Cannae Holdings, Inc. (NYSE:CNNE) Q4 2023 Earnings Call Transcript
Cannae Holdings, Inc. (NYSE:CNNE) Q4 2023 Earnings Call Transcript February 21, 2024
Cannae Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.83 EPS, expectations were $-0.66. CNNE isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings Incorporated Fourth Quarter and Full Year 2023 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the company's prepared remarks, the conference will be open 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 PM Eastern Time on February 28th, 2024. With that, I would like to turn the call over to Jamie Lillis of Solebury Strategic Communications. Please go ahead.
Jamie Lillis: Thank you, operator, and all of you for joining us. On the call today, we have our Chairman and Chief Executive Officer, Bill Foley; Cannae's President, Ryan Caswell; and Bryan Coy, our Chief Financial Officer. Before we begin, I would like to remind listeners that this conference call and the Q&A following our remarks may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about Cannae's expectations, hopes, intentions, or strategies regarding the future are forward-looking statements. Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management.
Because such statements are based on expectations as to future financial and operating results 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 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 our Chairman and CEO, Bill Foley who will open with a few brief remarks followed by Ryan Caswell. We will then open the line for your questions.
William Foley: Thanks, Jamie. As we previously announced, I have assumed the role of CEO, and Rick Massey has taken on the role of Vice Chairman of our Board of Directors. I'd like to thank Rick for his many contributions to Cannae over the last four years and look forward to continuing to work with him. As CEO, I will focus on returns to shareholders, both immediate and longer term. I am very aware of the deep discounts that Cannae's shares trade to net asset value and appreciate the input from our shareholders on the importance of share buybacks. In my letter released this afternoon, I noted the company's intention to commence a modified Dutch auction tender to repurchase $200 million worth of Cannae's common stock at a price per share between $20.75 and $23.75.
The transaction will commence in early March and will be funded by cash on hand. Further details, including the terms and conditions of the tender offer, will be filed with the SEC over the coming weeks. The Dutch tender is in addition to our previously approved share repurchase programs, under which we have repurchased approximately 24% of our shares outstanding, compared to March 31st, 2021, having returned more than $510 million in capital. Additionally, Cannae still has 12.6 million shares remaining on our previous share buyback authorizations, which is in addition to the tender offer that we've announced today, and when taken together, speaks to our commitment and one way we're looking to close Cannae's share price discount to net asset value.
As a top five holder of Cannae, I am very aligned with our shareholders in creating value and seeing our share price not only appreciate towards the fair value of our portfolio, but also growing that value. Looking back over our history, private company investments have been an important part of Cannae's success. Ceridian is the best example, where we've now received over $2.1 billion in gross proceeds from the sales of stock in this company. I'll now turn the call over to Ryan Caswell, our President.
Ryan Caswell: Thank you, Bill. Continuing to find attractive investments is critical to our long-term success, and I'm excited with our announcement today of our strategic investment in partnership with Jana Partners, where we acquired a minority stake for approximately 1.58 million Cannae common shares and $18 million in cash. I'm thrilled to partner with Barry Rosenstein, Scott Ostfeld, and the Jana team who have built an incredible track record as a public company investor. We believe a partnership with Jana creates significant upside for Cannae as a result of one, sourcing of new control opportunities for Cannae. Jana's business is based on finding undervalued public companies with specific catalysts to unlock value. Cannae and Jana can collectively work together to find situations where Cannae can be part of the catalyst to unlock value with the target company i.e. Cannae acquired to carve out the company or provides other capital solutions.
This relationship will be beneficial to both Cannae through the sourcing of these opportunities as well as Jana by giving them a different tool to execute their strategy, that is, leveraging Cannae as a catalyst to a target company, and thus driving returns for both entities. The second reason why we're excited about this investment is, we believe there will be an increase in the value of the Jana platform. Jana's standalone business is well positioned for success given its industry-leading returns and long track record of success. We believe their standalone business, coupled with the opportunities from our partnership, will enable Jana to enhance their already strong performance and help grow their business to its optimal scale, thus increasing the overall value of Jana's business.
Three, closing of Cannae stock price to NAV gap. Over time, we believe by leveraging the Jana relationship, Cannae's ability to source proprietary acquisition opportunities and make new investments, and with the improving performance of Cannae's underlying portfolio, the stock price to NAV gap will close, resulting in significant returns to our shareholders. Cross-equity ownership of the transaction aligns both parties in the other's success. I would note that Cannae will not pay fees on its investment in Jana funds or future opportunities, and additionally, the Jana investment will not be subject to any of the Trasimene management or incentive fees. I would also like to talk about the CSI investment. Through our relationship with Frank Martire and Bridgeport Partners, we participated in CSI's LBO in 2022.
CSI has outperformed all expectations and brought in a new large investor in December, valuing the company at approximately $2 billion, a 31% increase from the take private valuation. As part of this investment, Cannae received a $37 million cash distribution or 43% of the initial capital that we invested. While the implied value of our ongoing position represents 104% of our original investments. I would next like to turn to Black Knight Football. At AFC Bournemouth, our management team has done a terrific job transforming Bournemouth both on and off the field. Currently, the team is ranked in 13th place, which is up from last year's 15th place, and we believe we can move higher than that. Additionally, the business side of Bournemouth has performed very strong, with hospitality up approximately 50% year-over-year, ticketing up 13% year-over-year, and sponsorship up 40% year-over-year.
In January, Black Knight Football announced that it purchased a minority interest in Hibernian Football Club of the Scottish Premier League. We are excited to partner with the Gordon family and believe that Hibernian will be a strong contributor to our multi-club ownership strategy. We believe finding private investments like these where we can acquire operating companies, partner with management teams, and actively engage to help grow their businesses, will drive value for our shareholders. Moving on to our listed companies, DNB's constant currency growth of 5.1% from the quarter is an acceleration from the 4.8% in the third quarter and 3.2% in the second and first quarters. While Alight's top line revenue growth was 1.9%, the company posted 12% growth in adjusted EBITDA and hit $2.2 billion in BPaaS total contract value bookings since 2021, $700 million over the three-year target of $1.5 billion that they had set.
Alight also has more than $6.5 billion of future revenue under contract. The team is also working with Stephan on Alight's strategic portfolio review, which they announced this morning. We believe that we can expand Alight's profitability and recurring revenue model while building a more valuable business. Finally, starting in the third quarter of this year, Trasimene's fees will be reduced by approximately 16% going forward as a result of Rick Massey moving into the Vice Chairman role. To conclude, we are very optimistic with what the future holds for Cannae and our shareholders as we find new high return investments, continue with our share buybacks, and gradually rebalance our portfolio. Taken together, I believe this will have the dual effect of driving our net asset value higher while closing our share price to NAV discount.
I'll now turn the call over to Brian Coy to touch on our financial position.
Bryan Coy: Thanks, Ryan. At the close today, Cannae's aggregate net asset value was $2.43 billion or $33.61 per Cannae share, compared with the third quarter's $2.38 billion or $33.67 per share. Cannae's liquidity position is strong with $149 million of corporate cash and short-term investments net of the cash invested in the Jana transaction. The company also has $150 million of undrawn capacity under its existing margin loan. The only outstanding debt presently is approximately $60 million under a revolver that matures near the end of 2025. Under an amendment to that revolver, we paid down $25 million of the balance and fixed the interest rate at 7%, saving Cannae approximately $4 million annually in interest payments. I'll now turn the call back to the operator to begin the Q&A session.
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