Q3 2022 Cannae Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings incorporated third quarter 2022 financial results Conference call.
During todays presentation, all parties will be in a listen only mode.
Following the Companys brief prepared remarks, the conference will be opened for questions with instructions will 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 November 16th 2022.
With that I'd like to turn the call over to Jamie Lillis Investor Relations for can I.
Thank you operator, and all of you for joining US. This afternoon on the call today, we have our Chief Executive Officer, Rick Massey can ice President, David Ducommun, and Brian Coy, 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.
Shipments 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 as to future financial and operating results.
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.
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.
Today's remarks will also include references to non-GAAP financial measures.
Additional information, including a reconciliation between the 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 kind of I C E O Rick Massey well a few brief.
<unk> then open the line for your questions Rick.
Thanks, Jamie everybody Bill is occupied working trying to make us some money on another project so I'm pitching in.
And as you anybody who knows me.
Much of a script follow where so I'm just going to go down the list of things that occurred over that over the past quarter. The most important which is that we bought back in the quarter about $2 1 million shares for an average price of 2076.
Which continues to be about a 43% discount to our what we believe is our net asset value. We are vigorously buying back shares and continuously we have been as you know for some time.
Over the past year, what did we bought back Brian .
13.75 million shares.
15% of the company, where you bought back and we're on pace to keep to keep on keep on doing that.
We hope our shareholders are happy with our board, we almost exhausted all of our original authorities. Our board has authorized another 10 million shares.
So we're going to keep we're going to keep buying back as long as it trades at a discount.
We write a little cash we sold Coral Hill for 80 million Bucks, we sell 75% of our stake of a mere alive for $2 43, a mirror of life with a 2.7 times multiple of our.
Our initial 2020 investment so we're very pleased with that well, we're going to we're going to get another closing for the second happened when is it December .
This marks the end of this month late November .
And that we'll get a small amount of cash not much last guy asked and then we're gonna roll roll a piece and the and the.
Surviving company, which we still believe is it.
It's bound for great things, it's just been a great trade for us.
Dun <unk> Bradstreet as you probably know has had a pretty good quarter.
A match there.
Our estimates and our guidance they grew about 4% and organic.
Organic revenue with this is all constant currency are there.
Their overall Ramsey are up about 7% in constant currency.
Maintained a 40% EBITDA margin throughout there and sort of an investment cycle now.
And they're starting to see the investments in new products come to fruition. So we're we're really pleased we think we were just looking at some comps in the market is way undervalued weren't gonna Bradstreet, even when you adjust for earnings.
It really drives revenue growth et cetera.
Our life is you know one of my favorite companies in the world. They generated they had about eight 7%.
Our overall revenues and nearly 10% growth in there and their flagship employer services segment, which is really the core segment.
They are.
At the same time, they're saying so I'm just starting to see some margin expansion from their investment cycle that'd be past offering that they offer that as a business process as a service.
I'm sure all of you guys know about their offerings and so forth work life and etcetera.
But that's really the the transformative.
Revenue line for a light and that grew 56% year over year.
Through the first nine months of the.
The year, so there already.
We're about to hit their guidance.
They've got a pretty.
Pretty much lapped at the gear, so they're doing really well.
And that really well and youre going to see some some really nice.
A surprisingly large new logos added over the next call. It 60 days they've signed them they were not able to announce them just yet, but they're they're just shows that they are just continuing to to sop up all of the fortune, one fortune 100 companies and make them customers. So.
We're very excited about it like that.
You want to talk about sidelined.
Sure.
Continues to make progress in their their core segment, which is cashless gaming. They are currently working with resorts World Las Vegas.
Put their flagship end to end cashless gaming system in place and hopefully by the end of the year they'll be in a position to start to retest that another good news J P. Morgan payments made a strategic investment in the business that came in at a premium to the value. We invested in so it's more liquidity for the company agreed to stamp of approval.
From an eight year, a strategic partner to be more good things to come.
Thanks.
So.
The only other thing where you had a couple of new investments.
Announced one of them is a computer services.
All of our Glorious Paducah, Kentucky.
That ive known since our since that one.
As a young man or it's been some time and Ah They do core processing for small banks and credit unions.
And I'm talking like a billion dollar asset banks.
Yes, I do.
<unk>, it's an unbelievably durable customer segment and these these.
These guys are pretty much you know I wouldn't say they own it but they've got a great big big market share.
And Frank Martire, who as you both know as you all know probably.
<unk> has an incredible track record both at <unk> and then when he and went after <unk> was acquired by EFI as he became the CEO executive Chairman and chairman of <unk>.
If I ask for decades, and he is bringing his team to bear to grow that business. He's got great plans and we have we have all all kinds of optimism about multiples of our money.
Kind of about three you know looking at their their numbers with an exit at the same multiple that you are buying it.
Youre looking at kind of a three times your money in.
Now five years, you might get lucky there might be a buyer that comes earlier.
But we really like the business generates cash.
Right.
Ali we all know this area very well bank technology.
And then we as you probably know we committed 125 point, whatever 7 billion for a 51% ownership in <unk>.
English Premier League Football club called AFC. Born met then many of you have said why would have asked us why.
Youre doing your technology guys why don't you do a team.
The short answer is this is a bill Foley company.
Started a hockey team.
From scratch.
Five years ago, and he's been offered valuations.
About four times.
The original equity investment I'm Lucky to have been one of those.
And we believe bill and his team can work the same magic.
Born it is way under investment in facilities and sponsorships and.
Gear sales media rights all of the staff that bill and his team at <unk> at the basically at Vegas Golden Knights has have really knocked it out of the park I mean, there is top of the NHL and.
Virtually every revenue cap.
Category. So we think that theyre going to apply that bill has already built already got plans for how he is going to how is it going to grow the business side of this so we think it worked out.
I asked to invest it in this deal I asked for on behalf of kind of odd because I think we're gonna make three or four times our money at a minimum over the next five to seven years. So with that I think that covered unless you all have something I think that covered all of.
A major step for the quarter and will turn it over to Q&A.
Q&A, if youre ready for that.
Operator.
We will now begin the question and answer session.
Asked a question you May press Star then one on your Touchtone phone.
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If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question today.
It comes from Chris <unk>.
With singular research. Please go ahead hi, Chris.
Hi, good afternoon.
Just.
I wanted to know so you've got a bunch of cash and then narrow life sale plus.
$249 million on the balance sheet. So what are you guys planning on doing with that.
Buying back more shares.
Yes.
I'd say there are three three options for us.
It's they're going to be sort of real time decisions.
We are going to be.
Relatively aggressively buying back our shares and as we have with the cash that we have as long as the discount is as you know end of 40 40 plus percent range, probably a 30 plus percent Ryan just really cheap and it's probably the best return that we can get with our capital right. Now is just to buyback our own shares at this huge.
N a V.
But we're also supposed to be in the business of finding new investments and we have.
We have a pretty robust pipeline of things there there is nothing that's going to happen today.
But we could use some of that capital.
For new investments and one of the things that bill.
Has.
Doing is finding ways to bring in third party capital.
Two to get a deal done so as to preserve more of <unk> capital on a deal by deal basis. So.
We've got some help and we're looking through that prospect.
And then third you know there is a chance that our existing I'd say the two portfolio companies that may need some future money computer services, the Paducah, Kentucky core processor, they're fairly levered, but they're they have.
A pretty pretty robust shopping list.
And I expect that we'll get an operator and we have a right of first refusal on new capital raises out of that partnership I expect we will get a chance to throw throw a little bit of capital into that I don't know if it would be a lot you know twenties 2030, there's probably what where we're talking about but we'd like to increase our exposure it's only.
$84 million today in the core business and then the other would be sidelined that nano sometime down the road Duke's would know more about that than I do.
So those would be the three and maybe we've got some other needs for other portfolio companies, but but.
But I'd say top at the top of the list is buying back our shares.
Continuing to look for opportunities to get to do better than buying back our shares but we haven't found one yet.
Okay, alright, thanks for that and then where are you guys seeing better valuations now in private or public equity.
Public.
Without a doubt.
Okay.
Without a denim.
That's for me how long was this.
The soccer.
Estimate the soccer team investment.
The works how long had that discussion.
A discussion.
Yeah.
Bill and a couple of Argos, Ryan Caswell and Alex CLO.
Have.
We were approached.
A year and a half ago by a fellow who wanted to pull the multi team both ecolab team together.
And it was exciting to bill and he did a lot of his own homework on it.
And and I think in that process one of the.
I think bill of interest was known.
And bornemann became available because.
Of the current owner a shall we say.
Potential sanctions issues and wanted to go to cash and pretty much everything that he has and go somewhere else too. So we got we got a bargain on that or not.
That's how it happened so I would say the past 15 months, it's not it's not a spontaneous if thats. The question. It was not a this is something that they will put a lot of thought into.
The most important part was.
A recognition that most of the business lines.
Operator, now what I mean by that.
Soccer team or for whatever football.
They operate very much like the business lines and the NHL team.
Confessions tickets.
Alcohol sales sponsorships jerseys and other gear stuff like that and any he felt like he could master of that.
So.
And then he'll learn I know he's got management. However, they are very skilled management that know the player part.
That's why the player and how do you win games and how do you stay in the Premier League.
Hey.
In fact here in fact had the team over here lately just to talk about how to feel.
The holes and management on that part of.
The operations.
But he's going to bring.
Yes people to bear on on helping build the business side that business Rev and alcoholic business it looks like the non player revenues.
Great.
Sounds good thanks for the answers.
Sure. Thanks.
As a reminder, if you would like to ask a question. Please press star one to be joined into the question queue.
The next question comes from Kenneth Lee with RBC capital markets. Please go.
Go ahead.
Hey, good afternoon, Thanks for taking my question.
Just just one on on the the AFC, born but and <unk>.
Pardon me.
I've been jumping around but on the calls.
But wonder if you could just talk a little bit more about the how the mechanics and the economics.
Could flow to Kenai and then in terms of the 126 million dollar commitments.
Is there any kind of obligation in terms of future player transfers.
Any kind of investments in infrastructure within Barnabas in terms of the stadium and things of that nature, but just wanted to get a better sense of the actual commitment correct got it good question. So.
We have a hard commitment for 125.7 whatever it is.
It's a 120 million paying I don't know what it is 110 million pounds.
And Thats it were no no future obligations and factory overfunded at.
So the maximum or of our investment is 125 it could it could very much be lower because there is there is about $33 million of.
And I know I'm, probably getting my dollars and pounds mixed out, but theres about $33 million of extra capital.
After you build the facility. After you pay that there is an earn out and the deal where if they stay in the Premier League, we owe them 20 million pound best seller 20 million pound if they stay in next year.
There is a stadium.
The.
No bill wants to own and develop the stadium they had a very very.
Poor small stadium at EEP wants to improve in and sell more tickets of course and all that stuff.
And there is a pretty healthy.
Very very adequate player transfer.
Budget for for the next year or two.
And that and the fact is this business cash flows so.
This isn't like a lot of the ones that you'll look at that have.
Deep deep holes and you know that just big Big cash holds so I believe that 125 is in dollars is is is that as the most we're going to do and it could be less now or invest kind of investment is as a limited partner.
Jeep Bill is the general partner.
We do not pay any fees.
He does not earn any fees as a managing general partner he was kind enough to do that he does not get any kind of promote from the money that we raised.
Now that we are.
That we are that we committed to the team.
And.
We'll make a return when we will make the same return that he makes.
So we are totally aligned with bill.
And in that in that transaction.
I hope that answers your question.
No absolutely absolutely very helpful. There.
And then and then switching gears.
Just one follow up.
If I may.
You talked about potentially bringing in third party capital what when you're looking around four for potential new investments.
Just wanted to get a little bit more color around.
What kind of form that could take.
Well of course.
It's somewhat.
Nebulous now because we don't have a hard it's abstract because we don't have a heart.
Our deal to talk to you about but just say, yes, we're talking about a deal where the total equity and it probably an LBO.
It'll equity would be.
We could be buying a private company, but we could also go do an LBO.
Total.
Check with enterprise value could be in a billion billion 2 billion for.
We put we don't want to put too much leverage on a business so call. It three times so.
Whitney raise seven or $8 million.
800 million, sorry, maybe more than that maybe up to 900.
And can I would do.
Call It 100.
And then we would raise.
The other 800 pitch.
That's that.
The form is called a special purpose vehicle they are not uncommon out there in the world today.
Haven't we just haven't pursued it as an alternative but we're going to miss some deals because we don't have enough capital.
And what we want to de risk to go raise the capital third party. So we get some good deals.
Gotcha Gotcha very helpful. There.
Thanks again sure thanks, Ken.
The next question comes from John Campbell with Stephens.
Hi, John .
Hey, this is a J hey stepping in.
Yeah, well, you bait and switch to us.
Apologies about that.
Now were just messing with you, we'd rather talk to you anyway perfect. Good deal. Thank you for taking our questions. So you guys slightly touched on sideline.
But can you add some color on the benefits sidelined may realized as a result of the strategic relationship with Jpmorgan payments and then can you maybe add some update on the silent fundamentals and then maybe how you're thinking about monetization of sight line long term.
Sure Let me answer these in order so <unk>.
<unk> partnership with J P. Morgan is incredible he put a representative on the board there.
A huge partner with the payment networks, so in helping us with our approval issues with visa and Mastercard, we think they can give us some important strategic advice to help get approval rates up I think they can help us more efficiently design of our network. They obviously have access to incredible customer base in their own right. So I think the opportunity.
The partnership with J P. Morgan affords growing payments company like Sideliner are virtually unlimited, it's really unlocking both their intellectual capital and.
Just breadth of network access that he can do wonders for fore sight lines business can.
Can you talk about the fundamentals of the business I would say.
Online gaming has been a little bit challenged this quarter I think with the demise of the $2000 free sign up credits from the casinos <unk> seen overall volume kind of stagnate in some cases, even drop so sightlines not immune from those trends that being said we are their core business is really developing the cashless solution inside the casino in that.
So what's going to differentiate them long term from their competitors.
From our perspective, I don't think a monetization of the businesses is near term in the next couple of quarters thing, we really want to see them execute in resorts World I think we want to see them get pick.
Picked up another large casino.
Empire, whether it be Caesars MGM and really see the acceleration of that cashless solution and I think once we have.
Both confidence that theyre on that S curve of adoption and we have year over year comparable so we can make predictable.
Earnings estimates to the Street I think thats the time to potentially explore what's next for this company, whether it be IPO or.
Sailor.
Whether an extra kieschnick alternatives, but.
My guess is we're probably at least a year away from from an event like that.
Okay, and then you kind of touched on the near term trends in the sports betting arena, but can you maybe provide an update on your bigger picture thesis for that spacing and why you continue to find it so attractive.
Continue to find it attractive we think that the liberalization, we believe that the liberalization of gaming markets as a matter of when not if the trends of have all pointed to yes. The timing is sometimes it's been in fits and starts but we think that where this is headed.
Beyond the doubt we know what the future the future holds and we're just ready to ride that wave.
As it continues to unfold as the big New States out there that you think are going to be opening Michigan's opening up New York's opened up New Jersey is obviously opened up in Nevada was always opened up in Massachusetts has or not.
As you know I think if you get some movement in California, Texas, Florida that obviously will be game changing for the industry, but even with the states legalize now.
Continued growth in adoption and continued user sign ups are still growing.
Even without the free money out there, but the pulling of the proverbial Punch Bowl away I think caused at least a pause for a quarter or two and the rapid acceleration of the growth in that industry, but it's still close to a $50 billion industry by 2025, but when I go look at draft I'm, sorry, a hijacking your call.
When you look at draft Kings Theyre trading back down to their spec level like 11 10 Bucks.
Is that because people have pulled back all these incentives and they're just not growing combination of slower slowdown in the top line and I think for some of these names specifically there may be a liquidity concerns.
Don't think that we don't have that issue at our business obviously were private.
We have great partners around the table, including.
One of the largest banks in the planet.
So, but we do still given the same macro environment as those guys. Okay. Thanks, sorry about that we're a little bit better managing our P&L, though we hope right.
Hope so.
Great really appreciate the color. There last question just at a high level should we be viewing the wind down of Austerlitz, one and two is the last of the spec activity for Tonight.
Yeah, I would never.
I would never say never but we do not have any plans.
And but.
We believe that this back.
Could be its not theyre not properly structured now, but they could be.
And it could be a great alternative to an IPO for some companies and because of the size and the quality of the of the amount of secondary sales that you can get you can't do those in traditional Ipos and you can't do.
Do 10% of the company in a in.
In an IPO when you can do a lot more of that so.
There are vehicles that have a use and that are valuable.
Just.
Terribly abused.
<unk>.
And we.
We are.
It's going to take it.
It's going to take a while before there was a market again for those.
And but and I don't want to say, we'll never pursue them again.
But but I'd say right now I don't I don't see it I don't see it on the horizon.
Okay got you congrats on the quarter and thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Rick Matthew for any closing remarks.
Actually this is David Ducommun is going to stay there.
We're going to finish this up thank you operator, and thanks for everyone, who joined our call today, we remain focused and excited that we exited the third quarter in a strong position and we look forward to the continued opportunities that we see ahead along those lines do you want to invite you to three upcoming events, we're going to be at the Stephens Conference. This month November 15th and 16th we're going to be at the credits.
Suisse Conference in Phoenix ended the month of November , 29% and 30, and we all hope you'll come join us for <unk> annual portfolio Conference on December 14th and 15th in the Wynn Las Vegas. Thank.
Thank you again, and we look to see you at one of our future events.
Thanks, everybody.
Have a good week.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.