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spk00: Good afternoon, ladies and gentlemen, and welcome to the Kinney Holdings, Inc. Fourth Quarter and Full Year 2022 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the company's pre-prepared remarks, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded and a replay is available through 1159 p.m. Eastern Time on March 1, 2023. With that, I would like to turn the call over to Jamie Willis of Solberry Strategic Communications.
spk06: Thank you, Operator, and all of you for joining us this afternoon. On the call today, we have our Chief Executive Officer, Rick Massey, Kani's newly appointed President, Ryan Caswell, and Brian Coy, our Chief Financial Officer. Before we begin, I would like to remind listeners that this conference call and the Q&A following our remarks may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about Kaniyia's 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 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 our other filings with the SEC. Today's remarks will also include references to non-GAAP financial measures. Additional information, including a reconciliation between the non-GAAP financial information to the GAAP financial information, is also provided in our shareholder letter. I would now like to turn the call over to Kaniyia's Chief Executive Officer, Rick Massey. We'll have a few brief remarks and then open the line for your questions.
spk05: Hey, thanks, Jamie. And welcome to our fourth quarter 22 call and our full year 22 call. I'm Rick Massey. I'd like to formally introduce our new president, Ryan Caswell. He's here with us. He is moving in instead of David Ducamin, who is moving on to F&F. We will miss Duke. He was a fantastic president. I think he's going to also add a great deal of value to F&F, but I'm very excited to have Ryan as my partner, Ryan. as our new president. I think you will find him to be a very straightforward and intelligent human being. I'm just going to hit a couple of highlights from the quarter and then be happy to kick it open to questions. So we bought back in the fourth quarter at 22, the main highlight is we bought back 2.3 million shares. I think The average price was about 21 and 21 and a half, a little lower than that. Below 21.
spk02: Yep.
spk05: Okay. There we go. And, um, that was 51 million of proceeds. So for 22, uh, we told you we were going to buy back shares and we bought back 10.8 million shares. That's 12% of the outstanding, uh, as of December 31, 21. which was when we really started accelerating our buyback program. You may recall we accelerated that after our conference in Las Vegas early December of 2021. So since we've embarked on our repurchases, we bought back 15.6 million shares, and that's 17% of the then outstanding and about a $400 million return to our shareholders. Unfortunately, the gap between our stock price and our liquidation value didn't close. We thought, we had hoped that the gap would close significantly when we showed aggressive buybacks, but it just didn't happen. But nonetheless, we returned a lot of shares, a lot of cash to shareholders. We closed the last leg of our AmeriLife transaction November of last year, we still retained a 29% portion of AmeriLife, and we're booking that at $95 million. We are excited about that, about AmeriLife going forward, and we obviously are very excited for the accomplishments where we received a MOIC of 2.7 times our money. And that was in really just about three years, so not a bad Not a bad trade for us. Caswell is, and I assume remains on the board of AmeriLife. It doesn't rain on the board, but it was still, they did a nice job in bringing in some new investors at a very nice valuation. I guess it's kind of a sign of the times that we're bragging on selling one of our portfolio securities for a loss, but we did that. We sold Canai shares for $27 million in cash. And as you know, there's been a split. So how many shares did we – were they split? How many shares did we sell?
spk02: We sold 19.2 million pre-split.
spk05: Okay, 19.2 million pre-split, and that's like $1.6 million. It was 12 to one post split. Okay. And that, um, that gave, uh, can I, we, we, why did we do that was because we, we had gains, uh, we were carrying tax gains, uh, taxable gains on the sale of AmeriLife and on some C-Day. And, uh, we, it was just bad because we, we thought it would be bad portfolio management and not good portfolio management for can I to pay taxes when they had this you know, these fairly large unrealized losses on their balance sheets. So we peeled some of those shares off and sold them. As a result, Kenai's not going to be a taxpayer in 22. And so we'll get a refund of our advances. The unfortunate problem for partners of Trasamine is that knocks a big hole, that realized loss knocks a big hole in our ability to get carry. carried interest, which is how we get paid. Uh, uh, and probably most portfolio managers wouldn't have done that for that reason, but we just, we wanted to do the right thing here and not have, can I pay, uh, pay it. It was silly for Canada pay taxes. Um, we sold a million shares of a C day Ceridian, uh, for roughly about 70, 78 bucks a share. Uh, that is a, believe it or not a 13 times multiple. uh given that we invested in like 07 so it's still a great return um and to um you know for us we own five million shares now of uh c day and for those who are counting uh we closed uh in um november of 16 uh november 16th of 22 we closed our investment in csi or computer services It's a really nice kind of a small bank core processor located in Kentucky. Bill and I both, and Frank Martyr, he sits on our board, former CEO of Medivante and FIS, all coveted this business back in the day, but they would never sell. And finally, they decided to sell. And when they decided, we were not front and center on it, but Centerbridge was. And Centerbridge was kind enough to let us put about $86 million in the deal. We are excited about the prospect of returns on CSI. There may be some opportunities to do follow-on investments as they look at some M&A, and they have some in their sights, so we could get to put a little bit more in. It'll just depend on what the target is and how CenterBridge wants to value the business. We, as you are probably all aware, we invested 51.1% of the necessary equity to acquire an English Premier League football club, AFC Bournemouth. And that is, we paid roughly 0.8 times revenues on that, way, way below the comps. One of the reasons for that is that the business had been, frankly, pretty, it had been the business side of the soccer team had been undervalued, undermanaged by the management team, the then management team. And I mean ticket sales, gear sales, food sales, all the other hospitality stuff. There was just no attention paid to it. And this company was performing well. on those areas very well below its peers and uh we are very confident that bill and his team and ryan who's who's our partner dispatched on the project um uh will uh will turn the business side around and uh as you are probably aware if you followed it uh we they bought um bournemouth bought our signed up several new players in an effort to try to stay in the Premier League, and they're playing a lot better than they had in the past. So we're knocking on wood. They don't get relegated, and this thing performs really well for us. This is not like a family, an heirloom deal. This is a deal as an investment. And if you've seen any news about what people are paying for these teams now, you can see that we got a bargain and, uh, we, we should be able to make quite a bit of money on it. So Ryan will go into more detail if you're interested, but we've got, um, we've got the F and F credit facility that we use to buy back that essentially we use to buy back 5% of the company during our buyback period at a deeper discount, uh, than we were paying in quite a bit deeper than we were paying in the market. And we essentially used a credit facility from F&F to pay for those shares. That's $85 million. And that's termed out. We have to pay it back on an amortization schedule now. And then we've got a margin loan of $250 million that's fully available. And we've got $272 million in cash and short-term investments as of now. Don't think that's all available to go buy back shares or do deals because we've got expenses and some follow-on investments and so forth that we're probably going to need to do. So it's hard at this stage to tell you how much is really available for, you know, for future purposes, but we'll know more by the end of the quarter. I would, I don't want to take up too much of your time. Going through our entire portfolio, just a couple of highlights. Down in Bradstreet, reported their fourth quarter numbers. We are their largest shareholder. And they disappointed the market, although it didn't disappoint us. They were in the range of their guidance. What really hurt them were really three things. foreign exchange had a very, very substantial negative impact on revenues and EBITDA. Two, the business lost a contract with the GSA, which probably cost it a point and a half of organic revenue growth. And three, the marketing portion of Dun & Bradstreet, they're all under a little duress. All digital marketing businesses, if you've been watching from Google on down, have been under a lot of stress because digital marketing budgets are some of the first to go when management teams are looking to cut costs. And so we're just not seeing the budget, the expenses, budget expenses on these on these items and i don't know how long that's going to last um that's uh that phenomenon is affected uh as you'll see affected system one system one's results we own um 200 we have 272 million of basis in system one The other, and the good news is, as I'm finishing, is Alight. Alight had a fantastic quarter. They announced it yesterday. The stock at one time was up around 10%. They showed, and probably they're up because of their guidance for 23, which would show 11% to 12% revenue growth and, you know, 12% to 13% EBITDA growth and margin expansion. And they announced several new big logos like GE, all three GEs, you know, they're splitting them in three, and Exxon and, you know, quite a few others. So this company is really humming. We're very, very proud of the management team there. And there is no doubt that this is the most undervalued of all the stocks in our region. in our present portfolio. There will be some secondary sales probably from some of the other holders, larger holders, but Bill and I both have no intention of selling down at this depressed level. Did I miss anything that I should cover, Brian or Ryan? I think you got it. Okay. I'm going to stop there and open up for questions. Thank you very much.
spk00: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Thank you. And our first question is from John Campbell with Steven Zink. Please proceed with your question.
spk07: Hi, guys. Good afternoon.
spk00: Hey, John. Hey.
spk07: Hey. So first off, Ryan, congrats on the promotion. Looking forward to working with you. I saw you guys provided your cash balance as of yesterday. I think it was $272 million. I also saw where you guys have paid or maybe expecting to pay the $40 million for the Black Knight football commitment in the first quarter. Does that cash balance that you guys provided, does that include the payment or is that yet to hit?
spk02: The cash payment that's coming, yeah, we've already paid the one that was in the first quarter. That was the first week of January. There's only one left that's in probably the third quarter of this year.
spk07: Okay.
spk02: That's about $40 million. Okay. Okay.
spk07: All right, I want to go maybe high level here. Just looking for some insights on your vision for both Black Knight football and CSI. So maybe just starting off on Black Knight football, if you could help frame up the type of returns you guys expect over time. And just also just how large do you envision this organization getting, you know, over the long haul?
spk05: I'll let Ryan go to that. I'll just say we, you know, we sort of view this as a, you know, as everything sort of a multiple of money. And the forecast that we showed our board to support the investment in Black Knight football, we were looking at sort of a three to three and a half times MOIC in five years. On CSI, I do want you to hear from Ryan on the football team. You know that's probably another five year hold. There's a lot of work to be done, a lot of little tuck in acquisitions, and then we expect that. That you know there the likely suspects will love to would love to come in and buy this thing so that that too is kind of a three three times your money in five years. Sort of deal rare, very, very low risk. I mean quite, you know, not a lot of risk, in this business, in that business, and we think that demand for it will increase. And Ryan's going to talk about the football team.
spk04: Yeah, just a little bit more details on how we think about that. As Rick mentioned in the opening, we think we got a really good price. We paid roughly 100 million pounds for the purchase price of the small earn-out. You know, if you look around the Premier League, kind of the next cheapest is kind of mid-200s, and then it's probably closer to 500 million pounds per team. So we think we're in a very attractive value. As Rick mentioned, there's a lot of work, both on the commercial side, infrastructure. We're also, as you probably saw, we made an investment in FC Lorient, which is a League One, so the French team, the first league in France. and we're looking at other leagues to really try and bring down the cost of players. And there's a lot of work around that, both in terms of how you put that together and how you effectively kind of get talent from those to the Premier League. I think an example is Bournemouth did buy a player in the transfer window from FC Laurier, so you can kind of understand the pieces of how it works. But look, we think there's a lot of work to do, but as Matthew said, we think there's a lot of upside to it. Um, you know, but, but we gotta, we gotta, you know, over time, keep the team in the premier league, um, as well as kind of build out all these ancillary revenue streams and investments.
spk07: Okay. That's helpful. And I've got one more and I'll hop back in the queue. Um, I mean, I've got a lot more work to do and kind of building out a valuation framework for club valuations, but, um, you know, with Bournemouth, you know, it sounds like you guys presented, you know, a five-year multi-year kind of forecast of, of returns, which you guys are expecting. Just out of curiosity, how impactful is the relegation event for smaller EPL teams? I mean, clearly we're pulling for Bournemouth as they hit kind of the home stretch here, but if there's an event of relegation, how does that affect stuff?
spk05: The word existential comes to mind for me. That may be a little dramatic.
spk04: As you might imagine, we did a lot of work on that. We actually looked at different champs for the second level of championship. We looked at teams there. Frankly, we don't think our value is that far off even where some of those teams trade, but there's a bunch of work that you can do. There's basically parachute payments, which are payments that go to relegated teams that give you a very large advantage in the short term. So we think that given the work that we're doing, even if we were to get relegated, there's a way that we have an advantage to bounce back up. But there's clearly a difference in value But we believe we have the right people and kind of infrastructure in place to, you know, to hopefully not get there. And if we do, to kind of mitigate that and bounce back within kind of a year or two.
spk07: Okay, very helpful.
spk09: Thanks, guys.
spk00: Thank you, John. Thank you. And our next question is from Ian Saffin with Oppenheimer. Please proceed with your question.
spk01: Hey, good afternoon. This is Isaac Siles and on for Ian. Just another follow-up question on Black Knight football, and correct on the FC Laurent investment as well. Is there any option, I guess, in the agreement for Kenai to acquire more than the 50% in investment or ownership, I should say, in the Black Knight football partnership?
spk05: No. Well, you have a... We have the right to participate in any future offerings on a pro rata basis, as you probably would expect. But, no, we didn't want to own more than 51%.
spk01: Okay, got it. Thank you. You know, I guess a bigger question, you know, I guess what other areas of the market outside of, you know, sports leagues, um either private or public look looking at the moment for you guys you know i guess the computer services investment um was the most recent one in the technology space but um i guess there's anything in other sectors that you're looking at or have an eye towards yeah well i mean i'll just say kind of categorically the um there are uh quite a few uh technology software companies
spk05: I'll call them verticals, not enterprise software companies, but vertical software companies in the areas that we like, supply chain, healthcare, and so forth, that are trading way below their IPO price. And what's fascinating is you've seen an inversion of public valuations and private valuations, where the publics are substantially lower. And you're starting to see LBOs happening, and we see some opportunities, without naming names, we see some opportunities in there, sort of smaller, billion to $2 billion, usually software or tech-enabled services companies in areas like healthcare with big, big market share. So we like those a lot. The unfortunate problem is to make them work, you usually have got to put some data on the balance sheet and the market there for high yield is still pretty haywire. So we don't have anything eminent for that purpose, for that reason. We're mostly just trying to keep stuff warm for when the debt capital markets you know, come back somewhat.
spk01: Got it. Okay. Thank you for your thoughts. And then the last question, obviously you guys have been active buying back stock. Just a quick question. What is the, I guess, remaining amount on the buyback authorization?
spk05: Nine million, a little short of nine million. Yes.
spk09: Okay. Got it. Thank you. Is that right, Brian? Yes.
spk00: And our next question is from John Campbell with Steven Zink. Please proceed with your question.
spk07: Hey, guys. Me again. I got two quick ones here. How much of a commitment for FC Lorient? And I don't know if you guys disclosed the percent ownership.
spk05: We didn't disclose it. Okay. It's a minority, but it's a substantial minority. And we've got the right to own more. And I think eventually we've got the right to own control. Correct? Correct. Something like that, maybe. Maybe not. It's a different liquidity option. Yeah. We've got different liquidity options.
spk07: Okay. Helpful. And then really good work on the successful AmeriLife monetization. It sounds like you guys are retaining about 5% of that interest. Are there any lingering payments? Any more proceeds you guys expect from here? Or is that 243, the extent of it?
spk05: No, we're done. Okay. It was a great trade. Great trade.
spk08: Okay. That's all I got. Thank you, guys. Thank you, John.
spk00: Thank you. And our next question is from Kenneth Lee with RBC Capital Markets. Please proceed with your question.
spk03: Hey, good evening, and thanks for taking my question. Hey, Ken. Hey, how's it going? Just one on Black Knight football again. In terms of the LP interest, is there any kind of expected revenue streams in the interim, or should we consider this as similar to either an equity kind of investment and also as wealth?
spk05: We don't expect a dividend or any sort of revenue streams out of that asset, at least not in the foreseeable future. They're going to need the capital for operations and players and so forth.
spk03: Gotcha. And just relatedly, any financial commitments or obligations otherwise?
spk05: With respect to Black Knight football?
spk03: Yeah, with Black Knight football.
spk05: We've disclosed our obligations. So if there's anything outside of disclosure, it's $40 million in the summertime. Other than that, there's nothing.
spk03: Gotcha. Yeah. And one final follow-up. Given the ownership of FC Lorient and AFC Bournemouth, and I think you alluded to having a minority ownership in FC Lorient, but then that could be converted to a majority ownership down the line. Is there any kind of potential impact from the UEFA rules around multi-club ownership and participation in, I think, the Champions League and things of that sort? Oh, way to go.
spk05: Way to go, man. That was a question of the day.
spk04: You're going to stump Caswell. That's great. I like where that question is going more than the first one. As of now, given where the teams are, the Champions League ambitions are probably a bit away. But obviously, or maybe not obviously, if the teams, you know, you can only have one team that's playing in the Champions League, Neither of our teams are there today. Lorient's closer, and we don't, as you said, we don't control it. But I think it is something that we thought about. You know, our teams need to perform quite a bit better before that's something we really need to worry about. We hope that they do, by the way. It would be a high-quality problem.
spk03: Gotcha, gotcha. Fair enough. Thanks again.
spk09: Really appreciate it.
spk08: Thank you. Hey, thank you, Ken. Thanks, Ken.
spk00: If there are no further questions at this time, I would like to turn the floor back over to Kenai Holdings Management for closing comments.
spk05: Thank you very much. Interested parties and shareholders in our story, we're working really hard to create some value for our shareholders and never hesitate to give us a call if you've got more questions.
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