, please?

Thank you. We do not have any other questions. I would now like to turn the conference back to Alex Saigh, CEO, for closing remarks.

All right. Well, thank you very much for your patience and for the questions on this call. Again, very excited and positive about our first quarter 2023 results. We continue to be positive on the $150 million FRE for the year. And we continue to be positive also in generating more performance fees than we did in the first quarter. So thanks again for your patience. Thanks for your support. I hope to see you guys soon personally. And thanks again. Be well, be safe.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.