Q2 2022 Cannae Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Kanai Holdings incorporated second quarter 2022 financial results Conference call. During today's presentation, all parties will be in a listen only mode.
Following the Companys brief prepared remarks, the conference will open 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 on August 15th 2022, with that I would like to turn the call over to Jamie Lillis of so Barry trial. Please proceed.
Thank you operator, and all of you for joining us this afternoon.
On the call today, we have our chairman Bill Foley, our Chief Executive Officer, Rick Massey denies President, David Ducommun, and Brian Coyne, 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.
TS are statements that are not historical facts, including statements about tonight 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 as to the 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 feed.
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 filings with the SEC.
<unk> 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 its nice Chairman Bill Foley, who will open with a few brief remarks, then we'll open the line for your questions.
Bill.
Thank you Jamie.
Through the second quarter, we focused on two main themes to prepare for inflation in a rising interest rate cycle.
First we use our excess liquidity to repurchase our shares which we believe are trade ins.
At some discount to fair value.
Second we continued to simplify our portfolio by monetizing investments they were either less immune to the inflationary cycle or to help to optimize our tax position.
Overall, we were very pleased with our portfolio companies and their ability to continue to generate growing profits in an inflationary environment.
During the quarter, we repurchased $4 8 million can I common shares year to date, we have repurchased $6 8 million shares representing approximately 8% of our shares outstanding.
In total we've invested $306 million to repurchase approximately 13% of our shares outstanding since we received approval from our board for a repurchase program in 2020. One as we continued to believe that our shares are not only undervalued, but so too are the shares of our portfolio companies.
At quarter end, we completely extinguish the 219 board repurchase authorization and have only two 7 million shares remaining on our 2021 authorization.
As a result of our board has approved a new three year 10 million share repurchase authorization, which further demonstrates our commitment to repurchase our shares when they were trading significantly below intrinsic value like they are today.
In June our Merrill life announced an investment the values can ice stake at a significant premium to our original investment.
As a reminder, can I invested $121 million for a 20% stake in a mirror life alongside Thomas H Lee partners or T. H L. In March of 2020 over the past two years, we have worked in collaboration with THL and the Amira life management team to accelerate organic growth.
It extends through strategic M&A.
We're very pleased with the result and has it led to a strategic investment from Genstar capital oriented they will take an equal ownership position with T. H L partners.
This transaction values can is initial investment of $338 million or 2.8 <unk>.
Multiple of our original investment need about two years ago.
While we enter our investments from our perspective as a long term holder Tonight, we will monetize a significant portion of our position through to closing is anticipated in the second half of this year.
Doesn't bradstreet remains our largest investment and one where we remain very involved given the upside potential that we see in the company.
We continue to work closely with Anthony Jabbour, as CEO and the Dnb leadership team as they execute their organic growth strategy, well evaluate accretive tuck in acquisition opportunities and broader strategic alternatives to that.
N D N B's first half organic revenue growth.
Constant currency basis was four 1%, which was in line with our guidance range of 3% to 5%.
We believe that delivering and accelerating organic revenue growth is key to driving an improved valuation we.
We were also pleased that they'd be.
They will begin paying a dividend in September of five cents per share per quarter, which will generate approximately $16 billion per year in cash flow to tonight, and hopefully improve dnv's trading performance.
All of its peers pay a similar dividend and D&B continues to trade well below peer average.
Subsequent to the quarter end, we did sell approximately 9.2 million shares of Dun and bradstreet to minimize our tax obligations in the second half of this year.
Continue to see significant upside in D N V shares.
Alight is another important public holding for Tonight, and one that continues to perform well reporting second quarter revenue growth of six 4% with 90% of their anticipated 2022 revenues now under contract.
Importantly, our lives continues to transition to a business process as a service or be past model and recognize 36% year over year growth in there the past revenues.
<unk> management team continues to execute very well because they had products to their platform and clients to the roster as they transition to a b pass model, which we believe is not yet reflected in their valuation.
In fact, given the discount to fair value the board of directors authorized a one one.
100 million share repurchase program.
We haven't provided guidance for the second half of 2022 and reiterated full year guidance, which represents an increase in year over year revenue of 67% and an increase in adjusted EBITDA between $4 76, 6%.
In the second quarter as noted earlier, we aggressively repurchased our shares and further simplified our portfolio. We will continue to work with our management teams to ensure that.
We help them successfully unlocked the value that exist within their businesses. We will also look for new private investments like a mirror of life and sightline, where we can take control positions.
And apply our playbook to unlike unlock substantial value for our shareholders.
We are currently interested in several attractive investment opportunities.
Lastly, we will be hosting our second annual <unk> holdings portfolio Koppers on December 14th and 15th at the Wynn Las Vegas.
Last year's inaugural Coffers was a constructive two day event film with in depth presentations and quality discussions with exists with full executive management teams of our portfolio companies and issue it could be a continuation of that same format.
We believe that this was a great event and look.
Forward to another successful conference in December we hope all of you can join us in Las Vegas in December I will now turn the call back to the operator to begin our question and answer session.
Thank you we will now conduct 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 your line is another question in queue.
You May press Star two if you 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 Keith.
Once again, that's star one to ask a question at this time, one moment, while we poll for our first question.
Our first question comes from John Campbell with Stephens. Please proceed.
Hey, guys good afternoon.
Hey, John Hey, Congrats on the positive development with the Maryland that was nice it sounds like almost a three times return.
You mentioned plans for kind of monetizing that in the back half of this year any sense for what that timing looks like and then maybe I don't know maybe it's early but how much of that pipeline.
Yeah, Joe It looks like the first I'm just gonna be a two stage process. It looks like the first half of the transaction would be a cash the.
The cash payment will occur.
Late August early September and the second half probably about 30 to 45 days later in our case, we're going to roll a about.
20% of our overall investment back into continuing position in a mirror life, we feel like we're going to again get another double or triple out of this investment over the next couple of couple of three years, but we are going to take a fair amount of cash off the table.
Okay. That's helpful. And then just remind me I guess on a matter of life and that's on the 10% performance fee is that right.
I'm sorry, John .
Oh on the LTI P is it on the 10% fee.
Merrill life is as one of our Thunder Trasimene John .
My phone program.
Got it and then back to the texture and the I guess the Eagle football deal I didn't see any specifics mentioned so I'm guessing you guys are probably still ironing out some details. It looked like there was a development maybe a couple of weeks ago that that maybe the deal is going through or that it was kind of I guess it formation, but any sense for what your ultimate commitment. It's gonna be and then maybe how how are you looking from a funding standpoint, and then you know I know.
Probably too still too early there, but you know thoughts on whether you're going to roll that debt and equity over time.
Yeah, John we anticipate it's going to be about 100 million dollar commitment if things come together, there's still a lot of loose ends with this transaction that we're trying to we're trying to pull together we have to.
To ensure that.
The the various football football assets that are John textures involved with can get a P. C E O B audit there and we can get that on a timely basis and that they can.
Further.
Phil fill the balance of the commitment that they need to acquire a O L. And then contribute other assets into Eagle football. So it'd be really remains a moving target at this time, we liked the idea we liked the concept.
If it proceeds it'll be roughly 100 million dollar commitment.
Okay very helpful and again, I guess, probably too early but any sense for.
I don't know if there's any kind of framework on our returns I've seen some figures out there some targets they've put out as far as the revenue growth over time from Leon.
But any sense for what that kind of helping frame up the return potential.
I would hate to speculate on that John right now really it's a I mean, there's just so many there's so many moving to L. A or moving elements with this transaction that it's pretty speculative to really try and trying to estimate returns at this point, okay, I understand well, we'll keep tabs on that in the future I'll get back in the queue. Thanks guys.
Thanks, John .
Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad. Our next question comes from Ian Zaffino with Oppenheimer. Please proceed.
Yeah, Hey, guys. Thank you very much for all the detail.
Just wanted to ask you on Dun and Bradstreet.
So some of the chairs there what's sort of the motivation of that sale, maybe kind of your thoughts on the business or our confidence in the basin.
And the thesis playing out.
Where you initially thought.
Well, we I mean, we really really like the investment we like where the company's going this but the particular the $9 2 million shares that we sold it happened to be shares that we acquired in the IPO at a value of around $21 60 or 65 cents.
And we were in.
A kind of a tough tax position in terms of having disposed of ceridian, some ceridian shares and create a very large tax bill than we thought.
No we just said it.
We all got together and we said you know we own 88 million shares of this company. It's a significant position if we were going to raise some cash for some other investments does it makes sense to reduce our investment in Dun and bradstreet and take a tax loss, which of course for transmitters is pretty hurtful because we're.
Obviously, they have to recover that lost before distributions can be made but we just felt we we just felt like it was time to take some money off the table and we raised about 135 or $40 million with that sale.
And that money is currently in the bank and we did that really to give us a bank rule to repurchase our shares from time to time, we wanted to make sure. We didn't have to go into it into a line of credit to repurchase shares.
Okay great.
And then also.
How are you thinking about sources of monetization is anything that you can.
You know immediately exit or you can do it.
They're just maybe ask a question about that.
Yeah, we really we don't really want to we don't want to liquidate any more of our ceridian shares that we have remaining at this time, we really feel like Ceridian report just reported great earnings. It's got a great path to the future and obviously, there's we've been monetizing that investment for a couple of years now.
The balance of our.
Portfolio companies.
We're really.
Pretty excited about it and we just feel like they're really not being treated very fairly in the marketplace like a lot of like a lot of other companies. So with the mirror life monetization in the Dun and Bradstreet sale.
Sale, we're kind of in a good cash position to make a couple of investments, but also continue to repurchase shares which is a pretty high priority in our in our and.
In our viewpoint right now.
Yeah.
Thank you and if I could squeeze in one more on your last point about that.
You know look at bi.
Your buyback and how aggressive do you want it to.
Lucky.
Looking at maybe a spread.
Hum.
At what point spread becomes just so large that you have to act super aggressively.
Not really.
Help us understand you know some of the thinking and the buyback and then how it relates to like.
Yeah. So I mean, I think really so that you kind of saw what happened in the first half when we really kind of a stepped up when we bought we took out the FNF position, which frankly, they were going to have to go to market with that position.
Prior to I think it was around November 1st of this year due to the five year five year window that they had to sell their silver shares that they got it as part of the spin out.
And we like that acquisition that was that was in the 17 70 range and we thought that was that was really a value to our shareholders. You know so we're gonna be.
In the market buying shares back at.
Current levels and even higher end.
We would get much more aggressive if we can get a pretty stiff downturn in the marketplace and we got back down below that $20 $20 $19 range and you'll see us kind of really piling on at that point.
Okay, and none of that thinking changes.
If you can get bang on taxes.
So that's a fast food and household.
What have you.
Yeah, well, we think we have our tax situation pretty much in hand with this with the sell it with the sales that we've had in the pet over this past year and we don't we don't really feel like we were paying taxes at a minimum because we liquidated.
The Ceridian is an investment we're going to have a tax consequence on them on a mirror of life for us.
For a good portion of that investment.
But we.
We feel like we're pretty well positioned right now relative to looking at inflation looking at higher interest rates and they're looking at our portfolio companies.
A number of them are.
Just sort of immune to inflation and interest rates their recurring revenue models and they're kind of all part of our playbook of what we like to look for what we'd like to invest in which are companies that can be there can be strong and really good times and be very dependable and time when times get a little tougher.
Understood. Thank you very much and Kelly you bet.
Our next question comes from Chris Sakai with singular research. Please proceed.
Oh, hi, good afternoon.
I had a question on.
You know, where where are you seeing the best possible investment.
Rather than either public or private market and why.
Yeah, we're sort of we're moving now you know we have two specs, but they have not been deployed so we continue to look for stack opportunities very difficult in today's environment in today's market.
People that are selling the company or frankly, not particularly interested in partnering with us back.
So we've and Rick can talk more about this would be like if you'd like to but we've really been doing lots of screens and looking hard at it's companies either take private or companies that are private that we can make investments in and take control of so Rick do you want to add anything to that because usually what you're doing now.
Al.
Sorry go ahead please.
No I mean, that's it's waiting for you.
Oh no it's okay.
So if I'm, sorry, I'm sorry.
Okay.
The we yeah. We've got some we we've got some interesting companies when we talk to our management and you can see you know where they're all going to be around the bill model subscription model pinch point in the economy.
Are very much in our utility that if they don't open the you know the.
A customer doesn't open same model and we are looking at a handful of those.
And some of them some of them will not be surprising if we get them done and maybe a couple of them might be but where there's a lot of good stuff out there and a lot of people that want to partner with bill.
So.
Okay. Thanks, and then.
Yeah do you have an idea about how many new acquisitions or investments you've made.
Well I mean, I couldn't I couldn't I can take that yeah. We were trying to look for investments in the hundred million to $300 million range.
And it really depends upon monetization of our various assets and our buyback program. So our goal is to do two or three of these investments a year and kind of build up our portfolio and not build it up and the way we possibly have in the pass through this back acquisitions or.
In the a and the Backstopping that we've done with the light and light and P. Safe. So we've moved away from that model in the market as of now the market's difficult right. Now so we have to met and navigate the market and navigating inflation and interest rates.
Okay, great. Thanks for your answers.
Yeah.
Our next question comes from John Campbell with Stephens. Please proceed.
Hey, guys. Thanks for the extra question. Maybe this is a question for Brian It's just a housekeeping question, but it.
It looks like you closed the quarter at 75 million in cash I saw in the update letter I guess, that's as of August Seth you guys had 190 million if I add in that Dnb monetization I'm still come up with maybe a little bit short is there anything to call out that makes up the difference between those two.
Paid management fees at the end of the quarter, but it should have been 75, plus like another 127 on D&B less the management fee should come out the exactly what we've got on the balance sheet now.
Oh, okay.
Taking a net with the Massachusetts, Okay. It makes sense and then bill on the ASO with wanting to it does sound like it's finding combination partner for probably a lot harder than it was last year around this time, but.
And can you remind us what that what that process looks like if you don't find a partner I think there's a two year.
Maybe timeframe on that and then what the mechanics would look like because there are returned to cash from the from the trough what does that look like for you guys, Yes, you're exactly right what happens after the two year point, unless we get an extension from our from our investors is that that money that money interest has returned to the shareholders and.
<unk>.
It's too bad because these are couple of good a good.
Acquisition candidates that we have in place and we're working hard to find.
Kennedy to merger to merge with but as you can imagine in this kind of environment is difficult it's not it's not easy.
Rick is working really hard on with Duke and Bryan Caswell, and we have several different candidates, but they all are process oriented.
And we're working with all of them every day.
Okay. That's helpful. Thank you guys.
Thank you at this time I would like to turn the call back over to Mr. Foley for closing comment.
Thanks, operator, and thank you to everyone, who joined our call today well the future path of America remains ambiguous. We will remain focused on what we can control, which is driving operational improvements across our portfolio companies through our playbook buying back our shares given the steep discount to fair value and finding et cetera.
Exceptional investment opportunities to monetize these investments.
Overall, we will remain nimble and adapt and 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 all of you again on our third quarter 2022 earnings call. Thanks again for your time today.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.
Yeah.