Cannae : Second Quarter 2022 Transcript

Second Quarter 2022 Earnings Call

Transcript

August 8, 2022

Cannae Holdings, Inc. - Second Quarter 2022 Financial Results Conference Call, August 8, 2022

Corporate Participants

Jamie Lillis, Investor Relations, Solebury Trout

Bill Foley, Chairman

Rick Massey, Chief Executive Officer

David Ducommun, President

Bryan Coy, Chief Financial Officer

Conference Call Participants

John Campbell, Stephens, Inc.

Ian Zaffino, Oppenheimer

Chris Sakai, Singular Research

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Cannae Ho ldings, Inc orporated Second Quarter 2022 Financial Results Conference Call.

As a reminder, this conference call is being recorded and a replay is available through 11:59 p.m. Eastern on August 15, 2022.

With that, I would like to turn the call over to Jamie Lillis of Solebury Trout. Please proceed.

Jamie Lillis

Thank you, Operator, and all of you for joining us this afternoon. On the call today, we have our Chairman, Bill Foley; our Chief Executive Officer, Rick Massey; Cannae's President, David D ucommun; and Bryan Coy, our Chief Financial Officer.

Before we begin, I would like to remind listeners that this conference c all 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

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Cannae Holdings, Inc. - Second Quarter 2022 Financial Results Conference Call, August 8, 2022

to Management. Because such statements are based on expectations as to the future financ ial 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 q uarterly 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 Cannae's Chairman, Bill Foley, who will o pen with a f ew bri ef remarks then we'll open the line for your questions. Bill?

Bill Foley

Yes. Thank you, Jamie. Through the second quarter, we focused on two main themes to prepare for inflation in the rising interest rate cycle. First, we used our excess liquidity to repurchase our shares which we believe are trading at a meaningful discount to fair value. Second, we continue to simplify our portfolio by monetizing investments that were either less immune to an inflationary cycle or that helped optimize our tax position. Overall, we are very pleased with our portfolio of companies and their ability to continue to generate growing profits in an inflationary environment.

During the quarter, we repurchased 4.8 million Cannae common shares. Year-to-date, we have repurchased 6.8 million shares, representing approximately 8% of our shares outstanding. In to tal, we have invested $306 million to repurchase approximately 13% of our shares outstanding since we received approval from our Board for our repurchase program in 2021, as we continue to believe that our s hares are not only undervalued but so too are the shares of our portfolio of companies.

At quarter end, we have completely extinguished the 2019 Board repurchase authorization and have only

2.7 million shares remaining on our 2021 authorization. As a result, our Board has approved a new three- year 10 million share repurchase authorization which further demonstrates our commitment to repurchase our shares when they are trading significantly below intrinsic value like they are today. In June, AmeriLife announced an investment that values Cannae's stake at a significant premium to our original investment . As a reminder, Cannae invested $121 million for a 20% stake in AmeriLife alongside Tho mas H. Lee Partners, or THL, in March of 2020. Over the past two years, we have worked in collaboration with THL and the AmeriLife management team to accelerate organic growth and expand through strategic M&A.

We are very pleased with the results. And as it led to a strategic investment from Genstar Capital wherein they will take an equal ownership position with THL Partners. This transaction values Cannae' s initial investment at $338 million or a 2.8x multiple of our original investment made about two years ago. While we enter our investments from a perspective as a long-term holder, Cannae will monetize a s ignificant portion of our position through two closings anticipated in the second half of this year.

Dun & Bradstreet remains our largest investment and one where we remain very involved given the upside potential that we see in the Company. We continue to work closely with Anthony J abbour, the CEO and the D&B leadership team as they execute their organic growth strategy while evaluating accretive tuck-in acquisition opportunities and broader strategic alternatives.

To that end, D&B's first half organic revenue growth on a constant currency basis was 4.1% which was in line with our guidance range of 3% to 5%. We believe that delivering and accelerating organic rev enue growth is key to driving an improved valuation. We are also pleased that they will begin paying a dividend

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Cannae Holdings, Inc. - Second Quarter 2022 Financial Results Conference Call, August 8, 2022

in September of $0.05 per share per quarter which will generate approximately $16 million p er y ear in cash flow to Cannae and hopefully improve D&B's trading performance as all of its peers p ay a s imilar dividend and D&B continues to trade well below peer average.

Subsequent to the quarter end, we did sell approximately 9.2 million s hares of D un & Bradstreet to minimize our tax obligations in the second half of this year. We continue to see significant upside in D&B shares.

Alight is another important public holding for Cannae and one that continues to perform well, rep orting second quarter revenue growth of 6.4% with 90% of their anticipated 2022 revenues now under contract . Importantly, Alight continues to transition to a Business Pro cess as a Serv ic e or BPaaS model and recognized 36% year-over-year growth in their BPaaS revenues. Alight's management team continues to execute very well as they add products to their platform and clients to their roster as they transition to a BPaaS model which we believe is not yet reflected in their valuation. In fact, giv en the d iscount to fair value, the Board of Directors authorized a $100 million share repurchase program. Management provided guidance for the second half of 2022 and reiterated full year guidance, which represents an inc rease in year-over-year revenue of 6% to 7% and an increase in Adjusted EBITDA between 4.7% and 6.6%.

In the second quarter, as noted earlier, we aggressively repurchased our shares and further simplified our portfolio. We will continue to work with our management teams to ensure that we help them successfully unlock the value that exists within their businesses. We will also look for new p riv ate inv estments lik e AmeriLife and Sightline where we can take control positions and apply our playbook to unlock substantial value for our shareholders. We are currently interested in several attractive investment opportunities.

Lastly, we will be hosting our second annual Cannae Holdings Portfolio Conference on December 14 and 15 at the Wynn Las Vegas. Last year's inaugural conference was a constructive two-day event filled with in-depth presentations and quality discussions with full executive management teams of our p ortfolio of companies. And this year will be a continuation of that same format. We believe that this was a g reat event and look forward to another successful conference in December. We hope all of you can join us in Las Vegas in December.

I'll now turn the call back to the Operator to begin our question-and-answer session.

Operator

Our first question comes from John Campbell with Stephens. Please proceed.

John Campbell

Hey guys, good afternoon. Congrats on the positive development of AmeriLife, that was nice. It s o unds like almost a 3x return. You mentioned plans for kind of monetizing that in the back half of this year. Any sense for what that timing looks like?

Bill Foley

Yes, John. It's going to be a two-stage process. It looks like the first half of the trans action would b e a cash payment that will occur late August or early September, and the second half probably about 30 to 45 days later. In our case, we're going to roll about 20% of our overall investment b ack i nto a c ontinuing position in AmeriLife. We feel like we're going to, again, get another double or triple out of this investment over the next couple or three years, but we are going to take a fair amount of cash off the table.

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Cannae Holdings, Inc. - Second Quarter 2022 Financial Results Conference Call, August 8, 2022

John Campbell

Okay, that's helpful. And then as a reminder, I guess on AmeriLife, that's on the 10% performance fee, is that right?

Rick Massey

It's all under Trasimene, John. This is our Trasimene portfolio.

John Campbell

Got it. And then back to the Textor and, I guess, the Eagle Football deal. I d idn't see any spec ifics mentioned. I'm guessing you guys are probably still ironing out some details. It looke d like there was a development maybe a couple of weeks ago that maybe the deal was going through o r it was k ind of, I guess, in formation. But any sense for what your ultimate commitment is going to be? And then may be how you're looking from a funding standpoint? And then I know it's probably s till too early there , but thoughts on whether you're going to roll that debt and equity over time.

Bill Foley

Yes, John, we anticipate it's going to be about a $100 million commitment. If things come together. There's still a lot of loose ends with this transaction that we're trying to pull together. We hav e to ensure that the various football assets that John Textor is involved with, can get a PCAOB audit and that we c an get that audit on a timely basis and that they can further fill the balance of the commitment that they need to acquire OL and then contribute other assets into Eagle Football. It really remains a mo ving target at this time. We like the idea. We like the concept. And if it proceeds, it will be a roughly $100 million commitment.

John Campbell

Okay, very helpful. And again, I guess, probably too early but any sense for I don' t k now if there's any kind of framework on the returns. I've seen some figures out there, some targets they've put o ut as far as the revenue growth over time from Lyon in particular. But any sense for what the kind of helping frame up the return potential?

Bill Foley

We need to speculate on that, John, right now, really. There's so many moving elements with this transaction that it's pretty speculative to really trying to estimate returns at this point.

Operator

Our next question comes from Ian Zaffino with Oppenheimer. Please proceed.

Ian Zaffino

Hey guys. Thank you very much for all the details. Just wanted to ask you on the Dun & Bradstreet. I s ee you've sold some of the shares there. What's sort of the motivation of that s ale? May be k ind of your thoughts on the business or confidence in the business and the thesis playing o ut may be the way y ou initially thought. Thanks.

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ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.

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