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spk06: Good afternoon, ladies and gentlemen, and welcome to the Kenai Holdings Incorporated Fourth Quarter and Full Year 2023 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the company's 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 February 28th, 2024. With that, I would like to turn the call over to Jamie Lillis of Solberry Strategic Communications. Please go ahead.
spk05: Thank you, Operator, and all of you for joining us. On the call today, we have our Chairman and Chief Executive Officer, Bill Foley, Kaniyia's 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 non-GAAP financial information to the GAAP financial information, is provided in our shareholder letter. I would now like to turn the call over to our chairman and CEO, Bill Foley, who will open with a few brief remarks followed by Ryan Caswell. We will then open the line for your questions.
spk00: Thanks, Jamie. As we previously announced, I have assumed the role of CEO, and Rick Massey has taken on the role of Vice Chairman of our Board of Directors. I'd like to thank Rick for his many contributions to Kenai over the last four years and look forward to continuing to work with him. As CEO, I will focus on returns to shareholders, both immediate and longer term. I am very aware of the deep discounts that Kenai's shares trade to net asset value and appreciate the input from our shareholders on the importance of share buybacks. In my letter released this afternoon, I noted the company's intention to commence a modified Dutch auction tender to repurchase $200 million worth of Canais common stock at a price per share between $20.75 and $23.75. The transaction will commence in early March and will be funded by cash on hand. Further details, including the terms and conditions of the tender offer, will be filed with the SEC over the coming weeks. The Dutch tender is in addition to our previously approved share repurchase programs, under which we have repurchased approximately 24% of our shares outstanding compared to March 31, 2021, having returned more than $510 million in capital. Additionally, Kenai still has 12.6 million shares remaining on our previous share buyback authorizations, which is in addition to the tender offer that we've announced today, and when taken together, speaks to our commitment and one way we're looking to close Kenai's share price discount to net asset value. As a top five holder of Kenai, I am very aligned with our shareholders in creating value and seeing our share price not only appreciate towards the fair value of our portfolio, but also growing that value. Looking back over our history, private company investments have been an important part of Kaniya's success. Ceridian is the best example where we've now received over $2.1 billion in gross proceeds from the sales of stock in this company. I'll now turn the call over to Ryan Caswell, our president.
spk04: Thank you, Bill. Continuing to find attractive investments is critical to our long-term success, and I'm excited with our announcement today of our Strategic Investment and Partnerships with Janna Partners, where we acquired a minority stake for approximately 1.58 million Canai common shares and 18 million in cash. I'm thrilled to partner with Barry Rosenstein, Scott Osvelt, and the Janna team, who have built an incredible track record as a public company investor. We believe a partnership with Janna creates significant upside for Canai as a result of, one, sourcing of new control opportunities for Canai. Jana's business is based on finding undervalued public companies with specific catalysts to unlock value. Kanai and Jana can collectively work together to find situations where Kanai can be part of the catalyst to unlock value with the target company, i.e., Kanai acquires a carve-out, the company, or provides other capital solutions. This relationship will be beneficial to both Kanai through the sourcing of these opportunities, as well as Jana by giving them a different tool to execute their strategy, that is leveraging Kaniya as a catalyst to a target company, and thus driving returns for both entities. The second reason why we're excited about this investment is we believe there will be an increase in the value of the JANA platform. JANA's standalone business is well-positioned for success, given its industry-leading returns and long track record of success. We believe their standalone business, coupled with the opportunities from our partnerships, will enable Janna to enhance their already strong performance and help grow their business to its optimal scale, thus increasing the overall value of Janna's business. Three, closing of Kenai's stock price NAV gap. Over time, we believe by leveraging the Janna relationship, Kenai's ability to source proprietary acquisition opportunities and make new investments, and with the improving performance of Kenai's underlying portfolio, the stock price to NAV gap will close, resulting in significant returns to our shareholders. Cross-equity ownership of the transaction aligns both parties in the other's success. I would note that Canai will not pay fees on its investment in JANA funds or future opportunities. And additionally, the JANA investment will not be subject to any of the TRASMINE management or incentive fees. I would also like to talk about the CSI investment. Through our relationship with Frank Martieri and Bridgeport Partners, we participated in CSI's LBO in 2022. CSI has outperformed all expectations and brought in a new large investor in December, valuing the company at approximately $2 billion, a 31% increase from the take private valuation. As part of this investment, Kenai received a $37 million cash distribution, or 43% of the initial capital that we invested, while the implied value of our ongoing position represents 104% of our original investment. I would next like to turn to Black Knight Football. At AFC Bournemouth, our management team has done a terrific job transforming Bournemouth both on and off the field. Currently, the team is ranked in 13th place which is up from last year's 15th place, and we believe we can move higher than that. Additionally, the business side of Bournemouth has performed very strong, with hospitality up approximately 50% year over year, ticketing up 13% year over year, and sponsorship up 40% year over year. In January, Black Knight Football announced that it purchased a minority interest in Hibernian Football Club of the Scottish Premier League. We are excited to partner with the Gordon family and believe that Hibernian will be a strong contributor to our multi-club ownership strategy. We believe finding private investments like these where we can acquire operating companies, partner with management teams, and actively engage to help grow their businesses will drive value for our shareholders. Moving on to our listed companies, D&B's constant currency growth of 5.1% from the quarter is an acceleration from the 4.8% in the third quarter and 3.2% in the second and first quarters. While Alife's top line revenue growth was 1.9%, the company posted 12% growth and adjusted EBITDA and hit $2.2 billion in BPAS total contract value booking since 2021, $700 million over the three-year target of $1.5 billion that they had set. Alight also has more than $6.5 billion of future revenue under contract. The team is also working with Stefan on Alight's strategic portfolio review, which they announced this morning. We believe that we can expand Alight's profitability and recurring revenue model while building a more valuable business. Finally, starting in the third quarter of this year, Trasamine's fees will be reduced by approximately 16% going forward as a result of Rick Massey moving into the vice chairman role. To conclude, we are very optimistic with what the future holds for Kanai and our shareholders as we find new high-return investments, continue with our share buybacks, and gradually rebalance our portfolio. Taken together, I believe this will have the dual effect of driving our net asset value higher while closing our share price NAV discount. I'll now turn the call over to Brian Coy to touch on our financial position.
spk01: Thanks, Ryan. At the close today, Kenai's aggregate net asset value was $2.43 billion, or $33.61 per Kenai share, comparative to third quarter's $2.38 or $33.67 per share. Kenai's liquidity position is strong, with $149 million of corporate cash and short-term investments, net of the cash invested in the Jana transaction. The company also has $150 million of undrawn capacity under its existing margin loan. The only outstanding debt presently is approximately $60 million under our revolver, that matures near the end of 2025. Under an amendment to that revolver, we paid down $25 million of the balance and fixed the interest rate at 7%, saving Kenai approximately $4 million annually in interest payments. I'll now turn the call back to the operator to begin the Q&A session.
spk06: 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 it, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kenneth Lee of RBC Capital Markets. Please go ahead.
spk02: Hey, good evening, and thanks for taking my question. First one on the tender offer. I wonder if you could talk a little bit more about the motivation for pursuing a tender offer versus perhaps some of the other options you could have pursued. Thanks.
spk00: Well, we went to the tender offer plan to accelerate our share repurchase program to retire shares. We found that as we were repurchasing shares, first we were blacked out at various points in time due to earnings releases or activities we were involved in, for example, the JANA transaction. And also, we're limited by the number of shares we can buy per day. And while we can do large bulk or large share block transactions, they were really becoming even far between for us to execute against. So we felt like at this point, with our share price trading at this NAV discount, that we should just accelerate our buyback program, which, in effect, that's what the tender offer is doing, and retire more shares more quickly. Gotcha.
spk02: And then in terms of funding the tender offer you mentioned using cash on hand, I presume that there could be some drawdown potentially in the loan facilities, but just want to get a little bit more color around that. Thanks.
spk00: Yeah, it could be a combination of drawdown under our margin loan facility, or it could be a sale of a continued sale of some of our liquid securities, liquid public securities. We have about $150 million cash on hand right now. So the $200 million figure really is only $50 million short of what we actually have on hand in the bank at this point. So we're really not concerned about raising the additional $50 million. And if we actually have a green shoe, which would be 15% of the $200 million, that would be an additional $30 million. But we're very confident that we can raise those funds really expeditiously and easily.
spk02: Gotcha. Very helpful there. And if I could ask another follow-up here, could you just talk a little bit more about in terms of the JANA partnership? I wanted to get a little bit more detail in terms of the voting arrangements and any kind of detail around that.
spk04: in terms of supporting the management and the board there thanks yeah so um as we noted in our press release um we agreed to a voting agreement with janna um you know we we view this as a partnership we're excited to work together um they're they're taking stock in can i and we are taking stock in janna um and and we believe kind of the cross ownership will incentivize both of us to work together. And we believe it'll be a benefit to both businesses through theirs in terms of driving returns and increasing AUM, and to ours in terms of sourcing, you know, proprietary acquisitions of operating businesses.
spk02: Gotcha. And just one final follow-up for me, if I may. You talked a little bit about how some of the partnering on potential opportunities with JANA could look like, but wondering if you could just further flesh that out in terms of potential structures of making control acquisitions with JANA, and I think you mentioned a bit about some carve-outs. Just wondering if you could just perhaps talk on a hypothetical or some other further flesh out of some of the opportunities. How could they look like? Thanks.
spk00: Yeah, I think you really ought to take a look at Janet's deck, investment deck. It'd be very revealing to you, and Ryan could provide that to you if you would like to see it. It's a document they use when they're raising funds from third-party sources. There is no specific transaction currently on the table. A number of things that Janet is looking at and that they've shared with us appear to be very interesting, but there's no one transaction that's pending at this time. We anticipate several transactions occurring each year and that we'll be partners with them on.
spk02: Gotcha. And actually just one more, if I could squeeze in, would it also be possible for Janna perhaps to invest in any of the portfolio companies within the Canai portfolio? Is that also a possibility?
spk00: Everything really is on the table with JANA. I'm sure they can help us with some of our portfolio companies in terms of looking at alternative strategies relative to sale of all or a portion of the assets, going private transactions, all kinds of different situations. So the JANA group is a very skilled group of investment professionals, and really we look forward to the partnership.
spk02: Well, great. Well, I'll step back into the queue. Thank you very much.
spk06: As a reminder, if you have a question, please press star, then one. Our next question comes from Jonathan Bates of Stevens. Please go ahead.
spk03: Hey, guys. Thanks for taking my questions. I was hoping you could address the public versus private investment philosophy. Where do you guys see the team spending the majority of their time and efforts moving forward? And out of the private investments, You have today, ignoring the size, what do you see as having the most promising return potential over the next handful of years?
spk04: Look, I think in terms of public versus private, you know, we are going to be much more focused on private investments going forward. I think it works better if you think of what Kenai is and the capital it has and how we can most effectively leverage our permanent capital. We believe looking at private businesses, it will be better than the public. And we like the public businesses that we have, but I think you'll see us sell down those names over time and look to reinvest in private businesses. And then in terms of the portfolio of private businesses that we have today, you know, I don't have a perfect answer, but I'll say just because we were talking about it before, I think you heard a little bit about some of the results that you've seen at Bournemouth and Black Knight Football. In terms of the success that we've had on both the business side and the football side, we believe that, you know, We believe that going forward, we'll be able to continue those successes. And furthermore, we think the multi-club network that we are building, as we build that out, there's more value to extract from that. So we're very excited about the investment. We're very excited about what the team has done to date. And we think there's big upside going forward.
spk00: And also, if you look back at our public company investments, they're really a result of something that was private that converted into public assets. So Dun & Bradstreet, we engaged in a going private transaction, then took it public, and we still have our position in that company. Alight was the result of a private company that was converted into a public company via SPAC that we had sponsored. And Ceridian, or Dayforce, of course, is a long-term investment that was private for years and years and years. And as it went public, we then began disposing of our interest in day four. So we're down to a fairly small number of shares. PaySafe, again, was a SPAC transaction that we participated in and were a sponsor of. And the same with System 1. So really, our public company assets that we've acquired have generally been started out as private assets, private company assets that converted into a public company. Okay.
spk03: Thank you. And on Ryan's last point there, touching on the multi-club strategy, with the new minority stake in Hibernian, can you maybe highlight the multi-club strategy, what it is, and why it makes sense, why it can be successful?
spk00: Well, the Premier League is a difficult league to compete in. It's the best football league in the world with sovereign wealth funds as owners, private equity firms as owners, and obviously we own the interest in Bournemouth. But we found as we got involved in the investment that having interest in other clubs and top leagues is very advantageous in terms of the transfer window and acquiring players and also loaning players to those clubs. And the Scottish Premier League is a terrific football league. Obviously, there's no immigration issue with regard to Scotland and the UK. They develop a lot of good players that can also work their way down to Bournemouth. And the other thing that we can do with Hibernian... is actually give them players on loan to develop in the Scottish Premier League so they can eventually rotate back to the English Premier League. And the same is true with FC Laurent, which is, again, in League One in France. And recently we had loaned a player to Laurent, and we just took that player back in January. And last year we acquired a player from Laurent – dango atara and he sees now playing at bournemouth and the result is if you if you own a piece of another team say 40 that we own of of the league one team when we buy a player we really are only paying 60 to the other owners so it's a strategically and financially is a very advantageous situation to be in. And we'd frankly like to invest in a couple of more clubs and other leagues that could be supportive of our goal to continue to develop Bournemouth and move it up in the table in the Premier League. And right now you'd have to say that Bournemouth sits at the top of the pyramid. and the other teams are supporting Bournemouth. But we're also supporting them in terms of delivering players and helping them develop their teams and coordinating on the manner in which we play, coordinating in the transfer window. So it's really not an original model, and Manchester City really has developed it over the last 15 or 20 years, and they now have 13 or 14 clubs that they're invested in. So we will never have that many clubs, but a few more would be interesting. All right. Thanks for the call, guys. You bet.
spk06: This concludes our question and answer session. I would like to turn the conference back over to Mr. Bill Foley for any closing remarks.
spk00: Yeah, thank you, operator. We're very excited with the opportunities ahead and confident in our strategy as we transform our portfolio, which we believe will deliver value to our shareholders. We look forward to speaking with you again on our first quarter 2024 earnings calls. Have a great day.
spk06: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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