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spk00: Good afternoon, ladies and gentlemen, and welcome to the Kenai Holdings Incorporated First Quarter 2021 Earnings Conference Call. I will momentarily open up the conference lines for questions. Until then, all parties will remain in a listen-only mode, with instructions to follow at that time. As a reminder, this conference is being recorded. Joining me today are Chief Executive Officer Rick Massey, President David Ducalman, and Chief Financial Officer Brian Coy. A replay of this call will be available through 1159 p.m. Eastern Time on May 17th, 2021. Before we begin, I would like to remind you that this conference may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our expectations, hopes, intentions, or strategies regarding the future are forward-looking statements. Forward-looking statements are based on management's beliefs as well as assumptions made by and informed information currently available to management. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our quarterly shareholder letter, which was released this afternoon, and in the statement regarding forward-looking information, risk factors, and other sections of CNAEIS Form 10-K and other filings with the SEC. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ian Zafino from Oppenheimer. Please go ahead.
spk05: Hi, guys. Thank you very much.
spk02: Hey, Ian.
spk05: How are you?
spk02: Good. Thanks for your coverage and your interest.
spk05: Absolutely. I didn't know if you guys could maybe, you know, talk a little bit about, you know, the wind deal and how shall it and tell us about, you know, maybe build, you know, your role when it comes to that. Thanks.
spk02: Yes, sure. Uh, so, uh, that's probably why Mr. Foley is, is not on the call. We announced the, uh, for those of you who don't know today, Alcerlet one, uh, announced a merger agreement with the interactive gaming, sports betting and gambling, uh, uh, assets that win owns a credible set of assets. Um, and, uh, Ocelot 1 will be merging and the Ocelot 1 has $690 million of cash and that will be injected into WIN to essentially fund its blowout marketing efforts that it's going to undertake in the next few months leading up to the NFL 2021 season. Kenai had a forward purchase agreement which is essentially a standby source of capital, Wynn wanted no more than $690 million of capital, so that forward purchase agreement will not be effectuated. And the only involvement that Kenai has is it has agreed to backstop the full $690 million against redemptions. And we actually hope there are redemptions because we'd love to buy this at, you know, at whatever, $10 a share. So that's our role. That's Kenai's role. And we're getting a 50 basis point fee for the standby plus the opportunity to buy some shares. It's $3.25 million. $3.5 million, sorry.
spk05: And, okay, so now Bill, because I know he has an interest in the iGaming side on PaySafe, so I didn't know if he was going to be involved in this, or is there anything that might be shared as far as knowledge gained from the PaySafe side, or should we really assume that they're completely separate?
spk02: You know, I'm not sure about the latter question, about whether there's something to be done between the two. Obviously, PaySafe is in the vendor side of the business, the payment side in particular. And, um, and, uh, when is in the front end, uh, you know, they're actually a B2C company. Uh, there'll be, and we, we look forward to seeing, seeing your name on the, uh, on the wind bat site. And, um, we'll be following your bets. Uh, but I'm not sure. There's plenty of expertise that Bill's going to bring to bear based on what he's learned, not only with, um, with the Paysafe deal, but with Sightline, another company, a small company we invested in that basically owned the brick-and-mortar payments side of the business with the large casinos. And so Bill's got a lot of data now in his head about how this industry works, and he's already got ideas on the kind of products that that, you know, from that, he's got ideas about the products that we think, that he thinks Wynn might, you know, might be successful at all.
spk05: Gotcha. You know, and then on the trivia side, and this will be my last question, I'll let someone else jump on. On the trivia side, you know, I guess from the wording of your letter, you're kind of playing things a little bit close to the vest, but should we assume that the deal that was targeted something didn't work out and now you're on the prowl for something new? Or is it the existing target is still kind of in play?
spk02: I don't know if it's appropriate for me to comment on it except to say we're not looking for something new right now. How about that for skating around on the answer?
spk05: Perfect. Thank you very much. Over to Mel.
spk00: Anybody else? Our next question comes from John Campbell with Stevens. Please go ahead.
spk03: Hi, this is James Hawley stepping in for John Campbell.
spk02: Hey, James.
spk03: Hey, how are you doing?
spk02: We heard Campbell was going to bail on us.
spk03: Oh, it's not like that. Come on. Congrats on the new deal. That's really exciting.
spk02: Thank you. Tomorrow morning I would get up and have breakfast and go down to the trading floor and buy as much of this as you can because it's very reasonably priced.
spk03: Yeah, it looks very attractive. It's very exciting. Just to backpedal a little bit, though, I just had a couple questions here on some of your older deals. So given the market kind of in the SPAC environment, in the recent months here, Allied's been kind of lagging a little bit, and a lot of it is SPAC-related, and then it's not necessarily company-specific. So can you talk a little bit about that? what you're seeing there and anything that you would, uh, comment on versus kind of the overall environment and then, uh, allied itself.
spk02: I'll have two comments on it. Uh, we'll have two comments and one I'll make. And then the other, if Duke are you on, you can make, um, so the, uh, a light continues to blow, blow through its, its plan. Uh, they had a great, They had a great fourth quarter. They're going to have a great first quarter. And we believe that there is a stable of shareholders out there in the world who really want to own this thing. I don't know if you noticed, but we picked up one or two sell-side research analysts, and they're kind of in the $20 price target, so it's a double. And we think he's right. It's really, really a cool company, and it's got the best management in that industry. So, you know, we're still very excited about it. We have no reason to believe investors won't be, but you're right. This is more SPAC-specific than it is sort of company-specific. One thing that Duke has done, Duke is a smart dude and neat, He did a bunch of, you know, when we see a stock trading at 10 or slightly below, we worry about redemptions. And Duke did a piece of research that I'm sure he'd be glad to share with you, a regression, about really what factors into the redemption risk. Would you mind hearing this? Yeah, sure, go ahead. It's probably going to be interesting for you and other SPACs. Duke, are you on the line, and would you mind addressing that?
spk04: Yeah, happy to walk through it. So, you know, we saw a light trading around $10. We got a little worried internally that there could be redemptions in the deal, even though, you know, obviously we love the business and they continue to outperform. And what we found were three things. First, if the stock is trading above $10 or $12, let's say, there's no redemption risk. So this only applies to stocks in the $10 range. Once you get in the $10 range, there's really two things you look at. It's the size of the SPAC and, more importantly, the amount of turnover. So, in general, just larger SPACs tend to get redeemed less. There were bigger books to fill out. I think you get more sophisticated investors. We found even multi-plan, for example, it didn't get redeemed. It was a very large SPAC. It may not have been, you know, the best received deal, but still didn't get redeemed despite performance issues because it was fairly large. More instructive, what we found was turnover. So our light shares have turned over almost 200% since we announced the deal, which means the shares are now held in the hands of long-term investors who know the company they're buying and are comfortable with the asset. So those are shareholders we expect would not redeem. It's when there's really light turnover and maybe 20%, 30% of the shares turn over post-deal announcements that your shares were still really held by the original hedge funds that bought into your SPAC and may or may not like the underlying asset. So that's a quick explanation. Does that make sense? I'm happy to dive into some more of this. But, you know, we looked at every SPAC deal that's been done and kind of a lot of this and spent a lot of time with it on a deal-by-deal basis as well.
spk03: Yeah, that's really helpful. That gave a lot of color. That was definitely helpful. Just to switch, I don't want to stay on for too long here, so give someone else a chance. Just one other quick one here. Any thoughts, again, on recent buybacks and any appetite for that going forward here?
spk02: It's cheap, and it's below book, so it would make total sense to buy it back. But we've got, as you can probably tell, it's all about capital allocation, and we think we get better returns at this stage investing in some of these portfolio companies. than we would buying back our own shares, although it's very tempting, and it's not to say we wouldn't, you know, Bill wouldn't want to pull the trigger on it tomorrow because it is frustrating how low it's trading despite all the great wins we've had, you know, just this year. So it is. You're right to ask, and I'd say it's on the drawing board. It's not something we forget about. Do you agree with that?
spk04: I agree with that. I absolutely agree with that.
spk03: Okay. Thanks, guys. I appreciate the time. And congrats again. Sure, man. Thanks for your interest.
spk00: As a reminder, if you have a question, please press star then 1 to be joined to the queue. The next question is a follow-up from Ian Zuffino with Oppenheimer. Please go ahead.
spk05: Hi, great. Maybe a question for Brian. And I guess all you guys. But, you know, how are we thinking about not like per se current liquidity, but maybe like access to liquidity? Obviously, this is a big kind of event and announcement on the actual side. You have other SPACs out there. Should we expect sort of like the same deal size on these other SPACs as as this wind deal now? And how are we thinking, Brian, again, on the liquidity side and access to that and maybe what we should expect? Thanks.
spk01: No, it's a great question. I'll start with part of it, and maybe if Rick or Duke, you want to jump in on the other side as far as deal size. As far as liquidity, we ended the quarter with nearly $400 million in corporate cash, still have not drawn on any of our credit lines. We have, you know, $100 million still with the F&F remover and an up to $500 million under the margin loan we entered into last year, and neither of those have been drawn on. In addition to that, we still have quite a sizable chunk. We still have 14 million shares of Ceridian. Even at today's price, that's about $1.2 billion of powder sitting there, Ian. Rick, do you want to talk about the deal size or – Part of that question.
spk02: So how about for Duke, too, if you don't mind, Duke?
spk04: Yeah, I'm happy to. I'd say we're going to approach them on a case-by-case basis. I think that our appetite for, you know, really large forward purchase agreements has probably waned a little bit. But, you know, it's hard to never say never. It just depends on what's in the pipeline and, you know, our degree of conviction, frankly, with the transactions. But I think we'll always be judicious with our capital resources. As Brian laid out, we've got plenty of sources of liquidity for existing and new transactions.
spk05: Okay, great. Thanks for the call, guys. Appreciate that.
spk02: Sure, Ian.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Rick Massey for any closing remarks.
spk02: Thank you for your interest in our company. We appreciate that you understand that it's undervalued, and thank you for helping us tell the story. Please feel free, either of you guys, to reach out to Brian or me or Duke any more questions that you might have. Have a great rest of the day.
spk00: This concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
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