Cannae Holdings Inc. Q1 2023 Earnings Call

Eastern time on May 16th 2023, with that I would like to turn the call over to Rory Rumore of Soapberry Strategic Communications. Please go ahead.

Thank you operator, and all of you for joining US this afternoon on.

On the call today, we have our Chief Executive Officer, Rick Massey kinase, President, Ryan Caswell, 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.

Forward looking statements.

We're 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 conditions as 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 future events or otherwise the risks and uncertainties, which.

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.

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 <unk>, Chief Executive Officer, Rick Murphy, who will open with a few brief remarks, and then open the line for your questions.

Hey, Thanks, Laurie it's Rick Massey. Thank you all for joining the call.

Well I'll try to be brief, but I'm going to stand on a soapbox here for a second.

We are not.

In the U S.

Body on these calls are including us.

I listened to a lot of earnings calls and we've heard a lot of management prognostications on the market and the economy and all of that and where we're not dominant to get out and start making.

<unk> is about where where the economy is headed I'll say talking to the Ceos of the companies that we deal with there is a lot of uncertainty out there.

We are convinced that our portfolio almost to a company is grossly undervalued and I'm going to go through just a few examples.

And companies that have recently reported.

Largest holding.

For an example is done at Bradstreet.

We've got 79 and change million shares.

It's trading at a very low multiple of.

Of EBITDA enterprise value to EBITDA.

They reported.

A overall organic growth of 3%.

That may or may not disappoint, you, but if you look at their peers.

Youll see that there are two peers there too.

U S peers and the consumer.

Consumer credit business, the closest peers to Don and Brad's Shri.

One of them had revenues revenue growth of 2% and one had revenue shrinkage of four and a half or so.

Those two companies trade at almost twice the EBITDA multiple of Dun, <unk>, Bradstreet, where a little clueless.

About that.

The only bright street does not have that much more debt than some of its peers.

It is a better margin.

And like I said, it has better growth than than its peers have have have have shown.

And.

What you'll see if you look under the cover on down and Bradstreet is they Anthony and the team there.

<unk> done a an incredible job of turning around their marketing services division by using a essentially a data management platform, where customers can can use their own data third party data and Dun <unk> bradstreet data to perfect their their account based marketing.

Getting it.

It's going like gangbusters.

Hoovers had a 60% churn rate.

Is it 40% customer retention rate just a few years ago. When they said about the fixed hoover's and it has a retention rate now in the eighty's, so stunning turnaround for Dun <unk> Bradstreet.

And yet the market is is its theyre selling it off and where if it's really disappointing to us that we wish that there more attention to be paid debt down and bradstreet, because they've done a really nice job under the covers fixing a very broken company, they've got it back to growth and growth path.

After than peers and yet they have not been rewarded for that peers trade at like I said twice the multiple I said that'd be brief I'll try to be a little quicker.

<unk> reported today, 15% revenue growth in the first quarter, 15%.

There are b pass, which is sort of their enterprise offering multi application offering.

Their sales rep be past sales were up 50%. They are bookings were a little soft, but that's because they have had all of these giant jumbo contracts to <unk>.

Signed and are now in execution mode like Exxon N G E and others. So ADP the closest comp to a light grew at 9%.

They've got this company a light one of my favorites in the whole universe of stocks were at 15.

And yellow light trading at about half the multiple of ADP go figure. It's a it's a little depressing we know that the market was disappointed that stfan and the team at a light didn't.

Forecast or upgrade their forecast for 'twenty three.

And I would just ask all of you and those investors took to listen to a number of calls that had been made in the first quarter and see how many companies who beat their guidance actually for.

For the first quarter actually came out and raised 423 in my own.

Anecdotal experience at a very low percentage because of the uncertainty in the markets out there and who can blame stfan and Katie for not sticking their necks out and forecasting.

Increasing growth in a in a in a.

Choppy sort of economy.

Look at see that.

C day beat the market.

Substantially in terms of its guidance and the stock's down 15% since their earnings call. You go figure it doesn't make it makes no sense, it's trading in the mid fifties now.

And it's our last sale, we sold a million chairs and 78 Bucks and that was a good trade and we probably would sell another million. Its 78 bucks if it ever gets back there, but at 55, it's done it's just a really dumb price.

Pay safe.

Bodies everybody's a whipping child.

PSA is actually turned down high single digits.

The revenue growth flat EBITDA growth, which is pretty amazing given the mess that that Bruce and the team inherited.

The stock's up a little bit, but they did this as a business you did 400.

400, a $20 million of EBIT and 'twenty two.

And on track to do even better than that in 'twenty. Three so it's kind of been thrown out with the bathwater.

Two so this quarter.

We are where we're looking at a lot of things, but we are not sure. It's timely the game in the all the noise in the capital markets, especially the debt capital markets.

And all the uncertainty in the economy on the back half of the year.

So.

Don't be surprised if we don't strike at something.

In the second quarter and don't be surprised if we do.

We've we are not we did not buyback any shares in the first quarter and it's principally because we don't have a lot of extra capital to do so and.

In order to raise that capital, we're going to have to sell one of those app or mentioned holdings at a very disappointing price and we're just not that dumb.

It doesn't make sense to sell Dun <unk> Bradstreet at 10 Bucks when it's worth 15.

So that you can go buy your shares back at a deep discount to it just doesn't make sense to me the math doesn't work.

So you.

You may be discipline some of our investors may be disappointed we didnt buyback any shares, but we think it's prudent with its just prudent portfolio management Bryan Caswell as our president.

He's been busy with the.

With our Black Knight financial I know there are well there may be some questions about that.

Where are we sitting has has borne with doing and what are they.

Or are they are they out of the death zone in which what you view now.

We I think we talked about it last time, we spend some money in the transfer window.

And the team has performed much better so it looks like we are.

Very close if not out of the validation zone, which is which is a great outcome.

We're doing a lot on the business side from a commercial perspective in terms of increasing sponsorships.

Thing about optimizing ticketing revenue.

So we're very pleased with the football performance to hopefully staff in the Premier League, which will allow all of the other stuff in the multi cloud strategy to perform much better. We think we got a steel on born with our build out of steel here. He and I are the ones that work their way into the process and got got a deal we paid eight times revenue.

The comps are now probably double what they were at the time might be five times, you're saying people pay five times for small EPL teams. So.

That's going to turn out to be a really good win for us and we're excited about it I don't have anything else did I Miss anything Brian .

No Okay, Brian courtyard CFO is here with us.

Unless you have anything to report, we'll just go to questions, but let's go to questions operator.

Thank you.

Well now begin our question and answer session.

To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then two at this time of a pause momentarily to assemble our roster.

The first question comes with Ian Zaffino with Oppenheimer. Please go ahead.

Thank you very much.

How are you guys doing.

Okay great.

Thanks for all the commentary. This is helpful and can you just throw that out there I'm going to press you a little bit on this.

Yeah.

You know you basically almost a 100% upside if you buy back your stock right and so I mean, my argument is bird in the hand, if you buy back your stock versus.

One two in the Bush so.

Help us understand that's right because I'm sitting here I would rather buyback something that's worth half the place right now.

As opposed to sitting and waiting kind of like what your prepared remarks.

Syndicate, So just square that and push you a little bit on your thinking there.

I think the the underlying assumption is that.

Is that.

We are buying back at a 50% discount to book value.

It's not clear.

That the debt buybacks have a have any into any effect on market value.

And I'll.

I'll say, we ran a grand experiment and 'twenty two.

We bought back I don't know 12 or 15% of our company.

And the stock actually declined.

So.

It doesn't seem.

Yes, if you buy our stock at 20 Bucks and Nick and the tangible book value of what they.

Book value per share is 40 Bucks, it's it's a theoretical double but it's a theoretical double to book value per share and clearly we don't trade on book value per share.

And I would rather we think that the market for our stock is depressed not because.

We don't buy back enough shares, but because the ports are our portfolio companies are are poorly valued and that's why our strategy is that's just before we go sell something let's wait for it to hit you know the target price the price that we sort of thought about.

When we went into the deals in the first place.

Okay.

You were not but when you win.

The assumption behind the <unk>.

Double H and instant double is only in the case of a liquidation and were not in liquidation.

And yeah, we could buy it at market.

<unk> 'twenty and then if we liquidated tomorrow, we'd get 40 a share.

So these are rough and I don't know what our actual stuff is ready.

40, 42, or whatever what is it what is it.

30 35.

So 35.

But that's only in the case of a liquidation we're not in a liquidation.

If their shareholders want us to liquidate them in a way.

I'd be glad to listen to that but even then liquidating at these values would be it seems to me to be pretty dull.

You know, we're not naturally sellers at deep discounts.

So.

Okay understood and then maybe a little bit in the same vein here you kind of throughout the strawman of selling Dun and Bradstreet you know in this kind of dovetails into the next question that you sold some sea day, but why not more sea day, why talk about you know selling down a bit.

<unk> Street and might not talk about something like <unk> or more of sea day or maybe.

Thinking is different on sea day, so well.

Great point, Great question and I appreciate the you you're pushing us on the east because we our credibility is everything.

That's not to say we sold a million shares we've got five 5 million you Lat am.

I'm not going to say, what we can't and shouldn't say one way or another what we're gonna do with that inventory, but it wouldnt surprise me for us to sell more I think we'd prefer to sell it back in the $78 range versus the 55 or $66.

And you might forgive us if we if we hold out a little bit to see if it doesn't bounce back to that.

It's sort of an E C.

If you look at the chart, it's really interesting because there.

They blew out their numbers and their stocks down 15%.

And since the may 3rd when their numbers doesn't make any sense at all.

Okay, great. Thank you very much.

Sure. Thank you Ian.

Thank you. The next question comes with John Campbell with Stephens, Inc. Please go ahead.

Hey, guys good afternoon, Hey, John .

Rick you were on fire with the valuation write downs on your on your Soapbox, we agree with your stance. There you got a lot of puzzling kind of disconnects across a handful of these public investments. So we hear you there.

On Bournemouth I mean, obviously, great kind of run off things of late several points above that relocation lines. It does seem like you guys are in a good spot. So you'd mentioned last call that I think you were kind of tongue in cheek, but mentioned existential threat. If you were to go and be relegated. So that's a good outcome. So far Oh no. It wasn't it wasn't an X.

Actual threat for Brian and I was just for Ryan Caswell Who's sitting here with us.

[laughter] that heard that.

But you know in the past calls you guys have thought to maybe three to four times your investment onboard math and you're talking about maybe a five seven year time horizon.

And then Matthew I think he'd be twice that the implied take out or the implied value is about 8.8 times revenue. So a really good price.

Look at menu stock I'm, not close enough to that to determine whether that's you know pure apples to apples, but.

That one's at about five times revenues and Rick I think you've mentioned your perceived peer groups about five times, so that seems to kind of check up.

You know if you guys were to get that on board must I mean, that's that's that's pretty substantial I think it's about $8 per share of incremental value for you guys about it and that's a that was just doing the math in my head Yeah, I think you're in the right range. John Yeah, So that seems to be a pretty meaningful opportunity I mean, obviously as we assess the portfolio. There's you know that the lion's share of the values kind of tied to public.

Assets, we can see the price.

Day to day, when private side, that's where there's maybe a little bit of extra torque you know bornemann seems to be the clear opportunity here. So my question here after that rambling is.

What do you think the steps you guys need to take to juice the revenue to get things going where you think you can eventually be awarded that five times valuation Ron I'll handle that.

I think when we took over when we took over born.

If you looked at the commercial side of the business. It was it wasn't run.

As well as we were.

Would've hoped or as well as we think that we can do it we believe that was a big opportunity.

We've hired some people over there are specifically focused on that clearly part of the thesis is you have to stay in the Premier League to get that to get that valuation, which we think we're doing we also believe that building out the multi club model, which started with our investment and Lori yet and.

And we're looking at a few others. We think that we think that further cements. It helps the value because it helps create quite sort of additional sponsorship to build make your brand look more like some of the clubs. If you look further out.

Standing for the table. So look I don't think it's a I don't think we would sell it I don't think we're looking to sell it tomorrow I think there is some work that we need to do but we think we're very much on the way in terms of one where your qualifications for the Premier League Secondly building out all.

All of the commercial side of the business and then really taking the learnings from the Vegas Golden Knights.

And it's kind of a super excuse me enhancing.

What what they were doing but you know.

I don't think it's a and I don't think we could flip it today, John but I think we are creating the value to get to those comparable transaction multiples that you mentioned earlier, John we were kind of thinking of this as you.

You know five to seven year hold.

And Ah you know kind of three four times our money.

As sort of a baseline IRR I'm, not maybe I'm not promising that but that's what we were thinking its going to take a while.

And but you've got the best.

Bill brought a what's the guy's name that can promote all of them for example, Ebola over there from the Knights and according to Bill He's already working magic and.

For Butler was brand.

With the business side, I mean, I don't know you call it the revenue.

Tickets sponsorships concessions food and beverage all of them.

That stuff correct.

They were.

More in mind, they were unmanaged over there. So there was a long they're there if there is a long way to go on the downside, but there's a lot of ups yeah yeah.

Yeah makes sense, that's it seems like a very promising opportunity so we'll be keeping tabs on that.

And this is one just kind of a minor housekeeping item, but I noticed in the shareholder letter last go round I think you guys said, 51%. So a majority ownership position in and BK F E.

It looks like on the April update and also in the shareholder letter things 49 per cent I'm, obviously, not a big difference, but yeah. I. Just you know I took over that for shares and put them in my pocket.

Now what happened was.

The company established a as with all companies that were associated with our management incentive plan with equity so for people like for Butler.

And we were slightly diluted by that and we wrote a check this week to get US back there was a three and a half million Bucks.

To get us back to 51% good catch okay.

Next up we appreciate it yeah, absolutely and then last one here and this is another housekeeping item, but the $133 million commitment you guys have called out for BK. If he does that that includes both born with an laurean right yes.

And there.

There isn't in there that we have to pay the seller of bornemann another.

I went out for four are staying in the Premier League the Premier League.

Okay.

Incremental that's incremental to the 40, that's already planned for for Hugh.

Nope that's included Okay.

Alright, that's all I got thanks, guys. Thank you John I appreciate your interest.

Yeah.

The next question comes with Chris the tally with singular research. Please go ahead.

Oh, hi, good afternoon.

Hey, Chris just wanted to.

Ask about a potential investments where are you seeing better valuations now and pump public or private investments.

Oh.

Probably.

We don't I don't think a bronco adjusted its valuation expectations to where you see a lot of publicly traded companies trading right now and Oh I have to do is refer to.

Sure the portfolio discussion that I had at the outset those are public companies and they've just been they've just been crushed.

And we don't think the internal valuations that P. E have have a have gotten anywhere near that.

Okay.

Let's say you have to do.

You're likely to see us I mean, where there was some privates out there that we're looking at but youre likely to see us probably tilt toward the you know the kind of go private model or investing in public companies.

At these depressed prices versus.

Are the kind of crazy prices that ore that we're still seeing with that.

But I want to emphasize.

[noise] go private depend on that debt capital to more of a functioning debt capital markets and that's not going on now they're just not they're nobody's doing nobody's doing deals now it is totally dead.

Okay.

Yeah, I think thanks for that and then Ken you mentioned.

Provide some color on that.

Where youre looking for your next investment.

Oh.

Not without getting to getting specific enough that.

We're still I would just say we're still.

Ryan and Bill are are definitely looking at a building out the multi club strategy.

And I like the idea of building a multi sport.

Business with the under build in Ryan's leadership.

And there so that's one area that I know that theres been a lot of time on them.

I'm kind of spin in my time on the traditional.

I would call it traditional bill Foley companies Chris.

Utilities Tech heavy Intertek Tech services or just pure software.

And and another thing is.

You, we start our investment approaches at home and.

It may be that some of the best investments we make over the next year could be in our in some of our existing portfolio companies.

Okay, great. Thanks for the answers.

Thank you.

Okay.

This concludes our Q&A session I would like to turn the conference back over to Mr. Rick Massey Chief Executive Officer for any closing remarks. Please go ahead.

I don't want to make sure that we've not.

Operator, we've got another RBC, we usually have RBC on the call is there are they I I don't want I don't want to drop off if they if they if they have a question. So can I just can we have a moment of silence for.

You know for our group there and see if they want a paying in honest and if not we'll I'll say.

Thank you thanks for joining us thanks for your interest.

I hope you see the value in our stock and in the.

Portfolios that we the portfolio that we have it it's clearly there.

And we're excited about maximizing that.

Okay right right.

See here that we do have another questioner.

So.

It comes from Kenneth Lee with RBC capital or we go. Please go ahead.

Hey, guys. Good afternoon, and thanks for taking my question. Thanks for sure Matt.

We are we know where we know you'd probably be on the call and we didn't want to just hang.

Hang up without.

I mean, do you have a chance to badger us one way or another.

Absolutely absolutely I appreciate the time.

Hum.

Just one on on the odd AFC inborn mess as you look out further and perhaps does this also goes with the other clubs as well.

How dependent are the profitability of club owners should how dependent is gonna be upon the enforcement of UEFA Fairplay regulations. You know just wanted to get your thoughts around that do you do you need to have fair play strongly enforced.

Or or your projections are you now.

Pretty able to handle it without a strong for some time.

Yeah.

I mean, I think there's a few different components of the waves, but fair play but in general.

A lot of that stuff is aimed more at the at the big clubs and people who are spending a lot of money to try and get into European competition.

I think it's a little bit less focused obviously haven't had the same regulation, but it's less focus.

On the smaller team that frankly, I think it probably helps the competitive balance for smaller teams on the margin.

So we've definitely thought about it's definitely incorporated in our projection.

And you know I don't I.

I think there are other teams that are going to have bigger issues with it.

And then going with what.

Got you got you very helpful, there and and one.

One follow up if I may.

Is there any thoughts around the legacy restaurant business what are your longer term thoughts there could we potentially see some either some actions or our view around that business. Thanks.

Ken This is Bryan I mean, the one thing I'll say is that our our restaurant group.

Has just done a yeoman's job in the last 24 months they've faced a.

Pandemic, they've faced great labor crisis, they faced commodity and lately the deflation inflation they've done a great job. We closed just year over year. They closed 17 restaurants that were underperforming and had a drag on the business.

And it's had great effects. They you know average average guest check they've raised prices average guest checks up 9%.

I think they're doing a yeoman's job and in an industry that just had unprecedented obstacles in its past couple of years.

We like the business I don't know that we're gonna be it long term, but you know with what's been going on in the last couple of years, it's definitely not been the right time to think about moving it.

But we're very happy with with the way that they have managed through that.

Gotcha Gotcha very helpful. There I hope, there and and one last one.

One last question and you ask all the questions you want our time as yours sure and we appreciate your interest.

Really appreciate it again.

Just just looking at it at a high level.

Just based on all the comments earlier on the call.

Would you say that further monetization within the portfolio is that going to be predicated upon improving valuations.

Hmm.

Or or or would a deeper discount in in your own shares caused you to to review a further I just want to once again gauge.

What could be the potential catalysts down the line in terms of further portfolio monetization. Thanks.

Oh, that's it.

Really good question and the answer from.

Bill May have a different point of view.

But.

Our job is to manage.

The portfolio.

The companies that we have.

And it's really hard.

To <unk> to work on a dual track, where you're watching out for your own shares and the discounts there.

We think we get paid to.

Maximize the value of the portfolio not the shares.

And so are we.

I'd say that the vast.

It's yes the answer to your question is yes. It is.

But I would say, it's like 70%.

This is my 75% of that is dependent on.

About about portfolio valuation and 25% stock.

So that's kind of the way we look at it it would just doesn't make a lot of sense.

To sell shares I've done it bradstreet at 10 Bucks.

At down here at half the multiple that it's.

Its comps trade.

So that we can buy our shares back or do sit on cash or do you do whatever else. There is where it doesn't make sense to make another investment doesn't make a lot of things.

We think that the market is going to eventually reward.

Both can I and then the bradstreet with Dun <unk> Bradstreet, and we think it's going to reward both can I end of life with a light.

And hopefully they'll they'll happen together and we won't have to choose.

Gotcha Gotcha very helpful. There. Thanks, again, Oh that was a helpful question and it's you're helping us sharpen the way we think about this.

And this is hard these are heart. These are hard questions that we have we have to answer.

These are hard.

Right now it just it just feels them to sell any of these things.

Yep anywhere near the prices that we're talking about.

And that does conclude.

Okay.

And answer session I would like to turn the conference back over to Mr. Rick Massey for any closing remarks. Please go ahead, Sir Okay, I think I already it is but thanks a lot. Thanks for your interest and we look forward to speaking with you again next quarter. Obviously any of you want to have some some side chats with us are worked through Rory.

And Brian and just that something would have to be happy to talk.

So have a good rest of the day.

Yeah.

This concludes today's conference. Thank you for attending today's presentation you may now disconnect.

Good day.

Yeah.

Yeah.

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