Q1 2025 Onex Corp Earnings Call
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Speaker Change: Thank you for standing by and welcome to <unk> Corporation's first quarter 2025 earnings results. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue.
Speaker Change: Simply press Star one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Jill how many shareholder relations and communications. Please go ahead.
Speaker Change: Thank you good morning, everyone and thanks for joining US we're broadcasting this call on our website hosting the call today are Bob <unk>, Chief Executive Officer, and Kris <unk>, our Chief Financial Officer.
Speaker Change: Earlier this morning.
Speaker Change: Quarter, 2025 press release, MD&A and consolidated financial statements, which are available on the shareholders section of our website and have also been filed on SEDAR.
Speaker Change: Supplemental information package is also on our website.
Speaker Change: As a reminder, all references to dollar amounts on this call are in U S unless otherwise stated.
Speaker Change: Also point, everyone to our webcast presentation for our usual disclaimer and cautionary factors relating to any forward looking statements contained in today's presentation and remarks.
Bobby: With that I'll now turn the call over to Bobby.
Speaker Change: Good morning, everyone.
Speaker Change: <unk> had a solid start to the year and our teams are proactively navigating the challenges of the current environment.
Speaker Change: The work done last year to streamline operations and double down on our core strengths.
Speaker Change: Allowing us to remain focused on long term value creation plans.
Speaker Change: We are committed to executing on our strategy and taking targeted actions to generate shareholder value.
Speaker Change: First.
Speaker Change: I want to welcome Bob Shannon feel to the unexplored.
Speaker Change: At our annual General meeting yesterday, our shareholders appointed Bob is our newest director.
Speaker Change: He is a highly skilled investor and business leader with over 30 years of experience in the private equity industry.
Speaker Change: His 10 years at landmark partners and GE capital.
Speaker Change: Now a few words in the current environment.
Speaker Change: RPE teams are actively working with our operating companies to anticipate and mitigate tariff concerns.
Speaker Change: With the benefit of our portfolio's diversification and orientation, namely a large majority of our businesses our service oriented.
Speaker Change: Minimal reliance on imported and exported goods.
Speaker Change: We generally have limited exposure to first quarter tariff disruptions.
Speaker Change: Yeah.
Speaker Change: As with most organizations our primary consideration is around potential second and third order impacts, including near term lower GDP growth.
Speaker Change: Supply chain disruptions and.
Speaker Change: And you did M&A activity.
Speaker Change: How deep and how long these impacts may persist.
Speaker Change: And in part.
Speaker Change: The ongoing tariff negotiations and their impact on business and consumer confidence.
Speaker Change: The M&A environment has definitely slowed over the past few months.
Speaker Change: Times of uncertainty tend to cause sales processes to slowdown.
Speaker Change: If we're to get put on pause.
Speaker Change: While the private equity industry is still highly focused on returning capital to Lps.
Speaker Change: It's become more difficult over the past few months.
Speaker Change: With that said we are currently pursuing several realizations, both op and non cat.
Speaker Change: And we're also open to partial realizations and additional continuation vehicles.
Speaker Change: Earlier this morning, we announced a 25% sale.
Speaker Change: Of our equity investment in west yet.
Speaker Change: Prominent global Airlines Delta Korean Air.
Speaker Change: And air France KLM.
Speaker Change: The transaction will help strengthen established industry partnerships.
Speaker Change: As a strong positive statement on West coast strategy performance and ability to continue to grow.
Speaker Change: With the proceeds on X and our affiliated funds and partners will have fully realize our original cost while still owning 75% of our shares.
Speaker Change: The transaction was completed at more than a 25% premium to our current Westjet NAV.
Speaker Change: This is a significant achievement that speaks to our team's ability to deliver positive realizations for high quality assets in all market conditions.
Speaker Change: Turning now to fundraising.
Speaker Change: Two milestones were achieved in Q1.
Speaker Change: As we mentioned in our last earnings call on.
Speaker Change: Annexed partners closed on its opportunities fund raising.
Raising total commitments of $1 2 billion, which exceeded the initial target.
Speaker Change: The first is a two year investment period.
Speaker Change: <unk> already completed its first two investments.
Speaker Change: Which puts us at over 30% deployed.
Speaker Change: At the end of the quarter, we also announced the successful final closing for uncapped five with $1 3 billion in total commitments.
Speaker Change: <unk> achieved several key objectives relative to its prior fund.
Speaker Change: Including growing total commitments.
Speaker Change: Increasing third party capital by 54%.
Speaker Change: And adding many new investors to the platform.
Speaker Change: The fund has approximately 50% deployed having already completed five investments to date.
Speaker Change: Yeah.
Speaker Change: Both achievements were completed in a challenging fundraising environment.
Speaker Change: RPE and client and product solutions teams are to be commended on reaching these goals.
Speaker Change: Our credit team delivered another strong quarter Matt.
Speaker Change: Maximizing opportunities and continuing to differentiate themselves amongst peers.
Speaker Change: They have executed 10 CLO transactions so far this year.
Speaker Change: Including five new issues that will raise $2 5 billion of new fee generating AUM.
Speaker Change: Yeah.
Speaker Change: Recent transactions in Q1 extended another $1 8 million of fee generating AUM.
Speaker Change: Over the last year. The team has been actively manage the portfolio to a more defensive position.
Speaker Change: Given the potential market slowdown.
Speaker Change: Yeah.
Speaker Change: Overall, our focus remains centered on compounding now.
Speaker Change: Increasing fee related earnings and carried interest across our platforms.
Speaker Change: And leveraging our strong balance sheet to create future growth.
Speaker Change: And related shareholder value.
Speaker Change: This includes returning more capital to shareholders via share buybacks.
Speaker Change: <unk>, given our large discount to NAV relative.
Speaker Change: Relative to any reasonable historic norm.
Speaker Change: Our teams are confident in our core areas of strength that have created shareholder value over a long period of time.
Chris: Now I'll turn it over to Chris.
Chris: Thanks, Bobby and good morning, everyone.
Speaker Change: Onyx ended Q1 with investing capital per share of $116 97.
Chris: Up 3% from year end and 9% over the past year.
Chris: In Canadian dollars Onex's investing capital is generated three and 16% returns over those same periods. These.
Chris: These returns are driven by investing gains from private equity and credit as well as accretive share repurchases.
Chris: We repurchased a total of one 4 million shares in Q1 and in April we renewed the normal course issuer bid for another year.
Chris: The renewal will allow us to continue to make opportunistic share repurchases of up to 10% of the public float over the next 12 months.
Chris: Our buybacks in the first quarter at value substantially below NAV allow.
Chris: Allowed us to capture almost Canadian $90 million of hard NAV for continuing shareholders.
Chris: And the recent market volatility has provided an opportunity to repurchase our shares and even more attractive prices with almost 800000 additional shares purchased in April.
Chris: Average cost of about Canadian $93 we.
Chris: We expect to continue to be active buyers so long as the value disconnect persists.
Chris: Now looking at our investing returns.
Chris: Our PE portfolio returned 2% in the quarter, largely driven by our holdings in the financials and consumer sectors.
Chris: These returns are relative to an essentially flat return from the MSCI World mid cap index in the quarter.
Chris: Since Q1 financial markets have come under pressure in response to developments in the global trade environment.
Chris: While the market volatility may directly impact our publicly traded investments, which are about 9% of RPE portfolio. Our private marks are not likely to be as affected.
Chris: As you know, we utilize a mix of valuation approaches for our private companies with our multiple based approaches being more directly impacted by market movements and our DCF based approaches typically being less correlated with the public markets.
Chris: Additionally, as Bobby mentioned the service based bias of our portfolio has us relatively insulated from the first order impacts the recent global trade developments, but we remain focused on monitoring and managing the potential second and third order impacts.
Chris: Additionally, we thought it would be helpful to provide an update on leverage and RP portfolio.
Chris: Overall credit markets have stabilized and generally remain open and functioning well, albeit with lower volumes due to the slowdown in M&A.
Chris: As you might imagine we're continuously monitoring the financings within our companies and taking advantage of that market's to amend and extend facilities when available rather than being reliant on the market as being open when we need them.
Chris: As a result, we have no significant refinancing needs across the PE portfolio until 2027.
Chris: We are also generally use less leverage than the industry average roughly two turns less which positions us to better manage through any downturns in the broader economy.
Chris: Turning to credit results, our credit investments delivered $11 million net gain or a 1% return in Q1. This was driven by our structured credit strategies, including some favorable foreign exchange on our Euro Clo's reversing a portion of the FX headwind we experienced in Q4.
Chris: On the asset management side of the business.
Chris: <unk> ended the quarter with $37 billion of fee generating AUM.
Chris: A 5% increase in the quarter reflects new commitments made to on cat five and Neonics partners opportunity fund together with the issuance of new CLO.
In total we raised approximately $2 $5 billion of FGA AUM in Q1 across our PE and credit platforms.
Chris: Looking at credit more closely the team has raised or extended approximately $5 3 billion of fee generating AUM. So far this year across its tactical allocation and structured credit strategies.
Chris: As Bob discussed our structured credit business has continued to be active after a banner year in 2024.
Chris: Current market conditions are expected to slow U S and European CLO activity in the near term. However, the team worked hard to reset many CLO over the past couple of years, resulting in nearly 95%.
Chris: Our CLO AUM at quarter end in its reinvestment period, and with the weighted average reinvestment period running into late 2028.
Chris: These efforts mean, we can wait up the markets our existing CLO.
Chris: And as it relates to new issuances.
Chris: <unk> balance sheet will be a competitive advantage.
Chris: Allowing us to Opportunistically issue, new CLO, when we see an attractive opportunity arise from the uncertainty in the underlying market.
Chris: Bridging the equity in a CLO and selling down in a more stable market.
Chris: Likely to produce attractive returns for on excess capital.
Chris: And support continued growth and on express.
Chris: Turning to asset management results.
Chris: Asset management segment generated $25 million of earnings in Q1 of which $11 million with fee related earnings from the P/e and credit platforms.
Chris: After factoring in on X corporations costs associated with managing its invested capital and maintaining the public company total FRE was $2 million in the quarter.
Chris: Improved quarter over quarter performance reflects increased fees, primarily from p/e, including catch up fees from uncapped lives.
Chris: Also benefited from the continued impact of cost management initiatives.
Chris: While this quarter includes about $5 million of catch up fees for P E.
Chris: Our run rate asset management FRE is in line with the Q1 results primarily due to the tailwind of fees from recently raised close.
Chris: FRE from structured credit, which we began to breakout separately last quarter was unchanged at $12 million in Q1.
Chris: Management fees from new CLO is coming online structured credits annual run rate FRE contribution is about $53 million up about 5% from year end.
Chris: In summary, we had a good start to the year and our 40 years of investing experience make me confident in our ability to navigate the challenges we've seen in the markets since early April.
Chris: With a diverse portfolio of investments financial strength and flexibility and a dedicated team we remain focused on compounding our investing capital growing our FRE and returning capital to shareholders and partners.
Chris: That concludes the prepared remarks, we will now be happy to take any questions.
Speaker Change: Certainly and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. Our first question comes from the line of Nik Priebe from CIBC capital markets. Your question. Please.
Speaker Change: Yes. Thanks.
Nik Priebe: So my sense is that there is a bit of confusion around the implied return of the Westjet transactions. So I just wanted to run through the math really quickly here.
Nik Priebe: The initial equity investment by the Onyx group was USD 1 billion.
Nik Priebe: The equity valuation implied by the sale of a minority interest is to point to.
Nik Priebe: So thats a $2 one times multiple of capital. If you will and then in addition, since the time of acquisition Westjet has paid cumulative distributions that amount to half of the upfront equity investments. So that's another <unk> five times MLC. So.
If you had sold a 100% the total realized most of it would be 2.6. So in other words you recover the entirety of your upfront equity investment the realized MLC is one times and there is another one six that unrealized.
Nik Priebe: Do I have all of that correct.
Bobby: Hey, Nick it's Bobby.
Bobby: I anticipated a bunch of westjet questions. Today. So we have a special guest on today's call topic proppant here and he'll answer that question for you.
Speaker Change: Yes, hi, there its topic you started with the preface.
Speaker Change: Practicing that question with confusion there was there was actually no confusion and how you weigh that out that's exactly right.
Speaker Change: Okay perfect. That's that's that's clear.
Speaker Change: I guess just longer term strategy with the remaining interest.
Speaker Change: I understand the foreign ownership restrictions, we've placed limitations on.
Speaker Change: Yeah.
Speaker Change: At the global Airlines, taking a control position. So how do you see that playing out over time, because an IPO is still the most likely outcome.
Speaker Change: It's a big investment so just on size, allowing you'd say it likely needs to be in the capital markets at some point.
Speaker Change: We are at the cap for strategic foreign investors.
Speaker Change: Though our total foreign ownership wouldn't be out of whack. If you were to compare it to say air Canada for example.
Speaker Change: We think this is a pretty good endorsement of the strategy that performance through Covid.
Speaker Change: The way, we think about it it just increases the optionality for whatever path, we take but I think given its size I think it's natural to think about this is ultimately one day being reintroduced to the public markets.
Speaker Change: Yeah.
Speaker Change: Got it Okay and then just last one for me.
Speaker Change: You had mentioned that the transaction.
<unk> was announced at a 25% premium to west coast carrying value and the Nab I just wanted to confirm that thats been marked up now and that would be reflected in your Q1 now.
Speaker Change: No.
Speaker Change: Yes.
Speaker Change: It is not yet reflected and.
Speaker Change: Look we're working with.
Speaker Change: Three potential buyers across different time zones that have their own.
Speaker Change: And companies and they have their own jurisdictional consideration. So all of this will be disclosed in time I think the way bobbi framed it that it's more than a 25% premium is correct and it will be disclosed.
Speaker Change: I think Chris next quarter. So it's not it's not this transaction is not reflected in the Q1 report.
Speaker Change: Got it Okay. That's very helpful. Alright, that's it for me I'll pass the line. Thank you.
Speaker Change: Thank you and our next question comes from the line of Graham Ryding from TD Securities. Your question. Please.
Graham Ryding: Oh hi.
Chris I appreciate the commentary around leverage of your portfolio private equity portfolio on average you said it was two times less what is the industry average for leverage and sort of your sort of verticals and we're thinking like five six times or higher.
Speaker Change: So Nick the industry average is closer to six five to seven and we're two turns less than that.
Speaker Change: Okay. That's helpful.
Speaker Change: The fund raise and I think I came on the call late I apologize if I missed it I apologize, but could you break down the $2 5 billion in the corner and cross your.
Speaker Change: Private equity mandates.
Speaker Change: Credit.
Speaker Change: The fundraising.
Speaker Change: Yes, sorry, great I'm, just pulling that up in front of me just give me a second here.
Speaker Change: And then maybe a follow on on that is just how much how much of your range.
Speaker Change: In Q2 to date that sort of incremental to your fee paying AUM.
Speaker Change: Yeah. So.
Speaker Change: Within.
Speaker Change: Hugh.
Speaker Change: One.
Speaker Change: It's got to make sure I got this right.
Speaker Change: The increase in.
Speaker Change: Private equity.
Speaker Change: AUM.
Speaker Change: It was about $375 million with the balance coming from structured credit.
Speaker Change: And tactical allocation strategies within.
Speaker Change: Credit.
Speaker Change: Don't have an update did number for <unk>.
Speaker Change: Q1, I don't think theres any material change in private equity.
Bobby: But there may be CLO, that's been priced or closed Bobby yes, we had done seven CLO transactions.
Bobby: I believe three new and four extensions as of Q1 and that number is up to 10. So incrementally in the first month of Q2 that would be there would be more credit.
Bobby: AUM raised.
Bobby: Yeah.
Bobby: Yes, just because I think you gave a five.
Bobby: Okay.
Bobby: 5 billion number of new and existing CLO I was just wondering what was new there in what had been extended.
Bobby: Sure.
Bobby: Okay I can follow up on that.
Speaker Change: On the West Gen. Please what is your ownership on ex Corp. What is your ownership stake now going forward.
Speaker Change: I think you were at 28% if my math is correct, an estimated 21% going forward right.
Speaker Change: Yes.
Chris: Alright, Alright, Chris go ahead.
Chris: No I would just say that it would be three quarters of what it was prior theres no difference between <unk> X participated in our co investors in fund investors.
Chris: Yes.
Chris: And then on the private equity side.
Chris: Got.
Chris: It was positive this quarter, but you did flag that there was some catch up fees for on cap, if we adjust for that.
Chris: Suggest breakeven is that a reasonable sort of run rate run rate to expect going forward breakeven describing for private equity.
Chris: Yes, that's right and the offset to that.
Chris: One time or catch up fees in private equity coming out.
Chris: Isn't expected are not expected is sort of locked and loaded if you will increase in fees from from credit. So we sort of think of run rate going into Q2 for total FRE being consistent with actual Q1 FRE.
Chris: Okay, Great. That's it for me thank you.
Chris: Thank you.
Speaker Change: This does conclude the question and answer session of today's program I'd like to hand, the program back to Bobby Le Blanc for any further remarks.
Speaker Change: Thanks, everybody for participating if you have any questions feel free to call, Chris or me or Joe.
Speaker Change: And our IR Department and I Hope you have a nice weekend.
Speaker Change: Yes.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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