Fidelity National Financial Inc (FNF) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the 2016 first-quarter earnings call. (Operator Instructions) And as a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host, Dan Murphy. Please go ahead.

Thank you. Thanks for joining us for our first-quarter 2016 FNFV earnings conference call. Joining me today are FNF Chairman Bill Foley, Executive Vice Chairman Brent Bickett and CFO Tony Park. Bill will begin with a brief strategic overview, and Brent will then review our portfolio of Company investments. And then we will open up for your questions and finish with some concluding remarks from Bill.

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 our 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. We undertake 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 press release dated yesterday and in the statement regarding forward-looking information, risk factors and other sections of the form -- of FNF's Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at FNF.com and will also be available through phone replay beginning at 2:30 PM Eastern time today through May 5. The replay number is 800-475-6701, and the access code is 391053.

Let me now turn the call over to our Chairman, Bill Foley.

Thanks, Dan. We made one new investment and two incremental investments this quarter and continue to aggressively repurchase FNFV common stock. In January, we made an aggregate $22 million investment in the debt of Colt Defense after working on and leading the debt restructuring of Colt in 2015. During January and February, we acquired an additional 827,000 shares of Del Frisco's common stock, bringing our investment to 3 million shares for a total of $44 million, or $14.53 per Del Frisco's common share.

In March, we made a $47.4 million additional capital investment in Ceridian to fund the continued growth of the Dayforce product line. Dayforce is winning in the marketplace, and this capital infusion will allow Ceridian to continue to grow the cloud-based revenue of the Company even more aggressively. We are having no trouble selling the product. We simply have had an issue in terms of investing adequately to fund the development and conversion of various customers. This will solve that problem.

We also continued our share repurchase efforts in the first quarter, buying back an additional 3.2 million shares of FNFV common stock for approximately $33 million. We now have repurchased a total of 23.7 million shares, or approximately 26% of all shares of FNFV that we distributed to FNF shareholders in July of 2014. We will continue to focus on the growth and financial performance of our investments and seek to maximize the value of current and future investments for the benefit of our shareholders.

I will now turn the call over to Brent Bickett to review the portfolio of the Company.

Thank you, Bill. Ceridian HCN generated first-quarter revenue of $197 million, a 0.3% increase over the first quarter of 2015, as the growth in cloud-based revenue continues to outpace the decline in the legacy core payroll business. This is a significant milestone for Dayforce and Ceridian, and we expect cloud-based revenue to continue to outpace the decline in the legacy payroll business on a go-forward basis. EBITDA in the first quarter was $23.1 million, a $3.3 million decline versus the first quarter of 2015.

In the first quarter, cloud-based revenue was $62 million, a 34% increase over the first quarter of 2015. 185 Dayforce customers were signed, and 100 went live on the cloud platform during the first quarter. Life to date, over 2,740 customers have been signed. Ceridian's ongoing investment in the Dayforce product development, sales, marketing and implementation resources continues to impact Ceridian's EBITDA.

At the end of the first quarter, Ceridian announced that it raised a total of $150 million in new capital in the form of convertible preferred stock, and FNFV invested on a pro rata basis along with other existing Ceridian shareholders. As Bill mentioned, the additional capital will allow Ceridian to continue to invest in the growth and continued development of the Dayforce product suite.

Ceridian remains on track in its ongoing transformation into a cloud-based company, and we look forward to continued growth in Dayforce customer signings and an acceleration of customer implementations and cloud-based revenue throughout 2016.

American Blue Ribbon Holdings generated first-quarter revenue of $290 million, a 1% increase versus the first quarter of 2015, after adjusting for the sale of Max and Erma's. Adjusted EBITDA was approximately $21 million, a $3 million increase, or 15%, over the first quarter of 2015. Same-store sales in the aggregate decreased by 0.4% as Ninety Nine and Bakers Square experienced same-store sales growth of 3.3% and 3.5%, respectively, offset by the 2.5% decline at O'Charley's and a 1.7% decline at Village End.

O'Charley's decline was in line with the 2.3% decline in the Black Box comparable index. Ninety Nine's 3.3% same-store sales increase was a significant outperformance versus the Black Box index decline and was the 12th consecutive quarter of same-store sales growth for that concept. Bakers Square continues to perform well, as its 3.5% same-store sales growth exceeded the MPD sales track index by 2.9% -- or 290 basis points.

Bakers Square recorded a sixth consecutive quarter of same-store sales growth. We have seen a softening in restaurant sales early in the second quarter, which we will continue to monitor.

Digital insurance generated first-quarter revenue of $36.5 million, a 31% increase over the first quarter of 2015, and adjusted EBITDA of more than $9 million, a 30% increase versus the first quarter of 2015. Adjusted EBITDA margin for the first quarter was nearly 25%. Digital's organic growth rate accelerated to 13.6% in the first quarter, with 330 basis points of this increase due to the earlier-than-expected receipt of carrier bonuses. The pipeline for acquisitions and potential partnerships remains robust, and we remain excited about digital's strong execution of their business plan and the growing contribution to the value of FNFV.

At March 31, 2016, FNFV's book value was approximately $951 million, or $13.78 per FNFV share, based on a share count of 69 million shares. This includes $112 million in holding company cash, down approximately $130 million from year-end due primarily to the Ceridian additional capital investment, the Colt Defense investment, incremental Del Frisco's investment and common stock purchases during the quarter.

Let me now turn the call back to our operator to take your questions.

(Operator Instructions) John Campbell, Stephens.

If you guys could maybe just run back to the -- what you are doing in Colt. Just the opportunity there and maybe what your longer-term plans are?

Sure. Our partner in ABRH is a company called Newport Group. And we originally, as you might recall, got into the restaurant business by buying the debt of the old Viacorp at a discount. And then we, together with Newport Group, led the restructuring of that business. So we levered the debt position to get a significant equity position. We did the same thing on Remy. We used some of those same skills and techniques when, on the FNS side of the world, we bought LandAmerica.

So, we owned in our FNFV investment portfolio a piece of the Colt senior notes, the bonds that they had. And through that investment, the FNFV side was able to work with Newport, who coincidently also had a piece of it. And we ended up leading that restructuring. So we have a $22 million investment split almost 50-50 between a first lien note and then -- at $11 million roughly and then $11 million of third lien.

We think of this is an attractive investment. We think there's terrific opportunity in that business to grow. It is the iconic brand, particularly in the United States and that marketplace. We just think there's a lot of low-hanging fruit that we can take advantage of there going forward for a pretty modest investment.

Got it. Okay. That's helpful. And then on Del Frisco's, I know we have talked about that in the past. But as you guys think about longer-term plans, is that -- are you just viewing that as optionality at this point? You will wait and make a decision at some point, or do you have any kind of imminent plans there?

We really don't have any imminent plans. The stock has moved up a bit. Their performance was okay in the first quarter. So we are kind of just viewing this, as you said, with optionality. So we have an investment, it has performed well for us and we will just continue to hold it as an investment for the time being.

Okay. Thanks for taking my questions, guys.

Chas Tyson, KBW.

First question is on -- I saw the registration filing for the acquisition vehicle. I know that's separate from FNFV. But I was just curious if that closes off any sectors of investment for FNFV or if you tried to stay out of each other's way. And also what the -- if there is going to be any breakout of the allocation of time from people working at FNFV to that vehicle.

I will answer it first. You saw the size of that vehicle. It's going to play in the league that FNFV could never play in. They are going for multibillion-dollar deals. So it's a completely different thing. And Bill still is partnering with a close associate that we have known for many years, and that is unassociated with FNF and unassociated with FNFV.

Okay. So there won't be any allocation of time except for Bill's and I guess from FNFV to that?

Correct. Yes, it's really just me spending time. It's a single-purpose acquisition vehicle or corporation. So we will go out in the search for an acquisition of a significant size. And that is going to be important to me, and we're going to work hard on it. But it's not going to really distract brands with the other guys at FNFV.

Okay. Got it. And then on the -- it looked like there was some pretty healthy margin improvement in the restaurant segment. But can you talk about -- was there any effect from Max and Erma's in that restaurant margin? And then maybe also highlight how O'Charley's performed given that there was a decline in revenue or same-store sales growth year over year.

If you look at each of the brands, O'Charley's store operating cash flow increased year over year, including observing some one-time severance costs. So it experienced meaningful store operating cash flow increase on a year-over-year basis. As did Ninety Nine; it continues to significantly outperform. Bakers Square as well. Village Inn was a relatively flat year over year.

So we did a decent job managing the middle of the P&L. The cost of sales -- food costs were a little bit below our -- came in below our anticipation. Inflation wasn't as prevalent as we were budgeting it would be.

I would say if is that you look at the performance of the restaurants -- and honestly, Max and Erma's didn't really have an impact on that. It was pretty small one way or the other relative to all of ABRH.

Ninety Nine is still performing at an alpha level. It's doing extremely well in its marketplace. We are strong leadership there. We have a reimage program that is being executed well. We are opening up a couple of new restaurants.

And, by the way, we are absorbing some of these labor costs in the state of New York, as an example. And we are trying to be mindful of price value and all the competitive considerations. But we are absorbing on the labor side pretty significant increases year over year.

As we look at O'Charley's, we have -- we installed a new leader in that business, a new president of the division that we are very excited about, to continue to drive and make further progress on the strong steps that the prior president of the Company did.

I would say that we are really focused there on just the nuts and bolts and making sure -- because the piece that we are not pulling the margins from there was in the middle -- just the operations. We just were not getting the pull-through on the revenues. And so we are diving right into the restaurant operations to make sure that we deliver consistent product that the guests want there.

I would say that the sales performance there started to weaken a little bit in the fourth quarter. It's gotten really competitive in the O'Charley's segment with a lot of discounting by competitors. And we have not been playing that game as aggressively as our others. So it's hurting our top line, yet we are still making the profits.

There's a lot of two-for-this, free this, free that and we have not been aggressive in those types of promotions. So it is impacting our sales a little bit. But, again, we think if you deliver good-quality food that's hot at a reasonable time, delight your customer, our guest satisfaction scores continue to improve. So we still think it's on the right track. But the sales as it tailed off in the fourth quarter last year and then into this year have softened relative to where it was. Part of that is by design by not using the promotional tools as aggressively as before.

Okay. So the same-store sales decline in O'Charley's, then, is due to the guest count decline as opposed to anything on the pricing or mix of what people are selecting off the menu?

That's correct.

Okay. Thank you very much.

(Operator Instructions) Jason Deleeuw, Piper Jaffray.

It's good to see the Ceridian revenue growing, even if it was a little bit. But it looks like we have turned the corner there. I'm just trying to get a sense for when you think the margins will inflect higher because it sounds like the investments are still pretty high. Is there any color you can give us on potential margin inflection?

That's not going to be a 2016 story; that's going to be a 2017 story. And, by the way, with this new $150 million investment, just to reiterate, expense has incurred. Your marketing costs, your implementation -- the vast majority of your implementation costs and, in this case, the sales costs. So, we don't hang those on the balance sheet as you do perhaps in some other technology businesses when you win your contracts.

So there is just a big demand right now for these types of services. So ourselves and competitors are aggressively going after this marketplace which was another catalyst for the investment. Also point out that the investment, we believe, is enough to get Ceridian through to the growth that we expect to get from the company through 2018 and when that margin starts expanding, which we think is more of a 2017 event.

But, as I mentioned in my comments, the more success we seem to have in Dayforce just hits that P&L hard because of those items that I talked about. So that's going to continue to happen throughout 2016. The next inflection point that we will talk about hopefully as we get closer to the fourth quarter and start seeing where this is happening and maybe into Q1 of 2017 would then be the other -- the turnaround and then rapid expansion of EBITDA.

But right now we are seeing -- it started in the fall of last year where the growth of the cloud-based business is now outpacing the decline, if you will, of the legacy core payroll business. There's still a little bit of noise in the P&L from the sale of their [Cober] business and the health and welfare business from last year.

We also did a transaction with -- a joint venture with LifeWorks, with another employee assistance benefit provider which we think is attractive. Might have a little bit of noise, but we are really focused on the growth of Dayforce, its opportunities in the marketplace. It's winning. It's a terrific product. We're excited about it and excited about making that incremental investment to get them to where they need to be.

Great. Thanks for that. And then on the share repurchases, about 26% of the equity has been repurchased thus far. You are down to about $112 million in cash. Do you think you are going to keep buying the stock? What are the plans there?

Yes, plans currently are to continue repurchasing about 50,000 shares a day, which has been our recent history. We are trying not to run out of cash in our greed of trying to buy stock back at a discount. So we are -- but certainly for the next quarter or two, we're going to keep on going with those 50,000 shares day.

Great. Thanks a lot.

And we have no further questions in queue, so I will turn it over to Mr. Foley for any closing remarks.

Thank you. We completed several investment events at FNFV during the quarter, and we will continue to seek strategies to most efficiently monetize our existing investments, with the goal of maximizing the value of each for the benefit of FNFV shareholders. Thanks for being with us today.

And ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.