Q4 2021 Cannae Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings incorporated fourth quarter and full year 2021 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 opened for questions with instructions to follow at that time.
As a reminder, this conference call is being recorded and a replay is available through 11 59 P. M. Eastern time on February 24, 2022 with that I would like to turn the call over to Jamie Lewis of cell celebrates route.
Thank you operator, and all of you for joining us on this call today.
On the call we have our chairman Bill Foley, our Chief Executive Officer, Rick Massey and ice President, David Ducommun, and Brian <unk>, Our Chief Financial Officer.
Before we begin I would like to remind listeners that this conference call and the Q&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 <unk> expectations hopes intentions or strategy regard 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.
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.
Risks and uncertainties, which 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 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 to the GAAP financial information is provided in our shareholder letter I would now like to turn the call over to a nice chairman Bill Foley, who will open with a few brief remarks, and then open the line for questions.
Thanks, Jamie over.
Over the last year, we exited several businesses and deployed nearly $1 5 billion to acquire interests in the light P C.
Sight line in early 2022, we closed the business combination between the spec trivia and system on all of these companies possess similar characteristics of utility with large addressable markets wide moats and transformation opportunities, we will likely partner with management teams to increase value.
Through both organic growth and strategic acquisitions.
Our approach to active management can be seen in Dun <unk> bradstreet's results in Q4 organic growth continued to accelerate the 4.8%. We were fortunate to increase our shares of D. N b through the sale of our interest in optimal blue to Black Knight This week.
In exchange for interest in optimal Blue can I received 22 million shares of Dnb and now holds $88 3 million shares or approximately 25% of Dun and Bradstreet can I also received $144 $5 million in cash.
Given the steep discount to fair value, we have been aggressive with our share repurchase plan since may of 2021 we've repurchased.
$5 2 million shares or nearly 6% of our shares outstanding and have nine 1 million shares remaining on our authorization.
Looking forward, we will continue to emphasize stock buybacks and we will put more focus on corporate carve outs and on private company investments in private companies like Sightline, where we can take a significant ownership interest and partner with management to execute their transformation strategies.
I'm encouraged by the strength of our portfolio and we will continue to work with our portfolio management teams to unlock the unique unlocked and the unique value that exists within those companies I'll now turn the call back to the operator to begin our question and answer session.
Thank you at this time.
Yeah.
Alright.
<unk> and answer session.
I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Q1 moment. Please while we poll for questions.
My first question is from Kenneth Lee of RBC capital markets. Please proceed with your question.
Hi, Thanks for taking my question.
Just wanted to gauge your appetite for taking on debt or drawing on financing facilities for share repurchases. Thanks.
Yes, thanks for thanks for the question Ken.
At the present time with the cash on hand, even after tax payments and so on we have adequate cash on hand to to continue our share repurchase program. We also do have about $300 million of Undrawn lines of credit that we can that we can take down to eight and share repurchases.
Our philosophy is if we can see.
We have a sight line to another monetization events occurring in the future then we don't mind borrowing to continue stock buybacks and frankly with their stock prices Coors look or level, we're buying shares for what we believe to be about 55 or 60% of intrinsic value So where we're at.
To the stock buyback program and.
We're going to as I said at a conference.
I don't.
I don't care, if we buy back every sure except the shear zone.
That's my goal.
I'll end up with one.
Well, one or it will be the sole owner of a Greek company [laughter].
Very helpful very helpful. Thanks, again, and one one follow up if I may.
I know that can I have tended to hold.
Its investments for a longer term I'm holding period.
But just want to see how you think about the investment portfolio as a potential source of liquidity over the near term. Thanks.
Well, yeah, we do we do see some of these assets that we've been acquiring over the last 12 months as a potential liquidity events, where again, we're trying and we're trying to balance what we believe the future prospects are for that particular company and not be the guys that sell are still too early.
Unfortunately, we whipsawed by the market right now, but we've sort of we sort of executed on that philosophy with our ceridian investment, where we've been paring that back fairly steadily over the last 12 months and now we're at the point, we have about 8 million shares are still on our in our within our portfolio.
We are locked up on a couple of investments are lightly we're unlocked in AR at the end of February and at the end of March and we have a large number of shares of life 50. Some odd million. We are locked up on our system one investment other than a small portion of it until I believe sometime in July six months six months lock up from the.
From the time, we despect.
But we're gonna be looking to some of these some of these investments to pair them back and again raise additional capital and that capital will then be redeployed either in the form of share repurchases or investments in other companies and we have a number.
<unk>.
Interesting ideas that were following up on including for both of the remaining two specs that we have in hand, with where we have cash and trust. So does that does that help you.
It does it definitely does thank you very much.
Good questions Ken.
Our next question is from John Campbell of Stephens. Please proceed with your question.
Good afternoon, John John Hey, I've been bouncing around a couple earnings calls. This afternoon. So I haven't had a chance to fully get through the shareholder letter, but last quarter you guys called out a couple of lingering items as far as like proceeds from cells and some of the other monetization events.
It sounds like kind of smaller stuff, but it looks like you guys did outline that most of that in the shareholder letter, but just to keep it simple. If you guys can maybe talk to what youre kind of expecting as far as gross cash proceeds this quarter and including the I guess the recent optimal blue announcement, which was a good deal for you guys and then how do we think about kind of netting that out if you guys can talk about expected cash.
Outweighs this quarter.
Yeah cash outlays were really primarily going to be for stock buybacks as opposed to Oh, we don't have any current investments on the horizon or theyre going to be within this next.
60, 90, 120 to 120 days really the proceeds from the quarter other than miscellaneous.
Small amounts to come in from various investments that we would get distributions on were really were really the $144 5 million, we received in connection with the optimal blue sale.
And so that's a pretty simple quarter really it's optimal blew out and Oh.
Ottawa Blue in in stock buybacks stock buybacks out.
Okay that makes sense and then well you've been following sightline last couple of months that seems like a really attractive investment for you guys were excited to see kind of what unfolds, there, but outside of which you guys provide in the shareholder letter just could you maybe talk to us about where those guys are in their funding journey and then how youre thinking about recognizing that value over time.
So they're pretty much have adequate funding to do everything they need for really the next couple of years in there.
They were EBITDA negative in 2021.
The budget has to be EBITDA negative about $8 million in 2022, but we believe we can we can cross that negativity deposit to positivity sometime just after mid year August September timeframe.
They are.
There's been certain changes in regulations. So that now you can sign up for their App off site, you don't have to be in the casino to actually sign up for their cashless casuals App and they believe that's gonna be she had a significant growth this year. So.
Last year I think the ended it was about 46 or $47 million of revenue. It's a it's not going to be 100% growth this year, but it's going to be close to it.
And then next year in 2023 were expecting another significant growth year. So we're thinking sometime in late 'twenty three early 'twenty for this company is going to be ready for a for a some sort of IPO transaction and that would be a monetization event for us.
Our target.
I am free months Richie.
Richard do you anything to add on sales line right on the button.
So good growing.
Growing really nicely great management.
You met him I think probably you have to know where you went out of our conference, but I know a lot of a lot of people data can to add I think Oppenheimer did.
Really really sharp guy he will make a great public company CEO .
Yes, that's all great to hear last one for me just from D&B, I mean, youre not necessarily doubling down on that but I mean, accepting some dnb shares with optimal blue transaction.
The vote of confidence for sure you got your bore now who is the sole CEO there so you're putting more resources. There I'm. Just curious if you could maybe talk just remind us again, what would you guys view as the long term opportunity about dnb why youre. So excited about it every time.
D&B was a mismanaged company for 20 years, and we've now been involved with it since our February of 19, the first year and a half was really about bringing synergies out of it out of the business and getting the company back to a baseline as you recall, we replaced I think 17 out of 18 18 manage.
<unk>.
For 15, or 16 month time frame.
Then no it really formulated our management team and I was I was just elected executive chairman of the board Anthony Jabbour as it.
It has become executive chairman of Black Knight. So he is in a position to spend more time with Dun <unk> Bradstreet and that's really that's going to be one of our.
Good part of his daily workload.
Has done is really dun and bradstreet and the goal with Dun <unk> bradstreet or new products innovation be disruptive and have and develop new products and Dun and bradstreet developed about 15, new products last year that have now gone into their sales pipeline.
They've made a couple of.
Tuck in acquisitions, and we're going to continue growing the dnb organically and Inorganically and we believe.
I believe the future's bright for Dun and Bradstreet, otherwise, we wouldn't have taken 75% of our of the proceeds from the sale of optimal blue and common stock and I I like our position at this point, because we took stock in whereas.
We're locked up for six months.
But we don't have plans to plans to liquidate Dun and Bradstreet, we really liked the investment like the prospects we can see the change.
The inside internally, what's going on with regard to the way we attack the marketplace and our penetration and we have so many great prospects.
I'm, a I'm really enthusiastic.
He asked about Dun and bradstreet.
Without getting into really nonpublic information.
That's good insight thanks Bill.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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One moment, please while we poll for additional questions.
Right.
Our next question is from Ian Zaffino of Oppenheimer. Please proceed with your question.
Thank you very much.
Yeah, Hey, Bill can you just maybe.
Walk us through a little bit about Akamai blue.
What sort of transpire there to get the deal done.
Do you agree upon the price may be talk multiples, if you can or if you have them but.
Maybe your initial multiple to get in 18 months ago, and then sort of the exit multiple as well.
Well, so what I did because I was a no longer on the Black Knight Board, but I am on the optimal Blue Board I really turned the the handling of the negotiation related to the disposition of optimal blue to Black Knight I lifted with with with.
The th L. As a financial sponsor just negotiate the transaction and because I felt that it would get us to the best value and I would not be involved in it would be a conflict. The conflict situation and we were we were always kind of revolving around this too.
To X of our investment during the all of the discussions.
And specifically on the on the multiple do you recall what it was when we went in it was flat, but we paid about 30 times trailing coming in and we got about 30 times trailing coming out. So it was a it was the same multiple but of course also blew it grown from.
I don't know want to adopt and there was an EBITDA double in that in that eight to 18 18.
18 months period and the other thing that attracted me to the sale transaction was we were in.
Minority were 20% owner of a nonpublic subsidiary of Black Knight and I felt that we could convert that ownership that that private ownership interest in a controlled subsidiary of a public company received cash and stock and a public entity or improve my.
Monetization prospects and which is exactly what we did so we we made a made to X did it in about 18 months and were now no longer an owner of a minority interest in a private company. That's owned by a public company were rather we have additional ownership interest in the public against that you've done abreast Street and risk.
<unk>.
<unk> received the cash, which we can redeploy and repurchase shares with we can pay our taxes on all the games that we have which are pretty significant.
And we can also redeploy part of that cash and other investments. So that's the whole rationale.
I would just say one thing.
They all started this process back.
September October something like that I mean, we are whispering about it back then.
You saw the odd.
I'm, a believer as heavy as heavy loaded.
Very sensitive to 30 year fixed mortgage rates and they.
During the course of all of this.
You can see over the past few months I think that 30 year mortgage rate today is probably 30 bps above where it was when you started the negotiation and so bear with us.
He came into my office and said he was happy to be getting out at this time, because originations were going to slow down and that in fact, it appears to be correct.
Okay. Good.
Hey, Bill you know another thing that you said that kind of piqued my curiosity.
Was this corporate carve out I don't I don't think you've mentioned that before.
Really gave US an example, or or something as far as like what you're thinking as it relates to that would be purchased the respect would this be sort of in a private investment not Macau, how exactly would that work in kind of what the what was the mechanics.
So both and both are both approaches so for our big spec in our smaller spec. We're looking at some different corporate carve out opportunities whereby the corporation or the company. We're dealing with generally speaking as a public company. So it's not there's not a company thats owned by private equity and we've found with a private equity.
Ownership when you do expect transaction or invest in that company, you've got a stock overhang. That's facing you in the future. That's that's what's true width.
A light as a not so not so much true with system, one because we're partners management and it's true with the with pay safe. So we've tried to move away from partnering with private equity.
And.
Some of our investments that we're looking at but rather look at.
Entities, a corporation that may have some stranded or stepchildren stepchild subsidiaries that arent really appropriate for that particular company to acquire those businesses either in total or in partnership with the court ownership.
Just my experience with Ceos, if you're a CEO of a public company you like your Empire and you really don't you really don't like to sell a piece of your Empire, but if we can go to these some of these corporations, we have several in mind and proposed to them a carve out of some of their assets, but they retain ownership.
Maybe the majority control than the Ceos empires in place, but we've got an excellent investment opportunity.
That's that's really kind of our mindset now as I said, we still have two specs that we'd like to deploy.
We're going to be very careful with and redemptions are high we're not going to get in a position to backs doing significant backstops of these of these transactions, we're not going to raise pipes.
It happens that the spec transactions can't come to a good conclusion with a good investment that we're happy with and we believe are our shareholder basically happy with then we'll give the money back to our investors, we're not afraid to do that.
We'd rather not but if we if that's the best outcome, that's what we'll do.
Okay, Great. Thanks, and then just one final question, maybe what Gartner Brian involved in the next year. So I think he's been quiet so far.
Can you give us an update on the <unk>.
No you have it on December 31st thought.
Hum movement as it relates to not doom, and gloom and that might be but.
Yeah.
Maybe like a year to date or kind of an <expletive> .
February include something on their lines sure Ian there should be one there as of today, it's not out there right now it should be out there shortly.
But in summary, the fair value net of fees and taxes right now it comes out to $41 27, a share which is about a 45% upside to today's closing price.
Okay, great. Thank you very much Oh, sorry, guys. Thank you. Thank you. Thanks Ann.
We have reached the end of the question and answer session I will now turn the call back over to Mr. Foley for closing remarks.
Thank you operator, we're excited with the opportunities in our pipeline for the year ahead as we navigate this dynamic and difficult market, we will remain nimble and adapt our approach to the opportunities that we see in the market as we strive to create long term shareholder value.
Look forward to speaking with you again on our first quarter 2022 earnings call. Thanks again for your time today.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
Okay.
[music].
Yeah.
Yeah.