Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Inc. Third Quarter 2022 F inancial 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, this conference call is being recorded, and a replay is available through 11:59 P.M. Eastern Time on November 16, 2022. With that, I'd like to turn the call over to Jamie Lillis, Investor Relations for Cannae.
Thank you, operator, and all of you for joining us this afternoon. On the call today, we have our 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 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, 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 filings with the SEC. Today's remarks will also include references to non-GAAP financial measures. Additional information, including a reconciliation between the 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 CEO, Rick Massey, who will open with a few brief remarks, then open the line for your questions. Rick?
Hey, thanks, Jamie. Hey, everybody. Bill is occupied working, trying to make us some money on another project, so I'm pitching in. Anybody who knows me, I'm not much of a script follower, so I'm just gonna go down the list of things that occurred over the past quarter. The most important of which is that we bought back in the quarter about 2.1 million shares for an average price of $20.76, which continues to be about a 43% discount to what we believe is our net asset value. We are vigorously buying back shares and continuously. We have been, as you know, for some time. Over the past year, what have we bought back, Bryan?
13.75 million shares. 15%.
15% of the company we bought back, and we're on pace to keep on doing that. We hope our shareholders are happy with that. Our board, we've almost exhausted all of our original authorities, and our board has authorized another 10 million shares. So we're gonna keep buying back as long as it trades at a discount. We raised a little cash. We sold Coral Health for $80 million. We sold 35% of our stake of AmeriLife for $243. AmeriLife was a 2.7x multiple of our initial 2020 investment, so we're very pleased with that. We're gonna get another closing for the second half. When is it? December?
Yeah. End of this month.
End of this month?
Yep.
Late November.
That will get a small amount of cash, not much less cash, and then we're gonna roll a piece in the surviving company, which we still believe is bound for great things. It's just been a great trade for us. Dun & Bradstreet, as you probably know, had a pretty good quarter. They matched their estimates and their guidance. They grew about 4% in organic revenue. This is all constant currency. Their overall revs are up about 7% in constant currency. They've maintained a 40% EBITDA margin throughout. They're in sort of an investment cycle now, and they're starting to see the investments in new products come to fruition. We're really pleased.
We were just looking at some comps, and the market is way undervaluing Dun & Bradstreet, even when you adjust for earnings growth, revenue growth, et cetera. Alight is, you know, one of my favorite companies in the world. They had about 8.7% of overall revenues and nearly 10% growth in their flagship employer services segment, which is really the core segment. They're at the same time starting to see some margin expansion from their investment cycle. The BPaaS offering that they offer, that's a business process as a service. I'm sure all of you guys know about their offerings and so forth, WorkL ife and et cetera.
That's really the transformative revenue line for Alight, and that grew 56% year-over-year through the first nine months of the year. They're already you know, about to hit their guidance, and they've got what? Two months left of the year. They're doing really well, and you're gonna see some really nice surprisingly large new logos added over the next call it 60 days. They've signed them. They were not able to announce them just yet, but it just shows that they're just continuing to sop up all the Fortune 100 companies and make them customers. You know, we're very excited about Alight. Duc, you wanna talk about Sightline?
Sure. Sightline continues to make progress in their core segment, which is cashless gaming. They're currently working with Resorts World in Las Vegas to kind of put their flagship end-to-end cashless gaming system in place. Hopefully, by the end of the year, they'll be in a position to start to retest that. Another good news, J.P. Morgan Payments made a strategic investment in the business that came in at a premium to the value we invested in. It's more liquidity for the company, a great stamp of approval from an you know an A-tier strategic partner. We hope more good things are to come.
Thanks. Thanks, Duc. The only other thing, we had a couple of new investments that we've announced. One of them is Computer Services Inc. of glorious Paducah, Kentucky, a company that I've known since I was a young man. It's just been some time. They do core processing for small banks and credit unions, and I'm talking like sub- billion dollar asset banks. It's an unbelievably durable customer segment. These guys pretty much, you know, I wouldn't say they own it, but they've got a great big market share.
Frank Martire, who, as you all know, probably, you know, has an incredible track record both at Metavante and then after Metavante was acquired by FIS, he became the CEO, Executive Chairman of FIS for decades. He's bringing his team to bear to grow that business. He's got great plans, and we have all kinds of optimism about multiples of our money. It's kind of a three, you know, looking at their numbers, you know, with an exit at the same multiple that you're buying it, you're looking at kind of a 3x your money in, you know, five years. You might get lucky. There might be a buyer that comes earlier, but we really like the business. It generates cash.
It's right up our alley. We all know this area very well, bank technology. As you probably know, we committed $125.7 million for a 50.1% ownership in an English Premier League football club called AFC Bournemouth. Many of you have asked us why. You know, you're technology guys, why did you do a team? The short answer is this is a Bill Foley company. Bill started a hockey team from scratch, five years ago, and he's been offered valuations of, about four times, the original equity investment. I'm lucky to have been one of those. We believe Bill and his team can work the same magic with Bournemouth.
It is way under investment in facilities, in, sponsorships, in, gear sales, media rights, all the stuff that Bill and his team at the VGK, at the Vegas Golden Knights have really knocked out of the park. I mean, they're at the top of the NHL in virtually every revenue category. We think that they're gonna apply. Bill's already got plans for how he's gonna grow the business side of this. I mean, I asked to invest in this deal. I asked on behalf of Cannae because I think we're gonna make 3x or 4x our money at a minimum over the next, you know, five-seven years. With that, I think that covered.
Unless you all have something, I think that covered all the major stuff for the quarter, and we'll turn it over to Q&A, if you're ready for that, Miss Operator.
We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Chris Sakai with Singular Research. Please go ahead.
Hi, Chris.
Hi, good afternoon. Just wanted to know, so you've got a bunch of cash from the AmeriLife sale, plus $249 million on the balance sheet. What are you guys planning on doing with that? Just buying back more shares?
Yes. You know, I'd say there are three options for us. They're gonna be sort of real-time decisions as we are gonna be relatively aggressively buying back our shares as we have with the cash that we have, as long as the discount is in the 40%+ range, probably a 30%+ range. It's just really cheap, and it's probably the best return that we can get with our capital right now is just to buy back our own shares at this huge discount to NAV. We're also supposed to be in the business of finding new investments, and we have a pretty robust pipeline of things.
There is nothing that's gonna happen today, but we could use some of that capital for new investments. One of the things that Bill has us doing is finding ways to bring in third-party capital to get a deal done so as to preserve more of Cannae's capital on a deal-by-deal basis. We're, you know, we've got some help, and we're looking through that prospect. Then third, you know, there is a chance that our existing, I'd say the two portfolio companies that may need some future money, Computer Services, the Paducah, Kentucky core processor, they're fairly levered, but they have a pretty robust shopping list. I expect that we'll get an opport...
We have right of first refusal on new capital raises out of that partnership. I expect we'll get a chance to throw a little bit of capital into that. I don't know if it would be a lot, you know, $20s. $20s and $30s is probably what we're talking about. We'd like to increase our exposure. It's only $84 million today in the core business. The other would be Sightline that, you know, sometime down the road. Duc's would know more about that than I do. Those would be the three, and maybe we've got some other needs for other portfolio companies. I'd say top of the list is buying back our shares.
Continuing to look for opportunities to do better than buying back our shares, but we hadn't found one yet.
Okay. All right. Thanks for that. Where are you guys seeing better valuations now, in private or public equity?
Public, without a doubt.
Okay.
Without a doubt.
Last from me, how long was this the soccer team investment in the works? How long had that been going on discussions before?
Oh, you know, Bill and a couple of our guys, Ryan Caswell and Alex Ciniello, you know, we were approached a year and a half ago by a fellow who wanted to pull the multi-club team together. It was exciting to Bill, and he did a lot of his own homework on it. I think in the process, one of the, you know, I think Bill's interest was known, and Bournemouth became available because the current owner, shall we say, you know, had potential sanctions issues and wanted to go to cash in pretty much everything that he has and go somewhere else too. We got a bargain on that, and that's how it happened. I'd say the past 15 months.
It's not spontaneous, if that's the question. It was not. This is something that Bill put a lot of thought into. The most important part was the recognition that most of the business lines operate. Now, what I mean by that, in a soccer team or whatever, football, they operate very much like the business lines in an NHL team. Concessions, tickets, you know, alcohol sales, sponsorships, jerseys and other gear, stuff like that. He felt like he could master that. Then, you know, he'll learn, and he'll. He's got management over there, very skilled management that know the player part. The player and how do you win games, and how do you stay in the Premier League.
I think he's in fact had the team over here lately just to talk about how to fill the holes in management on that part of the operations. He's gonna bring his people to bear on helping build the business side, the business revenue. I call it business. It's just like the non-player revenues.
Right. Okay. Sounds good. Thanks for the answers.
Sure. Thanks.
As a reminder, if you would like to ask a question, please press star then one to be joined into the question queue. The next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead.
Hey, Ken.
Hey, good afternoon.
How are you?
Thanks for taking my question. Just one on the AFC Bournemouth. You know, pardon me if I'm jumping around, but on the calls. Wonder if you could just talk a little bit more about how the mechanics and the economics could flow to Cannae. In terms of the $126 million commitment, is there any kind of obligation in terms of future player transfers, any kind of investments in infrastructure within Bournemouth in terms of the stadium and things of that nature? I just wanna get a better sense of the the.
Got it.
Financial commitment there. Thanks.
Got it. Good question. We have a hard commitment for $125.7 million. It's a GBP 120 million pound. I don't know what it is, a GBP 110 million pounds. And that's it. We have no future obligations. In fact, we overfunded it. The maximum of our investment is 125 million. It could very much be lower because there's about 33 million. I know I'm probably getting my dollars and pounds mixed up, but there's about 33 million of extra capital after you build a facility, after you pay. There's an earn-out in the deal where if they stay in the Premier League, we owe them GBP 20 million . That's the seller, GBP 20 million if they stay in next year.
There is a stadium. There is a, you know, that the, you know, Bill wants to own and develop the stadium. They have a very poor, small stadium, and he wants to improve it and sell more tickets, of course, and all that stuff. There is a pretty healthy, very adequate player transfer budget for the next year or two, in that. The fact is, this business cash flows. This isn't like a lot of the ones that you'll look at that have just deep holes and, you know, that just dig deep cash holes. I believe that $125 million, in dollars, is the most we're gonna do, and it could be less.
Now, our Cannae investment is as a limited partner. Bill is the general partner. We do not pay him any fees. He does not earn any fees as a managing general partner. He is kind enough to do that. He does not get any kind of promote from the money that we raised, that we committed to the team. We'll make a return when we'll make the same return that he makes. We are totally aligned with Bill, in that transaction. I hope that answers your question.
Absolutely. Very helpful there. Switching gears, just one follow-up, if I may. You talked about potentially bringing in third-party capital when you're looking around for potential new investments. Just wanted to get a little bit more color around, you know, what kind of form that could take and,
you know-
It's somewhat nebulous now because we don't have a hard deal to talk to you about. It's abstract because we don't have a hard deal to talk to you about. Just say, you know, we're talking about a deal where the total equity, and it's probably an LBO, the total equity would be. We could be buying a private company, but we could also go do an LBO. The total enterprise value could be 1 billion, 1.2 billion, 1.4 billion. We don't wanna put too much leverage on a business, so we'll call it 3x. You know, we'd need to raise 700,000 million or 800,000 million, sorry. Maybe more than that, maybe up to 900 million.
Cannae would do, call it 100,000 million and then we would raise the other 800,000 million. It's the form is called a special purpose vehicle. They're not uncommon out there in the world today. We just haven't pursued it as an alternative. We're gonna miss some deals because we don't have enough capital. What we wanna do is to go raise the capital third party so we get some good deals.
Gotcha. Very helpful there. Thanks again.
Sure. Thanks, Ken.
The next question comes from John Campbell with Stephens. Please go ahead.
Oh, hey, John.
Hey, this is AJ Hayes stepping in for John today.
All right. We thought, you know. Yeah, well, you bait and switched us.
Apologies about that.
Hey, AJ. No, we're just messing with you. We'd rather talk to you anyway.
Perfect. Good deal. Well, thank you for taking our questions. You guys slightly touched on Sightline, but can you add some color on the benefits Sightline may realize as a result of the strategic relationship with J.P. Morgan Payments? Can you maybe add some update on the Sightline's fundamentals and then maybe how you're thinking about monetization of Sightline long term?
Sure. Let me answer these in order. The strategic partnership with J.P. Morgan is incredible. They put a representative on the board. They're, you know, both a huge partner with the payment network, so in helping us with our approval issues with, you know, Visa and Mastercard, we think they can give us some important strategic advice to help get approval rates up. I think they can help us more efficiently design our network. They obviously have access to an incredible customer base in their own right. I think, you know, the opportunities of the partnership with J.P. Morgan affords a growing payments company like Sightline are virtually unlimited. It's really, you know, unlocking both their intellectual capital and just breadth of network access. I think it can do wonders for Sightline's business. Let's see.
Can you talk about the fundamentals of the business? I'd say, you know, online gaming has been a little bit challenged this quarter. I think with the demise of the, you know, $2,000 free sign-up credits from the casinos, you've seen overall volumes kind of stagnate and in some cases even drop. So Sightline's not, you know, immune from those trends. That being said, you know, their core business is really developing the cashless solution inside the casino, and that's what's gonna differentiate them long term from their competitors. You know, from our perspective, I don't think a monetization of this business is near-term in the next couple of quarters. I think we really wanna see them execute in Resorts World.
I think we wanna see them get picked up in, you know, another large casino, you know, empire, whether it be Caesars or MGM, and really see the acceleration of that cashless solution. I think once we have, you know, both confidence that they're on that S-curve of adoption, and we have year-over-year comparables that we can make predictable, earnings estimates to the street, I think that's the time, you know, to potentially explore what's next for this company, whether it be IPO or, you know, sale or, you know, what their next strategic alternative is. My guess is we're you know probably at least a year away from an event like that.
Okay. You kinda touched on the near-term trends in the sports betting arena, but can you maybe provide an update on your bigger picture thesis for that space and why you continue to find it so attractive?
Continue to find it attractive. I think that we believe that the liberalization of gaming markets is a matter of when, not if. You know, the trends have all pointed to yes, that the timing has sometimes been in fits and starts. We think that where this is headed, you know, is kind of beyond a doubt. We know what the future holds, and we're just ready to ride that wave as it continues to unfold.
What are the big new states, Duc, out there that you think are gonna be opening up?
I think Michigan's opening up. New York's opened up. New Jersey's obviously opened up. Nevada was always opened up. California.
Massachusetts has or not?
Massachusetts has. You know, I think if you get some movement in, you know, California, Texas, Florida, that obviously will be game-changing for the industry. Even with the states that, you know, legalize now, just, you know, continued growth and adoption and, you know, continued user signups. It's still growing, even without, you know, the free money out there. The pulling of the, you know, the proverbial punch bowl away, I think, caused at least a pause for a quarter or two in the rapid acceleration of the growth in that industry. It's still poised to be a $50 billion industry by 2025.
I'm sorry, I'm hijacking your call. When I go look at DraftKings, they're trading back down to their SPAC level, like $11, $10. Is that because people have pulled back all these incentives and they're just not growing?
A combination of slow down in the top line, and I think for some of these names specifically, there may be liquidity concerns.
Okay. Sure.
I don't think that we don't have that issue at our business. Obviously, we're private, and you know, have great partners around the table, including you know, one of the largest banks on the planet. We do still you know, live in the same macro environment as those guys.
Okay. Thanks. Sorry about that.
We're a little bit better managing our P&L, though we hope.
Hope so.
Great. Really appreciate the color there. Last question, just at a high level, should we be viewing the wind down of Austerlitz I and II as the last of the SPAC activity for Cannae?
You know, I would never say never, but we do not have any plans. We believe that the SPAC could be. It's not, they're not properly structured now, but what they could be, and it could be a great alternative to an IPO for some companies. Because of the size and the quality of the amount of secondary sales that you can get, you can't do those in traditional IPOs, and you can't do. You know, you might do 10% of the company in an IPO, and you can do a lot more of that. There are vehicles that have a use and that are valuable. It got just terribly abused. You know, we.
It's gonna take a while before there's a market again for those. I don't wanna say we'll never pursue them again. I'd say right now, I don't see it on the horizon.
Okay. Gotcha. Congrats on the quarter, and thank you.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Rick Massey for any closing remarks.
Actually, this is David Ducommun is gonna finish us out.
Thank you, operator, and thanks for everyone who joined our call today. We remain focused and excited and that we exited the third quarter in a strong position, and we look forward to the continued opportunities that we see ahead. Along those lines, we want to invite you to three upcoming events. We're gonna be at the Stephens conference this month, November 15th and 16th. We're gonna be at the Credit Suisse conference in Phoenix, end of the month, November 29th and 30th. We all hope you'll come join us for Cannae's Annual Portfolio conference on December 14th and 15th in the Wynn Las Vegas. Thank you again, and we look to see you at one of our future events.
Thanks, everybody. Have a good week.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.