Q2 2023 Cannae Holdings Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings incorporated second quarter 2023 financial results Conference call.

Yeah.

During todays presentation, all parties will be in a listen only mode.

Following the company's great prepared marks conference will open for questions with instructions to follow at that time.

As a reminder, this conference call is being recorded.

<unk> available through 11 59 P M. Eastern time on August six 2023.

With that I would like to hand, the call over to Rory Rumore of Salisbury 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, Nice President rank Haswell, and Brian Klein, our Chief Financial Officer.

Before we begin I would like to remind listeners this conference call and the Q&A. Following our remarks may contain forward looking statements that involve a number of risks and uncertainties statements.

Statements that are not historical facts, including statements about tonight's expectations hopes intentions or strategies regarding the future are forward looking statements.

The 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 and are not statements of fact actual results may differ materially from those projected.

The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise.

The risks and uncertainties, which forward looking statements are subject to include but are not limited to the risks and other factors detailed in our quarterly shareholder letter, which was released this afternoon and in our other filings with the SEC.

Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in our shareholder letter I would now like to turn the call over to Tonight's, Chief Executive Officer, Rick Nazi who will open with a few brief remarks.

And then open the lines for your questions.

Alright, Thanks, Rory Hello, everybody. Thank you for joining our second quarter conference call not a lot of news to report to our investors.

Investors this quarter.

The headline is going to be that we bought back.

$3 1 million shares of our stock.

In the past.

From made it may through July so, it's kind of a quarter we started.

Right. After the end of the first quarter, we took a pause.

During the first quarter for on buybacks, but we got back with both feet and second are there and made through and through July we bought back as I said $3 1 million shares average price 1972, that's about 4% of a company. So we're pretty that's pretty much matches.

Our most aggressive buybacks, we continue to believe that our shares represent the best value for you know for us when we consider this.

Chairs versus may.

Making an investment in another company or an existing company.

And so we were pleased to report that.

No no real activity in the sale of.

Any any of our portfolio companies our acquisition.

Of shares of our any of our portfolio companies.

Just a couple of notes on a few of the of our portfolio companies that we continue to believe our are woefully undervalued, particularly when compared to their peers Dun <unk> Bradstreet for an example showed up with about a 4% growth rate.

That and that includes a headwind on.

Now that we all knew about a with the GSA and a credit bill.

Excuse me credibility.

And we still believe that that business is going to.

We're going to continue to grow I think its growth is going to accelerate a bill is very pleased with our with the results are there other operations that stock market is seems to be sort of in a wait and see mode, but it's trading at today about nine and a half times 2023 EBITDA that's.

That's at least a 50% discount to some of its peers and we all know who they are in spite of the fact that it's margins are better than many and it's growing faster.

And it has no more leverage than than some of its peers and yet its trading at five times and we think it's way undervalued and we think the team has done a great job Anthony.

<unk> has brought in a couple of really sharp people Jenny go mass being the number one sharp person and she has really turned around the marketing business as well as the credit risk credit risk says.

Segment.

A light showed revenues this quarter of 12, 7% year over year and I hope that those of you who also own a light shares have passed I think about the progress that company has made just since it went public and it was showing 2% revenue growth down here. It showed up with 12, 7%.

It beat all of its re guided M B a.

And the.

<unk> sold off a bit on.

The fact that it be paas billings weren't as robust as many in the street were what would what estimate.

Is that it's sort of our fault that we have not ours being kind of ayes and Allied management that we've not emphasized more than non b pass section of that business that grows mid single digits.

Solid as a rock hundred percent retention, you once a customer and on their payroll what their welfare their.

Our health business.

It's very very hard to get them out and that's really at the foundation of that company revenue growth and its cash flow.

So.

You can you'll probably hear us counting a slightly different story in the future just start with that we don't lose sight of that I've done the 70% of this company that's not be passed and still a great company.

So and that is trading at about 10 times 2023 EBITDA.

A light is and we've again, that's that's a compare that to where we're not going to named appears not going to name names, but they could this company is growing faster.

Trading at about a 50% discount to to certain peers are in.

And that's there's no explanation for that other than you know there is P overhang and.

And we think that's keeping a clamp on the stock so we really like but we really like the team we really liked the company, it's going to be it's going to continue to rock for some time.

One last note and that's on Sea day Ceridian.

They beat revised guidance there our revenues were up like 26, and a half or 27%.

<unk> got a stock that's been a very good performing stocks.

Did you check the price before the call Brian anyway.

Yes, so really good really good trading really well.

So I'm not going to go through everything on our portfolio. We've not there we would take a bunch of them are undervalued.

And we continue to work really hard with these management teams to maximize.

<unk> value and help them to help them.

To help them grow a streamline the organization and with that I'll answer well I will answer questions.

Yeah.

Okay.

Operator Hello.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your touch times time, if youre using a speakerphone. Please pick up the handset before pressing the case.

Today, Tom Your question has been addressed and you would like to withdraw your question. Please press Star then two.

This time, we will pause momentarily to assemble our roster.

Your first question today comes from Kenneth Lee from RBC capital markets.

Please go ahead Ken.

Hey, Hey, everyone How's it going thanks for taking my question how are you.

Doing well doing well.

Just wanted to ask about at a high level.

What's sort of the latest thoughts around capital allocation, obviously, you've stepped up on the repurchases in the past you've talked about potential investments in private companies, but just wanted to reassess and see what your latest thinking there is in terms of capital allocation. Thanks.

I think we we had our board meeting today and build on our reported.

On our pipeline and are in in that very view and the board agreed that the best use of our capital.

Today, our cash if you will is a is it buying.

Buying back our shares.

And it's.

It's hard to it's hard to beat and almost instant what is it 45% discount so a 90% more than 90% pop on your net asset value from.

From buying it back so it's sort of hard to beat.

And as long as that.

Alright, it's trading at substantial discount it that's going to be the case again.

Gotcha very helpful. There and and just one quick follow up on that one maybe you could talk about a little bit about potential capacity.

For share repurchases and whether that could either include taking on debt or other other options there.

We've got a revolver, we probably we may paying it but.

It will not.

We're gonna find our repurchases with the sale of existing portfolio of securities.

We have.

We have a number of very liquid.

Securities Theyre trading at various levels.

Discounts to what we think is the appropriate valuation.

But we have some there to try to get very nice valuations and and we've held for some time again I'm not going to name names but.

I think you can expect to see us Peel off.

Quite a quite a bit of our I would almost call them legacy shares of various things I don't think you're going to see us in the market selling light.

I G N O I don't think you're going to see us in the market selling pace eight because there. There still is we think a crowded quite a bit of upside left on on pace to Asia, but everything else maybe pregame.

Got you very helpful. There.

Hum.

Yeah. That's it that's all I had thank you okay. Thanks, Ken great questions.

Yeah.

Thank you.

Your next question comes from John Campbell from Stephens incorporated.

Please go ahead, hey, guys.

Hey, guys how are you.

After 90 is doing great.

Absolutely. Thanks for taking my questions just back to the buybacks I mean, it was obviously great to see the step up in activity.

But as far as the rate of buyback you guys. It looks like you called out the $3 1 million repurchase may through July just from a housekeeping standpoint, I'm curious with the repurchase activity was in the quarter versus what you did in July just trying to get a sense for whether that remained constant or if the rate picked up month to month.

We bought almost all hey, John This is Brian we bought almost all of that within the quarter I think we bought less than less than 100000 within July because we get blacked out after we start getting information.

So that's pretty much what are you, saying is that pretty much with with all during the vast majority of the second quarter.

Okay exactly I was looking for and then on sight line you guys called out you know Theres, a pretty blurb in the shareholder letter, but from a big picture standpoint are you guys kind of spot and you feel like you.

It would be at at this point relative to original investment and then also just kind of any updated thoughts on the monetization timeline.

But it's not going to it's not going as planned.

I'm not a I.

I'm not really at Liberty to go through all of that except that our product rollouts have been slower they've had to go back and there've been a lot of modifications.

Customer uptake has been.

And it was slower than expected.

And that despite a fairly booming gaming market. So yeah, we've been we've been disappointed.

With it.

Bill is on it.

<unk> is focused on it very much is talking to the CEO .

And we've got some.

We've got some options that were going to pursue one on sidelines and.

Before the end of next quarter, where you might see you might see something on that.

Okay. That's helpful. And then one other item I just wanted to clear the air on I mean, you guys, obviously have been back and forth correspondence with FCC just relating to the classification of the I guess the investment Company Act of 1940 to be clear, we fully agree with your stance. There that's never really been a worry for us, but just for the sake of investors that are tuning into euro.

Stuart maybe if you could provide a quick rundown of why that's not the right classification for you guys and why it's important that you steer clear of that.

Ah well essentially.

You were a careful reader John I'll give you congratulations you get what you get.

Homework.

Hum.

We are now.

Okay.

Investment 40 Act investment companies are basically mutual funds management at that time.

Our passive they owned lots of positions.

And we are not that we are.

Very as I mentioned during the call there, we're very active with our with our portfolio companies were involved in the.

Various aspects of management deals the chairman of a number of them and the comp Committee chairman.

Where we're all over the day to day operations and classifying says.

Yes, essentially a mutual fund does not.

Just not not appropriate and we've had those conversations with the SEC.

Part of the problem frankly again.

We were a little bit we were light and describing the act the level of activity that we have with our portfolio companies and when the SEC read our 10-K from a few years back they say well you know you're not you're just a passive investor and we we just waited under that and we changed a lot.

The language in our 34 Act materials.

To reflect our you know are fairly active roles with with these companies.

So it just doesn't it's not it's not right.

Would not it would not be appropriate to regulate us.

Yes.

And I'm not gonna see yeah, we we've not we've not had any correspondence with the SEC on that issue.

What a year or more than a year and in my experience as a lawyer way back we went back in the old stone age when I was a lawyer.

They they don't whenever they want whenever agree with you and cut you loose. They just they just they start communicating and usually if you go a year without.

Communication you can generally.

Do you view that there's that there.

Moving on and Theyre not going to pick on that issue anymore John .

Yes that makes a lot of fashion.

It's pretty clear to us that the Foley playbook is just the opposite of what the.

Would you qualify you for the investment Company Act of 1940, So I agree with you there.

If I could please.

No.

Yeah Yeah.

Take as much time as you need.

[laughter] Tahira as it is.

Just last one on Onboarding lesson Etsy launched I mean that was great to see them, both pretty healthily above the relocation line I'm just hoping if you could provide a rundown of kind of what's on top of the off season. What you guys are looking to achieve kind of heading into the season and any kind of progress you've made.

Right are you on.

Yes, Brian .

Yes.

And as the expert.

Yeah, Hey.

So I think I mean, I think we've mentioned.

Great.

Right now so.

So it's putting time to ask the question so I think.

One of the big things, we've been focusing on is just the transfer window and transfer activity.

We've got a few players and there's hopefully a couple more this is it for them. If we got a few players than there is hopefully a couple of more to come shortly so just to improve kind of the overall makeup of the squad.

One interesting is there was actually a player that born about the acquired and then loan too Laurie I had to basically show that.

The benefits of the multi club model.

And and I think and what we're wondering if we'll look to get that player back next year likely I think the other big thing. We're focused on is just all of the commercial book.

Commercial side of the business I was going around today at the stadium and just looking at different things that we've done both to improve the stadium improve the revenue.

Per match as well as kind of looking at all of the different sponsorship and opportunities we've done there so.

So I think there's in short to answer your question I think there's both on the football side to improve the overall you know both of the overall teams.

Again kind of move up move up the table, which will which will both help from a revenue and a brand side as well as basically.

Make the commercial operations better to generate.

Generate more dollars that were not being picked up before.

So those are kind of the big bet.

The big off season priorities and then yeah, obviously, we need to we need to translate that into the success on the field.

Okay.

Yeah. Thanks, a lot of sense and we'll look forward to the analyst day next year.

Yes.

That'd be great.

That'd be great.

Thanks for taking my questions guys.

Hey, sure John Thank you.

Yeah.

Thank you.

<unk> a question and answer session.

I would now like to turn the conference back over to Mr. Rick Murphy for any closing remarks.

Go ahead.

Let me just before we get off if can John anybody else has a question.

Let us let us know.

I'll go slow in my exit so we want to make sure we answer all your questions.

So thank you Hugh you've you've asked all the right questions in terms of you know what.

What our capital allocation plans are we told you what they are we like are we sure like our stock down here at 20 Bucks or wherever it is right now.

And.

We hate it from a valuation standpoint, but we like it from a valuation standpoint, if that makes sense. So.

We are very appreciative of your interest and feel free to connect with Brian or me anytime. Neither day, we are always happy to answer any questions or listen to your comments.

Thank you very much.

That does conclude our conference for today. Thank you for attending today's presentation you may now disconnect.

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Okay.

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