Good afternoon, ladies and gentlemen, Welcome to the Cannae Holdings, Inc. fourth quarter and full year 2022 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the company's pre-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 March first, 2023. With that, I would like to turn the call over to Jamie Lillis of Solebury Strategic Communications.
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 newly appointed President, Ryan Caswell, 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 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 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 also provided in our shareholder letter. I would now like to turn the call over to Cannae's Chief Executive Officer, Rick Massey, who will open with a few brief remarks and then open the line for your questions.
Hey, thanks, Jamie, welcome to our fourth quarter 2022 call and our full year 2022 call. I'm Rick Massey. I'd like to introduce, formally introduce our new President, Ryan Caswell. He's here with us. He is moving in instead of David Ducommun, who is moving on to FNF. We will miss Duke. He was a fantastic President. I think he's gonna also add a great deal of value to FNF, but I'm very excited to have Ryan as a my partner, Ryan, as our new President. I think you will find him to be a very straightforward and intelligent human being. I'm just gonna hit a couple of highlights from the quarter and then be happy to kick it open to questions.
We bought back in the fourth quarter at $22. The main highlight is we bought back 2.3 million shares. I think the average price was about $21 and $21 and a half. A little lower than that? Below $21?
Yep. 2096.
2096. Okay, there we go. That was $51 million of proceeds. For 2022, we told you we were gonna buy back shares, and we bought back 10.8 million shares. That's 12% of the outstanding as of December 31, 2021, which is when we really started accelerating our buyback program. You may recall we accelerated that after our conference in Las Vegas early December of 2021. Since we've embarked on our repurchases, we bought back 15.6 million shares, and that's 17% of the then outstanding and about a $400 million return to our shareholders. Unfortunately, the gap between our stock price and our liquidation value didn't close.
We, you know, we thought, we had hoped that the gap would close significantly when we showed aggressive buybacks, but it just didn't happen. Nonetheless, we returned a lot of shares, a lot of cash to shareholders. We closed the last leg of our AmeriLife transaction in November of last year. We still retained a 29% portion of AmeriLife, and we're booking that at $95 million. We are excited about that, about AmeriLife going forward. We obviously are very excited for the accomplishments where we received a MOIC of 2.7 times our money. That was in really just about three years. Not a bad trade for us. Caswell is, and I assume remains on the board of AmeriLife.
doesn't remain on the board. It was still, they did a nice job in, and in bringing in some new investors at a very nice valuation. I guess it's kind of a sign of the times that we're bragging on selling one of our portfolio securities for a loss, we did that. We sold Cannae shares for $27 million in cash. Up, yeah, as you know, there's been a split. Where they split, how many shares do we sell?
we sold $19.2 million pre-split.
Okay. $19.2 million pre-split, That's like $1.6 million. It was 12 to 1 post-split?
Yep.
Okay. That, that gave Cannae. Why did we do that was because We had gains, we were carrying tax gains, taxable gains on the sale of AmeriLife and on some CDAY. It was just bad We thought it would be bad portfolio management or not good portfolio management for Cannae to pay taxes when they had these, you know, these fairly large unrealized losses on their balance sheet. We peeled some of those shares off and sold them. As a result, Cannae is not gonna be a taxpayer in 2022. We'll get a refund of our advances.
the unfortunate he problem for, as partners with Trasimene is that knocks a big hole, that realized loss knocks a big hole in our ability to get carried interest, which is how we get paid. And probably most portfolio managers wouldn't have done that for that reason. But we just, we wanted to do the right thing here and not have Cannae pay. It was silly for Cannae to pay taxes. We sold 1 million shares of CDAY Ceridian for roughly about $70-$78 a share. That is a, believe it or not, a 13x multiple, given that we invested in like 2007. So it's still a great return to, you know, for us. We own 5 million shares now of CDAY, if.
for those who are counting. We closed in November of 16, November 16th of 2022, we closed our investment in CSI or Computer Services. It's a really nice kind of a small bank core processor located in Kentucky. Bill and I both, and Frank Martire, who sits on our board, former CEO of Metavante and FIS, all coveted this business back in the day, but they would never sell. Finally, they decided to sell. When they decided, we were not front and center on it, but Centerbridge was. Centerbridge was kind enough to let us put about $86 million in the deal. We're excited about the prospective returns on CSI.
There may be some opportunities to do follow-on investments as they look at, as they look at some M&A, and they have some in their sights. We could get to put a little bit more in. It'll just depend on, you know, what the target is and how Centerbridge wants to value the business. We, as you are probably all aware, we invested 51.1% of the necessary equity to acquire an English Premier League football club, AFC Bournemouth. And that is, we paid roughly 0.8x revenues on that, way below the comps. One of the reasons for that is that the business had been, frankly pretty. It had been.
The business side of the soccer team had been undervalued, undermanaged by the management team, the then management team. I mean, ticket sales, gear sales, food sales, all the other hospitality stuff, there was just no attention paid to it. This company was performing on those areas well below its peers. We are very confident that Bill and his team and Ryan, who's our partner dispatched on the project, will turn the business side around. As you are probably aware, if you followed it, we've they bought Bournemouth or signed up several new players in an effort to try to stay in the Premier League, and they're playing a lot better than they had in the past.
We're knocking on wood they don't get relegated, and this thing performs really well for us. This is not like a family, an heirloom deal. This is a deal to as an investment. We, if you've seen any news about what people are paying for these teams now, you can see that we got a bargain and we should be able to make quite a bit of money on it. Ryan will go into more detail if you're interested, but we've got the FNF credit facility that we used to buy back, that essentially we used to buy back 5% of the company during our buyback period at a deeper discount than we were paying in the quite a bit deeper than we were paying in the market.
we essentially used a credit facility from FNF to pay for those shares. That's $85 million. that's termed out. We're.
Yes, in borrowing instance.
It's termed out. We have to pay it back on an amortization schedule now. We've got a margin loan of $250 million that's fully available. We've got $272 million in cash and short-term investments as of now. Don't think that's all available to go buy back shares or do deals because we've got expenses and some follow-on investments and so forth that we're probably going to need to do. It's hard at this stage to tell you how much is really available for, you know, for future purposes, but we'll know more by the end of the quarter. I don't want to take up too much of your time going through our entire portfolio. Just a couple of highlights.
Dun & Bradstreet reported their fourth quarter numbers. We are their largest shareholder. They disappointed the market, although it didn't disappoint us. They were in the range of their guidance. What really hurt them were really three things. One, foreign exchange had a very substantial impact, negative impact on revenues and EBITDA. Two, the business lost a contract with the GSA, which probably cost it a point and a half of organic revenue growth. Three, the marketing portion of Dun & Bradstreet is they're all under a little duress.
All digital marketing businesses, if you've been watching, you know, from Google on down, have been under a lot of stress because digital marketing budgets are some of the first to go as when management teams are looking to cut costs. Just... we're just not seeing the budget, the expenses, the budget expenses on these, on these items, and I don't know how long that's gonna last. That's that phenomenon has affected, as you'll see, affected System1's results. We own... We have $272 million of basis in System1. The other, the good news is, as I'm finishing, is Alight. Alight had a fantastic quarter. They announced it yesterday.
The stock at one time was up around 10%. They showed, and probably they're up because of their guidance for 2023, which would show 11%-12% revenue growth and, you know, 12%-13% EBITDA growth, and margin expansion. They announced several new big logos like GE, all three GEs, you know, they're split into three, and Exxon and, you know, quite a few others. This company is really humming. We're very, very proud of the management team there. There is no doubt that this is the most undervalued of all the stocks in our present portfolio. There'll be some secondary sales probably from some of the other holders, larger holders, but I don't...
You know, Bill and I both have no intention of selling down at this depressed level. Did I miss anything that I should cover, Bryan or Ryan?
I think you got it.
Okay. I'm gonna stop there and open up for questions. Thank you very much.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question is from John Campbell with Stephens Inc. Please proceed with your question.
Hi, guys. Good afternoon.
Hey, John.
Hey.
Hey. First off, Ryan, congrats on the promotion. Looking forward to working with you. I saw where you guys provided your cash balance as of yesterday, I think it was $272 million. Also saw where you guys have paid or may be expecting to pay the $40 million for the Black Knight Football commitment in the first quarter. Does that cash balance that you guys provided, does that include the payment or is that yet to hit?
The cash payment that's coming. We've already paid the one that was in the first quarter. That was the first week of January. There's only one left that's in, probably the third quarter of this year.
Okay. Okay.
That's about $40 million.
Okay. All right. I wanna go maybe high level here. Just looking for some insights on your vision for both Black Knight Football and CSI. Maybe just starting off on Black Knight Football, if you could help frame up the type of returns you guys expect over time, and just also just how large do you envision this organization getting, you know, over the long haul?
I'll let Ryan go to that. I'll just say we, you know, we sort of view this as a, you know, as everything, sort of a multiple of money. The forecast that we showed our board to support the investment in Black Knight Football, we were looking at sort of a 3 to 3.5x MOIC in 5 years. On CSI, I do want you to hear from Ryan on the football team. On CSI, you know, that's probably another five-year hold. There's a lot of work to be done, a lot of little tuck-in acquisitions. We expect that, you know, there, the likely suspects would love to come in and buy this thing.
That too is kind of a three times your money in five years sorta deal. Rare, very low risk, I mean, you know, not a lot of risk in this business, in that business. We think that the demand for it will increase. Ryan's gonna talk about the football team.
Yeah, just a little bit more details on how we think about that. As Rick mentioned, in the opening, we think we got a really good price. We paid, you know, roughly GBP 100 million for the purchase price of the smaller. If you look around the Premier League, the next cheapest is mid 200s, and then it's probably closer to GBP 500 million per team. We think we're in a very attractive value. As Rick mentioned, there's a lot of work, both on the commercial side, infrastructure. We're also as you probably saw, we made an investment in FC Lorient, which is a Ligue 1, so the French team, the first league in France.
We're looking at other leagues to really try and bring down the cost of players. There's a lot of work around that, both in terms of how you put that together and how you effectively kind of, you know, get talent from those to the Premier League. I think an example is, Bournemouth did buy a player in the transfer window from FC Lorient, so you can kind of understand the pieces of how it works. Look, we think there's a lot of work to do, but as Matt said, we think there's a lot of upside to it. You know, but we gotta, we gotta, you know, over time, keep the team in the Premier League, as well as kind of build out all these ancillary revenue streams and investments.
Okay, that's helpful. I've got one more, and I'll hop back in the queue. I mean, I've got a lot more work to do in kind of building out a valuation framework for club valuations. You know, with Bournemouth, you know, it sounds like you guys presented, you know, a five-year, multiyear kinda forecast of returns, which you guys are expecting. Just out of curiosity, how impactful is the relegation event for smaller EPL teams? I mean, clearly we're pulling for Bournemouth as they hit kind of the home stretch here. You know, if there's an event of relegation, how does that affect stuff?
Well, hey, the word, the word existential comes to mind for me, but, I mean, that may be a little dramatic.
Yeah.
No, as you might imagine, we did a lot of work on that. you know, we think we actually looked at different champs, so the second level of championship. We looked at teams there. Frankly, we don't think our value is that far off, even where some of those teams trade. There's a bunch of work that you can do. There's, if you... Again, I'm happy to talk to you some more detail. There's basically parachute payments, which are payments that go to relegated teams that give you a very large advantage in the short term. We think that given the work that we're doing, even if we were to get relegated, there's a way that we have an advantage to bounce back up.
There's clearly a difference in value. We believe we have the right people and kind of infrastructure in place to, you know, to hopefully not get there. If we do, to kind of mitigate that and bounce back within kind of a year or two.
Okay, very helpful. Thanks, guys.
Thank you, John.
Thank you. Our next question is from Ian Zaffino with Oppenheimer. Please proceed with your question.
Hey, good afternoon. This is Isaac Sellhausen on for Ian. Just another follow-up question on Black Knight Football and congrats on the, on the FC Lorient investment as well. You know, is there any option, I guess, in the agreement, for Cannae to acquire more than the 50% in investment or ownership, I should say, in the, in the Black Knight Football partnership?
No. We have a, we have a, the right to participate in any future offerings on a pro rata basis, as you probably would expect. No, We didn't wanna own more than 54%, 51%.
Okay. Got it. Thank you. you know, again, I guess, a bigger question, you know, I guess what other, you know, areas of the market outside of, you know, sports leagues, either private or public look interesting at the moment for you guys? You know, I guess the Computer Services investment, was the most recent one in the technology space, but, I guess, are there anything in other sectors that you're looking at or have an eye towards?
Yeah. Well, I mean, I'll just say kinda categorically. There are quite a few technology software companies. I call them verticals, not enterprise software companies, but vertical software companies in the areas that we like, supply chain, healthcare, and so forth, that are trading way below their IPO price. It's what's fascinating is you've seen an inversion of public valuations and private valuations where the publics are substantially lower, and you're starting to see LBOs happening. We, you know, we see some opportunities. Without naming names, we see some opportunities in there. Sort of, you know, smaller $1 billion-$2 billion, usually software or tech-enabled services companies, in areas like healthcare with big, you know, big, big market share.
We like those a lot. The unfortunate problem is to make them work, you usually have got to put some debt on the balance sheet, the market there for high yield is still pretty haywire. you know, we don't have anything imminent for that purpose, for that reason. We're mostly just trying to keep stuff warm for when the debt capital markets, you know, come back somewhat.
Got it. Okay, thank you for your thoughts. Last question. Obviously you guys been active buying back stock. Just quick question, what is the, I guess, remaining amount on the buyback authorization?
9 million. Little short of 9 million shares.
Got it. Thank you.
Is that right, Ryan?
Yes.
Our next question is from John Campbell with Stephens Inc.. Please proceed with your question.
Hey, guys. Me again. I got two quick ones here. How much of a commitment for FC Lorient and I don't know if you guys disclosed the % ownership.
We didn't disclose it.
Okay.
It's a minority, but it's a substantial minority, and we got the right to own more. I think eventually we've got the right to own control. Correct?
Something like that. Maybe, maybe not. There's a different liquidity option for the future.
Yeah, we've got different liquidity options.
Okay. Helpful. Really good work on the successful AmeriLife monetization. It sounds like you guys are retaining about 5% of that interest. Are there any lingering payments, I mean, more proceeds you guys expect from here? Is that $243 the extent of it?
No, we're done.
Okay.
It was a great trade. Great trade.
Okay. That's all I got. Thank you, guys.
Thank you, John.
Thank you. Our next question is from Kenneth Lee with RBC Capital Markets. Please proceed with your question.
Hey, good evening, and thanks for taking my question.
Hey, Ken.
Hey, how's it going? Just one on Black Knight Football again. In terms of the LP interest, is there any kind of expected revenue streams in the interim or should we consider this as similar to either an equity kind of investment, and also as well?
We don't expect a dividend or any sort of revenue streams out of that asset, at least not in the foreseeable future. They're gonna need the capital for operations and players and so forth.
Gotcha. Just, relatedly, any financial commitments, or obligations otherwise?
With respect to Black Knight Football?
Yeah, with Black Knight Football.
We've disclosed our obligations.
Yep. It's just the $40 million.
If there's anything outside of disclosure, it's $40 million-
$40 million.
That's due in the summertime. Other than that, there's nothing.
Gotcha. One final follow-up. Given the ownership of FC Lorient and AFC Bournemouth and you, I think you alluded to having a minority ownership in FC Lorient, but then that could be converted to a majority ownership down the line. Is there any kind of potential impact from the UEFA rules around multi-club ownership and participation in, I think, you know, the Champions League and things of that sort?
Oh, way to go, Eugene.
Yeah.
Way to go, man. That was the question of the day. You're gonna stuff Caswell. That's great.
I like where that question's going more than the first one. As of now, given where the teams are, champions, the champion, Champions League ambition are probably a bit away. Obviously, or maybe not obviously. You know, you can only have one team that's playing in the Champions League. Neither of our teams are there today. Lorient's closer, and we don't, as you said, we don't control it. I think it is something that we thought about. Our teams need to perform quite a bit better before that's something we really need to worry about. We hope that they do, by the way. It'd be a high quality problem.
Gotcha. Gotcha. Fair enough. Thanks again. Really appreciate it.
Thank you. Hey, thank you, Ken.
Thanks, Ken.
As there are no further questions at this time, I would like to turn the floor back over to Cannae Holdings management for closing comments.
Thank you very much, interested parties and shareholders, in our story. We're, you know, we're working really hard to create some value for our shareholders, never hesitate to give us a call if you've got more questions.
Thank you very much.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.