Q4 2020 Cannae Holdings Inc Earnings Call

[music].

Good afternoon, ladies and gentlemen, and welcome to the Kenai Holdings, Inc, fourth quarter and full year 2020 earnings conference call.

During todays presentation, all parties will be in a listen.

Listen only mode.

Following the Companys brief prepared remarks, the conference will be opened for questions with instructions to follow at that time.

Should you need assistance from an operator during this call. Please press the star key followed by zero.

As a reminder, this conference call is being recorded.

I would now like to turn the conference.

Shannon Devine Investor Relations for Kenai Holdings. Please go ahead.

Thank you operator, and good afternoon, everyone. We appreciate your participation on our fourth quarter and full year 2020 earnings conference call.

Joining me today are nice Chairman Bill Foley, Chief Executive Officer, Rick Massey.

Oh, President, David Ducommun, and Chief Financial Officer, Brian quite.

As a reminder, a replay of this call will be available for 11 59 P. M. Eastern time on March 1st 2021.

Before we begin I would like to remind you that this conference call may contain forward looking statements that involve a number of risks and uncertainties.

These statements that are on historical facts, including statements about our expectations hopes intentions or strategies regarding the future are forward looking statements forward looking statements are based on management's beliefs as well on assumptions made by and information currently available to management.

Because such statements are based on expectation.

As to future financial and operating results and are not statements of fact actual results may differ materially from those project debt.

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

The risks and uncertainties, which for.

Expectations, which are subject to include but are not limited to the risks and other factors you don't on a quarterly shareholder letter, which was released this afternoon and in the statement regarding forward looking information risk factors and other sections from can ice form 10-K, and other filings with that these day.

Let me now turn the call over to Bill.

Thank you Shannon.

Earlier today, we released our fourth quarter and full year 2020 results in the form of a shareholder letter today I would like to make myself and our senior management team available to answer your questions on.

Our portfolio companies saw continued growth in our new investment efforts finally became visible to the market in quarter.

For Q4, and early Q1 of 2021.

Specifically can I announced definitive mergers are fully trasimene acquisition Corp, too with P. C Group Holdings Ltd, and fully transferred mean acquisition Corp. One with a light solutions. Both targa businesses are examples of companies that serve multi.

For <unk> industries, which offer tremendous potential for future growth through continued scale in transformation led by technology initiatives.

We expect the pace of investments in the spec market to continue most recently evidenced in order to invest $50 million and 120.

Trillion, respectively in Australia acquisition Corp, One in Australia acquisition Corp to and participate as an anchor member of the sponsor group of each our efforts are focused on high quality companies with defensible profitable business models, we were confident in our approach to sourcing transactions demonstrating our disciplined.

5 million value based approach, which we believe ultimately deliver superior long term returns to our shareholders over market cycles.

I'd now like to turn the call over to the operator to open up the line for Q&A.

We will now begin the question and answer session to ask a question.

You May press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Okay.

<unk>.

And the first question comes from John Campbell of Stephens, Inc. Please go ahead.

Hey, guys good afternoon.

Afternoon, John Hey, kudos to ever got the Hannibal artwork on the front of the shareholder letter that says that is a nice touch.

Right.

Yeah speaking of Hannibal I think he probably had on easier time scaling. The Alps. Then you guys have had I guess closing that kind of a big discount to NAV.

A little surprising to us to actually see that kind of widen of late I'm sure. That's not lost on you guys, but I just wanted to get your latest thoughts on the discounts you know ways you think you might.

Hurt yourself to close it.

If investing directly into the sea on any stock buybacks, if that's risen up the pecking order if you will of late.

Yeah, John that's a good question and good comment actually that you just made.

We had deferred stock buybacks other than when we had the dip in the market.

And the stock got down to the Twenty's, we we did buy some shares back at that point in time, and we've been trying to accumulate capital to support some of the investments we've been making.

However, now we're at the point that our with our Dun and Bradstreet investment.

The lockups, having expired we have no lockups on the ceridian investment in.

Be able to barely soon we're going to of course have public company stocks shares in both PC and delight and we have some other monetization.

<unk> events that are going to be occurring in the next six months. So I am actually very open to share repurchases I just wanted to do it.

Thoughtfully, so that we're not going.

To inhibit our ability to to continue to make some of these great investments that we've found over.

Over the last in last six months or so.

Okay, that's great color and kind of related to that.

Have a lot of stack activity, it's super exciting you've got <unk> operating on the way you got Trevi is still kind of <unk>.

But you guys you did participate in the pipes I guess for both fully trasimene, one and two just wanted to get your appetite and I'm guessing that maybe it was what you were hinting at but your appetite for the pipes for the remaining spot Spacs and then if I'm doing my math right here with the cash that you closed the quarter, you've got Corelogic monetization. There I think you can get.

All of the first three specs, maybe the for a purchase agreement with Oculus, one with with that it looks like you've got about 600 million or so of debt capacity, but if you could maybe help bridge us out where additional funds come from and kind of how youre seeing the world kind of shake out over the next couple of months, well I'm not anxious to dispose of any dun and bradstreet.

Ending theirs, although we are where we can do that at this point I really feel like there's a lot of upside in that stock with the company has to do is really started showing a real revenue growth over the next over the next 12 months and we believe that will that will begin occurring, particularly with the <unk> acquisition the non.

Sure and inorganic revenue growth, but we also believe there's going to be growth in terms of the sale of products and services by Dun and Bradstreet additional sales of products into other bread Street Dun <unk> bradstreet into the into the regions that business operates in.

So we're not anxious to see that that'd be my sort.

Non of resorts would be to dispose of some dun and bradstreet shares.

We continue to have 14 million shares of Ceridian, obviously, we're not engaged and involved with management the company any longer and we just want to be timely about sales of ceridian shares.

Again, not be to not be the guys of the company.

For the last sold shares at 90 and the suck.

Three months later it was 130. So those are those are really is kind of on the primary sources of capital we have coming in and we have a couple of minor investments that are going to be monetize that had been within the company for many many years one in.

In cold where we on.

We on debt and it looks like Kohl's is going to be have a monetization event sometime in the next.

For five months and a couple of other smaller investments that will be disposed of in the next the next six months or so so we've got our cash flow pretty well pretty well figure it out on organized in terms of pipe participation.

On we thought it was important in these very large transactions too.

Port the transaction by participating in the pipe and one of the advantages that we have it can I is the partnerships are not only our own our own investment ability, but also the partnership we have with fidelity National financial which is always trying to increase its read them.

So it's all ROI on this investment portfolio, which frankly is very short term and it's primarily invest in money market funds in short term bonds. So.

We like the idea that we can provide capital to these pipes to demonstrate our support for the various acquisitions that we are that we're concluding.

It's I would say is that.

I wouldn't have as an investor I wouldn't expect to see large pipes again.

They're complicated they end up taking a lot of time there could be spent really.

Looking for companies and improving the business operations of companies. So the the pipe of $2 billion.

One of the happy Safe was was just a real grind to get that race and then the pipe on a light was much easier, but it still was 1 billion three pipe at the end of the day.

So we're really trying to look at pipes, and a more modest fashion and trashed mean to our our goal would.

On perhaps up a half a billion or six or $700 million pipe on the on our acquisition next acquisition and with Austerlitz, one it would be even a smaller pipe and the tribute the tributes back this fairly far along with the with <unk>.

Negotiating and concluding a transaction.

And we expect that to be announced sometime in the next 45 days or so and that pipe again will be a small pipe there won't be a large player. So we don't want to get stressed out by the pipe investing and we want to make our pipe investments smaller in size. So.

Did I cover everything John or have I missed.

On the stuff no that was very helpful. That's exactly I was looking for and Hey, John Yeah go ahead Rick.

Sorry, I was just going to say bill is modest.

Net $2 billion pipe that he pulled off and pay safe, whereas the largest equity pipe ever.

So.

Oh it was.

Mr. But he was right.

Blog for him I don't know.

Many.

Dozens and dozens of calls so.

Pretty amazing.

And it's all done on zone, Yeah, that's working on Hawaii.

The game for you guys I'm sure.

No doubt about it last one I got on the Spacs and I'm on I'm I'll hop back in the queue.

Yeah.

It sounds like.

Was he was maybe your spec appetite if you will you've done five and kind of on short order. It seems like its not quite quenched yet is there I mean, it sounds like you've got some other things kind of on the works on longer term.

You know because you know John once you once you've kind of signed a term sheet on that particular acquisition, you've got you've got to put the microphone.

For phone down or the zoom zoom line down in terms of companies you've been looking at and wait to have another another vehicle to acquire a business so but during that period from November December and January we.

Investigated and looked at and talked to many different management teams in many different industries.

Many different companies and our model now is what is always has been is inc.

Invest in utilities invest in companies that uniqueness and their particular marketplace, but now we're really focused on management, we want to invest in companies that we have confidence in the management team because my own.

Oh my own group of managers.

Really pretty well engaged and whether it's black knight or its dun and bradstreet or stay safe or it's a light so we need to have.

To buy companies that have demonstrated management teams that we can rely upon and we don't have to worry.

On the management makeover that we did at Dun and Bradstreet. So our focus has not changed in terms of the companies. We're looking for we want we're a value investor. We wanted we want to have companies that are a fortress with a mode.

Utilities in their industry in some fashion or in other end.

But do we have confidence that we can push through transformation and also generate synergies, but we've got to do with where more no much more focused on existing management and working with existing management.

Makes sense thanks, guys.

Yeah.

The next question.

Yeah, Ian Zaffino of Oppenheimer. Please go ahead.

Hi, great. Thanks, Thank you very much on them.

Yep Yep.

I know you talked about.

A little bit as far as price.

<unk> increases can you give us for just a little bit more color there.

Comes from maybe what's optimal for lose value proposition to the customers you were able to push through pricing I don't think he lost any customers at all.

You know what sort of their secret sauce, there and what type of pricing are you actually getting.

Well they are increasing pricing I think do could actually address the specifics.

Optimal blue a little better than I can we we did a pro forma on optimal blue before we invested with DHL and with Black Knight and basically it was going to be a.

20% of.

Revenue grower and EBITDA expanding body.

On a much larger percentage and it actually has over achieved in the first.

Because of our first full quarter quarter of ownership.

So.

We really believe that optimal blue the goal being with black Knight to start penetrating.

Cold of the small and medium size business operators in terms of the mortgage space, where they are penetrated but black Knight is not necessarily penetrated with us.

<unk> with its loan origination products, that's more of an early made playground. So optimal blue is the access point for black Knight to really penetrate that debt.

The lower zone, let's say the smaller mortgage space as opposed to just the very large mortgage providers that we normally do business with.

Night and through our empower empower system. The other policy, though is that.

Also lose now being sold into the empower base and that's been very successful and well received so its a unique product.

Set of products that Black Knight did not have access.

The blue and.

<unk> had had portions of the products, but not not the optimal blue P. P. E products. So awesome Blue is really working out as a as a terrific investment that's really performing and of course as is I believe is I know you know.

<unk> do have a put call arrangement with the optimal blue debt.

Three years, our investment can be called at fair market value or two X our investment in it.

Three to five years and a four to six years, we can put the investment at the same basis to black Knight and actually move out of the investments.

No, we didn't and black Knight would be the that'd be the sole owner of optimal blue. So we're we feel like we have an exit strategy is a great company is being well run by by Black Knight, but it does have its own set of financials that are that we're making sure that all the revenue and on all of the EBITDA.

The appropriate optimal.

<unk>.

Stays at optimal blue doesn't get mixed into black Knight, and Duke, even though a little more about the specifics about the specifics of optimal blue.

I'd say the value proposition to their customers or it's new technology.

Like it's easy to use it's the better mousetrap and it has the most number of integrations.

So it integrates into your mortgage insurance your.

Your rate locks kind of all the different products that an originator or trader would use you can use your optimal blue calculators to get prices immediately and it's linked to more people. So it's a better marketplace. So kind of once you are the market share leader you know those advantages only snowball.

On the blue weighted into all the different L. O S systems, especially in the lower middle market and right now other customer base is doing really well, which is an opportune time for optimal blue to get higher prices and given how reliant their customers are on the product to produce mortgages or trade mortgages, it's really a small piece of the profit pie for them.

So I hope that answers your question.

Yeah, no that debt that that was very helpful and I guess the second question that they'll I you know you talked about your appetite for pipe.

Does that or lack of appetite.

Does that mean I'll show it to me.

For the last.

We see.

Given that you don't really want to.

Deal on the whole pipe process behind it.

And then you know if you were to do that.

Or not do that does that mean, all your investments there'll be an existing public equities.

Out there as you as you look for more opportunities.

Capital.

Well theyre going to be private investments and private companies for example, optimal blue in our Merrill life for both examples of debt and then where we were at 20 or 25 per cent owner of those of those businesses.

And maybe I didn't express myself very well we.

We're.

We.

On the pipe concept the way to really leverage the initial investment in them and it's back and be able to buy a larger company I felt like with trasimene trasimene too.

We pushed the envelope a little bit in terms of having the $9 billion of investment and.

We like having to raise a $2 billion pipe. It was really complicated as it was a it was a it was it was pressing the marketplace and so I'd rather see pipes in the form of of Austerlitz wanting to more or less equal to the initial investment made by the people that buy this.

That by the stock on the initial public offering so I like pipes is the waste, it's a weighted by a bigger a larger company with a set of fixed amount of capital and it allows you to return a reward to some of your initial pipe on the initial public company investors that invested in Austerlitz from one or two so.

But really drops.

On the dilution they they suffer a face by being a spec investor if they come in and they and they invest in the pipe to an equal amount of what they invested in the original transaction that the original IPO and they basically on the traditional spec have dropped the dilution from 20% to 10 per cent and I like that it makes us.

So it's competitive in terms of being an alternative to an IPO process long draw on drawn out IPO process and allows us to really go to the financial sponsors and talk to them about key assets that they have that they're thinking about taking public so.

We definitely like pipe.

More can we think it's a great way to to.

Reduced dilution to our original investors.

We just don't want it.

I mean, the pipe is twice the size of your original IPO is really kind of pushing the envelope. That's that's what we found from the from a bolt on or about the net.

I have another experience.

<unk> with trivia and and the proposed the pipe idea with Trevi is much smaller than in the first two pipes that we did.

Gotcha Gotcha, Alright, that's very helpful. On if I could ask one just final question.

You're kind of opinion as you look at the fact you.

You just did.

A light has.

Yes from a stock price.

Price perspective.

Perspective has not performed as well as pacings is there something on the market is missing anything that you're thinking shouldn't Doug as you point out are sort of maybe six months information GAAP.

With discrete and maybe you know lights actual business yeah. So our latest on light is really a terrific company I mean does business with 70 of the Fortune 100, and half of the Fortune 500, and it has moved yourself from being just a a services provider to.

To really being a process provider and that transformation is undergoing is happening as we speak and it's been very very successful. The the thing that a light needs to do and then stfan and his management team for working on the.

Conversion of customers.

For a large customer it takes a year to implement.

That implementation process, there's gotta be halved and then had again, it's the same situation we saw at Ceridian.

Initially it was taken us a year to implement a customer and now we're down to about six to eight weeks and so you don't have all of that deferred revenue.

The new debt is waiting to come on that you can't recognize because your interest implementation process. So I think that's that's one area that are light is working on and that we're working with a day.

The management team to really shorten debt implementation period.

Other than that a light has got is it's it's a M.

I'm in a ready target rich environment for a light in many many different ways and we're already looking at our we have our top 10 targets have already been developed and you'll see some interesting transactions with a light once we once we conclude get through our our F for filing which actually that's been filed and get through a common period and.

And then do our dis backing.

Once that happens and we have a public security with much lower debt to debt to cap ratio, you'll see some interesting things on the light that.

So we're very confident about that company.

I've got it very helpful. Thank you very much.

Once again, if you would like to ask a question. Please press Star then one.

And the next question is a follow up from John Campbell of Stephens. Please go ahead.

Hey, guys. Thanks, one more on the Spa Bill you've kind of hit on a couple of these but could you just give us a broad kind of sweeping update on.

On the timing, maybe the destocking of WPS in and on BMT and then it sounds like maybe.

Maybe 45 day kind of window as what we should be looking at and then anything else on Australia is just maybe just maybe mainly just major milestone dates we should be thinking about.

So on the.

For our first one BMT, which is with.

Now gone through with.

Just finished our third relative comments on BMT.

We're hopeful that we'll be going effective with the SEC sometime in the next 10 days or so and then the shareholders. The proxy the proxy for would be filed will go through the shareholder vote and will dis back in our target date for that if if we hit our milestones.

Stones.

Who knows you know, sometimes you get hung up on various things.

P save should be there.

BMT should be Despect sometime before the 31st of March.

On a light is about a 30% to 45 days after that to get through the whole shareholder process. The whole vote process and then to conclude.

The transaction will be traded at W. P F traded as a light.

Trevor is again, because we haven't announced the transaction, but we're working hard on one particular transaction and we've got to get our audits.

Our audits completed and file the for go through the comment period.

It gets you to respond to the SEC and then do the same thing again light is our trivia is probably.

Early June.

Our target date, and then on the two austerlitz companies because they're just now be getting through the SEC and working on that we're starting on our marketing of those two specs.

We are not allowed to talk to potential companies that we would be buying we've got to wait until our ipos are finished but.

As I mentioned.

Because we had three specs available we've been talking to a lot of different companies and a lot of different.

Kind of utility industries.

And were very excited very excited about the potential we have a we have available to us. We just can't conclude anything because obviously when you're in the spec process you can't really speak to a target until you've already had your IPO.

Okay makes sense and then last one I've got at Bell you know I've got a carry on the tradition of asking you about the Knights.

<unk>, but you know the Tahoe setting that was that was pretty awesome. That's on obviously wasn't your friend the day, but did you stay up till midnight to catch the conclusion of the you know the longest game in NHL history.

I didn't go back at nine o'clock and watched the last two periods I actually watched it from a from a friend's house and because it was really cold.

Really.

It was really cool, but are setting, though I'm sorry, the game wasn't couldn't proceed.

With the second and third periods you know on the.

Afternoon, because it was under unbelievable setting with the Lake and we had a lot of fans there on kayaks and for them.

Little little boats and waving the V. G. K flags. So it was really a phoenix.

Experience in the boys really liked it they thought it was great and we didn't the game didn't turn out the way we wanted to turn out but then the setting I hope they do more of these you know yes. It in settings like that because it's really fun.

[noise] experience for sure Okay, Great I appreciate all the time guys. Thank you.

Yeah.

Okay.

This concludes our question and answer session I would like to turn the conference back over to Bill Foley for any closing remarks.

Thank you very much and thanks, everybody for debt for.

He can time out of your busy schedules to listen to our story again, and we've gone to the shareholder letter as opposed to as opposed to a president.

Presentation over the phone and we have a lot of great information that shareholder letter about our performance over the last 90 days on over the over the over the past 12 months and thank you for your time and I look forward to speaking to you again after.

After the second quarter right for the first quarter during the second quarter. Thanks, everybody.

Yeah.

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