Cannae Holdings, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Plan: Ryan outlined a strategic plan to increase net asset value (NAV) and close share price discount to NAV, with levers including improving portfolio company performance/valuation, making new private investments, and returning capital to shareholders.
• Portfolio Rebalancing: Acquired a 53% stake in Watkins in October, a company in the spices, seasoning, and extracts category. Sold final shares held in Dayforce, realizing significant proceeds from the investment.
• Portfolio Companies Update:
  • D&B: Continued strong financial performance with revenue and adjusted EBITDA growth. Board evaluating strategic alternatives.
  • Alight: Continuing business revenue down slightly, but adjusted EBITDA up; net leverage improved. Began paying a $0.04 per share quarterly dividend.
  • CSI: Performed well with record core banking deals and acquisitions, including Hawthorn River and Velocity Solutions.
• Capital Return: Returned $243 million to shareholders through share buybacks and dividends in the third quarter, with a $0.12 per share dividend in December.
• Financial Position: Bryan discussed Cannae's financials, including revenues, expenses, gains/losses, and solid balance sheet and liquidity post-Watkins transaction.

Segment Performance

• D&B: Posted revenue of $609 million, with constant currency organic growth of 3.4% over prior year's third quarter and 3.9% constant currency growth year-to-date. Adjusted EBITDA was $247 million for the third quarter, representing growth of 5.1% over prior year's third quarter, and adjusted EBITDA margin expanded 60 basis points to 40.6%.
• Alight: Continuing business total revenue was $555 million for the third quarter 2024, down 0.4% from 2023. Adjusted EBITDA was $118 million for the third quarter, a 3.5% increase from 2023. Adjusted operating cash flow for the nine months was $199 million, or 53% of adjusted EBITDA. Net leverage was 2.9 times.
• Computer Services (CSI): Recorded a record number of core banking deals in 2024, with record growth in the first half of fiscal year 2025. Acquired loan origination software provider Hawthorn River and Velocity Solutions.
• Restaurant Group: Third quarter 2024 total revenues were $114 million compared to $144 million in the prior year. Operating expenses were $132 million, down 33% from the prior year quarter. Recorded $23 million in gains for the third quarter 2024 compared to $130 million of losses in the prior year.
• Watkins: Last 12 months generated about $75 million of net sales. Cannae invested $80 million to acquire approximately 53% of Watkins, including $20 million structured as a convertible preferred investment with an 8% annual dividend. Debt of $56 million was also part of the deal.

Guidance

• Balance Sheet: Cannae's balance sheet and liquidity position remained solid following the Watkins transaction and investments in Black Knight football. Aggregate net asset value was $2.1 billion, with a 37% discount to the closing share price.
• Investments: Continues to look for new investments to grow NAV. Focus on rebalancing portfolio from public to private investments.
• Dividends: Continues to return capital to shareholders via dividends, with the $0.12 per share dividend in December, expecting to be funded by future cash flow from portfolio companies.

Risks

• Sightline: Faced challenging liquidity situation post quarter end, leading to write-off of remaining book value in the fourth quarter.
• Forward-Looking Statements: Risks and uncertainties detailed in quarterly shareholder letter and SEC filings, including factors that could cause actual results to differ from projections.

Question and Answer

• Q: What's the outlook for additional capital or investments for BKFC? A: Ryan Caswell noted that transfer windows are key for player acquisitions/sales, with no immediate capital needed ahead of January window. CapEx for Bournemouth's training facility near completion. Stadium plans are further out, possibly financed or via third-party capital.
• Q: Outlook for potential private investments with JANA Partnership? A: Ryan Caswell said constructive discussions with JANA, but no immediate transactions expected. Optimistic about uncovering attractive opportunities through partnership.
• Q: Equity capital for new private investments? A: Ryan Caswell stated capital would likely come from selling public securities, with no plans for equity offerings at current prices, aiming to redeploy capital from public investments into new private ones.
• Q: Sense of urgency on shifting away from public portfolio? A: Ryan Caswell said urgency is about near-term investment opportunities and creating liquidity via selling public positions, but strategic sales depend on board/managements of portfolio entities.
• Q: Black Knight football value recognition and tracking stock? A: Ryan Caswell agreed on the need to demonstrate value, considering tracking stocks or other methods to get public market recognition of BKFC value.
• Q: Sustainability of $0.12 quarterly dividend? A: Ryan Caswell said currently dipping into capital pool, but expects cash flow from Watkins and other businesses to cover dividend in future.
• Q: Portfolio construction philosophy? A: Ryan Caswell mentioned investment size in 100 million plus range, less securities than before, leveraging selling public positions to reinvest in new private investments.
• Q: Synergies in Black Knight football? **A: Ryan Caswell talked about hiring Tim Bezbatchenko to build synergies across teams, focusing on player acquisition, recruiting, commercial, and sporting performance processes to create competitive advantage.