Cannae Q1 2023 Earnings Call Transcript

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May 9, 2023

There are 8 speakers on the call.

Operator

Afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Inc. 1st Quarter 2023 Financial Results Conference Call. During today's presentation, all parties will be in a listen only mode. Following the company's brief 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 as a This replay is available through 11:59 pm Eastern Time on May 16, 2023.

Operator

With that, I would like to turn the call over to Rory Ramor of Solpri Strategic Communications. Please go ahead.

Speaker 1

Thank you, operator, and all of you for joining us this afternoon. On the call today, we have our Chief Executive Officer, Rick Massey, Cannae's President, Brian Caswell and Brian Coy, our Chief Financial Officer. Before we begin, I would like to remind listeners that this Conference call and the Q and 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 Cannae'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.

Speaker 1

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 comments and statements are subject to include, but are not limited 2, 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 reconciliation between non GAAP financial information The GAAP financial information is provided in our shareholder letter.

Speaker 1

I would now like to turn the call over to Cannae's Chief Executive Officer, Rick Massey, who will open with a few brief remarks And then open the line for your questions.

Speaker 2

Hey, thanks Rory. It's Rick Massey. Thank you all for joining the call. Will, I'll try to be brief, but I'm going to stand on a soapbox here for a second. We are not in the Everybody on these calls are, including us, listen to a lot of earnings calls and we've heard a lot of management Prognostications on the market and the economy and all that.

Speaker 2

And we're not dumb enough to get out and start making guesses about Where the economy is headed, I'll say talking to the CEOs of the companies that we deal with, there's a lot of uncertainty out there. What we are convinced of is that our portfolio almost to a company Is grossly undervalued and I'm going to go through just a few examples and of companies that have recently reported Our largest holding, for an example, is Dun and Bradstreet. We've got 79 and change 1000000 shares. It's trading at a very low multiple of EBITDA, enterprise value to EBITDA. They reported an overall organic growth of 3%.

Speaker 2

That may or may not disappoint you, but if you look at their peers, you'll see that There are 2 U. S. Peers in the consumer credit business, The closest peers to Dun and Bradstreet, one of them had revenues revenue growth of 2% And one had revenue shrinkage of 4.5%. Yet those two companies trade at almost twice the EBITDA multiple of Don and Bradstreet. We're a little clueless about that.

Speaker 2

Don and Bradstreet does not have that much more debt than some of its peers. It has a better margin. And like I said, it has better growth than its peers Have shown. And what you'll see if you look under the cover on Dun and Bradstreet Yes, Anthony and the team there have done an incredible job of turning around their Marketing Services division by using essentially a data management platform where customers Can use their own data, 3rd party data and Dun and Bradstreet data to perfect their account based marketing. It's going like gangbusters.

Speaker 2

Coover's had a 60% churn rate. That is a 40% customer retention rate just a few years ago when they said about the fixed Ubers. And it has a retention right now in the 80s. So stunning turnaround for Dun and Bradstreet. And yet the market is they're selling it off.

Speaker 2

And it's really disappointing to us. We wish that there's more attention to be paid to Dun and Bradstreet because they've done a really nice job under the covers Fixing a very broken company. They've got it back to growth and growth faster than peers and yet they've not been rewarded for that. Peers traded, like I said, I said I'd be brief, I'll try to be a little quicker. Allied reported today 15% revenue growth And the Q1, 15%.

Speaker 2

Their, BPaaS, which is sort of their enterprise offering, multi Application offering, their sales were up BPAT sales were up 50%. Their bookings were A little soft, but that's because they have had all these giant jumbo contracts to that they've signed and are now in execution Mode like Exxon and GE and others. So, ADP, the closest comp to Alight grew at 9%. This company, Alight, one of my favorites in the whole universe of stocks grew at 15% And yet the light is trading at about half the multiple of ADP, go figure. It's a little depressing.

Speaker 2

We know that the market was disappointed That Stephane and the team at Alight didn't forecast or upgrade their forecast for 'twenty three. And I would just ask all of you and those investors to listen to a number of calls That have been made in the Q1 and see how many companies who beat their guidance actually for the Q1 actually came out and raised In my own anecdotal experience, it's a very low percentage because of the uncertainty And the markets out there and who can blame Stephane and Katie for not sticking their necks out and forecasting Increasing growth in a choppy sort of economy. Look at CDAY. Seadae beat the market substantially in terms of its guidance and the stock's down 15% Since their earnings call, you go figure, it doesn't make it makes no sense. It's trading in the like the mid-50s now.

Speaker 2

And it's our last sale, we sold 1,000,000 shares and $78 and that was a good trade. And we probably would sell another $1,000,000 at $78 if it ever gets back there, but at $55,000,000 it's dumb. It's just a really dumb price. Paysafe, everybody's whipping child. Paysafe actually turned in high single digits revenue growth, flat EBITDA growth, which is pretty amazing given the Mess that Bruce and the team inherited.

Speaker 2

The stock is up a little bit, But they did this is a business that did $420,000,000 of EBITDA And 2022 and on track to do even better than that in 2023. So it's kind of been thrown out with the bathwater 2. So this quarter, we are we're looking at a lot of things, We are not sure it's timely given the all the noise in the capital markets, especially the debt capital markets and all the uncertainty in the economy on the back half of the year. So don't be surprised if we don't strike at something In the Q2 and don't be surprised if we do. The We are not we did not buy back any shares in the Q1, and it's principally because We don't have a lot of extra capital to do so.

Speaker 2

And in order to raise that capital, We're going to have to sell one of those aforementioned holdings at a very disappointing price And we're just not that dumb. It doesn't make sense to sell Dun and Bradstreet at $10 when it's worth 15 And so that you can go buy your shares back at a deep discount too. It just doesn't make sense to me. The math doesn't work. So, you may be some of our investors may be disappointed we didn't buy back any shares, but we think it's prudent it's just prudent portfolio Ryan Caswell is our President.

Speaker 2

He's been busy with our Black Knight Financial. I know there will there may be some questions about that. Where are we sitting? How is Bournemouth doing? And what Are they out of the debt zone?

Speaker 2

And what's your view?

Speaker 3

No, we I think we talked about it last We spent some money in the transfer window, and the team has performed much better. So it looks like we are very close, if not out of the relegation which is a great outcome, and we're doing a lot on the business side, from a commercial perspective in terms of increasing sponsorships, Thinking about optimizing ticketing revenue, and so we're very pleased with the football performance To hopefully stay up in the Premier League, which will allow all of the other stuff in the multi club strategy to perform much better.

Speaker 2

We think we got a steal on Boardman. Our Bill got a He and Ryan are the ones that worm their way into the process and got a deal. We paid 0.8 times revenues. The comps are now Probably double what they were at the time, maybe 5 times. You're seeing people pay 5 times for small EPL teams.

Speaker 2

So, that's going to turn out to be a really good one for us and we're excited about it. I don't have anything else. Did I miss anything, Brian? Nope. No?

Speaker 2

Okay. Brian Coy, our CFO is here with us. Unless you have anything to report, we'll just go to questions.

Speaker 4

Not much good questions, operator.

Operator

Thank you. We will now begin our question and answer session. The first question comes with Ian Zaffino with Oppenheimer. Please go ahead.

Speaker 5

Hi. Thank you very much. Hi, Amit. How are you guys?

Speaker 2

Good, great.

Speaker 5

Thanks for all the commentary. This is helpful. And So just to throw that out there, I'm going to press you a little bit on this. You basically almost have 100% upside Buy back your stock, right? And so, I mean, my argument is bird in the hand, if you buy back your stock versus 1, 2 in the bush.

Speaker 5

So, help us understand this, right? Because when I'm sitting here, I would rather Buyback something that's worth half the price right now, as opposed to sitting and waiting, kind of like what your prepared remarks indicate. So if you want to square that and push you a little bit on your thinking there? Thanks.

Speaker 2

I think the underlying assumption Is that we are buying back at a 50% discount to book value. It's not clear that the that buybacks I have any effect on market value. And I'll say we ran a Grand experiment in 2022 and we bought back, I don't know, 12% or 15% of our company And the stock actually declined. So it doesn't Seem, yes, if you buy our stock at $20 and then tangible book value or what the net book value Per share is $40 It's a theoretical double, but it's a theoretical double to book value per share. And clearly, we don't trade on book value per share.

Speaker 2

And I would rather we think that the market for our stock is depressed, Not because we don't buy back enough shares, but because the our portfolio companies are poorly valued. And that's why our strategy is that's just before we go sell something, let's Wait for it to hit the target price, the price that we sort of thought about when we went into the deals in the first place. I don't know if that satisfies you or not, but when the assumption behind It's a double it's an instant double is only in the case of a liquidation and we're not in liquidation. And, yes, we could buy it at $20,000,000 and then if we liquidate it tomorrow, we'd get $40,000,000 a share. So, these are rough I don't know what our actual stuff is, but it's 40, 42 or whatever.

Speaker 2

What is it? What's the

Speaker 4

retail? 35,

Speaker 2

roughly today. 35, so but that's only in the case of a liquidation. We're not in If the shareholders want us to liquidate, we'd be glad to listen to that. But even then liquidating at these values would be, it seems to me to be pretty dumb. We're not naturally sellers at Deep discounts.

Speaker 5

Okay, understood. And then, maybe a little bit in the same vein You kind of threw out the straw man of selling Dun and Bradstreet. And this kind of dovetails into the next question as you sold some CDAY, But why not more CDAY? Why talk about selling Dun and Bradstreet and why not talk about selling CDAY or more CDAY or Maybe just your thinking is different, Honesty Day. So

Speaker 2

Well, Ian, great point, great question. And I appreciate you pushing us on these because we our credibility is everything. That's not to say we sold 1,000,000 shares. We've got 5 left, 5,000,000 yet left. I'm not going to say we Can't and shouldn't say one way or another what we're going to do with that inventory, but it wouldn't surprise me for us to sell more.

Speaker 2

I think we'd prefer to sell it Back in the $78 range versus the $55 or $56 range. And you might forgive us If we hold out a little bit to see if it doesn't bounce back to that. It's sort of an if CDs if you look at the chart, it's really interesting Because they blew out their numbers and their stock is down 15% since May 3rd, when their numbers come down, it doesn't make any sense at all.

Speaker 5

Okay, great. Thank you very much.

Speaker 2

Sure. Thank you, Ian.

Operator

Thank you. The next question comes with John Campbell with Stephens Inc. Please go ahead.

Speaker 6

Hey guys, good afternoon.

Speaker 2

Hey John.

Speaker 6

Hey Rick, you were on fire with the valuation rundowns On your soapbox, we agree with your stance there. You got a lot of puzzling kind of disconnects across a handful of these public investments. So we hear you there. On Bournemouth, I mean, obviously, great kind of run of things of late, several points above that relegation line. So it does seem like you guys are in a good spot.

Speaker 6

You had mentioned last call that I think you were kind of tongue in cheek, but mentioned existential threat if you were to go and be relegated. So that's A good outcome so far.

Speaker 2

No, it wasn't an existential threat for Brian and I. It was just for Ryan Caswell, who's sitting here with us.

Speaker 6

Heard that, heard that. But in the past calls, you guys have talked to maybe 3 to 4 times your investment on bormeth and you're talking about maybe a 5, 7 year Hi, Verizon. And then Matthew, I think you've repeated twice that the implied takeout or the implied value was about 8.8 times revenues, so So a really good price. When you look at Man U stock, I'm not close enough to that to determine whether that's pure apples to apples, but That one's at about 5 times revenues. And Rick, I think you mentioned your perceived peer group is about 5 times, so that seems to kind of check up.

Speaker 6

If you guys were to get that on Bournemouth, I mean that's pretty substantial. I think it's about $8 per share of incremental value for you guys, Yes.

Speaker 2

That's I was just doing the math in my head. Yes, I think you're in the right range, John.

Speaker 6

Yes. So that seems to be a pretty meaningful opportunity. I mean, obviously, As we assess the portfolio, there's the lion's share of the value is kind of tied to public assets. We can see the price day to day. On private side, that's where there's maybe a little bit of extra torque.

Speaker 6

Bournemouth seems to be the clear opportunity here. So my question here after that rambling is, What do you think the steps you guys need to take to juice the revenue to get things going where you think you can eventually be awarded that 5 times valuation?

Speaker 2

Ron will handle that. Yes.

Speaker 3

I mean, I think when we took over Bournemouth, if you looked at the commercial side of the business, it wasn't Run, as well as we would have hoped or as well as we think that we can do it. So we believe that was a big opportunity. We've hired some people over there Specifically focused on that. Clearly, part of the thesis is you have to stay in the Premier League, to get that valuation, which we think we're doing. We also believe that building out the multi club model, which started with our investment in Lorient, And we're looking at a few others.

Speaker 3

We think that further cement and helps the value because it helps create sort of additional sponsorship to build Make your brand look more like some of the clubs if you look further up the standings or the table. So look, I don't think it's I don't think we could sell it. I don't think we're looking to sell it tomorrow. I think there's some work that we need to do, but we think we're very Much on the way in terms of 1, requalification for the Premier League. Secondly, building out All of the commercial side of the business and then really taking the learnings from the Vegas Golden Knights and kind of super Excuse me, enhancing, what they were doing.

Speaker 3

But it's I don't think it's a and I don't think we could flip it today, John, but I think we are creating the value to get to those comparable transaction multiples that you mentioned earlier.

Speaker 2

Yes, John, we were kind of thinking of this as 5 to 7 year hold and kind of 3, 4 times our money As sort of a baseline IRR, I'm not promising that, but that's what we were thinking. It's going to take a while, And but you've got the best Bill brought, what's the guy's name? Jim Provola. Jim Provola over there from the Knights. And according to Bill, he's already working magic and, Grow.

Speaker 2

ProBola was ran With the business side, I mean, I don't know you call it the revenue the tickets, sponsorships, concessions, food, beverage, All that stuff. Correct. And they were more of mine, they were unmanaged Yes. Over there. So there's a long there's a long way to go on the downside, but there's a lot of upside.

Speaker 3

Yes, agreed.

Speaker 4

Yes,

Speaker 6

makes sense. That seems like a very promising opportunity. So we'll be keeping tabs on that. And this is one just kind of minor housekeeping item, but I noticed in the shareholder letter last go around, I think you guys said a 50.1%, So a majority ownership position in BKFE, it looks like on the April update and also in the shareholder letter, it's saying 49%, Obviously, not a big difference, but

Speaker 2

Yes, I just took those after shares and put them in my pocket, John. Now what happened was The company established, as with all companies that we're associated with, a management incentive plan with equity For people like for Ebola and we were slightly diluted by that and we wrote a check this week To get us back it was at $3,500,000 to get us back to 50.1%. Good catch. Okay. You're reading our stuff.

Speaker 2

We appreciate it.

Speaker 6

Yes, absolutely. And then last one here and this is another housekeeping item, but the $133,000,000 commitment you guys have Called out for BKFE, does that includes both Bournemouth and Lorient, right?

Speaker 2

Yes. And There is in there that's we have to pay the seller of Bournemouth another check, another 20 for Stay in the Premier League. Stay in the Premier League.

Operator

Yes. Okay.

Speaker 6

And that's incremental to the 40 that's already planned for Q?

Speaker 3

Nope, that's included.

Speaker 6

Okay, included. All right. That's all I got. Thanks guys.

Speaker 2

Thank you, John. Appreciate your interest.

Operator

The next question comes with Chris Sakai with Singular Research. Please go ahead.

Speaker 2

Hi, good afternoon.

Speaker 6

Hey, Chris.

Speaker 2

Just wanted

Operator

to Ask about potential investments, where are you seeing better valuations now in public or private investments?

Speaker 2

We don't I don't think the private market has adjusted its valuation expectations to where you see a lot of publicly Traded companies trading right now. And all I have to do is refer to our portfolio discussion that I had at the outset. Those are public companies and they've just been crushed. And we don't think the internal valuations that PE Have gotten anywhere near that.

Operator

Okay. You're likely to see us do

Speaker 2

you're likely to see us in I mean, we're are some privates out there that we're looking at, but you're likely to see us probably tilt toward the kind of go private Model or investing in public companies at these depressed prices versus The kind of crazy prices that are that we're still seeing with the heat. But I want to emphasize, Go privates depend on the debt capital a functioning debt capital markets And that's not going on now. They're just not nobody's doing deals now. It is totally dead.

Operator

Okay. Yes, thanks for that. And then can you mention or provide some color on Where you're looking for your next investment?

Speaker 2

Not without getting too getting specific enough that We're still I'll just say we're still Ryan and Bill Definitely looking at building out the multi club strategy, and I like the idea of building A multi sport business with under Bill and Ryan's leadership. And there so that's one area that I know that there's been a lot of time on. I'm kind of spending my time on the traditional, I would call it traditional billfolding companies, Chris. Utilities, tech heavy, either Tech services or just pure software. And another thing is We start our investment approaches at home.

Speaker 2

And It may be that some of the best investments we make over the next year could be in our in some of our existing portfolio companies.

Operator

Okay, great. Thanks for the answers.

Speaker 2

Thank you.

Speaker 1

Thanks for the question.

Operator

This concludes our Q and A session. Now I would like to turn the conference back over to Mr. Rick Massey, Chief Executive Officer for any closing remarks. Please go ahead.

Speaker 2

I want to make sure that we've not Miss operator, we've got another we usually have RBC on the call. Is there are they I don't want to drop off if they have a question. So can I just can we have a moment of silence For our group there and see if they want to ping in on us? And if not, we'll I'll say thank you. Thanks for joining us.

Speaker 2

Thanks for your interest. I hope you see the value in our stock and in the portfolios That we have, it's clearly there. And we're excited about maximizing that.

Operator

Okay. All right. I see here that we do have another questioner. Okay. So it comes from Kenneth Lee with RBC Capital Markets.

Operator

Please go ahead.

Speaker 7

Hey, guys. Good afternoon and thanks for taking my question. Thanks for squeezing me.

Speaker 2

We knew you'd probably be on the call and we didn't want to just hang up without giving you a chance to badger us one way or another.

Speaker 7

Absolutely, absolutely. Appreciate the time. Just one on the AFC and Bournemouth. As you look out further and perhaps this also goes with the other clubs as well, how dependent On the enforcement of UEFA Fair Play Regulations, I just want to gauge your thoughts around that. Do you need to have fair play strongly enforced or are your projections Pretty able to handle it without a strong enforcement there.

Speaker 7

Thanks.

Speaker 3

Yes. I mean, I think there's a few different Components of UEFA Fair Play. But in general, a lot of that stuff is aimed more at the big And people who are spending a lot of money to try and get into European competitions. I think it's a little bit less focused. Obviously, I don't have the same regulation, but it's less focused on the smaller teams.

Speaker 3

But frankly, I think it probably helps the competitive balance for Smaller teams on the margin. So we've definitely thought about it. It's definitely incorporated in our projections. And I don't I think there are other teams that are going to have bigger issues with it than Bournemouth Wood.

Speaker 7

Got you. Very helpful there. And one follow-up, if I may. Is there any thoughts around the legacy restaurant business? What are your longer term thoughts there?

Speaker 7

Could we potentially see some either some actions or view around that business? Thanks.

Speaker 4

Hey, Ken, this is Brian. I mean, the one thing I'll say is that our restaurant group has just done a yeoman's job in the last 24 months. They've Faced a pandemic, they faced great labor crisis, they faced commodity And late letter, inflation and inflation, they've done a great job. We've closed just year over year, they closed 17 restaurants that were Underperforming and had a drag on the business, and it's had great effects. The average guest check, they've raised prices, average Guest check is up 9%.

Speaker 4

I think they're doing a yeoman's job in an industry that just had unprecedented obstacles in its past A couple of years. We like the business. I don't know that we're going to be in it long term, but with what's been going on in the last couple of years, It's definitely not been the right time to think about moving it, but we're very happy with the way that they have managed through that.

Speaker 7

Got you. Very helpful there. Very helpful there. And One last question.

Speaker 2

Hey, Tim, you ask all the questions you want. Our time is yours. Sure. And we appreciate your interest.

Speaker 7

I really appreciate it again. Just looking at a high level, Just based on all the comments early in the call, would you say that Further monetizations within the portfolio, is that going to be predicated upon improving valuations Or would a deeper discount in your own shares I'll cause you to review further. I just want to once again gauge what could be the potential catalyst down the line in terms of further portfolio monetizations. Thanks.

Speaker 2

That is a really good question. And The answer from and Bill may have a different point of view, but Our job is to manage the portfolio of companies that we have, And it's really hard to work on a dual track where you're watching out for your own shares And the discounts there, we think we get paid to maximize the value of the portfolio, not the shares. And so our I would say the vast it's yes. The answer to your question is yes. It's like but I would say it's like 70% this is me, 75% of that's So that's kind of the way we look at it.

Speaker 2

It just doesn't make a lot of sense to Sell shares of Dun and Bradstreet at $10 at down here at half the multiple that It's comps trade, so that we can buy our shares back or do or sit on cash or do whatever else there is with it. It doesn't make sense or make another investment. Doesn't make a lot of sense. We think that the market is going to eventually reward both Cannae and Dun and Bradstreet with Dun and Bradstreet. We think it's going to reward both Cannae and Alight with Alight.

Speaker 2

And hopefully, they'll happen together and we won't have to choose.

Speaker 7

Got you. Very helpful there. Thanks again.

Speaker 2

That was a helpful question. And it's You're helping us sharpen the way we think about this. And this is hard. These are hard questions that we have to answer. These are hard.

Speaker 2

Right now, it just feels dumb to sell any of these things Anywhere near the prices that we're talking now.

Operator

And with that, we conclude our question and answer session. I would like to turn the conference back over to Mr. Rick Masday for any closing remarks. Please go ahead, sir.

Speaker 2

Okay. I think it already is, but thanks a lot. Thanks for your interest and we look forward to speaking with you again next quarter. Obviously, any of you want to have some side chats with us, Work through Rory and Brian to set something up. We'd be happy to talk.

Speaker 2

So have a good rest of the day.

Operator

This concludes today's conference. Thank you for attending today's presentation. You may now disconnect. Have a good day.

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Cannae Q1 2023
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