Onex Q1 2025 Earnings Call Transcript

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Operator

you for standing by and welcome to Onex Corporation's First Quarter twenty twenty five Earnings Results. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jill Homenick, Shareholder Relations and Communications.

Operator

Please go ahead.

Jill Homenuk
Jill Homenuk
Managing Director of Shareholder Relations & Communications at Onex

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, Onex's Chief Executive Officer and Chris Govan, our Chief Financial Officer. Earlier this morning, we issued our first quarter twenty twenty five press release, MD and A and consolidated financial statements, which are available on the shareholder section of our website and have also been filed on SEDAR.

Jill Homenuk
Jill Homenuk
Managing Director of Shareholder Relations & Communications at Onex

Our supplemental information package is also on our website. As a reminder, all references to dollar amounts on this call are in 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.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

Good morning, everyone. Onex had a solid start to the year and our teams are proactively navigating the challenges of the current environment. The work done last year to streamline operations and double down on our core strengths is allowing us to remain focused on long term value creation plans. We are committed to executing on our strategy and taking targeted actions to generate shareholder value. First, I want to welcome Bob Shanfield to the Onex Board.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

At our Annual General Meeting yesterday, our shareholders appointed Bob as our newest Director. He is a highly skilled investor and business leader with over thirty years of experience in the private equity industry via his tenures at Landmark Partners and GE Capital. Now a few words in the current environment. Our PE teams are actively working with our operating companies to anticipate and mitigate tariff concerns. With the benefit of our portfolios diversification and orientation, namely a large majority of our businesses are service oriented or have minimal reliance on imported and exported goods, we generally have limited exposure to first order tariff disruptions.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

As with most organizations, our primary consideration is around potential second and third order impacts, including near term lower GDP growth, supply chain disruptions, and muted M and A activity. How deep and how long these impacts may persist will depend in part on the ongoing tariff negotiations and their impact on business and consumer confidence. The M and A environment has definitely slowed over the past two months. Times of uncertainty tend to cause sale processes to slow down or to get put on pause. While the private equity industry is still highly focused on returning capital to LPs, it has become more difficult over the past few months.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

With that said, we are currently pursuing several realizations at both OP and ONCAT, and we're also open to partial realizations and additional continuation vehicles. Earlier this morning, we announced a 25% sale of our equity investment in WestJet to prominent global airlines, Delta, Korean Air and Air France KLM. The transaction will help strengthen established industry partnerships and is a strong positive statement on WestJet's strategy, performance and ability to continue to grow. With the proceeds, Onex and our affiliated funds and partners will have fully realized our original cost while still owning 75% of our shares. The transaction was completed at more than a 25% premium to our current WestJet NAV.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

This is a significant achievement that speaks to our team's ability to deliver positive realizations for high quality assets in all market conditions. Turning now to fundraising, two milestones were achieved in Q1. As we mentioned in our last earnings call, Onex Partners closed on its opportunities fund, raising total commitments of $1,200,000,000 which exceeded the initial target. The fund has a two year investing period and has already completed its first two investments, which puts us at over 30% deployed. At the end of the quarter, we also announced a successful final closing for ONCAT V with $1,300,000 in total commitments.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

ONCAT V achieved several key objectives relative to its prior fund, including growing total commitments, increasing third party capital by 54%, and adding many new investors to the platform. The fund is approximately 50% deployed, having already completed five investments to date. Both achievements were completed in a challenging fundraising environment. Our PE and client and product solutions teams are to be commended on reaching these goals. Our credit team delivered another strong quarter, maximizing opportunities and continuing to differentiate themselves amongst peers.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

They have executed 10 CLO transactions so far this year, including five new issues that will raise $2,500,000,000 of new fee generating AUM. Reset transactions in Q1 extended another $1,800,000,000 of fee generating AUM. Over the last year, the team has been actively managing the portfolio to a more defensive position given the potential market slowdown. Overall, our focus remains centered on compounding NAV, increasing fee related earnings and carried interest across our platforms and leveraging our strong balance sheet to create future growth and related shareholder value. This includes returning more capital to shareholders via share buybacks, particularly given our large discount to NAV relative to any reasonable historic norm.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

Our teams are confident in our core areas of strength that have created shareholder value over a long period of time. Now I'll turn it over to Chris.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Thanks, Bobby, and good morning, everyone. Onex ended Q1 with investing capital per share of $116.97 up 3% from year end and 9% over the past year. In Canadian dollars, Onex's investing capital has generated 316% returns over those same periods. These returns were driven by investing gains from private equity and credit as well as accretive share repurchases. We repurchased a total of 1,400,000.0 shares in Q1 and in April, we renewed the normal cautious issuer bid for another year.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

The renewal will allow us to continue to make opportunistic share repurchases of up to 10% of the public float over the next twelve months. Our buybacks in the first quarter at value substantially below NAV allowed us to capture almost Canadian $90,000,000 of FARDAN AV for continuing shareholders. And the recent market volatility has provided an opportunity to repurchase our shares at even more attractive prices with almost 800,000 additional shares purchased in April at an average cost of about CAD 93. We expect to continue to be active buyers so long as the value disconnect persists. Now looking at our investing returns, our PE portfolio returned 2% in the quarter, largely driven by our holdings in the financials and consumer sectors.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

These returns are relative to an essentially flat return from the MSCI World Mid Cap Index in the quarter. Since Q1 financial markets have come under pressure in response to developments in the global trade environment. While the market volatility may directly impact our publicly traded investments, which are about 9% of our PE portfolio, our private marks are not likely to be as affected. 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. Additionally, as Bobby mentioned, the service based bias of our portfolio has us relatively insulated from the first order impacts of the recent global trade developments, but we remain focused on monitoring and managing the potential second and third order impacts.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Additionally, we thought it would be helpful to provide an update on leverage in our PE portfolio. Overall, credit markets have stabilized and generally remain open and functioning well, albeit with lower volumes due to the slowdown in M and A. As you might imagine, we're continuously monitoring the financings within our companies and taking advantage of debt markets to amend and extend facilities when available, rather than being reliant on the markets being open when we need them. As a result, we have no significant refinancing needs across the PE portfolio until 2027. We have also generally used less leverage than the industry average, roughly two turns less, which positions us to better manage through any downturns in the broader economy.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Turning to credit results, our credit investments delivered an $11,000,000 net gain or a 1% return in Q1. This was driven by our structured credit strategies, including some favorable foreign exchange on our euro CLOs reversing a portion of the FX headwind we experienced in Q4. On the asset management side of the business, Onex ended the quarter with $37,000,000,000 of fee generating AUM. The 5% increase in the quarter reflects new commitments made to ONCAT V and the Onyx Partners Opportunity Fund together with the issuance of new CLOs. In total, we raised approximately $2,500,000,000 of FGAUM in Q1 across our PE and credit platforms.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Looking at credit more closely, the team has raised or extended approximately $5,300,000,000 of fee generating AUM so far this year across its tactical allocation and structured credit strategies. As Bobby discussed, our structured credit business has continued to be active after a banner year in 2024. Current market conditions are expected to slow U. S. And European CLO activity in the near term.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

However, the team worked hard to reset many CLOs over the past couple of years, resulting in nearly 95% of our CLO AUM at quarter end being in its reinvestment period. And with the weighted average reinvestment period running into late twenty twenty eight. These efforts mean we can wait out the markets for existing CLOs. And as it relates to new issuances, Onex's balance sheet will be a competitive advantage, allowing us to opportunistically issue new CLOs when we see an attractive opportunity arise from the uncertainty in the underlying market. Bridging the equity in a CLO and selling it down in a more stable market is likely to produce attractive returns for Onex's capital and support continued growth and Onex credit.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Turning to Asset Management results, the Asset Management segment generated $25,000,000 of earnings in Q1, of which $11,000,000 was fee related earnings from the PE and credit platforms. After factoring in Onyx Corporation's costs associated with managing its invested capital and maintaining the public company, total FRE was $2,000,000 in the quarter. Improved quarter over quarter performance reflects increased fees, primarily from PE, including catch up fees from ONCAT V. We also benefited from the continued impact of cost management initiatives. While this quarter includes about $5,000,000 of catch up fees for PE, our run rate asset management FRE is in line with the Q1 results, primarily due to the tailwind of fees from recently raised CLOs.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

FRE from structured credit, which we began to break out separately last quarter was unchanged to $12,000,000 in Q1. Management fees from new CLOs coming online structured credits annual run rate FRE contribution is about $53,000,000 up about 5% from year end. In summary, we had a good start to the year and our forty years of investing experience makes me confident in our ability to navigate the challenges we've seen in the markets since early April. 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. That concludes the prepared remarks.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

We'll now be happy to take any questions.

Operator

Our first question comes from the line of Nick Priebe from CIBC Capital Markets. Your question please.

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

Yes, thanks. So my sense is that there's a bit of confusion around the implied return of the West Jet transaction. So I just wanted to run through the math really quickly here. The initial equity investment by Onyx Group was USD 1,000,000,000. The equity valuation implied by the sale of a minority interest is 2.2.

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

So that's a 2.1 times multiple capital, if you will. And then in addition, since the time of acquisition, WestJet's paid cumulative distributions that amount to half of the upfront equity investment. So that's another point five times MOC. So if you had sold 100%, the total realized MOC would be 2.6. So in other words, you've recovered the entirety of upfront equity investment, the realized MOC is one times, and there's another 1.6 that is unrealized.

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

Do I have all of that correct?

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

Hey, Nick, it's Bobby. I anticipated a bunch of WestJet questions today. So we have a special guest on today's call topic Papadia and he'll answer that question for you.

Tawfiq Popatia
Tawfiq Popatia
Co-Head - Onex Partners at Onex

Yeah, hi there, it's Tafiq. You started with prefacing that question with confusion. There was actually no confusion in how you laid that out. That's exactly right.

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

Okay, perfect. That's clear. I guess just longer term strategy with the remaining interest. My understanding is foreign ownership restrictions would place limitations on global airlines taking a control position. So how do you see that playing out over time?

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

Like an IPO is still the most likely outcome?

Tawfiq Popatia
Tawfiq Popatia
Co-Head - Onex Partners at Onex

It's a big investment. So just on size alone, you'd say it likely needs to be in the capital markets at some point. We are at the cap for strategic foreign investors, though our total foreign ownership wouldn't be out of whack if you were to compare it to say Air Canada, for example. We think this is a pretty good endorsement of the strategy, the performance through COVID. So the way we think about it, it just increases the optionality for whatever path we take.

Tawfiq Popatia
Tawfiq Popatia
Co-Head - Onex Partners at Onex

But I think given its size, think it's natural to think about this as ultimately one day being reintroduced to the public markets.

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

Got it. Okay. And then just last one for me. I think you had mentioned that the transaction was announced at a 25% premium to WestJet's carrying value in the NAV. I just wanted to confirm that that's been marked up now and that would be reflected in your Q1 NAV?

Tawfiq Popatia
Tawfiq Popatia
Co-Head - Onex Partners at Onex

No, it's not yet reflected. Look, we're working with three potential buyers across different time zones that have their own listed companies and they have their jurisdictional consideration. So all of this will be disclosed in time. I think the way Bobby framed it that it's more than a 25% premium is correct and it'll be disclosed in I think Chris next quarter. So it's not this transaction is not reflected in the Q1 report.

Nikolaus Priebe
Equity Research Analyst at CIBC World Markets

Got it. Okay, that's very helpful. All right, that's it for me. I'll pass the line. Thank you.

Operator

Thank you. And our next question comes from the line of Graham Ryding from TD Securities. Your question, please.

Graham Ryding
Equity Research Analyst at TD Securities

Hi. Chris, I appreciate the commentary around leverage of your private equity portfolio on average. You said it was two times less. What is the industry average for leverage in sort of your sort of verticals? And we're thinking, like, five, six times or higher than that?

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

No. Yeah. So, Nick, the industry average is closer to six and a half to seven, and we're two turns less than that.

Graham Ryding
Equity Research Analyst at TD Securities

Okay. Okay. That's helpful. The fundraising, I think I came on the call late. I apologize if I missed it.

Graham Ryding
Equity Research Analyst at TD Securities

I apologize. But could you break down the $2,500,000,000 in the quarter across your private equity mandates and credit for the fundraising?

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Yeah, sorry, agree. I'm just pulling that up in front of me. Just give me a second here.

Graham Ryding
Equity Research Analyst at TD Securities

And then maybe a follow on that is just how much have you raised in Q2 to date that's sort of incremental to your fee paying AUM?

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Yeah, so

Chris Govan
Chris Govan
Chief Financial Officer at Onex

within Q1, just got to make sure I get this right. Sorry. Increase in private equity AUM was about $375,000,000 with the balance coming from structured credit and tactical allocations strategies within credit. I don't have an updated number for post Q1. I don't think there's any material change in private equity, but there may be a CLO that's been priced or closed.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Bobby, did you

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

Yeah. We had done seven CLO transactions, I believe three new and four extensions as of Q1, and that number's up to 10. So incrementally in the first month of q two, there'd be there would be more credit, AUM raised.

Graham Ryding
Equity Research Analyst at TD Securities

Yeah. Yeah. Just because I think you gave a five over five over 5,000,000,000 number of new and and existing CLOs. I was just wondering what what was new there and what had been extended. That's okay.

Graham Ryding
Equity Research Analyst at TD Securities

I can follow-up on that. But, on the WestJet piece, what is your ownership On X Corp, what is your ownership stake now going forward? I think you were 28%, if my math is correct, and I'm estimating 21% going forward. Does that sound right?

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Yeah. What we Is it ahead. Sorry, Chris.

Graham Ryding
Equity Research Analyst at TD Securities

Go ahead.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Yeah. No.

Chris Govan
Chris Govan
Chief Financial Officer at Onex

I was

Chris Govan
Chris Govan
Chief Financial Officer at Onex

gonna say that it would be three quarters of what it was prior. There's no difference between how Onex participated and our co investors and fund investors.

Graham Ryding
Equity Research Analyst at TD Securities

And then on the private equity side, it was positive this quarter, but you did flag that there were some catch up fees for ONCAB. If we adjust for that, suggest breakeven. Is that a reasonable sort of run rate to expect going forward, breakeven for private equity?

Chris Govan
Chris Govan
Chief Financial Officer at Onex

Yes, that's right. And the offset to that one time or catch up fees and private equity coming out isn't expected or not expected, it's sort of locked and loaded, if you will, increase in fees from credit. So we sort of think of run rate going into Q2 for total FRE being consistent with actual Q1 FRE.

Graham Ryding
Equity Research Analyst at TD Securities

Okay, great. That's it for me.

Graham Ryding
Equity Research Analyst at TD Securities

Thank you.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

Thank you.

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.

Bobby Le Blanc
Bobby Le Blanc
CEO at Onex

Thanks everybody for participating. If you have any questions, feel free to call Chris or me or Jill in our IR department. And I hope you have a nice weekend. Thanks.

Operator

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

Executives
    • Jill Homenuk
      Jill Homenuk
      Managing Director of Shareholder Relations & Communications
    • Bobby Le Blanc
      Bobby Le Blanc
      CEO
    • Chris Govan
      Chris Govan
      Chief Financial Officer
    • Tawfiq Popatia
      Tawfiq Popatia
      Co-Head - Onex Partners
Analysts
Earnings Conference Call
Onex Q1 2025
00:00 / 00:00

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