2/21/2025

speaker
Operator
Conference Call Operator

Thank you for standing by and welcome to ONIX's fourth quarter earnings results conference call. 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'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, please press star one 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 Hominick, Chairholder Relations and Communications at ONIX. Please go ahead.

speaker
Jill Hominick
Chairholder Relations and Communications at ONIX

Thank you. Good morning, everyone, and thanks for joining us. We're broadcasting this call on our website. Hosting the call today are Bobby LeBlanc, ONIX's Chief Executive Officer, and Chris Gevin, our Chief Financial Officer. Earlier this morning, we issued our fourth quarter and full year 2024 press release, MDNA and consolidated financial statements, which are available on the shareholder section of our website and have also been filed on CDAR. A supplemental information package is also available on our website. As a reminder, all references to dollar amounts on this call are in the US unless otherwise stated. I must 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. With that, I'll now turn the call over to Bobby.

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

Good morning, everyone. ONIX had a solid fourth quarter, wrapping up a year of significant progress across all our platforms. Our private equity teams delivered a meaningful return of invested capital to our investment partners, while also achieving fundraising success. Our credit platform had an excellent year, outperforming our expectations on capital raised while continuing to attract new investors with our consistently strong performance. We ended 2024 with the completion of our Substantial Issuer Bid, or SIV. We bought back 2.3 million shares under the bid, adding meaningfully to our overall buybacks for the year. While the amount tendered was below what we had originally allocated, we view this as a positive statement for shareholders. Like us, many see ongoing upside for share performance beyond the upper range of the $117 per share offered. Turning to our businesses, starting with private equity. In total, across our PE platforms, we raised $1.5 billion in 2024. This was accomplished through a broader range of initiatives, including continuing to co-invest in partnerships. The teams are working hard to expand our client base, which creates more opportunity for fundraising outside of traditional fund formats. 2024 was also a positive year for our PE teams in returning capital to our limited partners. OOP and ONCAP together returned over $3 billion of capital to investors, including $1 billion to ONIX. This was two and a half times more than what we achieved in 2023, a differentiated achievement and evidence of our ability to deliver positive realizations across multiple investments and vehicles. ONIX partners have successfully completed fundraising for its Opportunities Fund, reaching total commitments, including affiliated vehicles of $1.2 billion. Across OP5 and the Opportunities Fund, OP invested $1.2 billion of capital in 2024 across four companies, all within our core areas of specialization. Three were owner-managed or complex carve-outs, and for all four, the team has differentiated value creation strategies. ONCAP accounted for more than $500 million of the return of capital to investors. In fundraising, momentum for ONCAP 5 remains positive, and we expect a final close at the end of Q1. The fund has already completed three investments, with a total of approximately $400 million invested. The pipeline for new investments is good, and the fund is off to a very good start. In total, the team has raised over $700 million of capital in 2024. Our credit team had another active quarter, capping off a banner year. For 2024, we ranked as the number seven issuer of global broadly syndicated CLOs. Overall, the team executed 30 transactions last year, raising or extending $13 million of fee-generating AUM, and they've already priced three transactions this year. We're confident the team will deliver another successful year. We're also confident that we'll be able to continue to grow the fund in a successful year in 2025, including substantial FRE growth. Across the broader credit platform, we're actively pursuing new opportunities to generate increased revenue. As an example, we recently closed on a $775 million tactical allocation commitment with a large institutional investor. These types of commitments leverage the full breadth of talent across our credit team and products, and will contribute to the scale required to continue to grow fee-related earnings. In these instances, the incremental revenue is highly accretive to bottom-line profitability. Overall, I feel good about what our team's achieved in 2024 and how we are positioned to drive growth in 2025 and beyond. Over the last couple of years, our portfolios have weathered uncertain and sometimes challenging conditions, but I'm confident that the investments we have will drive long-term investing capital growth at returns consistent with our objectives. In the meantime, we're making the right operational decisions to optimize resources across the firm and roll out a performance compensation structure that is aligned to shareholder interest. You will read more about this in our upcoming informational circular. Before turning over to Chris, I want to thank our team for their hard work and our shareholders for their continued support. Our objective is to be transparent and responsive in our engagement with you, and I appreciate your ongoing feedback. Our team is committed to driving more shareholder value in the years to come. Now I'll turn it over to Chris.

speaker
Chris Gevin
Chief Financial Officer at ONIX

Thanks, Bobby, and good morning, everyone. ONIX ended Q4 with investing capital per share of $113.70, up slightly in the quarter and up 6% from a year ago. In Canadian dollars, investing capital per share generated a 15% return over the past year. The increase reflected portfolio gains, accreted share repurchases, and a strengthening of the US dollar. While our US dollar return was below target this year, over the last five years, US dollar investing capital per share has a compound annual return of 13%. As Bobby mentioned, we completed the substantial issuer bid and repurchased a total of 2.3 million shares in Q4, bringing our total repurchases for the year to 5.7 million shares. Over the last five years, ONIX has repurchased approximately 28 million shares and reduced our shares outstanding by almost 30%. We've been able to do this while building our PE portfolio, supporting the growth of our credit franchise, and maintaining strong liquidity, which today is about $1.6 billion, or 19% of investing capital. Looking at our investing returns, our PE portfolio returns were impacted by unfavorable foreign exchange in the quarter from a strengthening US dollar, driving a -to-market loss of about $60 million on the roughly $900 million of non-US dollar investments. Returns in the quarter and for the year reflect generally solid returns across our financial services and industrial verticals, offset by challenging results at a few of our healthcare and consumer companies. But it's important to remember that returns in any quarter or year will vary across verticals and businesses. However, each investment benefits from a long-term value creation plan. Our PE teams remain focused on their operating companies and delivering attractive returns over time in line with our targets. Turning to credit results, our credit investments delivered a $16 million net gain, or 2% return in Q4, and a 9% return for the year. The net gains were driven by our structured and opportunistic strategies, with the CLO returns aligned with the leveraged loan market. On the asset management side of the business, ONIX ended the year with just over $35 billion of fee-generating AUM. The 3% increase in the quarter reflects new commitments made to ONCAP 5 and the ONIX Partners Opportunities Fund, as well as new CLOs in both the US and Europe. In total, ONIX raised approximately $2.8 billion of FGAUM in Q4 and $8.8 billion for the year. Our structured credit business had an outstanding year and another active quarter. Q4 included the pricing of two new US CLOs and one new Euro CLO that were part of a quarter where $4.3 billion of FGAUM was raised or extended. De-generating AUM in our structured credit business increased 34% in the last 12 months, contributing to a CAGR of 16% over the last four years. With about $90 million of run rate management fees, the structured credit team has done a great job building the franchise over the last few years. And as I pointed out before, this growth has been achieved while significantly improving the platform's capital efficiency. Since 2020, ONIX's ownership of the platform's CLO equity has decreased by more than half, from 87% to 41%, making the platform's growth all the more impressive. As I mentioned last quarter, the team's done a great job managing the portfolio this year, with 90% of the CLO AUM in its reinvestment period at year end compared to 63% at the beginning of the year. Furthermore, the weighted average reinvestment period now ends in March, 2028, over two years longer than where we stood a year ago. The team's success has laid the groundwork for strong recurring fees while we continue to grow the broader credit platform. Turning to fee-related earnings, we reported a modest FRE loss of $1 million for Q4 with a $6 million contribution from the asset management platforms. This reflects increased fees from OnCap 5 and structured credit, the beginning of the OP opportunities management fee period, and the continued impact of cost management initiatives. You'll note in our disclosures that we've begun to break out earnings from our structured credit products to give you insight into the contribution from this part of ONIX credit. FRE from structured credit was $12 million in Q4 and $44 million for the year, representing a full year increase of roughly 45%. And with management fees from new CLOs closed in 2024, fully online for 2025, structured credit's run rate FRE contribution is about $50 million at year end. Before moving to questions, I wanted to provide a brief update on our 2023 investor day targets. Based on its strength and momentum, we're confident the overall ONIX credit platform will achieve its target of 2025 year-end run rate FRE of $55 million. As I pointed out before, ONIX credit is a valuable business. And as you know, an asset not reflected anywhere in our NAP. Looking at the rest of our operations, which are our PE platforms and ONIX's investing in public company costs, we do not expect to reach our goal of a break-even run rate contribution this year. In Q4, these operations contributed a combined FRE loss of $7 million. And while the PE teams are making progress developing new sources of fees, we do expect some decline in existing management fees over the course of the year from realizations. However, I think it's worth noting what the net cost of our non-credit operations represents for shareholders. Using very simple math, if you annualize the $7 million of net costs and compare that to the almost $6 billion of ONIX's invested capital managed by the PE teams, you get an implied annual management fee expense ratio of around 50 beats during Q4, a very low cost for PE where fees can approach 200 basis points on invested and committed capital. And that's all before the meaningful net carry opportunity ONIX enjoys from PE. When you include any reasonable additional contribution from carry, ONIX's PE capital is actually being managed for free. A good position for shareholders while we continue to build our PE fee streams and overall profitability. As Bobby indicated, there's been positive activity across all ONIX platforms in 2024 and we've entered the new year in a strong position. Our focus continues to be generating shareholder value through opportunities where we have a right to compete and win. That concludes the prepared remarks. We'll now be happy to take any questions.

speaker
Operator
Conference Call Operator

Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone. And our first question comes from the line, Nick Preet from CIBC Capital Markets. Your question, please.

speaker
Nick Preet
CIBC Capital Markets

Yeah, thanks. Just following on that last comment from Chris, appreciate the outlook for FRE across the various platforms. I guess when you tie it all together, can you just talk a little bit more about the outlook, I suppose, for consolidated FRE in 2025? Would the objective be to sustain neutral FRE margins or do you think there's the possibility of a more meaningful positive FRE contribution in the year ahead?

speaker
Chris Gevin
Chief Financial Officer at ONIX

Yeah, so Nick, I think we're really excited and optimistic about the performance at credit as we articulated. And we expect that business to contribute meaningful growth in their FRE during 2024. Sorry, it's 2025. I think full year 2024 was about 25 million from credit, exiting 25 at a run rate of 55. You can kind of guess that the 2025 actual will be somewhere closer to run rate than 24 actual. So that's in a really good position. In our P.E. business, it's a little more difficult to predict because fundraising is more episodic and difficult to predict when assets will come online. And as I mentioned, we've got a little bit of headwind likely from realizations that will decrease fees in the rest of our operations. But we still expect to get to a positive FRE contribution overall in 2025, but not meaningful. It'll be slightly positive. But I think it's really important to remember, especially for our P.E. business, kind of stopping at FRE is really just shortchanging the value of that platform given the real meaningful carry opportunity. So although we're not going to be positive FRE for P.E. and the public company combined, if you include any meaningful carry, that part of our business is cash generative and adding value.

speaker
Nick Preet
CIBC Capital Markets

Yeah. Yeah. Okay. Fair enough. And then just on the comment about realizations in the P.E. portfolio, you were hearing talk from other alternative asset managers about the expectation for greater velocity of transaction activity in the private market space. I guess in your pipeline, do you see maybe a few items that could be actionable in the first six months? Or was that just kind of a general comment about how there will be kind of gradual attrition as a part of the normal course activity?

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

I think, Bobby, I think it is a general comment, but I also think you should expect to see return of capital this year from both our OP and ONCAP platforms. There are specific plans in place. Obviously always market dependent, but I expect us to be active on that front this year.

speaker
Nick Preet
CIBC Capital Markets

Okay, very good. And then just last one, I want to ask for an update on PowerSchool. And I know you recently sold half your interest. I think the investment is only about $3,000. That's pretty small. But I wonder if you could elaborate on some of the action being taken by the team there just to address the cyber incident and maybe give an indication on kind of expected scale of potential earnings impact or whether you and your partner would maybe anticipate the need to downstream any capital to that business?

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

No, and again, I won't get into too much specifics, but I think the management team has done a very good job communicating with all of its customers as to what happened and the limited aspects of risk around that data. It's always concerning like if you're in a sale process for a particular product that somebody will try to use that against you, but I don't anticipate any capital need for that business related to that event.

speaker
Nick Preet
CIBC Capital Markets

Okay, very good. That's it for me. I'll pass the line.

speaker
Operator
Conference Call Operator

Thanks. Thank you. And our next question comes from the line of Graham Reidy from TD securities. Your question, please.

speaker
Graham Reidy
TD Securities

Good morning. Just looking at your at your discount to NAV. Do you believe that if you can be active this year on the portfolio realization activity within your PE business that that will help maybe validate for the value within your NAV and help to tighten the discount and then maybe as a second part to that, you know beyond buybacks, what else are you focused on here to tighten the discount?

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

Yep. So obviously selling things at or above NAV will always help validate that the discount doesn't make sense. As I've tried to point out consistently, there's also a secondary market for our PES that trades well, well above the implied discount on the PE if you give proper credit for cash and our credit products. That arbitrage, you know today is sort of 30 to 40 points of discount which really makes no sense to us. Hence the SIB and the other share buybacks that we've been doing again to create to create value on top of that NAV like again that I'll point back to credit that like Chris just did again that business did 25 of FRE last year. It's run rating 39 million going into the year on things that have already been done in 2024 and the spread between structured credits profitability and the rest of the business that's scaling also has decreased meaningfully on a run rate basis between 2024 actual and 2024 run rate. So and we've already done three new CLOs and closed that $780 million institutional deal and that institutional deal utilizes those subscale products and every dollar of revenue from those products is accretive. So, you know, I pointing towards that credit business and getting people to understand it. I think should be a true source of shareholder value above and beyond what people are looking at today on the NAV and not to mention all the carry opportunity and everything else that Chris pointed out, you know, on top of that, I'm spending a lot of time on just general capital allocation and what to do and how to invest the eight and a half billion dollars over time as it comes back. I don't have much to say on that now other than the fact that it's getting a lot of my mind sure.

speaker
Graham Reidy
TD Securities

Okay, excellent. Just on the fundraising side. Can you maybe articulate what your your plans are or your targets are perhaps for 2025 for, you know, CLOs and

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

and

speaker
Graham Reidy
TD Securities

otherwise?

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

Yeah, I won't get into specific targets, but we expect structured credit overall, which would include, you know, OSCO and ONTAP and that's that's the product that the institutional investor just put the 780-minute to actually have another very good year. Obviously the Ops Fund and ONTAP are both wrapping up fund raisings for their platform. So they'll be in market like just preparing for future fundraisers, but I think most of the new incremental capital will come from the credit business next year and by the way that could also it could also be CVs and other type of things that Chris mentioned that would come out of the PE business, but it wouldn't be a new fundraise would be would be things like that.

speaker
Graham Reidy
TD Securities

Okay, understood. And then just my last question. You still sitting on what looks to be a fairly healthy amount of cash at 1.6 billion. Should we expect you to continue to be active on your NCIB or would you would you consider another SIB maybe where's your where's your preference on on the capital 100%

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

you should expect us to be active on the NCIB 100% and you know as far as the SIB go is concerned, you know, we'll continue to always look at that and if we if we see an opportunity to do that given other competing uses of the capital we were open to buying shares back anywhere near these levels.

speaker
Graham Reidy
TD Securities

Okay, that's it for me. Thank you.

speaker
Operator
Conference Call Operator

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Bobby LeBlanc for any further remarks.

speaker
Bobby LeBlanc
Chief Executive Officer at ONIX

Thank you all for your time again, if you ever have more questions, feel free to reach out to Jill and her team or to Chris or to Chris or to me to answer the questions. We hope you have a nice weekend and look forward to talking to you either during the quarter or on the next earnings call appreciate it. Bye.

speaker
Operator
Conference Call Operator

Thank you ladies and gentlemen for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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