Q2 2021 Cannae Holdings Inc Earnings Call

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Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings incorporated second quarter 2021 earnings Conference call.

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

Following the following the company's brief prepared remarks, the conference will be opened for questions with instructions to follow at that time as a reminder of this conference call is being recorded and a replay is available through 11.59 P. M. Eastern time on August 12, 2021 before.

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. The statements that are not historical facts, including statements about the kinase expectations hopes intentions or strategies regarding the future are forward looking statements.

Forward looking statements are based on management's beliefs, as well assumptions made by and information currently available to management.

Because such statements are based on expectations as the future financial and operating results and not the statements of fact actual results may differ materially from those projected.

The company undertakes no obligation to update any forward looking statements.

As the result of new information future events or otherwise.

The risks and uncertainties with the forward looking statements are subject to include but are not limited to the risks and other factors detailed in our quarterly shareholder letter, which was released this afternoon and in the statement regarding forward looking information risk factors and other sections of kinase form 10-K, and other filings with the SEC.

<unk>.

I would now like to turn the call over to the can a CEO Rick Massey Rick you may begin.

Hello, Rick.

Mr. Foley I think has joined us worried about the join us.

Oh, great Okay. Okay.

Go ahead bill.

Okay. That's great. Thank you.

Thanks for the introduction.

Yes.

And thanks for joining the call today with me here. This afternoon is our Chief Executive Officer Officer, Rick Massey, our president of David Ducommun.

Chief Financial Officer, Brian <unk> and as a reminder, we released our second quarter 2021 shareholder letter, which includes our financial results. After the market closed this afternoon, and which can be found on our website.

Overall, I'm very pleased with the progress <unk> made in the second quarter.

Executing on its pipeline of backend stack transactions.

I'm excited to continue the hard work of ignite igniting growth in our portfolio of companies.

As chairman of the board I actually the support all of our investments and we'll continue to guide our portfolio of companies as they execute on the respective business plans.

That said the spec market experienced dislocation through the quarter.

Largely driven by non fundamental factors, which led to indiscriminate selling regardless of the companys quality and growth prospects.

Our portfolio was not immune as P safe in the light both came under pressure and now traded levels, which I believe are detached from the long term potential that I see in both businesses.

Likewise can I ishares of also traded to a significant discount to intrinsic value through the quarter, which is frustrating I know frustrating to you.

Given the confidence that our management teams and their businesses I took advantage of the market dislocation in our company repurchased almost $100 million.

Can I ishares or approximately 3% of our shares outstanding through July 13th 2021.

I believe the market will recognize the unique value of our growing profitable enterprises.

And the financial and cash flow fundamentals will win over in the long term.

This little dislocation also afforded me the opportunity to invest an additional $42 million in of light to meet redemption requests from overcommit of hedge funds and needed liquidity.

Today of light is likely the most compelling risk weighted value in our portfolio and I was thrilled with the opportunity to increase our investment.

As chairman of the board I am working closely with the light CEO differential.

The transform the company into a business process as the service enterprise.

Which to investors means more products higher margin and more sticky recurring revenues.

A light is mission critical to these customers and we believe once the investor community comes to see what I see in this business.

Difficult multiple expansion will be in order.

I'm also chairman of the pay save sport and continue to be impressed and excited with film accused plans to drive growth and build scale as they strive to become the leading specialized payments platform globally.

Today pay safe is in the hundreds of markets focused on gaming financial services travel entertainment and digital goods, which are all experiencing strong tailwind as the global economy continues to recover.

The company is also well positioned as consumers continue to utilize new forms of digital payment methods, which is a growing of sustainable trend.

The opportunity is for pay safe to execute on their transformation plan designed to accelerate growth and improve profitability combined with opportunistic M&A.

And we're looking working closely with the company and with Philip Mchugh on this and I am pleased with the early success that we've achieved and more to follow in the near future on various acquisitions.

The I gaming sector is 1 area that I'm, particularly excited about with the given growing the legalization of sports betting in the U S.

Is set to accelerate.

It's $400 million of investments, where we achieved significant gains.

I would like to stress that risk management and portfolio of balance are key aspects of our decision, making it can I.

I've also heard for many.

For many shareholders that are overweight position in D&B was a concern.

And we agreed we felt it prudent to reduce our D. N V position as we strove.

To monetize that debt that.

Debt investment.

We believe the strong continued.

Continued the continued strong investment returns potential future acquisitions and investments will continue to drive our growth.

And can I.

Thank you now I'll turn the call over to Rick Massey and of Brian Cooley.

Oh, Thanks, Bill I have nothing to add thank you for all of that and for your active involvement in all of our.

Portfolio company.

The company you are very valuable ones.

Ryan This is your share count.

Great. Thank you again.

Again, we had a very act Bill mentioned, we had a very active quarter. During this period of time, we had the closed 1 day back we had 2 additional deals.

We had 2 modernizations and excess 2 of our smaller investments.

And we have 2 more transactions in process on the smaller scale. So we accomplished quite a bit this quarter, we're very proud of that and I'd like to talk to a couple of those.

First of all of us the Austerlitz Austerlitz merger announcement with wind interactive.

We announced that on May 10 side of the last call the <unk>.

Action itself has the pro forma of enterprise value of $3.2 billion.

And can I have subscribed.

Or the backstop the entire deal at 690.

And we got a placement fee for that about $3.5 million.

During the quarter as Bill noted we also had a couple of liquidations of part of our investment in May We sold 2 million shares of Ceridian at the price of 80.750.

Gave us gross proceeds of $175 million.

That's the return of more than 15 times, our pre IPO of investments.

Also later on the quarter as Bill noticed.

We liquidated 8 and a half million shares of Dun and Bradstreet stock at a price of 21.88, that's almost 3 times, our pre pre IPO.

Yeah.

Lastly, I'd like to note that we executed a we heard from you on our share repurchase and we executed.

The strategic purchases throughout the quarter for $2.7 3 million shares at an average price of 35.33, that's needed of nearly 3% of the outstanding shares prior to this.

Yeah.

Or would you like to start the question and answer period now.

If you would like to ask a question. Please press star 1 on your telephone keypad now and you will be placed in the queue in the order received.

Please be prepared to ask your question when prompted once again, if you would like to ask the question. Please press star 1 on your phone now.

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

Hey, Thanks for taking my question. This is James Holly stepping in for John Campbell.

Hey, James.

Hey, let's talk to you again, so on first thing I want to start out with here is that it's just kind of been perplexing seemed the discount to NAV per sets like this but I just wanted to get your latest thoughts on may be closing that gap in the ways, you're thinking about inserting yourself to close it and then can you also looping on how you're thinking about buybacks going forward and how does that suit up on the <unk>.

The water.

Rick do you want to handle that.

Sure the.

The the on the on the buybacks question James the.

You saw we were pretty aggressively after it.

Regrettably it didn't maybe it'll make a difference when you see the number of.

It's still you know 1 of the best if not the best investments.

With our capital now, but there are some other.

Really attractive things out there to that so where we are as rich as bill said, where we of risk managers and our where we're trying to weigh.

Ah, we're trying to weigh the relative risks and we what we don't want to do is to.

Yes to.

Miss some of the opportunities that we have so bill is working on various sources.

Besides you know what the sale of Sea day, that's really the only source of money that we have and bill's working on several but he's got some as usual great ideas on on how the out of fixed that liquidity issue.

On a prudent way.

So we want to chase everything that's out there and we want to buyback our stock too.

Hey, Yeah, Thanks, and then on your part.

It's all of the GAAP I mean theres no we either eventually the the GAAP is going to close as we monetize our investments we've done the work of data as we've looked at that and the complexity of our holdings is not the isn't lost on us and for people on people.

Like you they would have to file of why the companies.

And it's a lot of work to understand this company.

So it's a lot easier to just value cash so.

Our publicly traded shares so that's what that's what we need to do to close the gap.

The time for some of that probably.

I think bill is thinking of that.

Yeah.

But we're not going to I think we thank all of them. We can't say now we can't say now what we're going to do so.

[laughter] alright, well thanks for the color on that that's helpful. And then on we've done some of the early work to on system, 1 and we find it interesting, but I just wanted to hear your thoughts on what makes it such that attracted combo as well for <unk>.

Yeah, we like we like system, 1 of their management team quite a bit of long protracted negotiation with the.

The system ones management.

The negotiating.

Negotiating with them, what they can sell down what they couldn't fill down buying out the financial sponsors. It was involved with the company earlier this week.

From having the.

Trying to have a small type of not having any type of it all.

It allows 2021 performance the very very clear and we're going to make it very clear the accelerated performance for 2022, So we're really happy with system 1.

With the way the spec market is today.

There were not debt disappointed that were were slightly delayed in terms of closing the transaction the.

Because it really gave us time to structure the structure of the transaction and the way to resume the moat and made the most of them.

So that's the that's kind of that's kind of system, 1 and they have a number of interesting acquisitions that are teed up for that company and again, having having liquidity and having the bank facility in place that we could execute on those transactions.

We'll all come to show the value of the system on the hope that hope that helps.

Yeah definitely thank you for the time guys appreciate it.

Thank you.

So bill 1 of the questions.

I'm sorry. Please go ahead I was just trying to repeat a question I got during your talk from from.

From our 1 of our investors and it whereas you for Howard how are you going on 1 of your thoughts about how we're going to finance.

The the commitments that we have in place now.

And I know you cant tip. Your hand. This is that just in the email I got so well.

So we do have the weighted.

We have credit facilities in place the will allow us to the basically need of meet our commitments and we're going to see how certain things play out before we before we engage in further and further sales of our securities but we.

If you remember that we still do 1 of about 67% and 68 million shares of Dun and Bradstreet, we own the 12 million shares of.

Of.

Of Ceridian, the lock up period expires on P C.

Sometimes after August 20th for not only the shares but also of the warrants. So those are all of those are all.

Securities the it could be.

Could liquidate.

Some portion of the investment of those securities.

And then we have a number of other investments that are.

Becoming more liquid for example, the the Bakers square and.

And village Inn restaurant chains, just closed and we received the capital from that the legendary baking the Pi business is the and the.

Wind down process and there'll be capital being the.

Being recovered from that.

Earlier this year, we sold the cold the investment and so that was the capital recovery, it's worth continuing to.

The really look at some of the assets we have the ones that are non core and the closing of those and the ones that are core we're working hard with the company management too.

Get growth accelerated and that's in that case, it probably speak to the Dun and bradstreet because all of the unimpressed with the needs to do is get organic growth moving again and they're working hard on they've got lots of products lots of plans. It just takes time when you have when you just kind of do it yourself as opposed to buying something.

Okay.

Okay.

Operator at this time the are you at this time there are no further questions I'd like to turn it back to Mr. Foley for closing remarks, that's great.