Q4 2024 Alaris Equity Partners Income Trust Earnings Call

March 11, 2025

Operator: Good day, and thank you for standing by.

Good day and thank you for standing by welcome to the hilarious Q4, 'twenty 'twenty four earnings release conference call. At this time, all participants are in a listen only mode.

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Operator: Please be advised that today's conference is being recorded.

Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Amanda Frazier Chief Financial Officer. Please go ahead.

Amanda Frazier: Thanks, Katy can we appreciate everyone taking the time this morning to join US and I am joined on this call by Steve King President and Chief Executive Officer.

Amanda Frazer: Before we begin, I'd like to remind our listeners that all amounts given are in Canadian dollars unless otherwise noted, and our caution that comments today may contain forward-looking This forward-looking information is based upon a number of important factors and a... and therefore actual results could differ. Additional information concerning the underlying factors, assumptions, and risks is available in last night's press release and MV&A under the heading Forward-Looking Statements and Risk Factors, copies of which are available on CDAR as well as our website. Non-IFRS data is also presented and may differ from the way other companies present such data.

Amanda Frazier: Before we begin I'd like to remind our listeners that all amounts given are in Canadian dollars unless otherwise noted and are cautioned that comments today may contain forward looking information that is forward looking information is based upon a number of important factors that assumption and therefore actual results could differ materially additional information concerning the underlying factors assumptions.

Amanda Frazier: It's available in last Night's press release, and MD&A under the heading forward looking statements and risk factors copies of which are available on SEDAR.

Amanda Frazier: As well I don't want to say.

Amanda Frazier: No and I address data is also presented it may differ from the way other companies present, such data as with the forward looking statements. Please refer to last night.

Amanda Frazer: As with the forward-looking statements, please refer to last night's... press release and MD&A for clarification regarding non-IFRS measures.

Amanda Frazier: Press release, and MD&A for clarification regarding non <unk> measures.

Amanda Frazer: Also, as discussed the last few quarters, with the evolution of Alaris' investment model over the last few years, beginning with the introduction of common equity and continuing to evolve with the expansion of SPV investments such as Sonobello and now Ohana, Alaris determined it met the requirements of an investment entity under IFRS 10, and as a result, no longer consolidates its investment entity subsidiaries into its financial results. This method of accounting has had a pervasive effect on the financial information on the face of For more information visit www.fema.gov Accordingly, users should exercise caution in reviewing, considering, and drawing conclusions from period-to-period comparisons.

Amanda Frazier: Also as discussed the last few quarters with the evolution of our <unk> investment model over the last few years, beginning with the introduction of common equity and continuing to evolve with the expansion of SPD investments such as soda Belo.

Amanda Frazier: Alerts determinant met the requirements of an investment entity under I breast head and as a result, no longer consolidated investment entities subsidiaries into our financial results. This method of accounting has had a pervasive effect on the financial information on the statements.

Amanda Frazier: When the user should exercise caution in reviewing considering and drawing conclusions from period to period comparisons and changes direct comparisons between dates or across periods may be inappropriate or not meaningful if not carefully considered.

Amanda Frazer: Direct comparisons between dates or across periods may be inappropriate or not meaningful if not carefully considered.

Amanda Frazer: With regards to the Q4 highlights, net book value increased $1.42 per unit to $24.22, which brings the 12-month increase in net book value to $3.10 per unit, and is in addition to $1.36 of dividends for a total return on book value in the year of $4.46, or 21%. This increase was driven by both growth in revenues received from partners, including common distribution, as well as increases to the fair market value of Alaris' portfolio and rising foreign exchange rates. Alaris' partner distribution and transaction fee revenue for the year, for the quarter, of $46.9 million was ahead of previous guidance of $38.9 million, and Q4 2023 is $41.9 million.

Amanda Frazier: With regards to Q4 highlights.

Net book value increased $1 42 per unit to 'twenty four 'twenty, two which brings the 12 month increase in net book value to $3 10 per unit.

Amanda Frazier: And is in addition to a $1 36, a dividend for a total return on book value.

Amanda Frazier: $4 or 46 cents or 21%.

Amanda Frazier: This increase was driven by both growth in revenue received from partners, including common distributions as well as increases in the fair market value of Polaris is portfolio and rising foreign exchange rate.

Amanda Frazier: Along with his partner distribution.

Amanda Frazier: And transaction fee revenue for the year for the quarter of $46 9 million was ahead of previous guidance of $38 9 million.

Amanda Frazier: Q4, 2023 is $41 9 million. This was driven by a collection of LMS is deferred distributions from 2023, and the Pik amounts real honest convertible preferred units, which we acquired in Q3 of 2024.

Amanda Frazer: This is driven by a collection of LMS' deferred distributions from 2023 and the PIC amounts from OHANA's convertible preferred units, which we acquired in Q3 of 2024. Partner Distribution and Transaction Fee Revenue for the year of $194.2 million with ahead of prior year revenue of $162.6 million. million primarily as a result of new and follow-on investments as well as higher common Common distributions in 2024 were 170% higher than 2023 and represent a 20% cash yield on the common portfolio. Alaris' acquisition entities realized gains on partner investments of $40.1 million or $0.88 per unit in 2024, as compared to $13.5 million or $0.30 per unit in 2023.

Partner distribution of transaction fee revenue for the year of $194 2 million was ahead of prior year revenue of $162 6 million.

Amanda Frazier: Primarily as a result of new and follow on investments as well as higher common distributions common.

Amanda Frazier: Common distributions in 2024 were 170% higher than 2023 and represents a 20% cash yield on the common portfolio.

Amanda Frazier: All aerospace acquisition entities realized gains on partner investments of $40 1 million or <unk> 88 per unit in 2024 as compared to $13 5 million or <unk> 30 per unit. In 2023. These gains were realized on the redemption of brown, a subtle unify stride as well as the exchange of unit.

Amanda Frazer: These gains were realized on the redemption of Brown and Settle, Unify and Strive, as well as the exchange of units in the Ohana during the AUM transaction.

Amanda Frazier: In the old Hana.

Amanda Frazier: During the transaction.

Amanda Frazer: Due to their non-recurring nature, these gains are not included in Alaris' net distributable cash flow and would further decrease the payout ratio if included. Alaris' net distributable cash flow for 2024 increased by 42% to $130.4 million or $2.87 per unit from $91.6 million or $2.02 per unit in the same period of 2023 after normalizing for the prior year's one-time litigation costs, resulting in an actual payout ratio for the year of 48%.

Amanda Frazier: Due to their nonrecurring nature of these gains are not included in alerts isn't that distributable cash flow and would further decrease the payout ratio are included.

Amanda Frazier: Alero as net distributable cash flow for 2024 increased by 42% to $130 4 million or $2 87 per unit from $91 6 million or $2.02 per unit in the same period of 2023 after normalizing for the prior year's onetime litigation costs, resulting in an actual.

Amanda Frazier: Payout ratio for the year of 48%.

Amanda Frazer: Since converting to the trust in 2020, Alaris' tax profile and distribution changed from being 100% eligible dividends to a combination of return of capital eligible dividends, capital gains and interest income. Consistent with the prior year, the effective tax rate on Alaris' distribution for an Alberta individual in the top tax bracket of 2024 was 22.5% as compared to 34.3% for a dividend received from a corporation, providing both a tax deferral as well as an overall savings as compared to a corporate dividend. With regards to the portfolio, our portfolio continues to perform well and has maintained its weighted average PCR of approximately one and a half times, with 10 of our 20 partners continuing to be above this threshold.

Amanda Frazier: Since converting to the trapped in 'twenty 'twenty 'twenty allowances tax profile of distributions.

Amanda Frazier: Changed from being 100% eligible dividends to a combination of return of capital eligible dividends capital gains and interest income consistent with the prior year the effective tax rate on alerts distribution for Alberta individual in the top tax bracket of 'twenty 'twenty four was 22, 5% as can.

Amanda Frazier: <unk> to 34, 3% or a dividend received from our corporation, providing both the tax deferral as well as an overall savings as compared to the to our corporate dividend.

Amanda Frazier: With regards to the portfolio.

Amanda Frazier: Our portfolio continues to perform well and has maintained its weighted average ECR of approximately one and a half times with 10 of our 20 partners continuing to be above the threshold of our 20 partners 13 have either no or less than one turn of debt as compared to EBITDA.

Amanda Frazer: Of our 20 partners, 13 have either no or less than one turn of debt as compared to With regards to fair value movements, increasing discount rates driven by risk-free rate movements resulted in decreases throughout the portfolio, while partner results further amplified or offset these movements. Most notable in the quarter, Sonobello has been impacted by the higher cost of advertising across the U.S. as a result of the election cycle and a decline in the conversion rate of... As they expand in new markets, while these costs have impacted EBITDA in the immediate period, they are believed to be temporary in nature, and the longer-term forecast has been improved by the rollout of their contour division as they move into delivering new service offerings with breast augmentation.

Amanda Frazier: With regards to fair value movements, increasing discount rates driven by risk free rate movements resulted in decreases throughout the portfolio. While partner results further amplified were offset these movements.

Amanda Frazier: Most notable in the quarter. So debello has been impacted by the higher cost of advertising across the U S. As a result of the election cycle and a decline in the conversion rate of patient consultant consultation.

Amanda Frazier: As they expand in new markets. While these costs have impacted EBITDA in the immediate period. They are believed to be temporary in nature and the longer term forecast has been improved by the rollout of their contour division as they move into delivering new service offerings with breast augmentation.

Amanda Frazier: The total impact to the fair value of stone of Belo, including the discount rate change was a decrease of $7 3 million U S, but for the year or so to build those fair value increased by $4 1 million U S.

Amanda Frazer: Heritage is taking longer to return to profitability, and we now expect that Heritage will not be in a cash-flow position to support preferred distributions until 2026, and have extended the expected deferral period as a result of the fair value of Heritage was decreased by $2.8 million U.S. The increase to Fleet's fair value was largely driven by an increase to common equity. While Fleet's revenue and EBITDA were down year-over-year, they are forecast to pick back up in 2025. This, along with reductions in debt from cash generated by the business, led to an increase in the fair value of $2 million, and for the year, Fleet's fair value has increased by $10.5 million.

Amanda Frazier: Heritage is taking longer to return to profitability and we now expect that heritage will not be in a cash flow position to support preferred distributions until 2026 and have extended the expected deferral.

Amanda Frazier: As a result of the fair value of heritage as a result of fair value of heritage with decreased by $2 8 million of U S water.

Amanda Frazier: The increase to police fair value was largely driven by an increase to common equity well see its revenue and EBITDA were down year over year. They are forecast to pick back up in 2025 deaths along with reductions in death from cash generated by the business led to an increase in the fair value of 2 million U S for <unk>.

Amanda Frazier: And for the year of fleets fair value has increased by $10 5 million U S.

Amanda Frazer: During the period, Alaris closed its second AUM transaction, exchanging $127.8 million U.S. of existing investment in Ohana for $59.7 million U.S. of convertible preferred equity and $70.3 million U.S. of common equity. growth in the business as well as increases in EBITDA from the time the transaction was negotiated until the time of closing drove an increase of $12.2 million U.S. to fair value in the quarter.

Amanda Frazier: During the period Alair has closed its second a U F transaction exchanging $127 8 million U S of existing investment in O'connor for $59 7 million U S convertible preferred equity and $70 3 million U S comment.

Amanda Frazier: Growth in the business as well as increases in EBITDA from the time of the transaction with from the time. The transaction was negotiated until the time of clothing drove an increase of $12 2 million U S to fair value in the quarter.

Amanda Frazer: Our anticipated aggregate partner resets are expected to be an increase of $4.9 million or approximately $5 million in 2025. Positive resets are expected from 10 of our partners, with negative resets from 2 partners and 7 partners who will not reset this year. Our current outlook calls for $42.5 million of revenue in Q1, as a result, consistently higher than expected common distributions during the year, as well as positive resets on the preferred portfolio. Our 12-month outlook for revenue has increased to $187 million, up from last year's $171 million, and includes $19.4 million in expected common distributions.

Amanda Frazier: Our anticipated aggregate partner resets are expected to be an increase of $4 9 million or approximately 5 million in 2025.

Amanda Frazier: Positive resets are expected from 10 of our partners with negative resets from two partners and seven apartments, who will not reset this year.

Amanda Frazier: Our current outlook calls for $42 5 million of revenue in Q1, as a result of consistently higher than expected common distributions during the year as well as positive resets on the preferred portfolio. Our 12 month outlook for revenue has increased to 187 million.

From what.

Amanda Frazier: $171 million and includes $19 4 million in expected common distributions.

Amanda Frazer: G&A Outlook increased to $18.5 million from $17 million previously, in part due to increasing FX rates, but remains at 10% of revenue, consistent with prior periods.

Amanda Frazier: G&A outlook increased $18 5 million from 17 million previously in part due to increasing FX rates.

Amanda Frazier: It remains at 10% of revenue consistent with prior periods.

Stephen King: On that note, I'll turn it over to Steve. Great, thanks Amanda, and thanks everybody for tuning in. Obviously an excellent ending to our record year for our company. In Canadian dollars, we now manage almost $1.6 billion of investments, of which more than a third have full common equity upside. We also get a portion of the eventual profits of another $750 million Canadian of third-party capital that we manage. So this gives our shareholders significant option value on future investment gains, in addition to the lower-risk, structured preferred equity that forms the basis of every deal we do.

Steve: Now I'll turn it over to Steve.

Steve: Great. Thanks, Amanda and thanks, everybody for tuning in a.

Obviously, an excellent ending to a record year for our company.

Steve: Canadian dollars, we now manage almost $1.6 billion of investments.

Steve: Of which more than a third have full common equity upside.

Steve: We also get a portion of the eventual profits of another 750 million Canadian of third party capital that we manage.

Steve: This gives our shareholders significant option value on future investment games. In addition to the lower risk structured preferred equity, but form the basis of every deal we do.

Steve: But having that optionality over the last five years hasn't come at the expense of keeping our well covered dividend for our shareholders as shown by our distributable cash payout ratio being below 50% for the year just ended.

Steve: In previous communications I indicated that our target for payout ratio would be roughly 65% given where we are now it's a fair question basketball be increasing our dividend.

Stephen King: Given where we are now, it's a fair question to ask if we'll be increasing our dividend. In analyzing our business over the coming years, we believe that we'll be in a great position to use future exit returns to buy back significant amounts of our stock with the proceeds. As such, it makes sense to have a consistent excess cash strategy and also use our monthly free cash flow to buy back stock as well. We have been active buyers to start this year and have budgeted to spend a monthly amount on buybacks that will put us roughly at the 65% payout ratio for the year.

Steve: Analyzing our business over the coming years, we believe that there will be in a great position to use future exit returns to buy back significant amounts of our stock with the proceeds and as such it makes sense to have a consistent excess cash strategy and also use our monthly free cash flow to buy back stock as well we have been active buyers.

Steve: To start this year and have budgeted spend to spend a monthly amount on buybacks. It will put us roughly out of the 65% payout ratio for the year and then use exit proceeds to buy back extra amounts when they happen.

Stephen King: And then use exit proceeds to buy back extra amounts when they happen. The impact on our book value per share when we can drive net asset value growth as we've been showing for many years while also reducing the share's upstanding is significant.

Steve: Back on our book value per share when we can drive net asset value growth as we've been showing for many years, while also reducing the shares outstanding is significant.

Stephen King: Obviously, the strategy changes if we end up trading above book value, which is $24.22, but we'll evaluate that when it happens.

Steve: This strategy changes if we ended up trading above book value, which is $24 22.

Steve: But we'll evaluate that when it happens.

Stephen King: Another topic that should be discussed is the impact of potential tariffs, U.S. government spending cuts, and a possible recession that could come from those actions. As was the case with the Great Recession of 2008, COVID crisis of 2020, and all the economic turbulence in between, Alaris has built an investment model that's uniquely insulated for many of these factors. Specifically with tariffs, Alaris is 90% invested in U.S. companies doing business strictly in the U.S. They are all service-based businesses and that they don't rely on goods and materials that are imported or exported. On the DOJ reforms that are being enacted, we do have one of our 20 partners that could experience a business disruption from that FMP, that's a human resources consulting company with long-standing government contracts.

Steve: Another topic, there should be discussed as the impact of potential tariffs U S spending government spending cuts and a possible recession that could come from those actions.

Steve: This is the case with the great recession of 2008, Covid crisis of 2020, and all the economic turbulence in between <unk> has built an investment model that's uniquely insulated from any of these factors spa.

Steve: Specifically with tariffs the lyricism, 90% invested in U S companies doing business strictly in the U S. They're all service based businesses and they don't rely on goods and materials that are imported or exported.

Steve: Adobe reforms that are being enacted we do have one of our 20 partners that good experience of business disruption from the F N b.

Speaker Change: That's a human resources consulting company with long standing government contracts.

Stephen King: This is an extremely well-run company with no debt that's been operating in Washington for 35 years. And while we do think that there is some short-term risk to some of their contracts, we have no concerns for them in the medium and long term. From a recessionary standpoint, we're still well positioned with required service businesses that have little debt and long track records. Operators that own the majority of the businesses are always the best partners to have and especially when times get tough. On the positive side, we get 90% of our revenue in U.S. dollars, so an environment where Canada suffers due to tariffs would sadly, but actually be a tailwind for Alaris financially, as we're seeing today.

Speaker Change: This is an extremely well run company with no debt that's been operating in Washington for 35 years, and while we do think that there is some short term risk to their some of their contracts. We have no concerns for them in the medium and long term.

Speaker Change: From a recessionary standpoint, we're still well positioned with required service businesses that are a little debt and long track records.

Speaker Change: Operators that owned the majority of the businesses are always the best partner to have in especially when times get tough.

Speaker Change: On the positive side, we got 90% of our revenue in U S dollars. So in an environment, where Canada suffers due to tariffs with sadly, but actually be a tailwind for hilarious financially has we're seeing today.

Stephen King: Finally, on the outlook for 2025, we currently have one of the best pipelines of potential transactions that we've ever had. In addition to just seeing some good opportunities to start the year, the relationships that we've formed with large asset management companies that would like to partner with us going forward has allowed us to look at larger deals and deals that need more common equity than what we've historically been able to do with just our public capital. Having these funds as co-investment partners in the future will be important to grow the business even faster and will give our shareholders more optionality as they get returns on other people's capital.

Speaker Change: Finally on the outlook for 2025, we currently have one of the best pipelines of potential transactions that we've ever had in addition to just seeing some good opportunities to start the year the relationships that we formed with large asset management companies.

Speaker Change: They would like to partner with US going forward has allowed us to look at larger deals and deals that need more common equity than what we've historically been able to do with just our public capital.

Speaker Change: These funds as co investment partners in the future it will be important to grow the business, even faster and it will give our shareholders more optionality as they could.

Speaker Change: Get returns on other People's capital.

Operator: So, DeeDee, we'll throw the phone lines open to questions if they have any. Thank you. As a reminder, if you have a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Speaker Change: So BD will.

Speaker Change: Through the phone lines open to questions if they have any.

Speaker Change: Thank you as a reminder, if you have a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Gary Ho: And our first question comes from Gary Ho of Dave Jargin Capital Markets. And good morning. Steve, just maybe wanted to start off with a capital allocation question. Good to see the step down in the payout ratio. It appears that you've pivoted a bit more towards share repurchases and appreciate your comments earlier in your prepared remarks.

Gary Ho: And our first question comes from Gary Ho of Dave George and capital markets.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Good morning, Steve just maybe wanted to start off with the capital allocation question.

Speaker Change: Steve stepped down in the payout ratio.

Speaker Change: It appears that you've pivoted a bit more towards share repurchases.

Speaker Change: And I appreciate your comments earlier in your prepared remarks. So maybe can you also talk about.

Stephen King: So maybe can you also talk about any thoughts on maybe doing an SIB on top of an NCIB given where the shares you're trading today? Yeah, an SIB, Gary, would be considered, but only when we have kind of an extraordinary event. So whether that's the exit of one of our partners that gives us, you know, a larger amount of free capital than what we have today. So, you know, we've kind of budgeted, you know, based on the budget to get to around 65% pay ratio, that's going to be about $25 million of stock repurchases just from our kind of daily free cash flow.

Speaker Change: Any thoughts on maybe doing <unk> on top of <unk>.

Speaker Change: CIB, given where the shares are trading today.

Speaker Change: Yeah, NFIB, Gary would be considered but only when we have.

Speaker Change: Kind of an extraordinary event, so whether that's the exit of one of our partners that gives US you know a larger amount of Av.

Speaker Change: Of free capital.

Speaker Change: Then what we have today, so we've got a budgeted.

Speaker Change: Based on the budget to get to around 65% payout ratio, that's going to be about $25 million of of stock repurchases just from our kind of daily free cash flow and then an SUV.

Stephen King: And then an SIB, as I mentioned, would be something if we had a larger exit, we would launch an SIB based on that.

Speaker Change: Mentioned would be something if we had a larger exit we would launch enough AB based on that.

Gary Ho: Perfect. Okay, that makes sense.

Speaker Change: Perfect, Okay that makes sense and then.

Gary Ho: And then you've chatted a little bit about the potential tariffs and Trump administration narratives. So thanks for your comments on FMP. Just outside of that, are there other partners that have more direct or indirect impact, perhaps? The only other one that I would point to is Edgewater. Edgewater is a nuclear engineering company that looks after nuclear stocks for both the DOE and the DOD, and we don't see anything there. That's an interesting company. One of the things we loved about it is that regardless of the administrations over the years, and regardless of whether the DOD is increasing the nuclear stockpiles or decreasing it, both of those require about the same amount of work from Edgewater.

Speaker Change: Chat a little bit about the potential tariffs.

Speaker Change: Administration narratives. So thanks for your comments on F&B just outside of that are there other partners that are more direct or indirect impact perhaps.

Speaker Change: The only other one that.

Speaker Change: That I would point to as Edgewater Edgewater is.

Speaker Change: Nuclear engineering company that looks after.

Speaker Change: Nuclear stocks for both the dog and the dog.

Speaker Change: No.

Speaker Change: And we don't see anything there.

Speaker Change: That's an interesting company one of the things we loved about it is that regardless of the administrations over the years and regardless of whether the Dod is increasing the nuclear stockpiles or decreasing it both of those require about the same amount of work from Edgewater and so yeah. It is.

Stephen King: We think that one is quite safe, but that's the only other one that really has direct dealings with the government.

Speaker Change: We think that one is is quite safe, but that's the only other one that really has kind of direct.

Speaker Change: Dealings with the government.

Stephen King: Okay, and then just last question, just on the potential redemptions side, as you look out maybe 12, 18 months, are there one or two investments that are more likely to redeem? I think in previous calls, you've highlighted maybe Fleet as a potential candidate. Is that still a possibility this year? I just want to hear your comments on the redemption outlook. Yeah, fleet fleet is still a possibility. You know, I don't think anything significant is going to be like in the next quarter or anything like that. But, you know, over the next 12-18 months, I think, I think we've got probably two or three that that could transact if everything goes according to plan.

Speaker Change: Okay and then just last question just on the potential redemption side as you look out maybe 12 to 18 months are there one or two investments that are more likely to redeem I think in previous calls you've highlighted maybe fleet potential candidate is that still a possibility. This year I just wanted to hear your comments on the redemption outlook.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Still a possibility.

Speaker Change: I don't think.

Speaker Change: Anything significant there's going to be like in the next quarter or anything like that but.

Speaker Change: Over the next 12 to 18 months I think our I think we've got probably two or three.

Speaker Change: At.

Speaker Change: That could transact if if everything goes according to plan.

Gary Ho: Okay, great. Those are my questions. Thank you.

Speaker Change: Okay, Great. Those are my questions. Thank you.

Ed: Thank you Ed.

Speaker Change: Q.

Speaker Change: Yeah.

Jeff Schormendorf: Our next question comes from Jeff Schormendorf of Cormark Securities. Your line is open. Hi, good morning, everyone. So Steve, I appreciate the commentary on the deal pipeline and obviously you're able to look at some larger opportunities now just based on that, the co-invest model that you've been developing. I was wondering how does that work with the roster of co-investment partners? You obviously would like to know that there's a good level of demand. You maybe just sort of speak to the roster of potential partners that are out there that let you go down the path. Yeah, it's still in development, Geoff.

Speaker Change: Our next question comes from Jeff.

Speaker Change: Core Mark Securities. Your line is open.

Speaker Change: Hi, good morning, everyone.

Speaker Change: I appreciate the commentary on the deal pipeline and obviously you are able to look at some larger opportunities now just based on that.

Speaker Change: Co invest model that <unk> been developing I'm, just wondering how that how does that work with with the.

Speaker Change: The roster of co investment partners I mean, you obviously, you would like to know that there's a good level of demand.

Speaker Change: Can you, maybe just sort of speak to the roster of potential partners that are out there like.

Speaker Change: You go down the path of looking at some of these bigger deals.

Speaker Change: Yeah.

Speaker Change: It's still in development Jeff.

Stephen King: I think it's safe to say that there's, there's no large asset manager out there that wouldn't want access to our deals. Everybody's looking to deploy more capital. And so if you offer anybody a free look at deal flow, of course, they're going to take it. So for us, you know, we have to partner with people that will become true partners. And, and really, you know, want to do the kinds of deals that we do, you know, with a blend of common and prefs, and you can't spread it out too much. You know, we are a middle-low market private equity firm, and so the nature of our product, the nature of our deals are always going to be slightly smaller than most private equity firms want to do.

Speaker Change: I think it's safe to say that there's there's no large asset manager out there that wouldnt want access to our deals.

Speaker Change: Everybody is looking to deploy more capital and so if you offer anybody a free look at deal flow of course, theyre going to take it so for us.

Speaker Change: We have to partner with people that will become true partners.

Speaker Change: And really.

Speaker Change: No.

Want to do the kinds of deals that we do with a blend of common and perhaps.

Speaker Change: You can't spread it out too much.

Speaker Change: We are a middle low market.

Speaker Change: The private equity firm and so the nature of our products. The nature of our deals are always going to be slightly smaller than most private equity firms want to do so.

Stephen King: So if you spread it out between five people, the check size is just not going to be big enough for any of them.

Speaker Change: So if you spread it out between five people. The check size is just not going to be big enough for any of them. So so I would suggest it's going to be probably just one or two of them that we choose and part of that will be on how much they are willing to pay us too.

Stephen King: So I would suggest it's going to be probably just one or two of them that we choose, and part of that will be on how much they're willing to pay us to manage this capital and bring them into our deals. And part of it will be, you know, cultural fit, part of it will be a fit on horizon, and the kind of terms that we typically have on our deals, whether that fits with their model.

Speaker Change: To manage this capital and bring them into our deals and part of it will be cultural fit part of it will be.

Speaker Change: A fit on horizon, and the kind of terms that we typically have on our deals whether that fits with their model.

Stephen King: But that's all things that we're working on right now, and we'll likely, the next deal of any significance that we do will likely be kind of a test pilot with one or two of these groups, and if all of that goes well, then we'll make it something more formal. for that color. And then I guess, you know, alongside with that is just thinking about Capital Position you're utilizing. The Revolver today. What are your thoughts? Yeah, we are working on an expansion of our current facility with our debt syndicate. And so that's going to give us more room without doing anything else.

Speaker Change: That's that's all things that we're working on right now.

Speaker Change: We will likely the next deal of any significance that we do will will likely be a.

Speaker Change: Kind of a test pilot with with one or two of these groups and all of that goes well then we'll make it something more formal.

Speaker Change: Okay. Thanks for that color and then I guess alongside with that is just thinking about your own.

Speaker Change: Capital position you're utilizing.

Speaker Change: The majority of the revolver today.

Speaker Change: What are your thoughts in terms of how you want to structure the funding basis of the business heading into this year.

Speaker Change: Yeah. We are we are working on an expansion of our of our current facility with our debt syndicate.

Speaker Change: So that's going to give us more room.

Speaker Change: Without doing anything else.

Stephen King: Obviously, having co-investors lined up, that helps. And then kind of trying to forecast when we get some of these redemptions throughout the year. So those are all kind of the moving parts that we monitor. So we're very comfortable with where our balance sheet is today based on those things. just given that you've got 20 partners. The payout ratio now is quite comfortable. Think about running with a slightly higher leverage ratio in the business or do you want to keep it around? Yeah, we want to keep it relatively where it's been, obviously the main thing is just access to the proper amount of capital to match our deployment schedule.

Speaker Change: Having co investors lined up.

Speaker Change: That helps.

Speaker Change:

Speaker Change: And then kind of trying to forecast when we get some of these redemption throughout the year. So those are all kind of the moving parts that we are that we monitor and.

Speaker Change: So we're very comfortable with where our balance sheet is today based on those things.

Speaker Change: And just given that you've got 20 partners and the payout ratio now is quite comfortable.

Speaker Change: Would you think about maybe running with a slightly higher leverage ratio than the business or do you want to keep it around where you've historically been.

Speaker Change: Yes, we want to keep it.

Speaker Change: Relatively where it's been.

Speaker Change: Obviously, the main thing is just access to the.

Speaker Change: The proper amount of capital to match our deployment schedule. So.

Operator: So we think we're good for the time being, obviously, if our deployment really ramps up as it could, then that equation will change and I would suggest we'd probably do another convertible debenture or a straight debt type of transaction, certainly would not do anything on the common equity side anywhere near these prices. Okay, thank you for that. Thank you. And as a reminder, if you have a question, please press star one one.

Speaker Change: We think we're we're good for the time being obviously.

Speaker Change: If our deployment really ramps up as it could then then that equation will change and.

Speaker Change: I would suggest it probably.

Speaker Change: Do another convertible debenture or a straight debt type.

Speaker Change: Type of transaction.

Speaker Change: Certainly would not do anything on the common equity side.

Speaker Change: We're near these prices.

Speaker Change: Okay. Thank you for that I'll re queue.

Speaker Change: Great.

Speaker Change: Thank you and as a reminder, if you have a question. Please press star one one.

Zachary Evershed: And our next question comes from Zachary Evershed of National Bank Financial. Your line is open. Good morning everyone, congrats on the quarter.

Speaker Change: And our next question comes from Zachary <unk> of National Bank Financial Your line is open.

Speaker Change: Good morning, everyone congrats on the quarter.

Speaker Change: Thanks, Doug.

Zachary Evershed: to talk a little bit more about the Outlook for Heritage and SCR. Um, sure. So, Heritage, um... We have been working with the notes management team that came in during CHEMCO to help us recover that investment and things have been going well. The business has worked through those negative margin contracts that put the pressure on working capital previously and they're ramping up for another busy season. heading back into their high season. All the projects that they have on the docket aren't profitable, so it's just a matter of working through those and building the cash balance back on the balance sheet to restore that working capital that was depleted over the prior year.

Speaker Change: Could you talk a little bit more about the outlook for heritage and SCR. Please.

Speaker Change:

Speaker Change: Heritage.

Speaker Change: Sure.

Speaker Change: We have been working with.

Speaker Change: The management team.

Speaker Change: And during kimco to help us recover that investment.

Speaker Change: Things have been going well.

Speaker Change: The business has worked through those negative margin contracts that put the pressure on working capital previously.

Speaker Change: And they were ramping up for another busy season, there is sort of heading back into their high season.

Speaker Change: <unk>.

Speaker Change: All the projects that they have on the docket are profitable. So it's just a matter of working through those and building the cash balance back on the balance sheet to restore that working capital have been depleted over the prior year. So.

Stephen King: Things are going well there. We continue to work with that group, and Dondra Lange-Mannish... to drive that business forward, so still a positive outlook there.

Speaker Change: Things are going well there.

Speaker Change: We continue to work with that group.

Speaker Change: Got to line management team too.

Speaker Change: Try that business forward.

Speaker Change: Positive outlook there.

Stephen King: With regards to SDR, they have had a strong finish to 2024. You know, that's an investment that has been Moving along, sort of that steady $4.5 million distribution for us, I think that's an investment that we've been looking to exit in the near term, and we continue to work with the management team on possibilities for that to happen as well.

Speaker Change: With regards to SCR they have had a strong finish to 2024.

Speaker Change: You know that's an investment that.

Speaker Change: Has been.

Speaker Change: Moving along.

Speaker Change: That said, a steady four and a half million card distribution process I think that's.

Speaker Change: We've been looking to update in the near term.

Speaker Change: You need to work with the management team on possibilities for that to happen as well.

Speaker Change: Okay all right. Thank you.

Zachary Evershed: And then last one for me, given the commentary around potentially issuing debt for financing and not being interested in equity at current valuations, if the units did trade up to book value, would there be any interest? hauling ventures early with excess free cash flow or would the NCIB still rank above paying down debt there? Do you mean the hybrid debentures that we have outstanding now or if we did a future contract? The Existence. I don't think so. The cost of those debentures I think is in line with where we look to be paying. So I don't think that there's any...

Speaker Change: And then last one for me.

Speaker Change: Given the commentary around potentially issuing debt for financing and not being interested in equity at current valuations.

The units did trade up to book value would there be any interest in calling the debentures early with excess free cash flow would be in CIB still rank above paying down debt there.

Speaker Change: Yeah.

Speaker Change: Do you mean, the hybrid debentures that we have outstanding now or if we did have future convert.

Speaker Change: The existing debentures.

Speaker Change: I don't think so.

The cost of those debentures I think is in line with where we want to be paying.

Speaker Change: Yes.

Speaker Change: So I don't think that there is any.

Stephen King: We're not looking to really retire the.

Speaker Change: We're not looking to really retire debentures.

Speaker Change: What do you get any point in time.

Perfectly clear thank you very much I'll turn it over.

Operator: Thank you very much, I'll turn it over. Thank you.

Speaker Change: Thanks.

Speaker Change: Thank you I'm showing no further questions at this time I would like to turn it back to Steve King for closing remarks.

Operator: I'm showing no further questions at this time.

Stephen King: I'd like to turn it back to Steve King for closing remarks. Great. Thanks, DeeDee, and thanks again for everybody for tuning in. I know Amanda's looking forward to our first quarter because it'll be the first quarter where it'll be comparable to comparable with the new accounting standard. So it'll be a little cleaner and less complicated.

Steve King: Great. Thanks, David and thanks, again for everybody for tuning in and I know a man is looking forward to our first quarter, because it'll be the first quarter, where it'll be comparable to comparable with the new accounting standards. So it'll be a.

Speaker Change: It'll cleaner.

Speaker Change: And less complicated so thanks again for everybody and we'll talk to you next quarter.

Stephen King: So thanks again for everybody, and we'll talk to you next quarter.

Operator: This concludes today's conference call. Thank you for participating and you may now disconnect. Good day and thank you for standing by.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Good day and thank you for standing by welcome to the hilarious Q4, 'twenty 'twenty four earnings release conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.

Operator: Welcome to the Alaris Q4 2024 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. please be advised that today's conference is being recorded.

Speaker Change: One one on your telephone you will then hear an automated message advising your hand just raised.

Speaker Change: To withdraw your question. Please press star one one again please.

Amanda Frazer: I would now like to hand the conference over to your speaker today, Amanda Frazer, Chief Financial Officer. Please go ahead. We appreciate everyone taking the time this morning to join us. Before we begin, I'd like to remind our listeners that all amounts given are in Canadian dollars unless otherwise noted, and our caution that comes up today may contain forward looking... This forward-looking information is based upon a number of important factors and... and therefore actual results could differ. Additional information concerning the underlying factors, assumptions, and risks is available in last night's press release and MV&A under the heading Forward-Looking Statements and Risk Factors, copies of which are available on CDAR, as well as our website.

Steve King: Thanks, Judy we appreciate everyone taking the time this morning to join US and I am joined on this call by Steve King President and Chief Executive Officer at Polaris.

Speaker Change: Before we begin I'd like to remind our listeners that all amounts given are in Canadian dollars unless otherwise noted and are cautioned that comments today may contain forward looking information that is forward looking information is based upon a number of important factors that assumption and therefore actual results could differ materially.

Speaker Change: Information concerning the underlying factors assumptions and risks is available in last night's press release and MD&A under the heading forward looking statements and risk factors copies of which are available on SEDAR as.

Speaker Change: Well I don't want to say.

Amanda Frazer: Non-IFRS data is also presented and may differ from the way other companies present such data. As with the forward-looking statements, please refer to last night's press release and MD&A for clarification regarding non-IFRS measures. Also, as discussed the last few quarters, with the evolution of Alaris' investment model over the last few years, beginning with the introduction of common equity and continuing to evolve with the expansion of SPV investments such as Sonobello and now Ohana, Alaris determined it met the requirements of an investment entity under IFRS 10, and as a result, no longer consolidates its investment entity subsidiaries into its financial results.

Speaker Change: <unk> data is also presented it may differ from the way other companies present, such data as with the forward looking statements. Please refer to last night.

Speaker Change: Press release, and MD&A for clarification regarding non <unk> measures.

Speaker Change: Also as discussed the last few quarters with the evolution of <unk> investment model over the last few years, beginning with the introduction of common equity and continuing to evolve with the expansion of SPV investments such as <unk> and now.

Affirmative met the requirements of an investment entity under <unk> and as a result, no longer consolidated investment entities subsidiaries into our financial results. This method of accounting has had a pervasive effect on the financial information on the face of the statements Accordingly user should exercise caution in reviewing considering and drawing conclusions from period to period comparisons.

Amanda Frazer: This method of accounting has had a pervasive effect on the financial information on the face of For more information, visit www.fema.gov Accordingly, users should exercise caution in reviewing, considering, and drawing conclusions from period-to-period comparisons. Direct comparisons between dates or across periods may be inappropriate or not meaningful if not carefully considered.

Speaker Change: Change it direct comparisons between dates or across periods may be inappropriate or not meaningful if not carefully considered.

Speaker Change: With regards to Q4 highlights.

Speaker Change: Book value increased $1 42 per unit to 'twenty four 'twenty, two which brings the 12 months increased the net book value to $3 10 per unit.

Speaker Change: <unk> is in addition to a $1 36, a dividend for a total return on book value and nature.

Speaker Change: $4 or 46, 421%. This increase was driven by both growth in revenue received from partners, including common distributions as well as increases in the fair market value of <unk> portfolio and rising foreign exchange rates.

Speaker Change: As part of our distribution and.

Speaker Change: And transaction fee revenue for the year for the quarter of $46 9 million was ahead of previous guidance of $38 9 million. In Q4 2023 is $41 9 million. This was driven by a collection of LMS is deferred distributions from 2023, and the Pik amounts real honest convertible preferred units, which we acquired.

Amanda Frazer: This is driven by a collection of LMS' deferred distributions from 2023 and the PIC amounts from OHANA's convertible preferred units, which we acquired in Q3 of 2024. Partner Distribution and Transaction Fee Revenue for the year of $194.2 million was ahead of prior year revenue of $162.6 million. million primarily as a result of new and follow-on investments as well as higher common Common distributions in 2024 were 170% higher than 2023 and represent a 20% cash yield on the common portfolio. Alaris' acquisition entities realized gains on partner investments of $40.1 million or $0.88 per unit in 2024, as compared to $13.5 million or $0.30 per unit in 2023.

Speaker Change: In Q3 of 2024.

Speaker Change: Partner distribution in transaction fee revenue for the year of $194 2 million was ahead of prior year revenue of $162 6 million.

Speaker Change: Primarily as a result of new and follow on investments as well as higher calling distributions common.

Speaker Change: Common distributions in 2024 were 170% higher than 2023 and represents a 20% cash yield on the common portfolio.

Speaker Change: <unk> acquisition entities realized gains on partner investments of $40 1 million or <unk> 88 per unit in 2024 as compared to $13 5 million or <unk> 30 per unit. In 2023. These gains were realized on the redemption of brown and settle unify and stride as well as the exchange of unit.

Amanda Frazer: These gains were realized on the redemption of Brown and Settle, Unify and Strive, as well as the exchange of units in the Ohana during the AUM transaction. Due to their non-recurring nature, these gains are not included in Alaris' net distributable cash flow and would further decrease the payout ratio if included. Alaris' net distributable cash flow for 2024 increased by 42% to $130.4 million, or $2.87 per unit, from $91.6 million, or $2.02 per unit, in the same period of 2023, after normalizing for the prior year's one-time litigation cost, resulting in an actual payout ratio for the year of 48%.

Speaker Change: And the old Hana.

Speaker Change: During the transaction.

Speaker Change: Due to their nonrecurring nature of these gains are not included in <unk> net distributable cash flow and would further decrease the payout ratio are included.

Speaker Change: Allowances net distributable cash flow for 2024 increased by 42% to $130 4 million or $2 87 per unit from $91 6 million or $2 <unk> per unit in the same period of 2023 after normalizing for the prior year's onetime litigation costs, resulting in an actual.

Speaker Change: Payout ratio for the year of 48%.

Speaker Change: Since converting to the trough in.

Speaker Change: 2020, <unk> tax profile of distributions.

Speaker Change: Change from being a 100% eligible dividends to a combination of return of capital eligible dividends capital gains and interest income consistent with the prior year the effective tax rate on <unk> distribution for Alberta individual in the top tax bracket in 2024 was 22, 5% as.

Speaker Change: <unk> to 34, 3% or a dividend received from our corporation, providing both the tax deferral as well as an overall savings as compared to the to our corporate dividend.

Speaker Change: With regards to the portfolio.

Speaker Change: Our portfolio continues to perform well and has maintained its weighted average ECR of approximately one five times with 10 of our 20 partners continuing to be above the threshold of our 20 partners 13 have either no or less than one turn of debt as compared to EBITDA.

With regards to fair value movements, increasing discount rates driven by risk free rate movements resulted in decreases throughout the portfolio. While partner results further amplified were offset these movements.

Speaker Change: Most notable in the quarter. So debello has been impacted by the higher cost of advertising across the U S. As a result of the election cycle and a decline in the conversion rate of patient Consulta consultation.

Speaker Change: As they expand to new markets.

Speaker Change: These costs have impacted EBITDA in the immediate period. They are believed to be temporary in nature and the longer term forecast has been improved by the rollout of their contour division as they move into delivering new service offerings with breast augmentation.

Amanda Frazer: The total impact to the fair value of Sonabello, including the discount rate change, was a decrease of $7.3 million U.S., but for the year, Sonabello's fair value increased by $4.1 million U.S. Heritage is taking longer to return to profitability, and we now expect that Heritage will not be in a cash flow position to support preferred distributions until 2026, and have extended the expected deferral period as a result of the fair value of Heritage was decreased by $2.8 million U.S. in the quarter. The increase to FLEET's fair value was largely driven by an increase to common equity.

Speaker Change: The total impact to the fair value of soda below including the discount rate change was a decrease of $7 3 million U S. But for the year. So develops fair value increased by $4 1 million in U S.

Speaker Change: Heritage is taking longer to return to profitability and we now expect that heritage will not be in a cash flow position to support preferred distributions until 2026 and have extended the expected deferral here.

Speaker Change: As a result of the fair value of heritage as a result of fair value Heritage was decreased by $2 8 million U S in the quarter.

Speaker Change: The increase to fleets fair value was largely driven by an increase to common equity whilst lease revenue and EBITDA were down year over year. Therefore, it has to pick back up in 2025 deaths along with reductions in debt from cash generated by the business led to an increase in the fair value of 2 million U S for <unk>.

Amanda Frazer: While FLEET's revenue and EBITDA were down year over year, they are forecast to pick back up in 2025. This, along with reductions in debt from cash generated by the business, led to an increase in the fair value of $2 million, and for the year, FLEET's fair value was increased by $10.5 million. During the period, Alaris closed its second AUM transaction, exchanging $127.8 million U.S. of existing investment in Ohana for $59.7 million U.S. of convertible preferred equity and $70.3 million U.S. of common equity. growth in the business as well as increases in EBITDA from the time the transaction was negotiated until the time of closing drove an increase of $12.2 million US to fair value in the quarter.

Speaker Change: And for the year fleets fair value has increased by $10 5 million U S.

Speaker Change: During the period <unk> closed its second AUM transaction, exchanging $127 8 million U S of existing investment in Opana for $59 7 million of convertible preferred equity and $70 3 million U S comments.

Growth in the business as well as increases in EBITDA from the time the transaction was from the Thailand transaction was negotiated until the time of closing drove an increase of $12 2 million U S to fair value in the quarter.

Speaker Change: Our anticipated aggregate partner resets are expected to be an increase of $4 9 million or approximately $5 million in 2025.

Speaker Change: Positive resets are expected from 10 of our partners with negative resets from two partners at seven partners, who will not reset this year.

Speaker Change: Our current outlook calls for $42 5 million of revenue in Q1, as a result of consistently higher than expected common distributions during the year as well as positive resets on the preferred portfolio. Our 12 month outlook for revenue has increased to $187 million.

From what.

Speaker Change: $171 million and includes $19 4 million in expected common distributions.

Amanda Frazer: G&A Outlook increased to $18.5 million from $17 million previously, in part due to increasing FX rates, but remains at 10% of revenue, consistent with prior periods.

Speaker Change: G&A outlook increased $18 $5 million from $17 million previously in part due to increasing FX rates, but remains at 10% of revenue consistent with prior periods.

Steve King: Now I'll turn it over to Steve.

Steve King: Great. Thanks, Amanda and thanks, everybody for tuning in.

Speaker Change: Excellent spending to a record year for our company.

Speaker Change: In Canadian dollars, we now manage almost one $6 billion of investments.

Speaker Change: Of which more than a third have full common equity upside.

Speaker Change: We also get a portion of the eventual profits of another $750 million Canadian or third party capital that we manage so this gives our shareholders significant option value on future investment gains. In addition to the lower risk structured preferred equity that forms the basis of every deal we do.

Stephen King: Adding that optionality over the last five years hasn't come at the expense of keeping our well-covered dividend for our shareholders, as shown by our distributable cash payout ratio being below 50% for the year just ended. In previous communication, I had indicated that our target for pay-o-ratio would be roughly 65%. Given where we are now, it's a fair question to ask if we'll be increasing our dividend. In analyzing our business over the coming years, we believe that we'll be in a great position to use future exit returns to buy back significant amounts of our stock with the proceeds.

Speaker Change: Having that optionality over the last five years Hasnt come at the expense of keeping our well covered dividend for our shareholders as shown by our distributable cash payout ratio being below 50% for the year.

Speaker Change: Just ended.

Speaker Change: In previous communications indicated that our target for payout ratio would be roughly 65% given where we are now it's a fair question to ask if we'll be increasing our dividend.

Speaker Change: In analyzing our business over the coming years, we believe that there will be in a great position to use future exit returns to buy back significant amounts of our stock with the proceeds.

Stephen King: As such, it makes sense to have a consistent excess cash strategy and also use our monthly pre-cash flow to buy back stock as well. We have been active buyers to start this year and have budgeted to spend a monthly amount on buybacks that will put us roughly at the 65% payout ratio for the year. And then use exit proceeds to buy back extra amounts when they happen. The impact on our book value per share when we can drive net asset value growth as we've been showing for many years, while also reducing the share's outstanding, is significant.

Speaker Change: As such it makes sense to have a consistent excess cash strategy and also use our monthly free cash flow to buy back stock as well we have been active buyers.

Speaker Change: To start this year and have budgeted spend.

Speaker Change: To spend a monthly amount on buybacks it will put us roughly at the 65% payout ratio for the year and then use exit proceeds to buy back extra amounts when they happen.

Speaker Change: The impact on our book value per share when we can drive net asset value growth as we've been showing for many years, while also reducing the shares outstanding is significant.

Stephen King: Obviously this strategy changes if we end up trading above book value, which is $24.22, but we'll evaluate that when it happens.

Speaker Change: Obviously the strategy changes if we ended up trading above book value, which is $24 22.

Speaker Change: But we'll evaluate that when it happens.

Speaker Change: Another topic, there should be discussed as the impact of potential tariffs.

Speaker Change: U S spending government spending cuts and a possible recession that could come from those actions as was the case with the great recession of 2008, Covid crisis of 2020, and all the economic turbulence in between Polaris is built on the investment model that's uniquely insulated from any of these factors specifically.

Speaker Change: Specifically with tariffs Alero says, 90% invested in U S companies doing business strictly in the U S. They're all service based businesses and they don't rely on goods and materials that are imported or exported.

Speaker Change: On the Dol reforms that are being enacted we do have one of our 20 partners that good experience of business disruption from S&P.

Speaker Change: Thats, a human resources consulting company with long standing government contracts.

Stephen King: This is an extremely well-run company with no debt that's been operating in Washington for 35 years. And while we do think that there is some short-term risk to some of their contracts, we have no concerns for them in the medium and long term. From a recessionary standpoint, we're still well positioned with required service businesses that have little debt and long track records. Operators that own the majority of the businesses are always the best partners to have and especially when times get tough. On the positive side, we get 90% of our revenue in U.S. dollars, so an environment where Canada suffers due to tariffs would sadly but actually be a tailwind for Alaris Financially as we're seeing today.

Speaker Change: This is an extremely well run company with no debt that's been operating in Washington for 35 years, and while we do think that there is some short term risk to some of their contracts. We have no concerns for them in the medium and long term.

Speaker Change: From a recessionary standpoint, we're still well positioned with required service businesses that are a little debt and long track records.

Speaker Change: Operators that owned the majority of the businesses are always the best partners to have and especially when times get tough.

Speaker Change: Having these funds as co investment partners in the future it will be important to grow the business, even faster and will give our shareholders more optionality.

Speaker Change: Get returns on other People's capital So.

Operator: So, Dede, we'll throw the phone lines open to questions if they have any. Thank you. As a reminder, if you have a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Speaker Change: So BD will.

Speaker Change: Through the phone lines opened our questions if any.

Gary Ho: And our first question comes from Gary Ho of Dave Jargin Capital Markets. And good morning. Steve, just maybe wanted to start off with the capital allocation question. Good to see the step down in the payout ratio. It appears that you've pivoted a bit more towards share repurchases and appreciate your comments earlier in your prepared remarks. So maybe can you also talk about any thoughts on maybe doing an SIB on top of an NCIB, given where the shares you're trading today? Yeah, an SIB, Gary, would be considered, but only when we have kind of an extraordinary event.

Gary Ho: And our first question comes from Gary Ho of <unk> capital markets.

Gary Ho: Thanks, and good morning, Steve just maybe wanted to start off with the capital allocation question.

Gary Ho: See the step down in the payout ratio.

Speaker Change: It appears that you've pivoted a bit more towards share repurchases.

Speaker Change: And I appreciate your comments earlier in your prepared remarks. So maybe can you also talk about.

Speaker Change: Any thoughts on maybe doing an SUV on tablets and CIB, given where the shares are trading today.

Speaker Change: Yeah, NFIB, Gary would be considered but only when we have.

Speaker Change: Kind of an extraordinary event, so whether that's the exit of one of our partners that gives us.

Stephen King: So whether that's the exit of one of our partners that gives us, you know, a larger amount of free capital than what we have today. So, you know, we've kind of budgeted, you know, based on the budget to get to around 65% pay ratio, that's going to be about $25 million of stock repurchases just from our kind of daily free cash flow. And then an SIB, as I mentioned, would be something if we had a larger exit, we would launch an SIB based on that. Perfect. Okay, that makes sense. And then you chatted a little bit about the potential tariffs and Trump administration narratives.

Speaker Change: A larger amount of.

Speaker Change: Free capital.

Speaker Change: Then what we have today so.

Kind of budgeted.

Speaker Change: Based on the budget to get to around 65% payout ratio, that's going to be about $25 million of.

Speaker Change: Stock repurchases just from our daily free cash flow and then in <unk> as I mentioned would be something if we had a larger exit we would launch in <unk> based on that.

Speaker Change: Perfect. Okay that makes sense and then just.

Speaker Change: Chat a little bit about the potential tariffs and a Trump administration that narratives.

Stephen King: So thanks for your comments on FNP. Just outside of that, are there other partners that have more direct or indirect impact, perhaps? The only other one that I would point to is Edgewater. Edgewater is a nuclear engineering company that looks after nuclear stocks for both the DOE and the DOD, and we don't see anything there. That's an interesting company. One of the things we loved about it is that regardless of the administrations over the years, and regardless of whether the DOD is increasing the nuclear stockpiles or decreasing it, both of those require about the same amount of work from Edgewater.

Speaker Change: Thanks for your comments on F&B just outside of that.

Speaker Change: There are other partners that are more direct or indirect impact perhaps.

Speaker Change: The only other one.

Speaker Change: That I would point to as Edgewater Edgewater is.

Speaker Change: Nuclear engineering company that looks after.

Speaker Change: Nuclear stocks for both the Doe.

Speaker Change: The Dod.

Speaker Change: And we don't see anything there.

Speaker Change: <unk>.

Stephen King: We think that one is quite safe, but that's the only other one that really has kind of direct dealings with the government.

Speaker Change: So yes, we think that one is is quite safe, but that's the only other one that really has kind of direct.

Speaker Change: Dealings with the government.

Stephen King: Okay, and then just last question, just on the potential redemptions side, as you look out maybe 12, 18 months, are there one or two investments that are more likely to redeem? I think in previous calls, you've highlighted maybe Fleet as a potential candidate. Is that still a possibility this year? I just want to hear your comments on the redemption outlook. Yeah, fleet fleet is still a possibility. You know, I don't think anything significant is going to be like in the next quarter or anything like that. But, you know, over the next 1218 months, I think, I think we've got probably two or three that that could transact if everything goes according to plan.

Speaker Change: Okay and then just last question just on the potential redemptions, but as you look out maybe 12 18 months are there one or two investments that are more likely to redeem I think in previous calls you've highlighted maybe fleet potential candidate is that still a possibility. This year just want to hear your comments on the redemption outlook.

Speaker Change: Yes, Felipe fleet is still a possibility.

Speaker Change: I don't think anything significant there's going to be like in the next quarter or anything like that but.

Speaker Change: <unk>.

Speaker Change: Over the next 12 to 18 months I think.

Speaker Change: I think we've got probably two or three.

Speaker Change: Sure.

Speaker Change: That could transact if if everything goes according to plan.

Gary Ho: Okay, great. Those are my questions. Thank you.

Speaker Change: Okay, Great. Those are my questions. Thank you.

Ed: Thank you Ed.

Speaker Change: Q.

Jeff Schormendorf: Our next question comes from Jeff Gormley of Cormark Securities. Your line is open. Hi, good morning, everyone. So Steve, I appreciate the commentary on the deal pipeline and obviously you're able to look at some larger opportunities now just based on that, the co-invest model that you've been developing. I'm just wondering how does that work with the roster of co-investment partners? You obviously would like to know that there's a good level of demand. You maybe just sort of speak to the roster of potential partners that are out there that let you go down the path. Yeah, it's still in development, Geoff.

Speaker Change: Our next question comes from Joshua.

Speaker Change: Core Mark Securities. Your line is open.

Joshua: Hi, good morning, everyone.

Speaker Change: So Steve Thanks, I appreciate the commentary on the deal pipeline and obviously you are able to look at some larger opportunities now just based on that.

Joshua: The co invest model that <unk> been developing I'm, just wondering how that how does that work with with.

Joshua: The roster of co investment partners I mean, you obviously, you would like to know that Theres a good level of demand.

Joshua: Can you, maybe just sort of speak to the roster of potential partners that are out there.

Joshua: You go down the path of looking at some of these bigger deals.

Joshua: Yeah.

Jeff: It's still in development Jeff.

Stephen King: I think it's safe to say that there's, there's no large asset manager out there that wouldn't want access to our deals. Everybody's looking to deploy more capital. And so if you offer anybody a free look at deal flow, of course, they're going to take it. So for us, you you know, want to do the kinds of deals that we do, you know, with a blend of common and prefs, and you can't spread it out too much. You know, we are a middle-low market private equity firm, and so the nature of our product, the nature of our deals are always going to be slightly smaller than most private equity firms want to do.

Speaker Change: I think it's safe to say that there is there is no large asset manager out there that wouldnt want access to our deals.

Speaker Change: Everybody is looking to deploy more capital and so if you offered anybody a free look at deal flow of course, theyre going to take it so for us.

Speaker Change: We have to partner with people that will become true partners.

Speaker Change: And really.

Speaker Change: No.

Speaker Change: Want to do the kinds of deals that we do with a blend of common and perhaps.

Speaker Change: You can spread it out too much.

Speaker Change: We are a middle low market.

Speaker Change: The private equity firm and so the nature of our products. The nature of our deals are always going to be slightly smaller than most private equity firms want to do so.

Stephen King: So if you spread it out between five people, the check size is just not going to be big enough for any of them. So I would suggest it's going to be probably just one or two of them that we choose, and part of that will be on how much they're willing to pay us to manage this capital and bring them into our deals. And part of it will be, you know, cultural fit, part of it will be a fit on horizon, and the kind of terms that we typically have on our deals, whether that fits with their model, but that's all things that we're working on right now, and we'll likely, the next deal of any significance that we do will likely be kind of a test pilot with one or two of these groups, and if all of that goes well, then we'll make it something more formal.

Speaker Change: So if you spread it out between five people. The check size is just not going to be big enough for any of them. So.

Speaker Change: I would suggest it's going to be probably just one or two of them that we choose.

Speaker Change: Part of that will be on how much they are willing to pay us to manage this capital and bring them into our deals.

Speaker Change: Part of it will be cultural fit part of it will be.

Speaker Change: A fit on horizon, and the kind of terms that we typically have on our deals whether that fits with their model.

Speaker Change: But that's all things that we're working on right now.

Speaker Change: We'll likely the next deal of any significance that we do we will we will likely be.

Speaker Change: A test pilot with with one or two of these groups and all of that goes well then we'll make it something more formal.

Stephen King: for that color.

Speaker Change: Okay. Thanks for that color and then I guess alongside with that is just thinking about your own.

Stephen King: And then I guess, you know, alongside with that is just thinking about capital position you're utilizing. The Revolver today. What are your thoughts? Yeah, we are working on an expansion of our current facility with our debt syndicate. And so that's going to give us more room without doing anything else. Obviously, having co-investors lined up, that helps. And then kind of trying to forecast when we get some of these redemptions throughout the year. So those are all kind of the moving parts that we monitor. So we're very comfortable with where our balance sheet is today based on those things.

Speaker Change: Capital position, you're utilizing <unk>.

A majority of the revolver today.

Speaker Change: What are your thoughts in terms of how you want to structure the funding base of the business heading into this year.

Speaker Change: Yes, we are.

Speaker Change: Working on an expansion of our of our current facility with our debt syndicate.

Speaker Change: So that's going to give us more room.

Speaker Change: About doing anything else.

Speaker Change: Having co investors lined up.

Speaker Change: That helps.

Speaker Change: <unk>.

Speaker Change: And.

Speaker Change: And then kind of trying to forecast when we get some of these redemption throughout the year. So those are all kind of the moving parts that we that we monitor.

Speaker Change: So we're very comfortable with where our balance sheet is today based on those things.

Stephen King: Just given that you've got 20 partners and the payout ratio now is quite comfortable. Think about maybe running with a slightly higher leverage ratio in the business. Yeah, we want to keep it relatively where it's been. Obviously, the main thing is just access to the proper amount of capital to match our deployment schedule. So we think we're good for the time being. Obviously, if our deployment really ramps up as it could, then that equation will change. And I would suggest we'd probably do another convertible debenture or a straight debt type of transaction. Certainly would not do anything on the common equity side anywhere near these prices.

Speaker Change: And just given that you've got 20 partners and the payout ratio now is quite comfortable.

Speaker Change: Would you think about it may be running with a slightly higher.

Speaker Change: Leverage ratio in the business or do you want to keep it around where you've historically been.

Speaker Change: Yes, we want to keep it.

Speaker Change: Relatively where it's been.

Speaker Change: Obviously, the main thing is just access to the.

Speaker Change: The proper amount of capital to match our deployment schedule. So.

Speaker Change: We think were good for the time being obviously.

Speaker Change: If our deployment really ramps up as it could then then that equation will change.

I would suggest it probably.

Speaker Change: Do another convertible debenture or a straight debt type.

Speaker Change: Type of transaction.

Speaker Change: Certainly would not do anything on the common equity side anywhere near these prices.

Operator: Okay, thank you for that. Thank you. And as a reminder, if you have a question, please press star one one.

Speaker Change: Okay. Thank you for that I'll re queue.

Great.

Speaker Change: Thank you and as a reminder, if you have a question. Please press star one one.

Zachary Evershed: And our next question comes from Zachary Evershed of National Bank Financial. Your line is open. Good morning everyone, congrats on the quarter. to talk a little bit more about the Outlook for Heritage and SCRP. Um, sure. So, Heritage, um... We have been working with the notes management team that came in during Kimco to help us recover that investment and things have been going well, the business has worked through those negative margin contracts that put the pressure on working capital previously and they're ramping up for another busy season. heading back into their high season. All the projects that they have on the docket aren't profitable, so it's just a matter of, you know, working through those and building the cash balance back on the balance sheet to, you know, restore that working capital that was depleted over the prior year.

And our next question comes from Zachary ever said of National Bank Financial Your line is open.

Zachary: Good morning, everyone congrats on the quarter.

Speaker Change: Thanks, Doug.

Speaker Change: Yes.

Speaker Change: Could you talk a little bit more about the outlook for heritage and SCR. Please.

Speaker Change: Sure.

Speaker Change: Heritage.

Speaker Change: <unk>.

Speaker Change: We have been working with.

Speaker Change: The management team that came in during kimco to help us cover that investment.

Speaker Change: Things have been going well.

Speaker Change: The business has worked through those negative margin contracting pressure on working capital previously.

Speaker Change: And they were ramping up for another busy season, there is sort of heading back into their high season.

Speaker Change: <unk>.

Speaker Change: All the projects that they have on the docket are profitable. So it's just a matter of.

Working through those and building the cash balance back on the balance sheet to restore that working capital that are depleted over the prior year. So.

Zachary Evershed: So, things are going well there. We continue to work with that group and the underlying management... to drive that business forward, so still a positive outlook there. With regards to SDR, they have had a strong finish to 2024. You know, that's an investment that has been Moving along, sort of that steady $4.5 million distribution for us, I think that's an investment that we've been looking to exit in the near term, and we continue to work with the management team on possibilities for that to happen as well. And then last one for me, given the commentary around potentially issuing debt for financing and not being interested in equity at current valuations, if the units did trade up to book value, would there be any interest in calling the debentures early with excess free cash flow or would the NCIB still rank above paying down debt there?

Speaker Change: Things are going well there.

Speaker Change: We continue to work with that group then.

Speaker Change: Not to my management team.

Speaker Change: <unk> tried that business forward.

Speaker Change: Continental over there.

Speaker Change: With regards to SCR.

Speaker Change: They have had a strong finish to 2024.

Speaker Change: That's an investment that.

Speaker Change: Has been.

Speaker Change: Moving along.

Speaker Change: Sort of that steady steady four 5 million distribution price I think that we've.

Speaker Change: We've been looking to exit in the near term.

Speaker Change: <unk> management team on possibilities for that to happen as well.

Speaker Change: Alright, thank you.

Speaker Change: And then last one for me.

Speaker Change: Given the commentary around potentially issuing debt for financing and not being interested in equity at current valuations.

Speaker Change: The units did trade up to book value would there be any interest in calling the debentures early with excess free cash flow would be in CIB is still ranked above paying down debt there.

Stephen King: Do you mean the hybrid debentures that we have outstanding now or if we did a future cut? The Existence of the Future. I don't think so. The cost of those debentures I think is in line with where we look to be paying. So I don't think that there's any... We're not looking to really retire them. Thank you very much, I'll turn it over. Thank you.

Speaker Change: You mean, the hybrid debentures that we have outstanding hours, if we did have future convert.

Speaker Change: The existing debentures.

I don't think so.

Speaker Change: The cost of those debentures I think is in line with where we want to be paid.

Speaker Change: So I don't think that there is any.

Speaker Change: We're not looking to really retire debentures and replace that with equity at any point in time.

Speaker Change: Perfectly clear thank you very much I'll turn it over.

Doug: Thanks, Doug.

Operator: I'm showing no further questions at this time.

Speaker Change: Thank you I'm showing no further questions at this time I would like to turn it back to Steve King for closing remarks.

Stephen King: I'd like to turn it back to Steve King for closing remarks. Great. Thanks, DeeDee, and thanks again for everybody for tuning in. I know Amanda is looking forward to our first quarter because it'll be the first quarter where it'll be comparable to comparable with the new accounting standard. So it'll be a little cleaner and less complicated. So thanks again for everybody, and we'll talk to you next quarter.

Steve King: Great. Thanks, David and thanks, again for everybody for tuning in and I know Amanda is looking forward to our first quarter, because it'll be the first quarter, where it will be comparable to comparable with the new accounting standards, so it'll be a little cleaner.

Steve King: And less complicated so thanks again for everybody and we'll talk to you next quarter.

Operator: This concludes today's conference call. Thank you for participating and you may now disconnect.

Steve King: This concludes today's conference call. Thank you for participating and you may now disconnect.

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