Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Inc First Quarter 2022 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the company's brief prepared remarks, the conference will be open for questions with instructions to follow at that time. As a reminder, the conference call is being recorded and a replay is available through 11:59 P.M. Eastern Time on May 16th, 2022. With that, I would like to turn the call over to Rory Rumore of Solebury Trout. Thank you. You may begin.
Thank you, operator, and good afternoon. On the call today, we have our Chairman, Bill Foley, Chief Executive Officer, Rick Massey, Cannae's President, David Ducommun, and Bryan Coy, our Chief Financial Officer. Before we begin, I would like to remind the 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 financial filings with the SEC. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the GAAP financial information, is provided in our shareholder letter. I would now like to turn the call over to Cannae's chairman, Bill Foley, who will open with a few brief remarks and then open the line for questions.
Oh, thank you, Rory. Within a quarter that presented a challenging equity market backdrop, geopolitical tensions, and shifting macroeconomic conditions, our focus remains unchanged. We repurchased 2 million shares of Cannae in the first quarter of 2022. Our repurchase activity since we approved our share repurchase program in the first quarter of 2021 totals 6.8 million shares or 7.4% of our outstanding shares. We will continue to take a balanced approach to capital allocation with a focus on repurchasing shares while also searching for private companies that fit our investment profile and will continue to work with our management teams to help them execute. We are proud of our portfolio's performance against a very difficult economic environment with each company's strong fundamental performance in the first quarter.
We are also excited with the potential for new private investments given the compression in valuations and pullback of risk appetite. I have seen many cycles through my career, and periods of volatility typically present the best investment opportunities. We also remain committed to our repurchase program and to creating value through our work with management teams to further transform our portfolio companies. I'll now turn the call back to the operator to begin our question-and-answer session.
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. One moment please while we poll for questions. Our first question comes from the line of John Campbell with Stephens. Please proceed with your question.
Hey, guys. Good afternoon.
Afternoon, John.
Hey, Bill, you know, moving forward.
Hey, John.
Yeah. With a balanced approach to buybacks and, you know, kind of balancing that in with new potential private market investments. If there are no clear private company investments that kind of presents themselves, how should we be thinking about the pace of buybacks from here?
Well, I mean, our stock price is really depressed, and so I'm going to emphasize buybacks. This is a good opportunity to take our share count down significantly at a strong discount to our fair value. We're looking for different companies to invest in. We have a couple of things pending with regard to our two outstanding SPACs. Relative to other new investments, we're early stages, so we're gonna be allocating capital to buy shares back. That's the best use of our capital at this point.
Yeah, makes sense. I mean, obviously the multiples in the public side have gotten a bit insane. You guys obviously have a lot of your investment portfolio kind of tied to public investments, so I know you're probably not chomping at the bit to unload a lot of that. Maybe if you could talk about the debt capacity. It looks like you guys drew down a little bit on the margin loans. Just talk about your debt capacity and maybe your willingness to kind of draw into that to feed both buybacks and private company investments.
Yeah. I'm not a big fan of taking on debt to make investments or to buy back shares. We have drawn down about $60 million, I think, against one of our revolvers. We have about $33.5 million of holding company cash on hand. Our gross liquidity totals $573.5 million. I'll be talking to Rick and Bryan and Duke, and we may just reallocate some of our available revolver capacity to buying shares back. I never thought we'd get to that point, but frankly, at $20, that's a pretty good investment.
Yeah, you guys are sitting quite a bit below book at this point, for sure. Imagine that looking very attractive to you guys. Maybe for Bryan, just a kinda housekeeping question. What was the step-up in the corporate tax liability in the book value summary?
The step-up had to deal with the Dun & Bradstreet additional shares we got. You had a big change in deferred as well. The Ceridian sales shares that mark-to-market value dropped quite a bit from quarter end, so that caused the deferred to go down as well.
Okay, that's helpful. I'm gonna get back in the queue. Thanks, guys.
Thank you.
Our next question comes from the line of Ian Zaffino with Oppenheimer. Please proceed with your question.
All right. Thank you very much.
Hey, Ian.
Good afternoon, guys. Can you talk about just maybe System1 a little bit? You know, deal closes, you get some conversions, and now, I guess you reported about a 1.4 million share sale. Maybe, like, walk us through your thinking there, you know, as basically shareholders of Cannae as far as your investment into System1, you know, whether near- term, medium- term, or long- term. Thanks.
Yeah, thanks. That's a good question. As part of this, we're locked up on System1 for the majority of our investment until late June. I think June twenty-seventh or so. However, we did have some unlocked shares that were a result of a final investment we made in the business when it was being taken public. That totaled about 6.1 million or 6.2 million shares. I felt that if System1 traded above its $10 mark, and it actually traded quite a bit higher than that we'd take the opportunity prior to earnings release and prior to our lockup or prior to our blackout period, to sell a few shares to raise some capital. We did.
We sold about 1.4 million shares over the last 20 days or so. We're not in the market now because we are blocked out, and System1 will release its earnings, I believe, on the 11th or 12th. We like the investment. It's a terrific management team. It's terrific. You'll see when the first quarter numbers are released, its growth is really fantastic. The growth is also translating to strong EBITDA margins and strong EBITDA growth. We like the investment. We don't intend to dispose of a large portion of that investment in the near future. We wanna ride System1 for a pretty good period of time.
From time to time, we may dispose of some additional shares once our lockup expires at the end of June.
Okay, great. That's a very helpful color. Hey, Bryan, this might be a question for you, I know, probably. If you'd just realize losses and maybe walk us through, like, cash, non-cash, yeah, any color would be helpful. Thanks.
Sure. We had two very significant non-cash items in there. The Paysafe investment we wrote down by $236 million with the share price continuing to be depressed. The other was the Ceridian mark-to-market that was about $324 million. That was offset by our cash gain on the Optimal Blue transaction was $313 million the other way.
Okay, perfect. Thank you very much. I'll let someone else hop on.
Thank you.
Our next question comes from Kenneth Lee with RBC Capital Markets. Please proceed with your question.
Hi. Thanks for taking my question. Wondering if you could just further expand upon comments around potential opportunities in private companies, just given the current market backdrop. You know, are you currently having some conversations right now? Any thoughts about private company valuations and, you know, whether it is meaningful gaps between what we're seeing on the public market side? Thanks.
Yeah, that's actually a very good question. I'm gonna let Rick. Rick has been heavily engaged in this effort over the last couple of months. Rick, why don't you respond to this one?
Kenneth. Yeah. Hey, Ken. How are you?
Doing well.
There you are. Okay. Two questions I heard from you. One was sort of what are we seeing out there in the market backdrop? The I would say the juiciest area for, you know, in American capital that I've seen so far are small cap GARP-type companies. Some of those that went GARP, not crazy, but growth companies that actually have cash flow. They've been sold off, you know, thrown out with the bathwater. We've seen a number of them trading at very attractive multiples in terms of return on invested capital. We like them a lot. We don't have a lot of capital to put to work on those. But we're planning on working on those and actually bringing in some help on capital.
This would be something that Cannae and Trasimene would share, like, as general partners.
That's one option. That's why Cannae doesn't, you know. That seems Cannae doesn't put a lot of capital in. In terms of, you know, what we're thinking and doing, as you, Bill, described it, we are in an unfortunate state where we've gotta borrow, because I don't think he's at all excited about selling anything that we own. You heard him on SST, not on Paysafe, but Alight and Dun & Bradstreet. They're way below where they ought to be, and it'd be crazy to sell those and go do another deal. But selling some of those and buying back some shares might make sense.
Gotcha.
Did I answer your questions?
Yes, you did. Very helpful. That's all I have for now. Thank you very much.
Thanks again.
Thank you. Our next question comes from the line of Chris Sakai with Singular Research. Please proceed with your question.
Hi, good afternoon.
Hey, Chris, welcome aboard. Thanks for following us. Thanks. Welcome aboard.
Great. Okay, thanks. Thanks for that. Just to sort of piggyback on that last question, you know, what you guys mentioned that you could possibly borrow to acquire a company, you know, do you have any sort of idea how much you would borrow in that instance, or?
It absolutely.
Could you even borrow money?
It absolutely would depend on the target. Obviously, the leverage part of the LBO, those have gotten a lot more expensive over the past, you know, 60 days or so. The high yield markets, which I'm sure many of you are well aware, are almost frozen. I don't know that anybody's gonna pull off, you know, a levered LBO anytime soon, except for the really highest quality stuff.
Right. Okay. Can you talk about, I guess, the revenue from the restaurant group? Are you seeing, as you know, the pandemic subsides, you know, how are you seeing that? Are you seeing things improving there?
Yeah, we are seeing improvement. It was a very difficult January for the restaurant business in terms of spiking commodity prices and a real shortage of labor, you know, trying to keep your restaurants open and moving forward. Following January, we started to see some really nice improvement in terms of restaurant operating margins and year-over-year same store sales growth. We're anticipating in 2022 to, despite the bad January and part of the February, to have a strong restaurant year. We're happy. You know, over the last several years, we've reduced store counts significantly in the O'Charley's system and also the 99 system.
We've sold off our baking company, the pie business, and also our family dining business. The rest of the other two chains, the O'Charley's chain and 99 chain, are really doing fairly well. It's not reflected perhaps in the numbers that came out in the first quarter, but you'll start seeing some pretty good improvements in those businesses going forward during the balance of the year. We're actually, for the first time in a lot of years, pretty happy with the restaurant business.
Okay. Great. Thanks for the answers.
Thank you.
Thank you.
Our next question comes from the line of John Campbell with Stephens. Please proceed with your question.
Hi, John.
Hey, guys. Thanks for letting me squeeze one more in here. Bill, you're probably gonna shoot me for this question, but I think you kinda joked at this in Vegas, and I've had investors ask me this question. I've thought about it myself in the past. You hand selected all these portfolio assets, right? You've hand selected these investments. They're not getting valued appropriately. You own, you know, 4%-5% of the shares today. You're gonna have a monetization event for yourself, hopefully with Black Knight here in the future. At what point does this just become something you look at buying yourself?
It's still a little too much money. You bring out an interesting point, and that's why we actually are gonna really be talking about drawing down some of our lines of credit to start buying shares back and be really significant about it. 'Cause at this point, that potentially is our best investment, is just taking advantage of the dislocation in the marketplace and buying back a lot of shares. I guess if it gets down to a low enough number, maybe it's a number I can actually afford.
Hey, John, that's what you get for asking the question, John.
Yeah, exactly. Exactly. I'm sure you could find an investor cohort that could help match you own some funds on the way up. All right. That's all I got. Thanks, guys.
Thank you.
Thank you. We have reached the end of the question-and-answer session, and I will now turn the call back over to Bill Foley for any closing remarks.
Thank you, and thanks to everyone who joined our call today. While the market volatility may persist, we will remain focused on driving operational improvements across our portfolio, buying back our shares, and finding exceptional investment opportunities and monetizing investments. We look forward to speaking with you again on our second quarter 2022 earnings calls. Thanks again today for your time.
This concludes today's conference call. You may now disconnect your lines at this time. Thank you for your participation and have a great day.