Q2 2020 Cannae Holdings Inc Earnings Call
Good morning welcome.
Ladies and gentlemen to the collateral damage second quarter 2020 earnings conference call. During today's presentation. All parties will be an old smoke. Following the presentation. The conference will be open for questions for construction still follow that.
As a reminder, this conference call is being recorded.
Now I'd like to turn the conference over to Charlotte today's Investor Relations for <unk>.
Please go ahead.
Thank you operator, and good morning, everyone. We appreciate your participation in our second quarter 2020, <unk> earnings Conference call. Joining me today are nice Chairman Bill Foley, Chief Executive Officer, Rick Massey Executive Vice President Corporate Finance, David Ducommun, and Chief Financial Officer, Brian Coyne either.
Well this call will be available. So I think 59 PM Eastern time August four 220 20.
Before we begin I'd like to remind you that the conference call them Recompete work looking statements and Bob on the Barbara Perky <unk>.
That's what <unk> historical facts, including statements about our application hopes intentions or strategies regarding future.
Okay.
Forward looking statements are based on management's beliefs as well as opposed to lead by yes information currently available to manage.
Because such statements are based on execution supposed to future financial and operating results and are not beat was the fact actual results may differ materially from those projected.
We undertake no obligation to update before because they know what as a result, feeling great about future events or otherwise.
With that person he is whats worth looking at the end of course subject to include but are not one that to the rest and other factors detailed in our press release, which was released this morning and then the statement regarding forward looking to work in from each of these factors and other Succes look nice form 10-K, and other hobbies back you said it.
Let me now turn the call over to Bell.
Thank you Shannon.
Second quarter, we continue to monetize it doesn't nurture our portfolio companies make new investments and prospect for future bus what opportunities.
During my career Ivan dirt, many children Bourbons, all of which helped shape when it doesn't look philosophy.
The slightly more uncertain economic outlook or strategy is unchanged.
As a result Tonight was built with a fortress like balance sheet to weather the storm and take advantage of market dislocation.
Over the last few months, we've seen or deal pipeline expand and are pleased with our new investment opportunities. We have both been presented in source.
Given this backdrop, we have made real progress to deploying capital into attractive investments that we believe will grow the franchise value of Kelly.
Our primary accomplishment in the second quarter was the initial public offering of Dun <unk> bradstreet aboard Dnbi.
Well they listen to their shares on the New York Stock Exchange on June Thirtyth at a price of $22 for sure.
In raised 2.4 billion net proceeds.
Can I invested in a concurrent private placement that assure price of 21 67.
Currently owns approximately 18% of the it'd be.
Can I use ownership position is valued at 1.95 billion given Dnbi is closing price of 25 50 on July 31st 2020.
We look forward to continue supporting <unk> strategic transformation and group.
To capitalize on the many larger investment opportunities, we see could I entered into a forward purchase agreement with fully Trust me acquisition Corp, or after.
In which can I know as a 20% sure of that promote.
As an acre investor in a member of the sponsor group, we look for forward to working with our partners with DHL do identify perspective targeted businesses with the industry's if that angel technology for business process outsourcing.
We are actively evaluating targets for this capital pool, and we'll update you once we have a definitive agreement with the target.
In addition to recognize a desperate enough tech.
No I entered into afford purchase agreement with trivia acquisition core or trivia.
Which can I use an acre investor that 15% economic interest.
So the number of the sponsor group.
Again, we look forward to working with Frank mortuary and the team led either experience with this transaction.
More recently earlier this week on August the third can I entered into a forward purchase agreement with.
That's tech acquisition Corp to.
For $150 billion or similar terms to trivia.
Subsequent to the quarter in Black Knight announced as the fed the purchase agreement to acquire optimal blue a leading provider of secondary mortgage solutions and actionable data services for enterprise value of 1.8 billion.
Black Knight will combine it's a couple of <unk> analytics with the optimal blue.
Newly formed entity, which can I will own approximately 20%.
Ownership interest for an equity contribution to 290 million.
Lastly.
And I disclose the ownership interest in partnership with Senator investment group of approximately 12 million shares and economic equivalents and Corelogic during the second quarter.
On June 26 can I, along with Senator investment group submitted an unsolicited proposal to acquire a core logic for $65 a sure. It's already said, 37% premium to the other affects your price.
After spending nearly you're performing extensive outside due diligence there were no material uncertainties, our proposals, including financial or regulatory we're disappointed the corelogic has declined to our proposal.
Subsequent to quarter end on July 29th we now see this even process. The coli special meeting of shareholders into in order to like nine independent and highly accomplished directors to the Corelogic board of directors.
Actually given where we are in this process.
Hi, I'm unable to provide any further updates at this time original questions regarding this matter.
You bet to finance these investments and further rebuilds or portfolio, we sold 3.7 million shares Ceridian Other places 64 Fortys sure.
This resulted in gross proceeds of approximately 238.3 million.
We recorded a gain of 53 million.
As of July 31st.
Many 20 can I own 16.1 million shares is reading stock worth 1.3 billion.
We also completed a secondary offerings of approximately 12.65 million shares of Tonight.
In which we raised proceeds of approximately 455 million.
This offering helped us broadened or institutional shareholder base provides capital from to fund future transactions and reintroduced the could I strongly to the investment community.
To conclude we've made significant progress expanding our portfolio of investments, which we believe positions can dive for continued value creation and outperformance.
We're well positioned deployable capital is potential deals arise and we remain very optimistic about our future.
Before I turn the call over to Brian Coyne, our new Chief Financial Officer I'm on a first think Rick Cogs for his service to <unk>, Rick resigned from the company two weeks ago. When we were really excited have Brian join our team.
I've got no Brian very well over the course of the last few years is he is the CFO for Black Knight Sports Entertainment, the biggest Golden nights and I look forward to working with him and his role was going away.
With that I will now turn the call over to Brian to provide a brief overview of our financial results.
Thanks, Bill I'm looking forward to working with you and the team here Tonight.
Turning to our results the major items of note were similar to the preceding quarter Mark to market gains in our investments in equity in the earnings and losses of Arpus affiliates can I recorded 471 million a fair market value gains on Ceridian stock along with 53 million a realized gain on the shares sold during the quarter complementing.
42 million of unrealized gain our investment in Corelogic stock.
From our unconsolidated affiliates and I recorded a 56 million dollar loss from Dun <unk> Bradstreet at $138 million gain on its investment in the equity funds.
Offset by smaller items for a net 58 million an earnings.
Oh liquidity front, we entered the second quarter with 399 million in cash as Bill noted above can I created liquidity by selling 238 million of Sri in shares ahead of a 455 million equity offering of its own.
Offset mainly by an additional 100 billion investment in the equity fund that provided Kenai with nearly 1 billion in corporate cash and short term investments at quarter close as well as 100 million of Undrawn capacity under the up enough revolver.
Oh that amount a total of 225 million was committed during the quarter to attack and trivia and an early July 200 million was deployed via the Dnbi private placement.
Substance subsequent to quarter end, our $290 million forward purchase investment and optimal blue.
As well as a forward purchase agreement on F Tech two for 150 million.
During the quarter, we repurchased over 123000 shares of our own at an average price of 29 37.
On June Thirtyth 2020 denies book value was 3.1 billion or $34 per share as compared to 1.5 billion or 18 72 per share on December 30, Onest 2019.
Now, let me turn the call over to do close we'll touch on our pipeline and potential investment opportunities.
Thanks, Brian.
As evidenced our second quarter performance. The Kenai team is kept busy in addition to the transactions we've announced publicly we've been busy behind the scenes looking for our next deal we screen literally hundreds of potential transactions, both public and private we've met with Ceos private equity owners large public institutional shareholders and we believe this is a great time.
And you deploy capital you find a current owners or in general marginally more willing to transact with us as their long term outlook is increasingly more uncertain and their strategies in some cases leadership needs to change we can all your buyers of long term value. We have no maxim holding period for an asset as evidenced by a lot of our historical investments our outlook.
We will build operational expertise and deal structuring creativity is a one of the kind asset for July I should also add that we can act quickly when needed we're not a bureaucratic organization and bill has a robust bench of managers and industry experts all of them help us be decisively decisive quickly on transactions. We believe this makes us the preferred counter.
Party for sellers can businesses in need of cat.
Our focus for new investments will be primarily the industry's built discussed related to payments data and analytics and Fintech. We're looking for companies with enterprise values, ranging from 1 billion to 10 billion and our equity checks have generally been into 100 to 500 million dollar range, but as you've seen through the various looks back another JV partnerships.
We've been able to every sponsored or economic firepower actually far outstrips, our existing liquidity, it's important to us that our targets have defensible market positions and the ability to benefit from the leadership in capital Bill brings to the table will be back to update you as soon as you have a definitive agreement with a target to announce I'll now turn the call back over to grant our operator to begin the QNX session.
We will now be done the question answer session.
Ask your question. They May Press Star then one on your Touchtone phone.
We are using a speakerphone, please pick up their hands up before passing the Keith So what are your question. Please press Star then to.
At this time, we'll pause momentarily to assemble a roster.
Our first question will come from John Campbell with Stephens. Please go ahead.
Hey, guys good morning.
Brian Congrats on the neural looking forward to working with you you guys must have a pot of coffee brewing about 24 seven at the TRASM in office, it's been a really really busy for my past couple of once you guys, but I just wanted to get your your latest thoughts on a on a couple of the moving parts and if we could you maybe start with optimal blue I'm sure. We're gonna here.
For a lot from Black Knight next week, but how do you see optimal blue just come transforming the black Knight model and in the value proposition and then any thoughts on that kind of ice and alley combo that was announced last night.
Sure well do quite interesting, what's your take the optimal blue piece.
So we think this is a transformative deal for for Black Knight is all told Blue really has the industry, leading set of what they call P equals product pricing engine tools for for mortgages. So as you know black Knight have a dominant position in mortgage processing, we think they have a very defensible mode and this is a high growth product.
We think they can bolt on to their existing offering and frankly accelerate the growth in a bad business, even faster than that and it's been growing on its own. So everything it's a high quality asset and were excited to see what age and the team do with it.
We also you could get more support but almost 10 product deferred to their their specific operating plans for the business were where the where the equity investor here.
We obviously really loved the asset and we think it does a lot to accelerate growth for for Black Knight.
Okay and on the ice in the Ellie Mae piece of both Ellie Mae an ice were involved in the optimal blue a mini auction, we basically preempted the.
Do you have to the stage and <unk> from proposal at 1.8 billion. So.
Of the seller gave or Hubert you gave black Knight exclusivity. So I think you'd see that the reaction to a by ice the by Ellie.
We're probably in part due to the fact that did not.
We're not able to acquire optimal blue and I'm sure. The L. he will be a very nice as it for life right. I mean, there are a major competitors are well run company.
And the vote no taken another player basically out of the marketplace and combine it with themselves. So.
Congratulations to the ice.
Yes that makes sense I couldn't agree a good couldn't agree more how should we be thinking about the various backs in kind of how they play into it often blue and then maybe even corelogic it or is there a pretty big pipeline beyond those two.
So there is Oh I know a there is there is a big pipeline and the we're kind of as you said, we're brewing coffee all the time because we're looking at so many different transactions a kind of all at once.
[noise], what I'd like to think about as in terms of the of developing the vaccine phase one for us in terms of the specs was from the launch of Trust me one.
Let me through July 4th weekend, we were really screen and investigating various companies and trying to trying to understand how the company might dip with our foot with our philosophy management needed.
Hub with their growth prospects were and then I've see we went to we we cold down for about 100 companies plus down to about 10 companies and we what we began phase two which was really dealing with the bankers on the on the various companies that were of interest then we always want to the bank or did it presented the company too.
In terms of the death of companies, which is what most of what most of them do.
And we went to the bakers, we try to deal with the this is with the sponsor representative at the particular big.
To learn more about the.
Core of the core meeting or core the core values of that particular transaction that we were looking at.
Then I would see we started phase three phase three trials really in late July and that these three means we started talking to management at the varies target companies in evaluating management of value would either the core business principles of grew up core offerings and again, calling the coal into her down and.
Then expanding the hurt because abuse, the others oftentimes that something pops up and we accelerate a phase one review and get into phase two and then phase three so at this point.
Oh, just on the trends means back we've probably talk to five different management teams at this point all of which are very interesting to us. We've got a couple of different companies that were extremely interested in and that we're trying to pursue to see if a transaction can be can be developed with those companies.
And now we have the advantage assuming the markets and the debone assume anything but if the market stay with us for another.
We can a half or so they will have a second spec that which will be even larger than trends I mean, one and it gives us the ability to really expand our search process again and looking for large targets and.
All of these backs that we have normally.
If they find something that's interesting it just won't be for the amount raised in the spec and will include a pipe. So we can be word or spec investors with and on the promote piece of the business and plus we have a number of sponsors who were very interested in investing with us. So we really feel like we don't have.
There's not a top limit on what we can well we can what we can look good and what we can seriously consider.
And I would just that just to make a couple of major acquisitions.
On or about your end closed on or about your end. So that that's kind of the that's the spec opportunity and Additionally, we continue to have can I be a partner to both black Knight and Dun <unk> bradstreet when they find different companies that they feel or are interesting to them. They would that would be core to there.
Expansion of their business, then can I stands ready to make the kind of investment. We did was optimal blue <unk> you know.
Sub $500 million, so that's kind of or let's kind of or philosophy can I just like a sub 500 million dollar best or Tribby is.
Probably a billion dollar Investor and Trust me, one or two could be up too.
Four or five 8 billion 10 billion investment opportunities.
So long answer, but oh, becoming public of it covered everything no that was it that was very good. It's amazing all of US kind of started from a single small little title company last one from me you guys closed the quarter at almost 1 billion in cash obviously, there's kind of a flurry of events here post quarter.
Your your either I guess deploying are set to deploy about 640 million and then that leaves you I guess with about 325 in cash post. All this is that sounds about right or am I missing anything in that math.
I think that's raise that Red Sun right you Brian.
Oh that sounds actually a little bit high with the last be might not be counting the last back in there and there and a 150 million for attack too.
Okay got it.
All right. That's helpful of course those of those forward purchase agreements are deployed when there's actually an acquisition. So right. There's not a lot of pending just the disbursement.
Okay, great. Thank you guys.
Our next question will come from David Miller with Wells Fargo. Please go ahead.
Hey, good morning. Thank you for taking the questions I think you've kind of answered some of my questions and part but I.
Okay, I guess, all asking maybe a little different way, but.
Maybe can you start up can you just talking about your plans for your Dun <unk> Bradstreet State I think you mentioned the 1.9 billion you know what are your plans for that you know following the IPO.
Well, we're law, we're locked up for six months and done on the at the end game and Dun <unk> Bradstreet has not yet been told Dun <unk> Bradstreet is now in its own acquisition mode and because of the size of the offering we were able to accomplish Dun <unk> Bradstreet has a half a billion dollars or so in cash available and can make some very.
Accretive transaction, so we feel the Dun <unk> Bradstreet stories is just unfolding and we don't have any plans to dispose of any of the Dun <unk> Bradstreet shares we really feel like there's going to be a lot of value creation Dun <unk> bradstreet over the next to 18 months and after that time period, we would probably didn't start looking at.
A slow <unk> dispersal over disbursement of some of the shares over long period of time, just as we just as we've done with Ceridian, where we started with about 39 million shares that we owned and over the last few years with a that that's your account has dropped down to about 16.1 million, what I don't want to do.
Unless there's a <unk>.
Serious need for a very large amount of capital.
I don't want to leave the party too soon and that that's the way I feel about ceridian and I certainly feel that way about Dun <unk> Bradstreet, which is it's probably in the first or second any notice of its turnaround.
In my view.
Got it and not you kind of touched on that kind of segways into my second question, you think about the Dun <unk> bradstreet after the IPO they put a lot of cash on the balance sheet.
But they still do have a good but it does so you talked about you know I think in the past there being a lot of interesting M&A opportunities, but you know the the leverage was kind of a constraining factor. There. So can you talk about just expectations there for how to allocate capital.
Excess cash.
Yeah, we.
We don't have plans to we're locked into our senior secured notes and the unsecured notes and until.
I believe its February 2022, so we were able to do it on the IPO, we were able to claw back 40% of that of those two debt instruments and of course, we completely paid a prepaid the preferred is expensive, but we need to get those we need to get this bad this balance sheet much better shape.
So I don't see is paying down the unsecured are secured until February 20 to 20 to 2022. When we can do so there will be it will be a make whole the make whole was pretty pretty prohibitive. So.
So I see Dun <unk> bradstreet, making.
Tuck in acquisitions and I'm looking very seriously at the international market as you may maybe called Dun <unk> Bradstreet they.
Was it was a significant international players across the world and overtime. They sold many of those businesses frankly to create a have a.
Short term gain so they could meet so they can meet numbers, but they really mortgage their future. So we're very active in looking at international partners that may be ready to sell back to Dun <unk> Bradstreet. So that's going to be a major focus of our our acquisition strategy plus tuck ins.
Because dun <unk> bradstreet needs to have more products used in villa products and if they can make a small tuck in acquisition of a product that fits within the core offerings.
Then that's the way doesn't breast, we were really accelerated accelerated growth and get some quarter over quarter series revenue growth. So that's that's really the Dun <unk> Bradstreet philosophy at this point and.
A lot more would be revealed over the next to over the next two or three quarters as we as we move down that path.
Got it and then last question for me optimal Blue can you talk about the funding structure, there or provide a little more detail what black Knight raised about themselves or will that be raised a separate box or how do you expect that to be funded.
There will be did associated with was optimal blue about $500 million that that that will be raised by by Black Knight and will be a mirror note into the subsidiary optimal blue of at a premium interest rate. So black Knight will raise money at it acts in will.
Well funded transactions explains why and then the THL and ourselves that are 20% owners were minority owners in the in a subsidiary of Black Knight and Black Knight will own 60%. So that's that's kind of that we've put together the structure. It it largely would have been green.
I have done if a black Knight could have acquired the company itself, but it would have really.
Fouled up there the debt to cap ratios and what we tried to what we're trying to do is the key black Knight at 3.9 debt to cap with the wages do you see is down to the high twos pretty quickly. So that was that's really the reason for the reason for the structure.
Great. Thank you for all the detail.
Our next question will come from Carter Trent Stevens. Please go ahead.
Hi, guys I just got got one quick question and the press release always look at the other costs have invested capital section and noticed the equity fund was was broken out separately from Corelogic.
Just to confirm is the equity funds separate from Corelogic is are they making their own investments in other companies.
Brian Brian.
Oh no there.
The equity fund is.
Corelogic just corelogic, yes, okay, okay perfect color. Thank you.
This concludes our question and answer session I'd like to start of the conference back over the Bell well wait for any closing remarks.
Thank you for your time today to conclude we were very pleased with their second quarter results.
We remain optimistic that the current market environment will continue to offer attractive opportunities for our team.
Can I continues to vet potential investments that arise as we work to expand our portfolio and deliver long term value to our shareholders.
Please continue to stay safe and healthy and thank you for your time today.
The conference has now concluded.
Thank you for today today's presentation you may now disconnect.