Q4 2023 Cannae Holdings Inc Earnings Call

Participants

Jamie Lillis; Investor Relations; Solebury Strategic Communications

William Foley; Founder; Cannae Holdings Inc

Ryan Caswell; President; Cannae Holdings Inc

Bryan Coy; Chief Financial Officer, Executive Vice President; Cannae Holdings Inc

Kenneth Lee; Analyst; RBC Capital Markets

John Campbell; Analyst; Stephens Inc

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Incorporated fourth-quarter and full-year 2023 financial results conference call.
(Operator Instructions) As a reminder, this conference call is being recorded and a replay is available through 11:59 PM Eastern time on February 28, 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 with the GAAP financial information is provided in our shareholder letter.
I would now like to turn the call over to Cannae's 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've 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 Kenai over the last four years and look forward to continuing to work with them as usual, I will focus on returns to shareholders both immediate and longer term. I am very aware of the deep discounts that denies shares trade to net asset value and appreciate the input from our shareholders on the importance of share buybacks. In my letter release this afternoon, I noted the company's intention to commence a modified Dutch auction tender to repurchase $200 million worth of tonight'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 tenders in addition to our previously approved share repurchase programs, which under which we have repurchased approximately 24% of our shares outstanding compared to March 31st, 2021 have returned more than $510 million in capital. Additionally, Ken, I 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 when we are looking to close some nice share price discount to net asset value as a top five holder of can I am very aligned with our shareholders, increasing value and seen 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 Canada'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, much roses.

Ryan Caswell

Thank you, though. Continuing to find attractive investments is critical to our long-term success, and I'm excited with our announcement today of our strategic investment and partnership with channel partners where we acquired a minority stake for approximately 1.58 million common shares and 18 million in cash and thrilled to partner with Barry Rosen, seeing Scott ourselves and the G&A team who have built an incredible track record as a public company investors, we believe a partnership with Deanna create significant upside as 4Q09 as a result of launch sourcing of new control opportunities for can I generate business is based on finding undervalued public companies with specific catalysts to unlock value. Can I and Janet can collectively work together to find situations where can I can be part of the catalyst to unlock value with the target company.
Heidi, can I acquire the carve out the company or provide other capital solutions? This relationship will be beneficial to both. Can I through the sourcing of these opportunities as well as Janna by giving them a different tool to execute their strategy that is leveraging.
Cannae as a catalyst to talk to a target company and thus driving returns for both entities and number two.
The second reason why we're excited about this investment is because we believe there will be an increase in the value of the GSO platform, GenOn stand-alone business is well positioned for success. Given it given its industry-leading returns and long track record of success, we believe their stand-alone business, coupled with the opportunities from our partnership will enable GM to enhance their already strong performance and help their growth, grow their business with optimal scale, thus increasing the overall value of Genomma's business.
Three closing of can I stock price to NAV gap over time, we believe by leveraging the channel relationships, United's ability to source proprietary acquisition opportunities and make new investments and with the improving performance of CNA's underlying portfolio, the stock price to NAV gap will close, resulting in significant returns to our shareholders. Cross-sector equity ownership of the transaction aligns both parties in the other success. I would note that can I will not pay fees on its investment agenda funds or future opportunities. And additionally, on the agenda, investment will not be subject to any of the trends, I mean management or incentive fees. And I would also like to talk about the CSI investment through our relationship with Frank Materion, Bridgeport partners. We participate in CSI's LBO in 2022, CSI had outperformed our 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, can I receive the $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.
And I would now like to turn to Black Knight football at ASC. Bournemouth, our management team has done a terrific job transforming Bournemouth on book, both on and off the field. Currently, the team is ranked 13th place time, which is up from last year's 15 place and we believe we can move higher than that.
Additionally, the business side performance had 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 Night Football announced the purchase of minority interest in of Hibernian football club of the Scottish Premier League we are excited to partner with the Gordon family and believe it Hi, Bernie, and will be a strong contributor to our multi-cloud ownership strategy. We believe finding private investments like these where we can acquire operating companies, partner with management teams and actively and actively engaged 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% for the quarter is an acceleration from the 4.8% in the third quarter and 3.2% in the second and first quarters, while while the life top line revenue growth was 1.9%, the company posted 12% growth in adjusted EBITDA and hit 2.2 billion in the past total contract value bookings since 2000 since 2021, $700 million over the three year target of 1.5 billion that they had set Allied also has more than 6.5 billion of future revenue under contract. The team is also working with Stefan on a live strategic portfolio review, which they announced this morning. We believe that we can expand the life profitability and recurring revenue model while building a more valuable businesses business.
Finally, starting in the third quarter of this year, travel means 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 Kenai and our shareholders that we as we find new high-return investments, continue with our share buybacks and gradually, we rebalanced our portfolio taken together. I believe this will have the dual effect of driving our data net asset value higher while while closing our share price to NAV discount.
I'll now turn the call the call over to Brian Coy to touch on our financial position.

Bryan Coy

Thanks, Ryan. At the close today, organized aggregate net asset value was $2.43 billion or 33 61 per common share compared to the third quarter's 2.38 or 33 67 per share. & I's liquidity position is strong with 149 million of corporate cash and short term short-term investments, net of the cash invested. And as Janet transaction, the Company also has 150 million of undrawn capacity under its existing margin loan. The only outstanding debt presently has approximately 60 million under our 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 can I approximately 4 million annually in interest payments.
I'll now turn the call back to the operator to begin the Q&A session.

Question and Answer Session

Operator

(Operator Instructions) Kenneth Lee, RBC Capital Markets.

Kenneth Lee

Good evening and thanks for taking the question on first one on the tender offer.
Wonder if you could talk a little bit more about the motivation for pursuing a tender offer versus perhaps some of the other options you could have pursued back when we went to the tender offer a plan to accelerate our share repurchase program to retire shares retire shares.

William Foley

We found that as we were repurchasing shares first, we were blocked up at various points in time due to earnings or earnings releases or activities that we're involved in, for example, the GenOn transaction. And also we're limited by the number of shares we can buy per day. And while we can do large large bulk or large share block transactions, they were really becoming few and far between for us to execute against. So we feel like at this point with our share price traded this NAV discount that we should just accelerate our buyback program, which in effect that's what the tender offer is doing and retired retire more shares more quickly.

Kenneth Lee

Got you. And then in terms of funding the tender offer, you mentioned using cash on hand, I presume that there could be some drawdown potentially in the loan facilities, but just wanted a little bit more color around that.

William Foley

It could be a combination of drawdown under our margin loan facility or it could be a sale of the continued sale of some of our liquid securities liquid public securities. We had about $150 million cash on hand right now. So the 200 million figure really is only 50 million short of what we actually have an on hand in the bank at this point. So we're really not concerned about raising the additional 50 million. And if we actually have a greenshoe, which was 15% of the 200 million, that would be an additional $30 million. But we're very confident that we can raise those funds really expeditiously and easily.

Kenneth Lee

That's very helpful. And if I could ask another follow-up here on, can you just talk a little bit more about the in terms of the general partnership. I wonder if you could a little bit more detail in terms of the voting arrangements and kind of detail around that in terms of supporting the management and the Board there. Thanks.

Ryan Caswell

Yes. So as we noted in our press release, we agreed to a voting agreement with Jenna, and we view this as a partnership. We're excited to work together on their they are taking stock and can I and we are taking stock in Ghana and we believe kind of could be cross-ownership will incentivize both of us to work together, and we believe it will be a benefit to both businesses through theirs in terms of driving returns and increasing AUM and to ours. In terms of sourcing on proprietary and acquisitions of operating businesses.

Kenneth Lee

Got you. And just one one final follow-up for me, if I may. You talked a little bit about how some of the partnering on potential opportunities with Janet could look like. But wondering if you could just further flesh that out in terms of potential structures of making acquisitions with Jan. And I think you mentioned a bit about some carve-outs. Just wondering if you could just perhaps talk on a hypothetical or some other further flesh out of some of the opportunities, how could they look like?

William Foley

Yes, I think you really have to take a look at just deck investment deck. I'd be very revealing to you and Ryan can provide that to you if you'd like. We'd like to see it as the document they use when they're raising raising funds from third party third party sources. There is no specific transaction currently on the table. A number of things that Jan is looking at and that they've shared with us appeared to be very interesting, but there's no one transaction that's pending at this time. We anticipate several transactions occurring each year and there will be partners with them all.

Kenneth Lee

Got you. And actually just one more if I could squeeze in on. Would it also be possible for agenda perhaps to invest in any of the portfolio companies within the community portfolio. Is that and also possibility?

William Foley

Everything really is on the table with GenOn, and I'm sure they can help us with some of our portfolio companies in terms of looking at alternative strategies relative to sale of all or a portion of the assets going private transactions, all kinds of different situations of the agenda group is a very skilled group of investment professionals. And really, we look forward to I look forward to the partnership of great allow.

Kenneth Lee

I'll step back into the queue Thank you very much.

Operator

(Operator Instructions) John Campbell, Stephens.

John Campbell

Hey, guys, thanks for taking my questions. I was hoping you could address the public versus private investment philosophy. Where do you guys see the team spending the majority of their time and efforts moving forward out of the private investments you have today, ignoring the size, what do you see as having the most promising return potential over the next handful of years?

William Foley

Look, I think in terms of in terms of public versus private on, we are going to be more much more focused on private investments going forward?
I think it's a and I think it works better. If you think of what can I is in the capital that had and how we can most efficient if effectively leverage our permanent capital, we believe looking at private businesses, it will be better than than the public. And we like the public businesses that we have. But I think you'll see us sell down on those names over time.
And look to reinvest in private businesses.

John Campbell

And then in terms of the portfolio of private businesses that we have today, I don't have a perfect answer, but I'll say just because we were talking about it before. I think you heard a little bit about some of the results that you've seen at Bournemouth and Black Knight football in terms of the success that we've had in both the business side and the football side. We believe that, you know, we believe that going forward, we'll be able we'll be able to continue those successes and furthermore, we think the multi-cloud network that we are building on what will and we as we build that out, Tom, there's more value to extract from that. So we're very excited about the vast and we're very excited about the team has done to date, and we think there's big there's big upside going forward.

William Foley

And also, if you look back as our public company investments that really result of something that was private, the converted into public assets. So Dun & Bradstreet, we engaged in a going-private transaction, then took it then took it public and we still have our position in that in that company. A light was the result of a private company that was converted into a public company via a spec that we had that we had sponsored and Ceridian Dayforce, of course, it's a long-term investment that was private for years and years and years as it went public, we didn't begin disposing of disposing of our interest in the Dayforce number down to a fairly small, fairly small number number of shares of Paysafe, again was a stock transaction that we participated in and we're a sponsor of the same with system one. So really, our public company assets that we've acquired have generally started out as private asset private company assets that converted into a public co into a public company.

John Campbell

Okay, thank you. And then on Ryan's last point there, touching on the multi-cloud strategy with the new minority stake in Hibernia and can you maybe highlight the multi-cloud strategy, what it is and why it makes sense why it can be successful.

William Foley

Well, the Premier League is a difficulty that completed is the best the best football league in the world was sovereign wealth funds is owners, private equity firms as owners. And obviously, we own we own the interest in Bournemouth, but we found as we got involved in the investment that having interest in other clubs in top leagues is very advantageous in terms of the transfer window and acquiring players and also loaning players to those clubs and the Scottish Premier League as it is, it is a terrific of football league. It's obviously there's no integration issue with regard to Scotland and the UK, they developed a lot of good players that can also work the way down to Bournemouth. And the other thing that we can do with Hibernian is actually give them players on loan it to develop in the Scottish Premier League, so they can eventually rotate back to the English Premier League. And the same is true with SC Lorillard, which is again in the league one in France and <unk>. Recently, we had loan to player to launch and we just took that player back in January. And last year, we acquired a player for war on Dangote Atara and EC.'s now plane at Bournemouth. And the result is that if you own a piece of it, the other team say 40% that we own of the League One team when we buy a player, we really are only paying 60%, the other owners. So it's a strategically and financially is a very advantageous situation to be in. And we find, frankly, like to invest in a couple of more clubs and other leagues that could be supportive of our of our goal to make to continue to develop borderless and move it up in the table in the Premier League. And right now you'd have to say that format sits at the top of the pyramid and the other teams are supporting important list, but we're also supporting them in terms of delivering players and helping them develop their teams and coordinating on on the manner in which we play coordinating in the transfer window.
So it's really a it's not an original model and it's a Manchester, Manchester City really has developed over the last 15 or 20 years, and they now have 13 or 14 clubs that they're invested in. So we won't we will never have that many clubs, but a few more would be would be interesting.
Right.

John Campbell

Thanks for the color, guys.

William Foley

You bet.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Bill Foley for any closing remarks.

William Foley

Yes. Thank you, operator. We're very excited with the opportunities ahead and confident in our strategy as we transform our portfolio, which we believe will deliver value to our shareholders. We look forward to speaking with you again on our first quarter 2024 earnings calls. Have a great day.

Operator

The conference has now concluded, and thank you for attending today's presentation. You may now disconnect.