Onex Corporation (ONEX) Earnings Call Transcript & Summary

Good morning. My name is Gerry Schwartz, and I'm the Chairman and CEO of Onex. Welcome to our 34th Annual Shareholders Meeting. This year, I'm speaking to you once again from my home office as Ontario continues to be under both business and gathering restrictions. Also attending the meeting also remotely is Andrea Daly, our Corporate Secretary. We're disappointed not to meet with you in person, and we want you to know that our thoughts are with you, your families and your communities. And we hope that wherever you are joining us from, it's quickly approaching back to normal. Thanks for your patience with this online format. We hope and expect it will run smoothly. Instructions on the voting procedure will appear on the left side of your screens. You'll also see on your screen instructions for registered and logged in shareholders to submit questions or comments. We'll try to respond, following the conclusion of the formal meeting. We would ask that shareholders limit questions to topics relating to today's subject matter. If you have other questions or concerns, please reach out to our Shareholder Relations team. We're always happy to hear from shareholders. I'd like to start today by making a few comments about our performance in 2020 and our activity so far this year. As a reminder also, all dollar amounts are in U.S. dollars, unless we otherwise note it to be different. 2020 was an extraordinary year. I don't have to say that to remind everybody of it. We again learned the value of patience and the importance of a strong balance sheet. Our core investing principles, developed during 37 years of experience with other cycles and disruptions, have allowed us to create value in 2020. It was an active year for Onex. We continued to build on our foundation and had good momentum, positioning us well for continued growth. Here are some of the highlights. Overall, we grew net asset value per share by 18%, that's our strongest year of growth since 2013. We increased Onex' total assets under management by 14% to approximately $44 billion. We had a productive year in private equity. Our funds realized a total of $2.7 billion, which was largely driven by secondary share sales. We also deployed $2.5 billion into several new opportunities, and we found those through our deep industry knowledge and our long-term relationships. Our portfolio companies have, for the most part, not entirely, but for the most part, weathered the pandemic. Thanks to our proactive management teams. For those more adversely affected by the pandemic and by the impact of government-imposed lockdowns, we continue to see strong value propositions that will support their success as and when the recovery accelerates. In total, Onex' private equity investments generated a 24% gross return in the year. We also saw Onex Partners IV and V move into a carry position for the very first time. Within our credit platform, we were focused on building our team and expanding our product offering. Jason New, who joined us from Blackstone, is now the Head of Onex Credit. We also added a number of portfolio managers with impressive track records to complement our team and to develop new products. In December, we acquired Falcon Investment Advisors, a leading U.S. private credit manager. This Falcon acquisition, along with 4 new CLO issuances and our fundraising efforts, drove a 44% increase in Onex Credit's fee-generating assets. Onex Credit ended the year with approximately $15 billion of fee-generating assets. With the investments we made pretty much across the board in 2020, our credit platform now has a comprehensive go-to-market strategy with a full suite of credit investing alternatives. We feel well positioned to drive future growth in management and performance fees from this business. At Gluskin Sheff, Onex products continued to generate interest and resonate with clients, with close to $800 million allocated to Onex Credit and private equity strategies. The benefit of being able to offer a more diverse product range was a core assumption we made in acquiring Gluskin in the first place, and we've been pleased with our clients' response. We're also energized by the organizational changes we made this past year. Our team has never been stronger, and our interests remain as aligned as ever. Most notable of those organizational changes was the promotion of Bobby Le Blanc to President of Onex and Head of Onex Partners. Bobby's new role allows for greater efficiency and discipline in the allocation of Onex' human and financial capital. I have to tell you that I'm incredibly pleased with what Bobby and the team have accomplished so far. I will turn now to some of our activity this year in 2021. We announced the appointment of Wes Pringle as Head of Portfolio Operations for Onex Partners. Wes joined us in April and brings significant operating experience. He'll play an important role at Onex Partners as we continue to build out our operational capabilities. Onex Partners V continued its wonderful momentum and completed its seventh investment in March, acquiring a significant interest in Weld North Education. Weld North is the leading K-12 digital curriculum company in the United States. In April, ONCAP completed its sale of Pinnacle Renewable Energy, and that resulted in a gross multiple of capital of 2.8x. We anticipate we'll be in the market raising our fifth ONCAP Fund later this year. At Onex Credit, we're currently in the market with 2 strategies and expect to launch 2 more in the second half of the year. Last month, we priced a CLO for approximately $510 million. This CLO is our 25th since launching this platform about 10 years ago in 2012. We're also enhancing our ESG and diversity programs right across the firm. We believe having a responsible investing approach, a diverse team in an inclusive environment is not only the right thing to do, but makes us better investors and makes us more competitive in the marketplace. We've had good minds so far, and we're excited to continue our progress in these important areas. Before I move on to the formal part of this meeting, I would like to recognize 3 important groups. First, our employees. I'm immensely proud of everyone at Onex for their work and achievements last year, a terribly difficult environment with the pandemic and the government lockdowns. Our team demonstrated the resilience and entrepreneurial spirit as core to our particular culture. Second, I would be remiss -- at a minimum remiss, not to speak about 2 of our Board members, who will not stand for reelection today, Dan Casey and Serge Gouin. Dan and Serge have been incredibly valuable directors and 2 of our longest-serving Board members. Dan was one of the very first original investors in Onex and a huge support to our efforts to get Onex created in 1984. And Serge, representing a company that became our largest investor when we started Onex, was so helpful to the beginning of this company. I can remember when for the first year in business, Onex worked out of free office space given to us by the company that Serge was the senior executive of. On behalf of the entire Board and everyone at Onex, I offer my sincerest thanks and appreciation for Dan and Serge's many years of service and valued contributions as members of our Board. Although we may be losing them as Board members, I have gained them as friends. And finally, thank you, to you, our shareholders, for your continued support. One of Onex' founding principles, which remains core to our culture, is the alignment that our team has with you. We continue to see meaningful value in Onex as an investment and the great potential of our businesses. Let's now move on to the formal part of this meeting. I would like to start by acknowledging the members of the proposed Board of Directors, many of whom are joining and listening to the meeting. Bill Etherington, former Chair of the Board of CIBC and former Chair and CEO of IBM World Trade; Mitch Goldhar, Executive Chair of Smart REIT; Ewout Heersink, Vice Chairman of Onex; Arianna Huffington, Founder and CEO of Thrive Global, and before that, Founder and CEO of The Huffington Post; John McCoy, former Chairman and Chief Executive Officer of Bank One; Robert Prichard, Chair of Torys Law Firm and former Chairman of the Bank of Montreal and President of the University of Toronto; Heather Reisman, Chairman and Chief Executive Officer of Indigo Books and Music; Arni Thorsteinson, President of Shelter Canadian Properties; and Beth Wilkinson, Founding Partner of Wilkinson Stekloff, a specialty trial and litigation law firm. We have 3 items of business on the agenda today. Andrea Daly will act as secretary to the meeting and AST will act as scrutineer as we work through these 3 items. I've have confirmed that persons representing more than 20% of the voting shares have registered with the secretary and have logged into our online meeting, and therefore, a quorum exists. We will conduct today's votes by a single electronic ballot. If you've already voted in advance by proxy, you do not need to do anything, unless you wish to change your previously submitted vote. Voting this morning can only be done through our virtual meeting platform, and you can register to vote by entering your control number as user name and entering, in lower case, onex2021. This is the online equivalent of the in-person registration that typically takes place at our meetings. Instructions on how to vote will appear on the voting panel of your screen. Given that approach, I propose to move through the formal items as efficiently as possible. The online voting polls are now open on all items of business and will remain open as we proceed. The first item of business is to appoint PricewaterhouseCoopers as auditor and authorize the directors to fix their compensation. I'll ask Andrea for that motion.

Mr. Chairman, I move that PricewaterhouseCoopers LLP be appointed as auditors of Onex until the close of the next annual meeting of shareholders and the directors be authorized to fix the auditor's compensation.

Thanks, Andrea. If you are a shareholder or proxyholder that has used your control number to log into the meeting, you can follow the on-screen instructions to record your vote. Again, if you've already voted by proxy in advance of the meeting, you don't need to do anything. The next item is the election of directors. As you know, 5 of our directors are elected exclusively by the MVS shares. I'm one of those directors. The other MVS directors for this coming year will be Bill Etherington, Ewout Heersink, John McCoy, Rob Prichard and Heather Reisman. All MVS have been voted in favor of these nominees and all have been elected. We'll move to the election of 4 directors by holders of subordinate voting shares. Again, proxies representing the substantial majority of the SVS were submitted in advance of the meeting. We will publicly report the specific voting percentages for each director when we receive the scrutineer's formal report. But the preliminary count shows well more than a majority support for each nominee. I call on Andrea for a motion.

Mr. Chairman, I move the nomination for election of Mitch Goldhar, Arianna Huffington, Arni Thorsteinson and Beth Wilkinson as Directors of Onex to hold office until the close of the next annual meeting of shareholders.

Thanks, Andrea. Once again, please record your vote on the election of the 4 SVS directors, remembering that if you have already voted by proxy in advance of the meeting, you don't need to do anything. The final item for business is the approval of an advisory resolution relating to the corporation's approach to executive comp, as discussed in detail in this year's circular. I will call on Andrea for a motion.

Mr. Chairman, I move that the shareholders accept the approach to executive compensation described in the circular for this meeting.

Thanks, Andrea. Once again, please record your vote on the advisory resolution on our approach to executive compensation, if you did not vote in advance. As previously mentioned, voting today will be conducted by a single electronic ballot. If you've not yet voted on all items of business, please do so now. I'll pause for a moment while any last votes are submitted before closing the polls. [Voting]

I confirm the online ballots are now closed. That concludes our formal business, and I declare the meeting terminated. As I mentioned, we will publicly report the specific results of today's votes when we receive the scrutineer's formal report, but the preliminary count shows well more than majority support for all matters and approval of the advisory resolution in support of our approach to executive compensation. Before adjourning, I'd be pleased to answer questions submitted by shareholders to the meeting platform. For each question, I'll ask Andrea to read out the question as well as the name of the shareholder who asked it. We would like to remind you that questions that are not appropriate or relevant to today's meeting have already been answered or are redundant or repetitive will not be answered live. But any shareholder should please reach out to our Shareholder Relations team with any follow-up questions or concerns. I'll pause for a moment to allow for any final questions to be submitted into the meeting platform.

Thank you, Mr. Chairman. We have no questions yet. We'll just give it another moment. And it appears we have no questions. I'll turn the meeting back to you. And I think this is where we probably have our technical difficulty. So with that, thank you very much for joining everyone. And this concludes today's meeting.

That concludes today's event. You may now disconnect. Good day.