Fidelity National Financial Inc (FNF) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you, for standing by. Welcome to the FNFV 2017 First Quarter Earnings Call. (Operator Instructions) As a reminder, the conference is being recorded.

I'd like to now turn the conference over to our host, Dan Murphy. Please go ahead.

Thanks, and good afternoon, everyone, and thanks for joining us for our First Quarter 2017 FNFV Earnings Conference Call. Joining me today are FNF Chairman, Bill Foley; and EVP, Brent Bickett.

Bill will begin with a brief strategic overview, and Brent will then review our portfolio of company investments. We'll then 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 statement 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 FNF's Form 10-K and other filings with the SEC.

This conference call will be available for replay via our website at fnf.com. It will also be available through phone replay beginning at 2:30 p.m. Eastern time today through May 11. The replay number is (800) 475-6701 with an access code of 421932.

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

Thank you, Dan. During the first quarter we sold a total of nearly 1.9 million shares of Del Frisco's common stock for total cash proceeds of approximately $31.6 million and a realized gain of $5.1 million. Our holding in Del Frisco's is now just under 1.2 million shares.

We're continuing to focus on completing the necessary filing, shareholder vote and other closing conditions for the FNFV tracking stock exchange. As part of the exchange that we expect to complete in the third quarter, we intend to form a new publicly-traded company named Cannae, C-A-N-N-A-E, Holdings, Inc. to replace FNFV and more formally reflect the -- its independence from FNFV, with a new trading symbol of CNNE currently on reserve with the New York Stock Exchange.

I'll now turn the call over to Brent Bickett to review the portfolio of the company.

Thank you, Bill. Ceridian HCM generated first quarter revenue of $187 million, a 4.7% increase over the first quarter of 2016, with first quarter 2016 revenue being adjusted to reflect the sale of Ceridian's United Kingdom payroll business last June.

EBITDA in the first quarter was $26.3 million, a 16% increase from the first quarter of 2016. Excluding Ceridian's LifeWorks joint venture, Ceridian HCM generated first quarter revenue of $167.4 million, a 3.3.% increase over the prior year quarter.

In the first quarter, cloud-based revenue was $90 million, a 36% increase over the first quarter of 2016 on a constant currency and float-interest rate basis. 237 DayForce customers were signed, and 210 went live on the cloud platform during the first quarter. Live-to-date, 3,500 customers have been signed and 2,550 have gone live on the platform. Continued investments in product development and implementation processes and procedures are resulting in increased sales of the DayForce product suite and efficiencies in the implementation costs and time line as evidenced by increased cloud-based revenue and overall EBITDA growth in the first quarter. We are encouraged by the start to 2017 and look forward to continued improvement in reported financial performance throughout the year.

American Blue Ribbon generated first quarter revenue of $273 million, a 6% decrease from the first quarter of 2016. EBITDA was approximately $9 million, with an EBITDA margin of 3.3% compared to EBITDA of $11 million and an EBITDA margin of 3.8% in the first quarter of 2016.

Same-store sales in the aggregate declined by 4%, as Ninety Nine's same-store sales declined by 0.8%. O'Charley's declined by 5%. Village Inn decreased by 5.9%, and Bakers Square fell off 6.7% percent. While Ninety Nine's same-store sales results outperformed the Knapp Track and Black Box regional indices by over 250 basis points, O'Charley's and Village Inn's continue to be more impacted by the weakness in the casual and family dining environment.

OneDigital continues to post strong results, generating first quarter revenue of nearly $47 million and EBITDA of $11.4 million, representing 28% and 37% growth, respectively, over the first quarter of 2016. EBITDA margin was 24.4%, and organic revenue growth was 3.9% for the first quarter.

During the first quarter, OneDigital increased the size of its credit facility to $200 million and extended the maturity date to March 2022, giving the company additional capacity to capitalize on the strong pipeline of potential acquisitions.

Finally, at March 31, FNFV's book value was approximately $917 million or $13.80 per FNFV share. This includes $160 million in holding company cash, an increase of approximately $31 million from year-end caused primarily by the $31 million in proceeds from the sale of Del Frisco's shares.

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

(Operator Instructions) Our first question comes from Jason Deleeuw.

The Ceridian margin's looking a lot better, and I'm just wondering how much of a contribution there was from higher short-term rates and the float?

Let's see. It was not material. It'll take a little bit more of a interest rate boost before we start seeing anything meaningful on the float side.

Okay. So that's even better than, I guess, for the margins because it's just with the business. And can you give us -- the 14% in this first quarter was, I think, the best in a while. So can you just -- should we expect further margin improvement from here because the cloud-based revenue is continuing to ramp?

Yes. As we talked about last year, the company's made terrific strides in terms of -- by making investments in implementation and trying to automate more of the implementation process. So we're seeing significant reductions in the hours that it takes to have a customer go live on the platform. So by making that more efficient, using less hours and getting somebody boarded earlier, it's reducing your costs, and you're starting to recognize revenue sooner. So -- and as we further said, as the -- the cloud-based revenue is growing rapidly, 36% on a constant currency and interest rate-float basis. That type of growth, we expect to continue to see for the foreseeable future, and that's far outpacing the cost of what you need to service that. So the short answer is yes, we do expect to see margins continue to improve this year and into the subsequent years.

Great. And then on OneDigital, the organic growth rate, I think I heard was 3.9%. So that's lower than what we've seen. I'm just looking for a little bit of color on your organic growth at OneDigital.

Sure. Keep in mind, last year, the organic revenue growth was over 13%. So they were comping a rather tough quarter. So if you -- and if you remember from our call last year, we brought in earlier than expected carrier bonuses, which -- that's why we have such an extraordinary organic revenue growth than prior year quarter. So if you were to normalize that, I think you would -- we're still very pleased, obviously to be able to comp over a tough quarter and still get the organic revenue growth of 3.9%.

Next question is from the line of John Campbell.

Hey, guys, it's Hayden on for John. It looks like you guys didn't repurchase any shares in the quarter, and I'm wondering is that a function of the share price? Or is that simply a function of kind of keeping that on hold until the spin?

It's more a function of keeping it on hold during the spin. As you may have heard at our main company, FNF, we also paused on the share repurchases. But again, we'll be opportunistic and take a look at the stock price versus other opportunities to deploy the cash.

And so that probably implies as well that any monetization efforts are going to be held off until then. But I'm wondering does that same thing hold true for new investments? And are there any particular industries or type of investments that you're looking at as far as new investments?

Yes. As you know, sometimes, deals come in awkward times. But we'd have to weigh monetization or an acquisitions in light of our desire to complete the split-off, so that is mindful. But if a good opportunity comes, we'd have to deal with it at that moment in time. And on the acquisition side, yes, we've actually have explored things in a variety of industries. One was more in the financial services area, and a couple more in the health care services area. But we haven't -- obviously, if we would have done it, we would have announced it. But there are some interesting opportunities that we've been spending some time walking through.

Okay. Can I squeeze in one more? Can you just remind us real quick what's left in escrow from the FLT proceeds? And is your spin going to affect any of that or timing or realization of that?

Yes. So we have about $20 million left in escrow, which -- it's in cash and it will -- but for any potential indemnification claims from the sale of stock, we'll get it in November.

The next question comes from the line of Chad -- sorry, Chas Tyson.

I just want to ask about kind of the broader setup for the company as you go through the spin process here and hopefully get freed up to have a little more flexibility in terms of what you're investing in and what maybe you're divesting. Can you just talk about kind of maybe the time line that we should expect over the next couple of quarters as you complete the spin and then what we should think about in terms of potential monetization as well as any cash infusions that you might be taking a look at and what form they might take?

Yes. So we're actually -- we're not being held up by the split-off or the spin-out or the restructure. We're continuing to, as Brent said, look at acquisitions. We have 3 or 4 that have progressed fairly nicely, but there's always hiccups. We have a couple of -- we have at least one monetization event that's sort of staring us in the face that will probably happen if it does happen prior to the spin-off being effective. So we're not really slowing down. We have slowed down on the stock repurchase, but we're going to be very active. And we feel like we're really kind of unfettered now and we're no longer having our -- even though we're a separate public company, we're no longer being consolidated up at FNF. And it gives us a lot of flexibility to look at some serious operating companies. And we believe we're going to -- by the time we're done with raising capital and doing some other transactions, that we'll have $600 million or $700 million of cash on hand. And that gives us the chance to make 2 or 3 serious acquisitions including the (inaudible) to get some leverage off. So there's going to be some exciting things happening with FNFV over the next 6 months.

Okay. And in terms of capital raising, can you talk about what form they might take? I mean, would you try to raise it at portfolio companies? Or would you just try to raise it at the FNFV level? And what might you look at?

Well, both actually. We might bring in investors in various investments. We're thinking about having -- one of our ideas is that FNF would continue -- would be a continuing shareholder in FNFV to the extent of about 10% of the stock or so. We have one other potential partner that wants to be about a 10% owner. So all those things are all happening, sort of providing the confluence of the spin-out and would occur concurrently with the spin-out. So we have a lot of -- I mean, there's not large transactions but a lot of moving parts right now as we move through this preparing for spin-out.

Okay. And then the one monetization that you said that might be completed before the spins? Or can you shed any light on that, what that might be?

Well, if it happens, you're going to know pretty soon. That's all I can tell you.

(Operator Instructions) Our next question is from [Kareem Dabani].

Yes. Two questions. You have currently about $160 million. And with the FLT escrow cash and then potentially the sale of the remainder of the Del Frisco shares, you'd have roughly $200 million. If you give 10% and 10% to other investors, that's roughly $200 million. Is that -- would be that in the form of new shares? And the other question would be would you do a rights issue for other shareholders to participate in that?

So I'll answer that. The on the FNF side that Bill mentioned would be new shares, and the new investor obviously would be new shares. We've talked about maybe doing a -- concerning the rights offering, we haven't made any decisions in that regard. But we do think as we separate from FNF -- and keep in mind, as you do know, we do have a fair amount of credit support that currently exists from FNF and a lot of that will go away, so we're thinking for the long term to make sure we're adequately capitalized to pursue good opportunities that could create shareholder value. So we're trying to make sure we have a proper amount of capital to be able to face off on opportunities as we see them.

Question is from the line of Karan Ahooja.

Just a question actually for you, Bill. I just would love to get your thoughts on Ceridian and the rationale not to at least file an S-1 at this point. I mean, you're looking at environment where the cloud players have terrific multiples, the IPO window is open. Just trying to think through why it doesn't make sense to do something now, particularly with the leverage at the company. If you enter into a tougher economic environment, it might not be as open, and you might you find yourself in a tough position where you're waiting for years rather than a couple of quarters.

I'd say we're just going to move through this year and get our -- get the EBITDA run rate where we -- everything is falling into place. With the $26 million -- $26.7 million of EBITDA in the first quarter and the growth rate associated with it, you can kind of do the multiplier on that and see what the '17 EBITDA is going to be. So your point is well taken. For us, it's probably about 7 to 8 months premature to move down that track. We just need a little more time to prove that Ceridian isn't the old Ceridian, that the cloud-based revenue is real, that it's growing at this 36% rate, that we're continuing to do implementations, they're being accepted. So your point is noted, but we need a little more time.

Got you. And then just would love to get a little color from you also in a similar way in terms of OneDigital and what you're thinking. I know in the past, you've talked about a $50 million EBITDA number as kind of the bogey after which, maybe you'll think about doing something.

I'll let Brent handle that one.

Well, I mean we -- I mean, obviously, we think it's an attractive asset, right? And I think there'd be a lot of interest in the company, both from an acquisition viewpoint or from an IPO. But it's tracking to that number as we speak. And as it gets bigger, it gets more interest, so -- and we've held it now, I guess, since December 2012. So everything, just like what Bill was describing on Ceridian, I think it holds true for digital. That it does seem to be coming towards a monetization, whether it's for sale or whether it's an IPO or something like that. But it's performing well. It's a great company, and we're happy with our investment there.

Got you. And then just lastly on the one asset that's obviously not doing that well, which is the restaurant businesses. These are small businesses. You could say they're subscale. Just trying to think through why it doesn't make sense for selling -- for them to be in someone else's hands at this point. I know you guys have a terrific view of the management team and how they could increase -- improve margins. But very candidly, that hasn't happened. So just curious what do you think maybe is the best step forward over the next kind of 1 to 2 years.

Well, I think you've exactly identified what we're going to do. We're probably going to move on from the restaurant build, the restaurant investment business, and we're going to do it in early fashion. The first one -- the easiest one to detach from was Del Frisco's. And then we have a few other things that we're working on right now. But again, as I said, they're not in conjunction with the spin-off. We have about 18 moving parts going on right now, some acquisitions, some dispositions and then all of the spin-out work. So again, your point is well taken, and we are acutely of the underperformance of the restaurant company. We don't like to deal with the underperformance for an extended period of time. You'll be seeing something happen with the restaurants as well.

Got you. That's very helpful. And then if I could just squeeze one more in. It might have been in the release and I missed it, but in terms of the updated thinking of when the spin will be done and you'll be free to kind of do what you want to do.

We think it's toward the end of the third quarter or we're hopeful that it's still a third quarter event .

(Operator Instructions) All right. Well, I would like to now turn the conference over to Mr. Foley for any concluding remarks.

Thank you. We will continue to focus on growth, financial performance and monetization of our current investments while seeking attractive future investments that will create value for our shareholders. Thanks for joining us today.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T TeleConference. You may now disconnect.