Q4 2022 Cannae Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings, Inc, fourth quarter and full year 2022 financial results Conference call.
During todays presentation, all parties will be in a listen only mode.
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 March one 2023.
With that I would like to turn the call over to Jamie Lewis of Salisbury Strategic Communications.
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 I is newly appointed President Bryan Caswell, 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.
They involve a number of risks and uncertainties statements 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.
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.
But all the information, including a reconciliation between the non-GAAP financial information to the GAAP financial information is also provided in our shareholder letter.
I'd now like to turn the call over to <unk>, Chief Executive Officer, Rick Massey bought a few brief remarks, and then open the line for your questions.
Hey, Thanks, Jamie and welcome to our fourth quarter 'twenty to call or in our full year 'twenty two call I'm, Rick Massey I'd like to introduce formally introduce our new President Ryan Caswell Who's here with us.
He is moving instead of David.
David Ducommun, who is moving on to FNF.
We were well Mr. <unk> was a fantastic President I think he is going to also add a great deal of value to FNF, but I'm very excited to have Ryan as my partner Ryan.
As a as our new President and I think you will find him to be very straightforward and intelligent human being.
I'm just going to hit a couple of highlights from the quarter.
And then be happy to kick it open to <unk>.
Questions. So.
We.
Bought back in the fourth quarter at 22, I mean, the main highlight is we bought back two 3 million shares I think the average price was about 21, and <unk> 21, and half a little lower than that below 21, only 96 2096, okay. There we go and that.
That was 51 million of proceeds so for 'twenty. Two we told you we were going to buy back shares and we bought back 10 8 million shares that's 12% of the outstanding.
As of December 31, 21, which is when we really ask salaries started accelerating our buyback program. You may recall, we accelerated that after our conference in Las Vegas are early early December at 2021.
So since we embarked on our repurchases we bought back about $15 6 million shares and that's 17% of the.
Dan outstanding in.
About $400 million returned to our shareholders.
Uh huh.
Unfortunately.
Gap between our stock price and our liquidation value didn't close.
We thought we had hoped that the gap closed significantly when we showed aggressive buybacks, but it just didn't happen.
But nonetheless, we returned a lot of shares.
Our cash to shareholders.
We closed the last leg of our <unk> transaction.
In November of last year, we still retained a 29% portion of <unk> life, and we're booking that at $95 million.
We're excited about that about <unk> going forward and we are obviously are very excited for the accomplishments where.
We received a more of a two seven times our money so and that was in really just about three years, so not a bad not a bad trade for us.
Caswell is yes, and I assume remains on the board of <unk>.
It doesn't rain on the board.
But it was still they did a nice job.
And bringing in some new investors that are.
Very nice valuation.
I guess, it's kind of a sign of the times that were bragging on selling our one of our portfolio securities for a loss, but we did that we so can ishares.
For $27 million in cash.
As you know theres been a split so how many shares are we.
Were they split to Hanmi shares retail, we sold $19 2 million pre split okay, $19 2 million of pre split and that's like a million 612.
12 to one post split okay and that is.
That gave Ken.
Why did we do that was because we we had gains.
We were carrying tax gains are taxable gains on the sale of <unk> life and on some C day.
We it was just we thought it would be bad portfolio manager BARDA not good portfolio management for Kanata pay taxes when they had this.
These fairly large realized or unrealized losses on their balance sheets are we peel some of those shares often sold them.
Result, can I is not going to be a taxpayer in 'twenty two.
And so we will get a refund of our.
Of our advances.
The the unfortunate problem for our partners trasimene as that knocks a big hole that realized loss knocks a big hole in our ability to get carry carried interests, which is how we get paid.
And probably most portfolio managers wouldn't have done that for that reason, but we just we wanted to do the right thing here and not have kind of IP.
It was purely for Kanata pay taxes.
We sold 1 million shares as kind of a sea day ceridian.
Roughly about 70 78 Bucks a share.
That is a believe it or not a 13 times multiple.
Given that we invested in like seven so it's still a great return.
Two.
For us.
We owned 5 million shares now.
C J if for those who are counting.
We closed.
November of 16 November 16th at 'twenty, two we closed our investment in.
CSI, our computer services, it's a really nice.
Kind of a small bank core processor located in Kentucky.
Bill and I, both and.
Frank Martire, who sits on our board former CEO of <unk> and <unk>.
All coveted this business back in the back in the day, but I would never sale and finally, they they decided to sell it.
When they decided we were not front and center on it but centerbridge wise and Centerbridge was kind enough to let us put up.
About $86 million in a deal we're excited about with our prospective returns on.
CSI there may be some opportunities to do follow on investments as they look at.
As I look at some M&A and they have some in their sites. So we could get to put a little bit more in will just depend on.
What the target is.
How they how separate wants to value of that business.
We as you are probably all aware, we invested 51, 1% of the necessary equity to acquire an English Premier League Football club AFC born with.
And that is we paid roughly.
0.8 times revenues on that.
Way way below the comps.
One of the reasons for that is is that the business had been frankly.
Frankly pretty.
Dan.
Business side of the <unk>.
Soccer team had been undervalued under managed by the management team that Dan management team and E ticket sales gear sales food sales all of the other hospitality stuff.
There were just no attention paid to it.
And this company was performing on those areas very well below its peers.
We are very confident that bill and his team and Ryan Who's our partner dispatched on that project.
Well turn the business side around and.
As you are probably aware if you followed it.
They bought bornemann spot.
<unk> signed up several new players with an effort in an effort to try to stay in there and the Premier League and Theyre, playing a lot better than they had in the past. So we're knocking on wood they don't get relegated in and this thing performs really well for us.
This is not a like a.
Our family an heirloom deal. This is a deal to as an investment.
And if you've seen any news about what people are paying for these teams now you can see that we got a bargain and we should be able to make quite a bit of money on it.
Brian will go into more detail, if you're interested but we've got.
We've got the <unk> credit facility that we used to buy back that essentially we used to buy back 5% of the company during our buyback period at a deeper discount.
Then we were paying and that would be quite a bit deeper than we were paying in the market.
And we essentially use the credit facility from FNF to pay for those shares that's $85 million.
And that's turned out.
Yes.
But what we term we have to pay pay it back on an amortization schedule now.
And then we've got a margin loan of $250 million Thats fully available and we.
We've got $272 million in cash and short term investments as of now.
Don't think that's all available to go buy back shares or do deals because we've got <unk>.
Expenses and.
And some follow on investments and so forth that we're probably going to need to do.
So it's hard at this stage to tell you how much is really available for.
For future purposes, but we will know more by the end of the quarter.
I would I don't want to take up too much of your time.
Going through our entire portfolio just a couple of highlights.
Dun <unk> Bradstreet reported their fourth quarter numbers, we are.
<unk> our largest shareholder.
And.
Disappointed the market, although it didn't disappoint to us they were they were in the range of their guidance.
What really hurt them.
There are really three things one foreign exchange was had a had a very very substantial impact negative impact on on revenues and EBITDA.
To the.
The business lost.
Our contract with the GSA, which probably cost at a point and a half of organic revenue growth and and <unk>.
Three.
The del.
Marketing.
Portion of Dun <unk> Bradstreet.
Yes.
Yes.
Theyre all under a little of the Ras all of the marketing our digital marketing business is if you've been watching.
From Google wound down have been under a lot of it.
A lot of stress because.
Digital marketing budgets or some of the first to go with us.
When when when management teams are looking to cut costs in and so just we're just not seeing the budget. The expenses the budget expenses on these on these items and I don't know how long that's going to last.
That's for that phenomenon is affected.
As Youll see effective system, one system onto results we own.
200, <unk>, we have $272 million basis in system one.
The other good news is as I'm, finishing.
Alight alight had a fantastic quarter at a they announced it yesterday the stock at one time was up around 10%.
They showed up and probably thereof, because of their guidance for 'twenty, three which would show.
11 of 12% revenue growth and 12% to 13% EBITDA growth.
And margin.
Margin expansion.
Yeah.
Uh huh.
And they announced several new.
Big logos like a GE, all three ge's, <unk>, III and Exxon and quite a few others. So this company is really harm and we're very very proud of the management team there.
And.
There is no doubt that this is the most undervalued.
Of all our stocks in our in our present portfolio and so.
So there'll be some secondary sales probably from some of the other holders larger holders, but I don't Bill Bill and I both.
I have no intention of selling down at this at this depressed level.
So I'd Miss anything that I should cover Brian or right.
Okay, I'm going to stop there and.
And open up for questions. Thank you very much.
Thank you we will now begin.
Conducting a question and answer.
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One moment, please while we poll for.
A question.
Thank you and our first question is from John Campbell with Stephens, Inc. Please proceed with your question.
Hi, guys good afternoon, Hey, John Hey.
So first off Brian Congrats on the promotion and looking forward to working with you.
I saw you guys provided your cash balance as of yesterday I think it was $272 million.
Also saw where you guys.
Have paid or maybe expecting to pay the $40 million for the Black Knight football commitment in the first quarter does does that cash balance that you guys provided does that include the payment or is that yet to hit.
The cash payment that's coming yes, we've already paid the one that was in the first quarter that was the first week of January there's only one left that in probably the third quarter of this year okay.
That's about 40 million Bucks okay.
Alright, I wanted to maybe high level here just looking for some insights on your vision for both Black Knight football and CSI. So maybe just starting off on Black Knight football. If you could help frame up the type of returns you guys expect over time and just also just how large do you envision this organization getting you know over the long haul.
Well I'll, let Brian go to that I'll, just say, we we sort of view this is a.
Everything sort of a multiple of money and.
And the forecast that we showed our board too.
To support the investment in Black Knight football.
We're looking at sort of a three to three five times more weak.
Five years.
On CSI.
I do want you to hear from Ryan on the football team on CSI.
That's probably another five year hold that there is a lot of work to be done a lot of little tuck in acquisitions, and then we expect that.
Debt.
The likely suspects will love to.
Would love to come in and buy this thing so that that too is kind of a three three times your money in five years sort of deal very very low I mean quite you know not a lot of risk.
In this business and that business.
And we think that the demand for it will be will increase so.
Ryan is going to talk about the Fort Walton, Yes, just a little bit more details on how we think about that as Rick as Rick mentioned in the opening.
We think we got a really good price we paid.
Roughly 100 million pounds.
The purchase price of the smaller now.
If you look around the Premier League. The next cheapest is kind of mid two hundreds and then it's probably closer to 500 million pounds per team. So we think we're in we're in a very attractive value as Rick mentioned, there is a lot of work.
Both on the commercial side infrastructure.
We're also as you probably saw we made an investment in FCC Lori Act, which is a weak one so that the French team.
First league in France.
And we're looking at other league to really try and bring down the cost of players.
And Theres a lot of work around that both in terms of how you put that together and how you effectively kind of.
Get talent from those to the Premier League I think an example is.
Gordon did buy a player in the transfer window from Este Lauder, Yes, you can kind of understand the pieces of how it works.
Well look we think there's a lot of work to do but as Matt said, we think theres a lot of upside to it.
But we got it in the guidance.
Over time keep the team in the Premier League as well as kind of build out all these ancillary revenue streams and investments.
Okay. That's helpful. I've got one more and I'll hop back in the queue.
I've got a lot more work to do and kind of building out a valuation framework for club valuations, but.
With more than myth.
It sounds like you guys presented.
Our five year multi year kind of forecast of of returns, which you guys are expecting.
Just out of curiosity, how impactful is the reallocation of that for smaller EPL teams I mean, clearly we're pulling for born with as they hit kind of the homestretch here, but you know if there is an event of umbrella.
How does that affect.
Word extra states what comes to mind for me.
It may be a little bit.
Uh huh.
As you might imagine we did a lot of work on that.
We think the valves, we look we actually looked at different cancer. The second level of championship. We looked at teams that frankly, we don't think are value is that far off even where some of those teams trade.
But there's a bunch of work that you can do there.
And again I'm happy to talk to you some more detail, but theres basically parachute payments, which are.
Which are payments that go to relegated team that gives you a very large advantage in the short term. So we think that given the work that we're doing even if we were to get relegated theres away.
We have an advantaged to bounce back up.
But there is clearly a difference in value.
But we believe we have the right people and kind of infrastructure.
<unk> two <unk>.
Hopefully not yet there and if we do to kind of mitigate that and bounce back with it kind of a year or two.
Okay very helpful. Thanks, guys.
Thank you John .
Thank you and our next question is from Boston with Oppenheimer. Please proceed with your question.
Hey, good afternoon. This is <unk> on for Ian.
Just another follow up question on Black Knight football.
Congrats on the on the FC Laurent investment as well.
Is there any option I guess in the agreement.
Four.
Two to acquire more than 50%.
The divestment of our ownership I should say the Black night football partnership now where you have a.
We have.
The right to participate in any future offerings on a pro rata basis.
You probably would expect but no we didn't we didn't want to own more than 50, 51%.
Okay got it thank you.
And then I guess a bigger question.
I guess, what other areas of the market outside Sports League.
Either private or public list, but could you see that at the moment for you guys I guess the computer services investment.
Most recent one in the technology space, but.
I guess.
Is there anything in other sectors that you're looking at or have an eye towards.
Yeah, well I mean, I'll, just say kind of categorically.
There are quite a few.
Technology software companies.
Alcohol verticals not enterprise software company vertical software companies in the areas that we like our supply chain health care.
And so forth that are trading way below there.
IPO price.
And what's fascinating is you've seen an inversion.
Public valuations of private valuations, where the publics are substantially lower and you're starting to see.
It'll be OS happening and.
We see some opportunities without naming names do we see some opportunities in there sort of smaller.
$2 billion.
Usually software or tech enabled services companies.
In healthcare and in areas like health care with Big.
Big Big market share.
So we like those a lot.
So unfortunate problem is.
But to make them work you usually have got to put some some data on the balance sheet and the.
The market there for high yield is still pretty haywire.
So.
We don't have anything imminent.
For that purpose for that reason.
Mostly just trying to keep stuff warm for when the debt capital markets.
Come back somewhat.
Got it okay. Thank you for your thoughts.
And then last question, obviously, you guys have been.
Active buying back stock just quick question what is the remaining amount on the buyback authorization.
9 million little sort of 9 million shares.
Okay got it thank you.
Is that right Ryan yes.
And our next question is from John Campbell with Stephens, Inc. Please proceed with your question.
Hey, guys. Its me again I got two quick ones here.
How much of a commitment for Etsy, Loren and I don't know if you guys disclosed the percent ownership.
We didn't disclose it.
It's a minority, but it's a substantial minority and we got the right to own.
More.
And I think basically we got the write down control correct.
That maybe maybe not is a different liquidity off yeah, we've got different liquidity options.
Okay helpful and then.
Really good work on the does that for Merrell life monetization. It sounds like you guys are retaining about 5% of that interest or.
Are there any lingering payments any more proceeds you guys expect from here or is that $2 43, the extent I've ever done.
Okay. It was a great great great great.
Okay. That's all I got thank you guys.
Thank you John .
Yeah.
Thank you and our next question is from Kenneth Lee with RBC Capital markets. Please proceed with your question.
Hey, good evening, Thanks for taking my question.
Hey, How's it going.
Just one on Black Knight football again.
And in terms of the LP interest is there any kind of expected revenue streams and in the interim or should we consider this as similar to either an equity kind of investments.
Well, we don't we.
We don't expect.
Expect that dividend or any sort of revenue streams out of that.
At least not in the.
Not in the foreseeable future.
Going to need the capital for operations and players in.
Go for it.
Gotcha and just relatedly.
Any financial commitments.
Or obligations otherwise.
With respect to Black Knight portable, yeah, with Black Knight football.
We've disclosed our obligations yet so you said $40 million out of disclosure is $40 million $40 million.
In the summertime other than that there's nothing.
Gotcha.
And one final follow up.
Given the ownership of F C oriented and AMC Barnabas and U.
I think you alluded to having a minority ownership in FC laureate, but then that could be converted to a majority ownership down. The line is there any kind of potential impact from the UEFA rules around multi club ownership and participation and I think.
The champions League and things of that sort Oh wait.
The question is it that youre going to stop gas oil that's not right.
I like where that question, it's growing more than the first one as of now given where the teams are championing the champion Champions League ambition, there probably a bit a bit away.
But obviously or maybe not honestly.
If the teams you can only have one team that's playing in the Champions League.
Either if our teams are there today laureate closer and we don't as you said, we don't control it.
But but I think it is something that we thought about.
Our teams need to perform quite a bit better before that's something we really need to worry about.
Hope that they do by the way I view, it would be a high quality problem.
Gotcha Gotcha fair enough. Thanks, again really appreciate it.
Thank you thank you Kent.
Yeah.
Okay with no further questions at this time I would like to turn the floor back over to Matt.
Mr <unk> for closing comments.
Thank you very much.
Interested parties and shareholders.
Our story.
We're working really hard to create some value.
For our shareholders.
Never.
I hesitate to give us a call if you've got more questions.
Thank you very much.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
[music].
Okay.