Q1 2022 Cannae Holdings Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings, Inc. First quarter 2022 financial results Conference call.

During todays 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, the conference call is being recorded and a replay is available through 11 59 P. M. Eastern time on May 16th 22.

With that I would like to turn the call over to Rory Rumore of still very trial. Thank you you may begin.

Thank you operator, and good afternoon on the call today, we have our chairman Bill Foley, Chief Executive Officer, Rick Massey, Nice 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.

<unk> that are not historical facts, including statements about <unk> expectations hopes 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 and information currently available to management.

Because such statements are based on expectations for 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.

The 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 financial 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'd now like to turn the call over to nice Chairman Bill Foley, who will open with a few brief remarks, and then open the line for questions.

Well, thank you Lauren.

Within the quarter that presented a challenging equity market backdrop, geopolitical tensions and shifting macroeconomic conditions, our focus remains unchanged.

We repurchased 2 million shares of can I and the <unk>.

First quarter 'twenty, turning to our repurchase activities since we approved our share repurchase program in the first quarter 2021 totaled $6 8 million shares or seven 4% of our outstanding shares. We will continue to take a balanced approach to capital allocation with a focus on repurchasing shares.

We'll also searching for private companies that fit our investment profile and we'll continue to work with our management teams to help them execute.

We are proud of our portfolio's performance against a very difficult economic environment with each company's strong fundamental performance in the first quarter.

We're also excited with the potential for new private investors given the compression in valuations and pullback of risk appetite.

I've seen many cycles through my career in Perugia volatility typically present, the best investment opportunities.

We also remain committed to repurchase to our repurchase program into creating value through our work with management teams to further transition to transform our portfolio companies.

I'll now turn the call back to the operator to begin our question and answer session.

Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you would like to remove your question from the queue for any participants using speaker equipment. It may be necessary to pick up your handset before pressing any sarkies.

One moment, please while we poll for questions.

Our first question comes from the line of John Campbell with Stephens. Please proceed with your question.

Hey, guys. Good afternoon afternoon John .

Bill you talked Oh my God.

Yeah.

<unk> approach to buybacks and kind of balancing that and with new potential private market investments. If there are no clear private company investments that kind of present themselves how should we be thinking about the pace of buybacks from here.

I mean, the our stock price is really depressed and so I'm going to I'm going to emphasize buybacks. This is a good opportunity to take our share share count down significantly it a strong discount to our fair value. So we're looking for different ways to different companies to invest in.

We have a couple of things pending with regard to our two outstanding specs, but relative to other new investments. We're early stages. So we're gonna be allocating capital to buy shares back that's our that's the best use for our capital at this point.

Yes, it makes sense and then on the I mean, obviously the multiples in the public side have gotten.

A bit insane.

You guys, obviously have a lot of your industrial before about kind of tied to public investment. So I know youre not probably not chomping at the bit to unload a lot of that so maybe if you could talk about the debt capacity. It looks like you guys drew down a little bit on the.

On the margin loans did you talk about your debt capacity and maybe your willingness to kind of draw into that to feed both buybacks and private company investments.

I'm not I'm not a big fan of.

Taking on debt to make investments or to buy back shares, but we are we are.

Really have we have drawn down about $60 million I think of a against one of our revolvers.

About about $33 5 million of holding company cash on hand.

And so our total garage gross liquidity totals $573 $5 million.

So I'll be talking to Rick and Brian and Duke and we they just reallocate some.

Our available revolver capacity too.

To.

Buying shares back.

I never thought we'd get to that point, but frankly oh.

At $20, that's a pretty good investment.

Yeah, you guys are sitting quiet.

Quite a bit below book at this point for sure imagine not looking very attractive to you guys and then maybe for Brian just to kind of a housekeeping question what was the step up in the corporate tax liability and the book value summary.

The step up had to deal with the Dun and Bradstreet additional shares we got you had a big change in deferred as well.

The ceridian sales shares that mark to market value dropped quite a bit from quarter end, so that causes a deferred to go down as well.

Okay. That's helpful I'm going to get back in the queue. Thanks guys.

Okay.

And our next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with your question Alright. Thank you very much.

Hey, good afternoon guys.

Can you talk about just maybe system, one a little bit.

Deal closes he.

It gets into conversions and now I guess, you reported about $1 4 million share sale, maybe like walk us through your thinking there as Betsy shelter can I as far as your investment into just the war on whether near term medium term and long term. Thanks.

Yeah. Thanks, that's a that's a good question as part of this we're locked up on system. One for the majority of our investments until late June like June 27th or or so however, we did have some unblocked shares that were as a result of a oh.

Final investment we made in the business when it was being taken public and that totaled about 6.61 or $6 2 million shares. So I felt that the system one trading above its 10 dollar mark.

And it's actually treated quite a bit higher than that they would take the opportunity prior to the earnings release.

Two our lockup or prior to our blackout period to sell a few shares to raise will raise some capital and so we did we sold about one 4 million shares over the last 20 days or so that were not in the market now because we are blocked out in system one of them.

I believe all the 11th 11th or 12th.

And and we we like the investment that we have there's a true its a terrific management team it's.

It's you'll see them in the first quarter numbers come of released its its growth as it is is really fantastic and if the growth is also translating to strong EBITDA margins and strong EBITDA growth. So we like the investment.

And we.

We don't intend to to dispose of a large portion of that investment in the near future. So we we want to ride the system one for a pretty good period of time, but from time to time, we may dispose of some additional shares once our lockup expires at the end of June .

Okay, Great. That's very helpful color, Hey, Brian this might be a question for you on that.

Oh, he just recognize losses, maybe walk us through like cash noncash yeah any color would be helpful. Thanks.

Sure.

We had two very significant noncash items in there the pace safe investment, we wrote down by $236 million with the share price continuing to be depressed and the other was the ceridian mark to market that was about $324 million and that was offset by our cash gain on the optimal blue transaction was 300.

<unk> 13 million and the other way.

Okay perfect. Thank you very much and I'll, let someone else hop on.

Thank you.

And our next question comes from Kenneth Lee with RBC Capital markets. Please proceed with your question.

Hi, Thanks for taking my question I'm wondering if you could just stuff further expand upon comments around potential opportunities in private company just given the current market backdrop, you know or are you currently having some conversations right now and any thoughts about private company valuations and you know.

Whether it is meaningful gaps between what we're seeing on the on the public market side. Thanks.

That's actually a very good question and I'm going to let Rick Rick has been heavily engaged in this effort over the last the last couple of months ago. Rick Why don't you. Once you responded to go to.

To this one so Kenneth Yeah, Hey, Ken how are you.

Doing well.

Okay.

Two questions I heard from you one was sort of what are we seeing out there in the market backdrop and the <unk>.

The I would say the Juiciest area four and in our win and America kind of happened all that I've seen so far are our small cap.

GARP type companies some of those that weren't GARP, not crazy, but but gross companies that actually have cash flow and there are they've been sold off thrown out with the bathwater and there where we've seen a number of them trading at very attractive multiples in.

A return on invested capital.

We.

Where do you like them a lot when you don't have a lot of capital to put to work on those but we're planning on.

Working on those and actually bringing in some.

And some help on capital this would be something that can I and trasimene, we'd sure like as general partners.

And Ah that's one option that's why doesn't that seems kind of odd hasn't put a lot of capital land.

And in terms of.

We know what were what were thinking of doing as you build described that we we are where in it we are in and unfortunately, the state where we've got a borrow a because we I don't think he's got all excited about selling anything that we own you heard them on S. S. T. Not I'll pay you say you put a light and bradstreet pits.

They're they're way below where they ought to be and it would be crazy to sell those in.

And go do another deal so.

But selling some of that we've been buying back some shares might make sense.

Yeah.

Gotcha.

Questions.

Yes, you did very helpful. That's all I have for now thank you very much.

Thanks, Ken.

Thank you. Our next question comes from the line of Chris <unk> with singular research. Please proceed with your question.

Hi, good afternoon.

Just curious where I'm a board thanks for thanks for following US Thanks welcome aboard great.

Okay. Thanks, Thanks for that.

Just to sort of piggyback on that last question.

You know what that is.

You mentioned that you could possibly borrow to acquire a company you know do you have any sort of idea how much you would borrow and us instead of saying absolutely absolutely yes.

Lately would depend on the target, but obviously the.

Leverage part of the L. B O those have gotten a lot more expensive over the past.

You know 60 days or so and the high yield market, which I'm sure. Many of you are well aware are almost frozen.

So I don't know that anybody's going to pull off a you know a lot.

<unk> L B O anytime soon except for the really highest quality stuff.

Right Okay.

<unk>.

Can you talk about I guess the the.

The revenue the revenue from the restaurant group are you seeing and as you know the pandemic subsides.

How are you seeing are you seeing things improving there.

Yes, we are seeing improvements we had a very different it was a very difficult Jack.

January for the restaurant business in terms of.

Spike in commodity prices and and really shortage of the shortage of labor you know I'm trying to I'm trying to keep your restaurants opened and then moving forward but.

After the after following January we started we just started to see some really nice improvement in terms of restaurant operating margins and year over year same store sales growth. So we're anticipating in 2022 too despite the bad January and part of the February two.

Have a have a strong restaurant here and so we're happy to have over the last several years we've taken.

We've reduced store count significantly in you know Charlie's system and also the 99 systems, we've sold off or the baking company. The play business and also our our family dining business and so the risks and the other to change the Charlie's gene in 99 chain.

I really doing fairly well, it's not reflected.

Perhaps in the numbers that came out in the first quarter, but you'll start seeing some pretty good improvements in those businesses going forward during the balance of the year, So where we're actually for the first time in a lot of years, we're pretty happy with the restaurant business.

Okay, great. Thanks for the answers.

Thank you.

Yeah.

And our next our next question comes from the line of John Campbell with Stephens. Please proceed with your question.

Hi, John .

Guys. Thanks for letting me squeeze one more in here.

And Bill you're probably Gonna shoot me for this question, but you I think I kind of joke, you kind of joked that this in Vegas and I've had investors ask me. This question I've thought about it myself in the past, but you've had selected all these portfolio assets right. You've had selected these investments they're not getting a valued appropriately you own you know four or 5% of the shares today, you're going to have.

Have a monetization monetization event for yourself, hopefully with Black Knight here in the future at what point does this just become something you look at buying yourself.

Well, it's still a little.

A little too early.

Well it's a.

But you bring out of an interesting point and that's why that's why we're we actually are.

Got it really really really be talking about drawing down some of our our lines of credit to start buying shares back and be really significant about it because the at this point, we really have that cause that potentially is our best investment is just taking advantage of the dislocation in the marketplace and buying back a lot of shares and I guess if he can.

It's down to Florida number maybe it's a number I can actually afford.

[laughter] Hey, John .

That's what you get for asking the question.

Exactly exactly I'm sure you could find the investor cohort that could help help match you want some fun.

On the way up so alright, that's all I got thanks, guys. Thank you.

Yeah.

Thank you we have reached the end of the question and answer session and I'll now turn the call back over to Bill Foley for any closing remarks.

Thank you and thanks to everyone, who joined our call today, while the market volatility may persist. We will we will remain focused on driving operational improvements across our portfolio buying back our shares and finding exceptional investment opportunities and monetizing investments. We look forward to speaking with you again on our second quarter 2000.

<unk> 22 earnings calls.

Thanks again for your time.

This concludes today's conference call you May now disconnect. Your lines at this time. Thank you for your participation and have a great day.

[music].

Okay.

[music].