Q1 2020 Earnings Call

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Sure all parties will be handled.

Oh your presentation. The conference will be open question construction, just a follow up.

As a reminder, this conference call is being corridor I would now like turn the call over to Jamie <unk> Investor Relations.

Please go ahead Sir.

Thank you operator, and good morning, everyone. We appreciate your participation first quarter 2020 earnings conference call joining.

Joining me today organized chairman Bill Foley, Chief Executive Officer, Canarsie, Chief Financial Officer recall.

As a reminder, a replay of this call will be available through 11, 59 PM Eastern time on May 14 2020.

Well, we began I would like to remind you that this conference call may contain forward looking statements involve a number was and uncertainties.

The ones that are not historical facts, including statements about our expectations.

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.

Information currently available to management.

Because such statements are based on expectations that the future financial and operating results.

That's a fact.

Results may differ materially from those projected.

We undertake no obligation to update any forward looking statements, whether as a result of new information future events or otherwise.

Six and uncertainties with forward looking statements are subject to include but are not limited to.

The risks and other factors detailed press release.

Released this morning, and then the statement regarding forward looking information risk factors and other sections.

Nice form 10.

In other filings with the yes.

Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful and evaluate outperformance.

Presentation at this additional information should not be considered in isolation.

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Our results prepared in accordance with U.S. gap.

A reconciliation of these non-GAAP measures to the most comparable GAAP metrics can be found.

Please.

Another turn the call over the Bell.

Thank you Jamie.

Today, our country in World is old you know we're in the midst of a significant battle against <unk> 19, which has impacted all of US our first priority it courses to health safety, our employees and customers across all our portfolio companies, we're working daily with their management teams as we adapt to this new environment in order to ensure that we minimize disruption.

Well, if they do live maintaining the seamless operations or businesses.

During the course my career I've seen might for sure challenging environments, which have helped shape my ambition philosophy.

This concludes the importance of having outstanding management teams Central business is strong intellectual property and trade secrets and most importantly, they fortress like balance sheet to weather the storm and take advantage of market dislocations.

Can always strategy remains.

Unchanged, we continue to monetize our investment.

Nurture a portfolio companies make new investments and prospects for future best opportunities are part of pipeline of potential investments has expanded during the market dislocation and can I use ample capital to be opportunistic when the economy begins to stabilize.

It doesn't bread street or Dnbi, we've made significant progress improving our operations in a short period of time.

It's Preleased announced the management team completed its goal of achieving 200 million of annualized expense savings by year end 2019, several months ahead of schedule.

Currently identified an additional 50 million.

Cost efficiencies there will be taken out over the course of 2020.

Of note the strength of Dnbi is competitive position is evident into demand the company's experiencing as result to cope with 19 pandemic, particularly from the United States government.

These customers are more reliant and ever on Dnbi is data and analytics for strategic decision, making reflected in the year over year first quarter adjusted revenue growth.

3% to 414 million.

Additionally, the DNP Dnbi team delivered first quarter year over year, adjusted EBIT Dog rose, 17% to 151 million and adjusted EBITDA margin expansion.

<unk> 40 basis points to 36.6% over the prior quarter.

During the quarter Tonight rebels, just portfolio by selling 3.9 million shares ceridian at a price of $72, a 75 cents per share.

This resulted in gross proceeds of about <unk> of approximately $283.7 billion and we recorded a gain of $223.1 million.

As of April Thirtyth, 2020 Tonight owns 19.7 billion shares or Ceridian stock worth approximately 1.2 billion.

Turning to a mirror life, we close our previously announced commitment to this 125 million for approximately 20% positioning the company.

Merrell life is a large U.S. independent insurance market organization and has developed marketed and distributed life and health insurance annuities and retirement planning solutions to pre retirees for nearly 50 years.

We understand that the current environment pose challenges.

And as I commented, we have a very strong track record requiring significant companies in key markets Dreamworks dislocations, we have a strong network and our pipeline remains robust.

As potential deals arise, we were well positioned to deploy the capital continued continuing to deliver long term value to our shareholders.

We remain very optimistic to further grow tonight with that I'll turn the call over to Rick Cogs to review our financial results.

Thanks Bill.

On March 31st.

And I had $398.7 million and holding company cash and Undrawn credit facility of $100 million, giving kenai, approximately $500 million that capacity to execute our future investments.

Turning to Dnbi, we successfully reprice the 2.53 billion dollar term loan B facility and realized a 100 basis point reduction in its interest rate with the ability to get it stood at 25 basis point reduction born in the initial public offering excluding the cost with the transaction the lower interest rate will save deal.

The approximately $25 million interest.

Thank you the maturity of the term loan b.

During the first quarter and I change its accounting method for Ceridian and now recognizes the investment at fair market value for balance sheet purposes that can I no longer holds the control position.

Final balance was $993.4 million, reflecting a gain of $684.9 million.

They fourth revenues.

Was up $168.8 million up 27.1 per se year over year and up 27.3% on a constant currency basis, excluding float revenue They force revenue.

Were $154.7 million up 31.7% year over year end up 31.9% on a constant currency basis.

Adjusted EBITDA of $55.2 million up 10.8% year over year, excluding <unk> revenue adjusted EBITDA.

39.6 million first that year over year.

Excluding both absolute revenue total ceridian revenue was $203.1 billion for the first quarter, 2020, and increased 8.2% or 13.4% on a constant currency basis.

American Blue Ribbon Holdings, which includes village and Bakers square and legendary baking voluntarily filed a petition for chapter 11 on January 27, 2020 in order to accelerate the timetable for research for the restructuring of its operations.

Regarding the management team with more flexibility as part of this process and I was provided up to $20 million and debtor in possession financing.

That's filing does not involve or affect the business operations up Oh, Charlie's for 99 restaurants.

Consolidated restaurant group generated total revenue of $169.9 billion in the first quarter 2020 compared to $257.8 billion in the first quarter 2000, they can't.

The total restaurant group adjusted EBITDA for the first quarter.

The loss of $3 million to $5 million compared to a gain of $2.6 billion in New York order.

While the decline in revenue is primarily due to the 60 to 60 stores voters in quarter one.

The mandate dining room loaders beauty club at night, England significantly impacted EBITDA margins.

During the quarter, we Opportunistically purchased 386517 shares at an average price of $27.94. A March 31st 2020 Tonight book value was $2.2 billion or $27 and secure nice that's for sure as compared to one point.

$1 billion or $18.72 per share under secretary for 2019.

Amongst the challenging environment can I delivered progress across our portfolio of brands.

It was built for sustained growth and as well position to not only withstand challenging times, but to continue to prudently monetize our portfolio of investment maximizing future opportunities, while ultimately delivering value to our shareholders I'll now turn the call back to our operator to begin our question and answer Sasha.

We will now begin the question answer session.

Ask your question you May proceed Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your hands up before passing the kids.

Charlie Your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.

Our first question comes from John Campbell with Stephens. Please go ahead.

Hey, guys good morning.

My questions Hey.

I wanted to check on Dnbi, you guys are doing a fantastic job.

Ah getting things going there I wanted to check on seemed to work you're doing them. Its Kobe, that's sounds pretty interesting to me it sounds like they got to mines in the fire with some of the government work a if you could maybe talk to what they're doing there and that's well enough to move the needle on the topline.

Well yeah. Thanks, John the in terms of the U.S.U.S. government Oh Dnbi, what has been selected by the department of Homeland security and by FEMA to provide a quite a bit of data and analytics and information to the U.S. government and it's also involved in the.

Providing of data and analytics to the.

To the Cobiz virus.

Oh Committee and the off so the president and.

It's very encouraging that.

We were selected and I'd, rather not get into specific revenue numbers, but those revenues begin appearing.

Begin happening really started after March twentyth. So they were not impactful on the first quarter, but those revenues should help balance any dimunition they'd be me may face indeed be revenue growth over the next couple of quarters. The one thing to remember is.

They did publish probably a number of times.

The deal Dnbi will be challenged in the second and third quarter in terms of revenue growth due to the closure of the call center in the Tucson, Arizona last year and that revenue being just eliminated that time. So it's we're going to be <unk> still exist did last year, but by the end of the third quarter. It is going away.

Okay. So we're comping over that particular piece of revenue that will make it difficult to sustain.

Sustained growth in the second quarter and third quarter should come back. So that's that's kind of the summary of the revenue situation and we'll we'll have more to say at the end of our second quarter.

Conference call with regard to Dnbi and government revenue will have more clarity just about how significant it is.

Okay. That's helpful on the restaurants, a if you guys can maybe walk through some.

Some of those steps are some actions you're doing within this restructuring process and then I wanted to also check I'm not even how challenging is in the restaurant World. These days can you talk about the death and how much of that as non recourse.

Well in terms of the debt there really isn't any debt on the restaurant company. So there's we have leases and the leases are recourse only to the particular entity that is operating those restaurants in case of village in a bigger square. So there's no there's no recourse on <unk> on on.

He says or other expenses back up to.

The holding company so on the village Inn brand Bakers Square, we filed chapter 11, proceeding anticipating that we'd be able to sell those close restaurants.

Satisfy the chapter 11.

Funding cost in terms of clean in terms of lease lease expense and then sold a branch and also the legendary baking.

Fortunately with covert 19, basically all the restaurants, just closed and and in a few or reopening now at 50% occupancy, but the problem with the village in a bigger square restaurants is the demographic is older and you know we're just not sure those restaurants can.

Can ever recover so we're just in the process of exiting though that entire business. It. This time the other restaurant chains. A 99 is up in the northeast with about 106 restaurants in Ocharleys is headquartered in Nashville is primarily a southeastern based gene.

It's unfortunate because both of those change we're really starting to do well comping positive revenue growth.

Obviously up no EBITDA was significantly improved until about March 15th and of course, then everything collapse. The older restaurants closed. So we go into the process right now with all Charlie's a 99 of evaluating various red berries restaurant locations and some of those restaurants me just never reopened.

At the time, when we started coming back.

Southeast is reopening to 50% occupancy and assuming the the virus doesn't reengage.

We'll get back to 100% occupancy in those old Charlie's and the 99 restaurants 99 me trail a bit because it's up in the northeast.

So but in terms of debt or there just isn't that there's no debt in the whole restaurant chain. We just don't we don't we don't have any sense, especially in the ones that were filed for chapter 11, There's no no no current risk to the balance of the restaurant companies based upon the based upon outstanding debt or <unk>.

Patients there so they kind of ramble to do because that does that helpful. No. That's it that's very helpful. <unk>. My main concern was on the operating leases that non recourse back at the holding company, it's great answers.

One more for me I'm, hoping that you don't want to take all the air time here almost 400 million a dry powder, obviously does have a locked away with just wanted to get updated thoughts on buybacks versus M&A and then bill maybe if you could talk about kind of pricing or multiples, you're seeing out there and how much that's changed kind of missed the endemic.

Yeah. So we're we're in the process now and we'll have more to say in about a in about two or three weeks with regard to a couple of a couple of situations that we're working on.

You know that really good companies and I'll give you. An example is you're familiar with is black Knight Black Knight.

In the high Seventys when when the market started really cratering and it got down into the.

Mid Fiftys and they'll black Knight's back to 72 were $73. So a lot of them a lot of the recurring revenue companies that were involved with and there'll be no over there. We're tracking we're really hit and then it now started coming back and Ceridian is another example, you got back down to the mid Fortys.

And today I think it's around $65 and as high was about $79. So it's all from is high but it's certainly up from its low.

That is pretty characteristic.

Some of the companies that were interested in a in that they're multiples have come down slightly but the ones that were most interested in our companies that were potentially going public that had been put on hold and there's a there's some sort of a monetization need and those and those businesses. So those those are.

Owner screens and we're looking at those all the time and then the other.

Opportunities are really companies that are over Levered and were the Republic, but are over levered and suddenly the revenue streams have been impacted.

So that's really what we're that's those are kind of companies really good and it's primarily in data analytics isn't processing software kind of the same business.

We're already in and we believe that we have an opportunity to raise significant additional capital through various third party vehicles that we think we're going to having a very interesting summer and fall in terms of looking at different companies and having different opportunities and they'll be more to say more to tell you about.

And in about two or three weeks when we have a have a little more definition on some of those things working on.

Okay, Great. That's helpful I'll jump back into queue guys. Thank you.

Our next question will come from tapered roller with Wells Fargo. Please go ahead.

Hey, good afternoon, guys. That's it for taking my questions I'm. Just wondering if you could talk about EBITDA margin at your Dun <unk> Bradstreet.

It's a t. so it looks like you know like last quarter. It was 41.8% you know this quarter drops you know over 500 basis points to 36.6% I know historically Q1 has been but lost revenue and margin quarter for that business, but you know it seems like maybe larger sequential drop off than I would've expected you know can you.

To provide some color there maybe Q4 margins were better than they should have bad or maybe Q1 wasn't quite just gotten us. It took them no. We think we're right on it we're thinking we're right on track, we're up about 440 basis points from a year ago quarter and Ah you regret the first quarter is the most difficult order for Dnbi, where you come off the fourth quarter <unk> the pre.

This fourth quarter, which its contract signings, they're all trying to be done by year end and so then there's a little bit of a lag in the first quarter.

We're right on track, we improved or your year over year, and you'll see that EBITDA margin Brigus are working its way back up again as we go forward through the balance of the year. So there's really nothing to be will be concerned about [noise].

Okay, Great and then you mentioned in your you know your commentary that you thought that in bradstreet was more more necessary than ever.

<unk> utilization should be pretty strong for the trade credit product you know its customers need real time credit risk uptake updates, but then you know you talked about having challenging.

No revenue you know had once in Q2, and maybe two or three is that all related to the call center or you know kind of what do you sell the trade credit side, yes. It was really the call centers. The principal corporate in this and this and this scenario. However, the areas that are impact is as you as you can imagine we don't.

He did a fair amount of consumer.

Information are going back to businesses, particularly in the hospitality area, and so hotels and restaurants and that of course completely dried up so the government business that has the we've managed to attain and is really sort of offset.

With that that drop so it's it's not significant but it's still and we need to get these amazing in America back to business. You know the banks of course are still the I'm, just very robust revenue of revenue picture and financial institutions, but some of that some of the consumer oriented businesses that are really.

The impacted by this virus.

They've had an impact in terms of our interest demand for our products.

So we'll just we'll just see how fast we can get back to work with the government business is really largely offsetting that no diminution in kind of consumer.

Consumer oriented or data and analytics.

Got it and then you know how do you feel overall about liquidity and covenants at Dun <unk> Bradstreet and what was liquidity like at the end of the quarter.

I don't have the exact number I don't have that in front of me, but you know, we we have or basically our entire capital structure is is in place for another two and a half years. So we don't really have any liquidity problems, but we had hoped to do of course was execute an IPO in the month of me.

Okay, and Oh in that case, we were going to.

Take out the preferred and <unk> claw back a good piece of the subordinated debt seven have present and a half percent that will that that IPO is obviously been deferred and we'll just see when the market opens weve submitted or second round of comments to the FCC on her S. One and we're waiting to the response, we're going to drop.

In or first quarter numbers, and so we'll have a well have an S. One that can be executed against I think it's all the way up until about August 11th and then we'll have to update again.

We've done a lot of work in terms of the terms of yes, when the public offering there was robust demand and all of our early.

[noise] early calls degrees to analysts.

And we feel very good about it but just a timing is not perfect. So if we don't go public until the fourth quarter or the first quarter of next year.

We're in great shape. It doesn't work we have no no capital constraints.

Okay, and then last question I guess, it's you know somewhat related to you know that last commentary you were making but just overall how are you advising them from a strategic standpoint, you know many companies. They cover you don't have been assuming a more defensive posture bolstering affinity cutting cost to get 30. Other saw this virus, but then you got a very few.

You never a companies that you see kinda waning and trying to maintain current plans in order to take share you know throughout the virus or maybe on the other side of the virus. So how are you kind of advising them down to operate in this environment.

So we are we're maintaining our plans what we have done as we found we've uncovered I'm not uncovered but we're we're executing against about another $50 million the synergies, but in terms of the business operations and changing the way that the company has been running sales structure product development. It's all on.

Going we haven't stopped at all when we think there we believe we have a real opportunity to continue to.

Make dun <unk> bradstreet.

Not just a data company, but an analytics company and that's we're working very hard on because you still you still data for X and you sell data and analytics dealing with analytics for X plus Nexmos Expos X. So it's a big big change and that's where revenue growth is going to is going to come in the future and so we're just in the early stages of.

Of this business transformation, it's only been.

15, 16 months since Weve since required the company.

Thanks for taking my questions sure my pleasure.

Our next question will come from John Campbell at Stephens. Please go ahead.

Hey, guys that to two quick.

Quick ones here I haven't I haven't run the math on the Ceridian fair market value and the balance sheet I know that changed for you guys. If you can maybe how it short cut that does that reflect because that's just basically the closing last day of where I guess, let say the quarter closing price ceridian.

And does that also in count account for the P.T.I.P. payments in fidelity I'd be payment in the taxes.

Oh, Yes, I think that's taking into consideration the the share price at the end of the quarter gone in and what also consider l. TEP and taxes.

Okay.

And then last one for me no one.

Going to be back on the eyes.

Boy.

You know we have such a good team and does it so disappointing.

The commissioner is very focused on awarding the Stanley Cup this year and so I see I believe you're going to start seeing the players back in their practice facilities and small groups.

And in about two weeks two and a half weeks then we feel like there's going to be about a three week.

Training period get back in shape and get ice ready and then it's unclear whether this season will be finished or partially finished and playoffs will then start or whether it will just move into play offs with maybe an expanded expanded round <unk> opening play off around but I'm very confident the bye.

July well options, a very I'm confident the by July 1st will be on her way to either finishing the season or be in the bina playoffs scenario, but without fans. Unfortunately.

You bet, because we have a real real advantage from our fan base compared to the lot of other teams.

Well any sense of normalcy would be a great at this stage. So hope that Oh definitely is out. Thanks. Thanks for taking down guys ill just give some sports back on the or [noise].

Exactly [laughter].

This concludes our question and answer session I'd like to teleconference back over to Bill Foley for any closing remarks. Thank you.

To conclude we're very pleased with our first quarter results importantly, the management team at Kenai has weathered many challenging environments and we are optimistic the dislocations in our economy will present attractive opportunities for our team we remain well capitalized and we'll continue to nurture the growth of our portfolio companies well also building the deep.

Type line potential investments that we see today as we were to expand our portfolio and deliver long term value to our shareholders. Please stay safe and healthy and thanks for your time today.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.