Cannae Holdings Inc (CNNE) 2021 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Inc. Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded, and a replay is available through 11:59 p.m. Eastern Time on August 12, 2021.

Before we begin, I would like to remind you that this conference call 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 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 the statement regarding forward-looking information, risk factors and other sections of Cannae's Form 10-K and other filings with the SEC. I would now like to turn the call over to Cannae's CEO, Rick Massey. Rick, you may begin. Hello, Rick?

Mr. Foley, I think, has joined us or is about to join us.

Yes, I just joined.

Okay. Good.

Go ahead, Bill.

Okay. That's great. Thank you. Thanks for the introduction. And thank you for joining the call today. With me here this afternoon is our Chief Executive Officer, Rick Massey; our President, David Ducommon; our Chief Financial Officer, Bryan Coy. And as a reminder, we released our second quarter 2021 shareholder letter, which includes our financial results after the market closed this afternoon, and which can be found on our website. Overall, I'm very pleased with the progress Cannae made in the second quarter, executing on its pipeline of back-end SPAC transactions, and I'm excited to continue the hard work of igniting growth in our portfolio companies. As Chairman of the Board, I actively support all of our investments and will continue to guide our portfolio of companies as they execute on their respective business plans. That said, the SPAC market experienced dislocation through the quarter, largely driven by nonfundamental factors, which led to indiscriminate selling regardless of the company's quality and growth prospects.

Our portfolio was not immune as Paysafe and the light both came under pressure and now traded levels, which I believe are detached from the long-term potential that I see in both businesses. Likewise, Cannae's shares have also traded to a significant discount to intrinsic value through the quarter, which is frustrating, and I know frustrating to you. Given my confidence in our management teams and their businesses, I took advantage of the market dislocation, and our company repurchased almost $100 million of Cannae shares or approximately 3% of our shares outstanding through July 13, 2021. I believe the market will recognize the unique value of our growing profitable enterprises and that financial and cash flow fundamentals will win over in the long term. This dislocation also afforded me the opportunity to invest an additional $42 million in Alight to meet redemption requests from overcommitted hedge funds and needed liquidity.

Today, Alight is likely the most compelling risk-weighted value in our portfolio, and I was thrilled with the opportunity to increase our investment. As Chairman of the Board, I am working closely with the Alight's CEO, Stephan Scholl, to transform the company into a business process as a service enterprise, which to investors means more products, higher margin and more sticky recurring revenues. Alight is mission-critical to its customers, and we believe once the investor community comes to see what I see in this business, significant multiple expansion will be in order.

I'm also Chairman of Paysafe's Board and continue to be impressed and excited with Phil McHugh's plans to drive growth and build scale as they strive become the leading specialized payments platform globally. Today, Paysafe is in hundreds of markets focused on iGaming, financial services, travel, entertainment and digital goods, which are all experiencing strong tailwinds as the global economy continues to recover. The company is also well positioned as consumers continue to utilize new forms of digital payment methods, which is a growing and sustainable trend. The opportunity is for Paysafe to execute under transformation plan designed to accelerate growth and improve profitability, combined with opportunistic M&A.

And we are working closely with the company and with Philip McHugh on this, and I'm pleased with the early success that we've achieved and more to follow in the near future on various acquisitions. The iGaming sector is one area that I'm particularly excited about with the given growing legalization of sports betting in the U.S., which is set to accelerate. That said, Paysafe has been one of the company's most impacted by the recent broad-based index selling in the SPAC market and has been unduly punished as the inevitable shareholder rotation plays out. As the investor rotation subsides, and they continue to deliver strong results, I expect Paysafe stock to rebound. Turning to Dun & Bradstreet, which remains our largest investment. I continue to be committed to working with the D&B management team to transform the business and accelerate growth both organically and through disciplined acquisitions.

Importantly, D&B's second quarter results were in line with expectations and remain on track for the year as momentum is building across both segments. D&B is executing well on its international growth strategy, including the integration of Bisnode into North America. They're experiencing continued strong retention and net new logos, coupled with new product initiatives, which taken together will drive additional revenue growth. To supplement the building organic momentum, we will also be on the lookout for strong targets that can complement the existing D&B assets and drive further revenue acceleration. Anthony Jabbour has also brought in new senior leaders this past quarter, and I'm confident the business plans they have laid out will drive growth.

The team and I are focused on executing and both know the mission and what is at stake for D&B's stock price and valuation. During the second quarter, we monetized $400 million of investments where we achieved significant gains. I would like to stress that risk management and portfolio balance are key aspects of our decision-making at Cannae. I have also heard from many shareholders that our overweight position in D&B was a concern. And we agreed, we felt it prudent to reduce our D&B position as we strove to monetize that investment. We believe the strong continued -- the continued strong investment returns, potential future acquisitions and investments will continue to drive our growth in Cannae. Thank you now, and I'll turn the call over to Rick Massey and to Bryan Coy.

Thanks, Bill. I have nothing to add. Thank you for all that and for your active involvement in all of our portfolio companies are very valuable ones. And Bryan, this is your show.

Great. Thank you. Again, we had a very -- as Bill mentioned, we had a very active quarter. During this period of time, we had closed one deSPAC. We had 2 additional deals. We had 2 monetizations and exited 2 of our smaller investments. And we have 2 more transactions in process on a smaller scale. So we accomplished quite a bit this quarter, and we're very proud of that. I'd like to talk to a couple of those. First of all, is the Austerlitz merger announcement with Wynn Interactive. We announced that on May 10. On our last call, the transaction itself has a pro forma enterprise value of $3.2 billion. And Cannae has subscribed for -- to backstop the entire deal at $690 million. And we got a placement fee for that about $3.5 million.

During the quarter, as Bill noted, we also had a couple of liquidations as part of our investment. In May, we sold 2 million shares of Ceridian at a price of $87.50, which gave us gross proceeds of $175 million. That's a return of more than 15x our pre-IPO investment. Also later in the quarter, as Bill noticed, we liquidated 8.5 million shares of Dun & Bradstreet stock at a price of $21.88. That's almost 3x our pre-IPO return. Lastly, I'd like to note that we executed a -- we heard from you on our share repurchase, and we executed strategic purchases throughout the quarter for 2.73 million shares at an average price of $35.33. That's a nearly 3% of the outstanding shares prior to this.

Operator, would you like to start the question-and-answer period now?

(Operator Instructions) And our first question comes from John Campbell from Stephens.

This is James Hawley stepping in for John Campbell. Nice talking to you again. So first thing I want to start out with here is it's just kind of been perplexing seeing the discount to NAV persist like this. But I just wanted to get your latest thoughts on maybe closing that gap in ways you're thinking about inserting yourself to close it. And then can you also loop in how you're thinking about buybacks going forward? And how does that suit up on the pecking order?

Rick, do you want to handle that?

Sure. The -- on the buybacks question, James, the -- you saw we're pretty aggressively after it. Regrettably, it didn't -- maybe it will make a difference when you see the number. It's still one of the best, if not the best investments with our capital now, but there are some other really attractive things out there, too, that -- so we're -- as Bill said, we are risk managers, and we're trying to weigh -- we're trying to weigh the relative risks. And we -- what we don't want to do is to miss some of the opportunities that we have. So Bill is working on various sources besides, what, the sale of CDAY, that's really the only source of money that we have. And Bill is working on several, but he's got some, as usual, great ideas on how to fix that liquidity issue in a prudent way. So we want to chase everything that's out there, and we want to buy back our stock, too.

And that's how you play. I mean there's no -- we either -- eventually, the gap is going to close as we monetize our investments. We've done the work, deal, and we've looked at that. And the complexity of our holdings is not -- isn't lost on us. For people like you that have to follow other companies, and it's a lot of work to understand this company. So it's a lot easier to just value cash. So our publicly traded shares. So that's what we need to do to close the gap. And is it time for some of that? Probably. I think Bill is thinking of that. But we're not going to -- we can't say now. We can't say now what we're going to do, so.

All right. Well, that's helpful. And then we've done some of the early work too on System1, and we find it interesting, but I just wanted to hear your thoughts on what makes it such an attractive combo as well for Trebia.

Yes. We like System1 and their management team quite a bit. There's a long protracted negotiation with System1's management and negotiating with what they could sell down, what they couldn't sell down, buying out the financial sponsor that was involved with the company earlier. And so we went from having a -- really trying to have a small pipe to not having any pipe at all. We're putting a little more leverage on the company. And so if there are redemptions, then Cannae will stand behind a portion of those redemptions, and the company will stand -- the increased debt that we're putting on the company to potentially can put on the company will stand behind some redemptions. Each of those commitments are about $200 million. And any redemptions above that will be funded by less stock purchase, less stock sales by management.

The company is performing very well. It was performing to do about $120 million of EBITDA this year. They'll be releasing earnings shortly, and they're well ahead of their plan. The S-4 should be filed sometime in the next week, 2 weeks. And then -- so the conversion process becomes, of course, responding to the SEC comments after 30 days and another set of comments always come back. So you figured there's about 7 weeks from the date of filing to the date we become effective. And then we noticed the shareholders' vote. So when you add all that up and put all that together, we're probably talking about a deSPACing transaction in late October, early November this year. And what that really does for the investor base that have invested in that SPAC or invested in Cannae, it allows -- it allows 2021 performance to be very, very clear, and we're going to make very clear, the accelerated performance for 2022. So we're really happy with System1.

And with the way the SPAC market is today, we're not that disappointed that we're slightly delayed in terms of closing the transaction because it really gives us time to structure the transaction in a way that, for us, made the most sense. So that's kind of System1. And they have a number of interesting acquisitions that are teed up for that company. And again, having liquidity and having a bank facility in place that we can execute on those transactions, will all come to show the value of System1. So I hope that helps.

Yes, definitely. I appreciate it.

So Bill, one of the questions -- I'm sorry, please go ahead. I was just trying to repeat a question I got during your talk from one of our investors, and it was -- how are you going to -- what are your thoughts about how we're going to finance the commitments that we have in place now? And I know you can't tip your hand. This is just an e-mail, I got so.

Well, I mean, so we do have credit facilities in place that will allow us to basically meet our commitments. And we're going to see how certain things play out before we engage in further sales of our securities. But you have to remember that we still do own about 67 million to 68 million shares of Dun & Bradstreet. We own 12 million shares of Ceridian. The lockup period expires on Paysafe sometime after August 20 for not only the shares, but also the warrants. So those are all securities. It could be that we could liquidate some portion of our investment in those securities. And then we have a number of other investments that are becoming more liquid. For example, the Bakers Square and the Village Inn restaurant chains just closed, and we received the capital from that.

The legendary baking, the pie business is in the wind down process. And there'll be capital being recovered from that. Earlier this year, we sold the Colt investment, and so that was a capital recovery. And so we're continuing to really look at some of the assets we have, the ones that are not core and we're closing off those. And the ones that are core, we're working hard with the company management to get growth accelerated. In that case, I truly speak to the Dun & Bradstreet because all Dun & Bradstreet needs to do is get organic growth moving again, and they're working hard on it.

We've got lots of products, lots of plans, it just takes time when you're kind of doing it yourself as opposed to buying something.

At this time, there are no further questions. I'd like to turn it back to Mr. Foley for closing remarks.

That's great. To conclude, I'm very pleased with the progress that we have achieved growing our portfolio while also working with our management teams to transform their businesses as they strive to accelerate growth and improve profitability. While the markets have not yet recognized the value creation that has taken place, I am confident that they will. In the meantime, we'll continue to take advantage of the dislocation in the market. Thanks again for your time today.

This concludes today's conference call. Thank you for attending.