Q4 2024 Cannae Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the <unk> Holdings fourth quarter 2024 financial results Conference call.
During todays presentation, all parties will be in a listen only mode.
Following the Companys 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 10th 2025.
With that I would like to turn the conference over to Jamie Lillis I'm. So very strategic communications. Please go ahead.
Speaker Change: Thank you operator, and all of you for joining us on the call today, we have can ice president Bryan Caswell, and Brian Coyne, our Chief Financial Officer.
Speaker Change: But 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 statements.
Speaker Change: 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.
Speaker Change: Because such statements are based on expectations as to future financial and operating results.
Speaker Change: Statements of fact actual results may differ materially from those projected.
Speaker Change: The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise the.
Speaker Change: The risks and uncertainties with 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.
Speaker Change: And our other filings with the SEC.
Today's remarks will also include references to non-GAAP financial measures.
Ryan: Additional information, including a 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 Ryan.
Speaker Change: Yes.
Ryan: Thank you Jamie.
Ryan: On this call one year ago, we laid out a long term strategic plan designed to increase the net asset value or NAV of Kenai, and and narrow the discount to intrinsic value that our shares trade.
Ryan: The plan consisted of improving the performance and valuation of our portfolio companies, making new investments primarily in private companies that will grow at a V and returning capital to our shareholders.
We believe this plan will drive an increase in our stock price and I would like to highlight significant actions we have taken in each area before going into a more detailed review of <unk> portfolio companies.
I will then turn the call over to Brian Coyne to go through our financials.
Ryan: First we continue to work closely and actively with our existing portfolio companies and management teams to improve their operations cash flows and long term positioning.
Ryan: For example, we worked with a light on the $1 2 billion sale of its payroll and professional service to services divisions, which simplified the remaining business and provided capital to allow the company to significantly delever repay.
Ryan: Repurchase shares and initiated dividend.
Ryan: We also worked with a light on the transition to a new CEO and added four new experienced board members.
Ryan: All of which we will all of which we believe better position the business for future success.
Ryan: Another example is we spent significant time with black Knight football and AFC born met with a specific focus on increasing commercial activity and cash flow.
Ryan: Improving the on field performance and managing infrastructure improvements.
From a commercial perspective, ASC bornemann revenues increased nearly 20 million pounds or 14% in fiscal year 2024 and are expected to increase again in 2025.
From a sporting perspective AFC be sits.
Ryan: In sixth place in the Premier League its highest ranking ever has achieved the longest unbeaten streak in club history and talks to traditional Premier League contenders in Arsenal, Tottenham Manchester City, New Castle and Manchester United.
Ryan: And from an infrastructure perspective next month, we will open a new <unk>.
Ryan: World Class first team training facility.
Ryan: We are optimistic about our portfolio and its ability to drive future value creation and grow NAV.
In 2024, we made several new private investments, which we believe will generate will both generate high returns on our investment and provide interim cash flows to cannot.
Ryan: One of these investments was a 20% equity interest in Jana partners that we believe has significant upside provides cash distributions and as strategic for can I in terms of working with <unk> on potential investments as well as Jan has the ability to help source and create new investment opportunities.
Ryan: Since our initial investment we worked with Jana on our first public opportunity and continue to collaborate on multiple wives situations regarding potential investment targets.
Ryan: We are optimistic about our partnership and investment opportunities going forward.
Ryan: We also acquired a majority stake in they want any Watkins company, a 150 year old flavoring products company with a strong brand that has demonstrated consistent long term growth and profitability.
Ryan: The.
Ryan: The company ended 2024 with sales up in the mid single digits and EBITDA in the high single digits and expect 2025 results to improve. Additionally, we have received cash distributions related to a preferred security.
Ryan: We are also excited about watkins prospects going forward.
Ryan: Lastly, we returned significant capital to our shareholders through share repurchases and our quarterly dividend, which was instituted in 2024.
In the second quarter of 2024 can I repurchased nine 7 million <unk> shares and a Dutch auction, returning approximately $222 million to shareholders.
Ryan: The newly initiated quarterly dividend has resulted in it and returning an additional $23 million to shareholders in 2024, and this dividend will continue in 2025.
Ryan: Finally in 2024, we internalized our external manager and brought Bill Foley back as the CEO of Kenai as part of the Internalization key management are now compensated primarily with Kenai Ishares. We believe these actions.
Ryan: Further align our management and can add shareholders.
Ryan: Going forward, we plan to continue to rebalance our portfolio away from some of our public company investments and plan to prioritize share buybacks as a use of capital that has recovered from these public companies share sales. Additionally, we plan to use proceeds to pay down outstanding.
Ryan: Debt and invest the capital in new and existing portfolio companies that we believe hold outsized return potential for our shareholders and we will drive growth in NAV.
Collectively the <unk> management team and board hold more than 12% of Ishares and we were and remain laser focused on executing our plan to increase the NAV of our portfolio and close our share price discount to NAV.
Ryan: I'm now going to talk about a few of our portfolio companies in a bit more detail starting with dnb.
Ryan: Dun and Bradstreet reported revenue of $632 million equating to less than 1% constant currency organic growth compared to the prior year's fourth quarter.
Ryan: Adjusted EBITDA was $260 million for the fourth quarter of 2024.
Speaker Change: Down <unk> six.
Ryan: $6 million to the prior year's fourth quarter.
Ryan: While these numbers were below consensus D&B management noted that the quarter was affected by delayed timing of certain deals a decision to exit unprofitable partnerships and the ongoing strategic process.
Ryan: For the full year 2020 for Dnb achieved 3% organic revenue growth and expanded adjusted EBITDA to $927 million.
Ryan: Which is up from the $569 million at the time of our take private.
Ryan: The company also improve its capital structure by reducing net leverage to three six times and adjusting their fixed versus floating rate debt.
Ryan: Finally, the company announced its ongoing.
Ryan: Strategic discussions were ongoing and expects to share the outcome of those discussions in the first quarter of 2025.
Ryan: Turning to a light, which posted total revenue from continuing operations of $680 million for the fourth quarter of 2020, 483% decrease from the 2023 fourth quarter <unk>.
Ryan: Adjusted EBITDA was $217 million in the fourth quarter of 2024% to 5% increase to the fourth quarter 2023.
Ryan: Life net leverage at quarter end was two eight times, which reflects a $740 million debt paydown.
Ryan: A light also provided their 2025 outlook and expect mid to high single digit growth in adjusted EBITDA and double digit growth in free cash flow.
Ryan: Computer services or CSI had another solid quarter of growth following record growth in the first half of fiscal year 2025 on a pro forma basis integrating recent action acquisitions. The company grew revenue in the high single digit range.
Ryan: <unk> continues to sign new logos building at annual recurring revenue pool.
Ryan: Adjusted EBITDA grew in the mid single digits with higher revenue offset by a one time non personnel expenses.
Ryan: Mended Mill Distilling also continues on plan as it developed launches and began successfully selling its initial products in the second half of 2024, the company launched Mended Mail, Nevada, Bourbon, Minden, Milton, Nevada, Rye Whiskey and evil Bean coffee the core following high ground vodkas release in 2008.
Earlier in 2024.
Ryan: These products have seen a claim in both receiving high points ratings of 92 to 99 in several gold in best of Class Awards sale.
Sales are also starting to track and we expect significant growth in 2025 as the products hit market.
Brian Coyne: I'll now turn the call over to Brian to touch on our financial position.
Brian Coyne: Thanks Ryan.
Brian Coyne: <unk> fourth quarter total operating revenue was $110 million or 8% lower than the 2023 comparable primarily on lower restaurant revenue. The aggregate decrease in restaurant revenue reflects store closures in both the prior year fourth quarter and in 'twenty four.
Brian Coyne: As well as general headwinds in the casual dining sector as many brands continue to fight for their portion of a shrinking food away from home budget.
Brian Coyne: Notably the 99 brand, which is much more concentrated geographically achieved an increase in same store sales as their average guest checks exceeded the guest count headwinds, resulting in a slight increase in same store revenues for the fourth quarter of 'twenty four.
Brian Coyne: Turning to operations restaurant operating expenses in the fourth quarter 24 were $107 million or 81% of the total operating expenses and approximately 300 basis points lower than the fourth quarter 2023.
Brian Coyne: Cost of restaurant revenue of $90 million comprises 89% of restaurant revenue, a 20 basis point improvement over the prior year fourth quarter, but importantly, a 200 basis point improvement from the third quarter 2024.
Brian Coyne: Our team at the restaurant group of focusing on menu rationalization and streamlining staff to further reduce cost at the store level.
Brian Coyne: Management also continues to scrutinize and find savings in brand support and administration costs, including recently negotiated an early exit and 25% from the support center location.
Brian Coyne: We expect these savings to be more apparent in 2025.
Brian Coyne: Personnel cost of $18 million for the 2020 for fourth quarter reflect the wind down of our external management agreement and you'll note the lower management fees reported in other operating expenses.
Brian Coyne: Can I recognized a $12 5 million gain on that early exit from the restaurant support Center office noted above this was offset by losses from the sale of 12 million shares were light in December and 917000 shares or pay safe from which can I harvested significant tax losses, and avoiding tax payments from the sale of <unk>.
Brian Coyne: For shares in 'twenty, four and allowing <unk> to carry back against gains from day for sales in previous tax years.
Brian Coyne: Net losses from equity method investments were 12 million in the fourth quarter 2020 for a material reduction from the prior year, which included significant losses from system. One in a light which were not repeated in the current year period as well as improved results at Black Knight football.
Brian Coyne: In 2024, we sold select public securities totaled totaling $470 million and received $16 million in dividends from Dnb, Hawaii. Additionally, can I received $14 million or two times cost from the sale of a division of wind direct and still retained its 21% ownership in the remaining fulfillment business.
Brian Coyne: Yeah.
Brian Coyne: Today can I has over $108 million in corporate cash and short term investments.
Brian Coyne: $101 million on our margin loan and $60 million on the FNF note for approximately $60 million of net debt at a weighted average of 735%.
Brian Coyne: We also have $49 million of Undrawn capacity on our margin loan and hold $1 billion of listed securities.
Brian Coyne: Our aggregate net asset value of approximately $1 9 billion equates to $29 78 per <unk> share on an after tax basis.
Speaker Change: And can I ishares closed at 1919 today, we're 36% discount there maybe.
Speaker Change: I will now turn the call back to the operator to begin our question and answer session.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: At any time. The question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: The first question comes from John Campbell from Stephens. Please go ahead.
Speaker Change: Hey, guys good afternoon.
Brian Coyne: John how are you.
Speaker Change: Doing well thanks.
Speaker Change: Maybe starting here on born mess it up.
Speaker Change: Been a great season, so far it looks like you guys are just a single point out outside of the top five it looks like the E. P. L. A in a good position to get you know it looks like maybe five champions League placements. This year I know, there's a lot of season left you don't Wanna get ahead of yourself, but just assuming you guys stay where you are out or maybe bump up into the top five just maybe talk to the impact you would expect to see maybe starting off with the surprise them.
Speaker Change: Terry reward for the Champions League or Europa League placements and then also just higher level, what those European qualifications can mean for the club overtime.
Speaker Change: Yeah. Thanks for the question John.
Speaker Change: I think you know.
Speaker Change: As you as you stated born myth has obviously been performing exceptionally well.
Speaker Change: You know we are in the mix for all the European competitions.
Speaker Change: I think those will.
Speaker Change: They could have a significant financial impact.
Speaker Change: There's multiple different leagues and each could have a significant financial impact from a revenue perspective on the club both in terms of media additional media dollars that they would receive as well as.
Speaker Change: Matchday revenues from hosting the additional matches.
Speaker Change: So I think that's all good obviously, that's only for one year I think the bigger question.
Speaker Change: Just as we think about it.
Speaker Change: You know just what it means from an enterprise value in from the value of of board met them Black night football.
Speaker Change: We think we think showing you that the trajectory and the ability to play in European competition again, assuming that we can get there and theres a theres a lot of season to go we think it really lines.
Speaker Change: And shows credibility of the plan and our view of born with being kind of a mid to upper table.
Speaker Change: Assistant Premier League, which which we think has a lot more value.
Speaker Change: Than what we than what we've paid or have invested in the team. So we're really excited about what the team has done.
Speaker Change: But theres obviously.
A lot more work and a lot of season to go so.
Speaker Change: We don't we don't want to get ahead of ourselves on that but regardless.
Speaker Change: Really impressed with the entire team over there.
Speaker Change: Yes, that's great color I appreciate that and then two quick ones here on just capital allocation as a whole I mean, it looks like you've got about $30 million or so kind of earmarked for the dividend annually, maybe starting there out of the dividends you have from some of your holdings and then just operating cash how close are you to funding that through cash flow.
Speaker Change: So.
Speaker Change: Well look I think in the prepared remarks.
Speaker Change: As we think about investments and as we think about allocating capital and managing the investments that we have gen.
Speaker Change: Generating cash flow to the holding company.
It is really important.
Speaker Change: We think both to cover the dividend, but also just as a as a way for people to think about the cash flow that our investments produce.
Speaker Change: So you know.
Speaker Change: We are still a ways away from covering.
Speaker Change: I put the dividend in the operating cash or the operating expenses together right and so.
Speaker Change: We still have some more room that we need to work on there.
Speaker Change: But we are.
Speaker Change: It is a focus of ours.
Speaker Change: And I think.
Speaker Change: You know this wasn't exactly your question, but I think the other point just to flag it.
Speaker Change: We're definitely as we go through this year and as we look at the portfolio and potentially.
Speaker Change: Kind of rebalancing our portfolio away from some of our from some of our public companies and thinking about how we.
Speaker Change: Use that capital and return it to shareholders, primarily in the form of stock buybacks.
Speaker Change: Yes, that's great and then that's kind of what I was going to the second question. So I mean, you said I think you guys reported $108 million or so of cash and short term investment balance you've got $30 million in dividend. So you've got some dry powder on that front and I guess it just really depends on how active you get on the monetization efforts, but I'm, hoping you might be able expand a little bit on the appetite for buybacks I don't know if that's something you've.
Speaker Change: Considered is a certain level, you're looking to get to this year or is it all just kind of contingent on where the stock sits just.
Speaker Change: We're more thoughtful on that front.
Speaker Change: Yeah.
Speaker Change: It's definitely something that we have considered and are considering.
Speaker Change: I think part of it is going to be we do have we do have some holding company cash is we also have some debt right.
Speaker Change: We are definitely prioritizing we will prioritize.
Speaker Change: Using our capital for share buybacks, we continue to think that the stock is cheap.
Speaker Change: And I think the size of those depends on some of the potential monetization events at some of our biggest holdings.
Speaker Change: Obviously.
Speaker Change: On a couple of quarters now have talked about Dun <unk> bradstreet and it's.
Speaker Change: Ongoing strategic review, which they shed there should there should be an outcome within the first quarter.
Speaker Change: So can't really speak more to it than that but I think we are.
Speaker Change: We are very aware and we want to.
Speaker Change: Over time monetize some of our public company investments and use a significant portion of those proceeds to buy back stock now exactly what that means and how much. It you know it depends on Kenai stock price. It depends on other things that are going on but share buybacks are.
Speaker Change: That is definitely a priority for us as it was last year.
Speaker Change: Okay, great. Thanks for the time guys.
Speaker Change: Thank you.
Speaker Change: Next question comes from Ian Zaffino from Oppenheimer. Please go ahead.
Speaker Change: Okay. Thank you very much.
Speaker Change: As far as Black Knight football.
Speaker Change: Maybe you could help us think about capital funding for it and maybe what that could look like.
Speaker Change: Yeah.
Speaker Change: I think there are a couple of.
Speaker Change: Key levers and the capital funding.
Speaker Change: And they are.
Speaker Change: Some of them are somewhat dynamic.
Speaker Change: But probably the biggest that we have funded thus far is is the investment in AD seaborne met.
Speaker Change: Well the acquisition of investment.
Speaker Change: You know.
Speaker Change: As we've talked about it on this call historically.
Speaker Change: We believe and we saw this last year and the improvement.
Speaker Change: The financial performance of seaborne met.
Speaker Change: But ASC born this is dependent on our players.
Speaker Change: Players that we sell in addition to their ongoing commercial revenues.
Speaker Change: So.
Speaker Change: We continue to believe we have developed very high quality scalable assets.
Speaker Change: We don't necessarily want to sell them, but we think that we've created a lot of value. There. So that is a lever as we think about the capital needs of of.
Speaker Change: Seaborne met and the other one is kind of the infrastructure, which is stadium.
Speaker Change: And the training facility.
Speaker Change: Those are kind of the big needs and we have some some of the other teams, but those are much smaller in comparison.
Speaker Change: We do believe that we will.
Speaker Change: Look to put some more capital into AFC born myth going forward it will be less than what we have done historically.
Speaker Change: We want to make sure that from a.
Speaker Change: From a sporting perspective.
Speaker Change: We are continuing to perform and grow the enterprise value of the team.
Speaker Change: And so while I don't have a specific number for you.
Speaker Change: We are we are very conscious around trying to.
Speaker Change: Reduced.
Speaker Change: <unk> reduced the size of what that capital need is.
Speaker Change: And we will manage kind of the P&L appropriately to do that.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks, and then.
Speaker Change: Maybe a question on Hawaii.
Speaker Change: Maybe walk us through why you know bill shut down.
Speaker Change: And how are you thinking about you know your position in the company.
Speaker Change:
Speaker Change: Maybe the company itself buying it back or is there an opportunity to do something like that or you have to.
I live in the market.
Speaker Change: Or alternatively, maybe.
Speaker Change: Hum.
Speaker Change: Strategic salaries or something along those lines to.
Speaker Change: To monetize the stake.
Speaker Change: Yeah, So so bill step.
Speaker Change: Stepped down from the chairman role at Allied. However, he is he is still on the board of a light.
Speaker Change: And is very involved with the light.
Speaker Change: Some of the the new board members are people that bill and the team have known.
Speaker Change: And we believe will be very value additive to that.
The kind of the long term strategic positioning and growth of our light.
Speaker Change: In terms of how we think about the investment.
Speaker Change: And how we think about what are the options going forward.
Speaker Change: I think there was a press release that debt and bills press release and stepping off the board he noted.
Speaker Change: We continue to be supporters.
Speaker Change: Other light than we do.
Speaker Change: Don't, particularly like where the stock of a light is today.
Speaker Change: In terms of is there a strategic transaction or something else that they can do.
Speaker Change: That is probably a question that is better answered by them.
But we believe that with the changes in the management team with some of the additions and changes of the board.
Speaker Change: That strategically the business is very well positioned to.
Speaker Change: Basically.
Speaker Change: To succeed and what it has set up like we obviously sold the payroll.
Speaker Change: Processing business last year, which simplifies the business. So we think everything is set up for them to continue stand alone.
And be very successful.
Speaker Change: Alright, thanks for the color guys.
Speaker Change: Thank you very much.
Speaker Change: As a reminder, if you have a question please press star one.
Speaker Change: The next question comes from Kenneth Lee from RBC Capital markets. Please go ahead.
Kenneth Lee: Hey, Thanks for taking my question just one on the on the on the Janet partnership and I figured the prepared remarks, you mentioned that there are some discussions on some potential large deals there.
Speaker Change: I'm Wonder if you could just.
Speaker Change: Give a little bit more color in terms of how would you characterize the level of discussions and activity how how active is it.
Speaker Change: The environment here. Thanks.
Ken: Thanks, excuse me thanks, Ken.
I would say discussions with them are very active.
Ken: We speak to the principals.
Ken: At at Janna.
Ken: Irregularly.
Ken: We believe that there are.
Ken: There are some very specific a few very specific targets in situations that we have been discussing with them.
Ken: And again I don't want to get into the specifics of what they are but we think some of them could be.
Ken: Incredibly additive for can I and so we are in.
Ken: And very active and ongoing dialogue with them.
Ken: And again, we're optimistic that as we as we move forward, we will we will find a.
Ken: You know a material transaction for Tonight.
Ken: Gotcha.
Ken: And then.
Ken: One on the BK Black Knight F C. There.
Ken: And you mentioned to the previous question around potential for maybe some incremental capital investments there what would that be specifically in relation to for example, like player transfers for the upcoming summer window or or were there any other areas.
Ken: Are you looking for capital needs there. Thanks.
Ken: The only the only other area. So that those are you hit on the obviously operating cash flow.
Ken: There is if you recall, we do own.
Ken: 40% of Lori yet.
Ken: And lead to we have a put call arrangement with them going forward such that there is a possibility that this summer that we could buy an additional 40% of the business.
Ken: We've also.
Ken: Looked at a couple other or one other in particular smaller team in another league much smaller capital dollars.
Ken: But both are we believe strategic to Black Knight football, where we've been investing a lot of time in developing.
Ken: Hiring the right management team in developing the right infrastructure that connects the teams better together that we believe will drive better performance.
Ken: Across all the clubs and reduce the cost at AFC Barnett.
Ken: So those are those are the two other than I think the third one you Didnt say I know I alluded to it earlier, it's just around infrastructure stadium.
Ken: This is something that we've been we've been thinking about.
Ken: Whether we redevelop whether we do a new stadium. So we continue down that path as well.
Ken: And again some of those are more near term than others, but those are the other bucket excuse me. Besides the what I'll call the operating cash flow of the teams.
Ken: Gotcha and that last one the stadium plans, there, particularly poor for actually borne by you know what.
Ken: How early are you in the stages. There are in terms of the planning and the potential financing that that's going to be is it still relatively early in the stage that thanks.
Ken: Yeah.
Ken: It is I mean, I think the first the big question is do we do.
Ken: Do we redevelop the existing stadium or do we build a new stadium.
Ken: We're honing in on an answer to that question.
Ken: And then you know.
Once you determine that the planning and the actual construction, there's a long there's a long runway, but I would I would guess within kind of the next on our next call. We'll have a better view of whether we're building a new stadium or whether were redeveloped being the existing one.
Ken: And then I think the the RASK kind of fall off from there.
Ken: Got you very helpful. There. Thanks again.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Ryan Caswell for closing remarks.
Speaker Change: Thank you operator.
Ryan Caswell: In conclusion, we are excited with the opportunities ahead and confident in our strategy, which we believe will deliver value to our shareholders. We look forward to speaking with you again on our first quarter 2025 earnings call in May. Thank you again for your time today.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.