Cannae Holdings, Inc.

Good morning and welcome, ladies and gentlemen, to the Kenai Holdings Second Quarter 2020 Earnings Conference Call. During today's presentation, all parties will be in the listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Shannon DeBean, Investor Relations for Kenai Holdings. Please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate your participation in our second quarter 2020 earnings conference call. Joining me today are Kaniyia's Chairman, Bill Foley, Chief Executive Officer, Rick Massey, Executive and Vice President, Corporate Finance, David Ducamin, and Chief Financial Officer, Bryan Coy. As a reminder, a replay of this call will be available through 1159 p.m. Eastern Time on August 14, 2020. Before we begin, I'd like to remind you that this conference call may contain forward-looking statements that involve a number of risks and insurgencies. 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 managers' 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, which was released this morning, and in the statement regarding forward-looking information, risk factors, and other sections of Kaniyia's Form 10-K and other filings with S.E. States. Let me now turn the call over to Bill.

Thank you, Shannon. Through the second quarter, we continue to monetize investments, nurture our portfolio companies, make new investments, and prospect for future investment opportunities. During my career, I have endured many challenging environments, all of which helped shape my investment philosophy. Despite a more uncertain economic outlook, our strategy is unchanged. As a result, Kenai was built with a fortress-like balance sheet to weather the storm and take advantage of market dislocation. Over the last few months, we have seen our deal pipeline expand and are pleased with our new investment opportunities we have both been presented and sourced. Given this backdrop, we have made real progress deploying our capital into attractive investments that we believe will grow the franchise value of Kenai. Our primary accomplishment in the second quarter was the initial public offering of Dun & Bradstreet, or DNB, where they listed their shares on the New York Stock Exchange on June 30th at a price of $22 per share, having raised $2.4 billion in net proceeds. Kenai invested in a concurrent private placement at a share price of $21.67 and currently owns approximately 18% of DNB. Kenai's ownership position is valued at $1.95 billion. Given D&B's closing price of $25.50 on July 31, 2020, we look forward to continue supporting D&B's strategic transformation and growth. To capitalize on the many larger investment opportunities we see, Canai entered into a forward purchase agreement with Foley, Trasmeen, Acquisition Corp., or FTAC, in which Canai now has a 20% share of the promote. As an anchor investor and a member of the sponsor group, we look forward to working with our partners at THL to identify prospective target businesses with the industries of financial technology or business process outsourcing. We are actively evaluating targets for this capital pool and will update you once we have a definitive agreement with a target. In addition to Kenai's investment in FTAC, Kenai entered into a forward purchase agreement with Trevia Acquisition Corp., or Trevia. in which Kenai is an anchor investor with a 15% economic interest and a founding member of the sponsor group. Again, we look forward to working with Frank Martieri and the team, lending our experience with this transaction. More recently, earlier this week on August 3rd, Kenai entered into a forward purchase agreement with FDAC Acquisition Corp. II for $150 million on similar terms to Trivia Corp. Subsequent to the quarter end, Black Knight announced its definitive purchase agreement to acquire Optimal Blue, a leading provider of secondary market solutions and actionable data services for an enterprise value of $1.8 billion. Black Knight will combine its Compass Analytics with Optimal Blue, a newly formed entity in which Canai will own approximately 20% ownership interest for an equity contribution of $290 million. Lastly, Kenai disclosed ownership interest in partnership with Senator Investment Group of approximately 12 million shares and economic equivalents in CoreLogic during the second quarter. On June 26th, Kenai, along with Senator Investment Group, submitted an unsolicited proposal to acquire CoreLogic for $65 a share, a $37.3 million share price. After spending nearly a year performing extensive outside due diligence, There are no material uncertainties to our proposal, including financial or regulatory. We are disappointed that CoreLogic has declined our proposal. Subsequent to quarter end on July 29th, we announced the initiative and process to call a special meeting of shareholders in order to elect nine independent and highly accomplished directors to the CoreLogic Board of Directors. Unfortunately, given where we are in this process, I am unable to provide any further updates at this time. or answer questions regarding this matter. To finance these investments and further rebalance our portfolio, we sold 3.7 million shares of Ceridian at a price of $64.40 a share. This resulted in gross proceeds of approximately $238.3 million and we recorded a gain of $53 million. As of July 31, 2020, Kenai owned 16.1 million shares of Ceridian stock worth $1.3 billion. We also completed a secondary offering of approximately 12.65 million shares of Kenai, in which we raised proceeds of approximately $455 million. This offering helped us broaden our institutional shareholder base, provide capital to fund future transactions, and reintroduce the Kenai story to the investment community. To conclude, we have made significant progress expanding our portfolio of investments, which we believe positions Kenai for continued value creation and outperformance. We are well-positioned to deploy our capital as potential deals arise, and we remain very optimistic about our future. Before I turn the call over to Bryan Coy, our new Chief Financial Officer, I want to first thank Rick Cox for his service to Kenai. Rick resigned from the company two weeks ago, and we are excited to have Bryan join our team. I've gotten to know Bryan very well over the course of the last few years, as he is the CFO for Black Knight Sports Entertainment, the Vegas Golden Knights. and I look forward to working with him in his role at Kenai. With that, I will now turn the call over to Bryan to provide a brief overview of our financial results.

Thanks, Bill. I'm looking forward to working with you and the team here at Kenai. Turning to our results, the major items of note were similar to the preceding quarter. Market-to-market gains in our investments and equity in the earnings and losses of our affiliates. Kenai recorded $471 million of fair market value gains on Ceridian stock along with $53 million of realized gain on the shares sold during the quarter, complementing $42 million of unrealized gain on our investment in CoreLogic stock. From our unconsolidated affiliates, Kenai recorded a $56 million loss from Dun & Bradstreet and a $138 million gain on its investment in the equity fund, offset by smaller items for a net $58 million in earnings. On a liquidity front, we entered the second quarter with $399 million in cash. As Bill noted above, Kenai created liquidity by selling 238 million of Ceridian shares ahead of a 455 million equity offering of its own, offset mainly by an additional $100 million investment in the equity fund. That provided Kenai with nearly $1 billion in corporate cash and short-term investments at quarter close, as well as $100 million of undrawn capacity under the F&F revolver. Of that amount, a total of $225 million was committed during the quarter to FTAC and Trebia, and in early July, $200 million was deployed via the D&B private placement. Subsequent to quarter end, our $290 million forward purchase investment in Optimal Blue, as well as a forward purchase agreement on FTAC II for $150 million. During the quarter, we repurchased over 123,000 shares of our own at an average price of $29.37. On June 30, 2020, Kenai's book value was $3.1 billion, or $34 per share, as compared to $1.5 billion, or $18.72 per share, on December 31, 2019. Now let me turn the call over to Duke, who will touch on our pipeline and potential investment opportunities. Thanks, Bryan.

As evident in our second quarter performance, the Kenai team is kept busy. In addition to the transactions we've announced publicly, we've been busy behind the scenes looking for our next deal. We've screened literally hundreds of potential transactions, both public and private. We've met with CEOs, private equity owners, large public institutional shareholders, and we believe this is a great time to deploy capital. We find that current owners are, in general, marginally more willing to transact with us as their long-term outlook is increasingly more uncertain and their strategies and, in some cases, leadership needs to change. We at Kenai are buyers of long-term value. We have no maximum holding period for an asset, as evidenced by a lot of our historical investments. Our outlook, coupled with built operational expertise and deal-structuring creativity, is a one-of-a-kind asset for Kenai. I should also add that we can act quickly when needed, We're not a bureaucratic organization, and Bill has a robust bench of managers and industry experts, all of whom help us be decisive quickly on transactions. We believe this makes us the preferred counterparty for sellers and businesses in need of capital. Our focus for new investments will be primarily in the industries Bill's discussed, related to payments, data and analytics, and fintech. We're looking for companies with enterprise values ranging from $1 billion to $10 billion and our equity checks have generally been in the $100 to $500 million range. But as you've seen through the various SPAC and other JV partnerships that we've sponsored, our economic firepower actually far outstrips our existing liquidity. It's important to us that our targets have defensible market positions and the ability to benefit from the leadership and capital Bill brings to the table. We'll be back to update you as soon as we have a definitive agreement with a target to announce. I'll now turn the call back over to Grant, our operator, to begin the Q&A session.

We will now begin the question and answer session. To ask your question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from John Campbell with Stevens. Please go ahead.

Hey, John. Hey, guys. Good morning. And, Bryan, congrats on the new role. Looking forward to working with you. You guys must have a pot of coffee brewing about 24-7 at the Transamine offices. It's been a really, really busy past couple months for you guys. But I just wanted to get your latest thoughts on a couple of the moving parts. And if we could just maybe start with Optimal Blue. I'm sure we're going to hear a lot from Black Knight next week, but How do you see Optimal Blue transforming the Black Knight model and then the value proposition? And then any thoughts on the kind of Ice and Ellie combo that was announced last night?

Sure. Well, Duke, why don't you take the Optimal Blue piece?

Yeah, so we think this is a transformative deal for Black Knight. OptalBlue really has the industry-leading set of what they call PPE tools, product pricing engine tools, for mortgages. So as you know, Black Knight has a dominant position in mortgage processing. We think they have a very defensible moat, and this is a high-growth product that we think they can bolt on to their existing offering and, frankly, accelerate the growth of that business even further. on the ice in the Ellie May piece of

Both Ellie Mae and Ice were involved in the Optimal Blue mini-auction. We basically preempted the stage and made a firm proposal of $1.8 billion until the seller gave Black Knight exclusivity. So I think you could say that the reaction by Ice and by Ellie were probably in part due to the fact that they were not able to acquire Optimal Blue. and I'm sure that LA will be a very nice asset for ICE. I mean, they're a major competitor. They're a well-run company. And they've now taken another player basically out of the marketplace and combined it with themselves. So congratulations to ICE.

Yeah, that makes sense. I couldn't agree more. How should we be thinking about the various SPACs and kind of how they play into Alpha and Blue and then maybe CoreLogic? Or is there a pretty big pipeline beyond those two?

No, there is a big pipeline. And we're kind of, as you said, we're brewing coffee all the time because we're looking at so many different transactions kind of all at once. And what I like to think about is in terms of developing a vaccine. Phase one for us in terms of the SPACs was for the launch of Trasmine 1 in late May through July 4th weekend.

We were

really screening and investigating various companies and trying to understand how a company might fit with our philosophy, management needed, what their growth prospects were. And then I would say we culled down from about 100 companies plus down to about 10 companies. And we began phase two, which was really dealing with the bankers on the various companies that were of interest. and we always went to the bankers that had presented the company to us in terms of a deck of companies, which is what most of them do. And we went to the bankers, we tried to deal with the sponsor representative at the particular bank to learn more about the core meaning or the core values of the particular transaction that we were looking at. Then I would say we started Phase 3 trials Really in late July, and that phase three means we started talking to management at the various target companies and evaluating management, evaluating their core business principles, their core offerings, and again, culling the herd down and then expanding the herd because there's oftentimes that something pops up and we accelerate a phase one review and get into phase two and then phase three. So at this point, just on the TRAS means SPAC, We've probably talked to five different management teams at this point, all of which are very interesting to us. We've got a couple of different companies that we're extremely interested in and that we're trying to pursue to see if a transaction can be developed with those companies. And now we have the advantage of assuming the markets and never want to assume anything, but if the markets stay with us for another week and a half or so, Then we'll have a second SPAC, which will be even larger than TRASMINE-1, and it gives us the ability to really expand our search process again in looking for large targets. All of these SPACs that we have, normally, if they find something that's interesting, it just won't be for the amount raised in the SPAC. It will include a pipe so we can reward our SPAC investors with a non-promote piece of the business. and plus we have a number of sponsors who are very interested in investing with us. So we really feel like we don't have a, there's not a top limit on what we can look at and what we can seriously consider. And I would expect us to make a couple of major acquisitions on or about year-end. I'm closing on or about year-end. So that's kind of the, that's the SPAC opportunity. And additionally, we continue to have Kani being a partner to both Black Knight and Dun & Bradstreet when they find different companies that they feel are interesting to them. It would be core to their expansion of their business. Then, Kenai stands ready to make the kind of investment we did with Optimal Blue of, you know, sub $500 million. So, that's kind of our philosophy. Kenai is like a sub $500 million investor. Trebia is probably a billion dollar investor and Trasmean 1 or 2 could be up to 4, 5, 8 billion, 10 billion investment opportunities. It's a long answer, but I hope I covered everything.

No, that was very good. It's amazing all this kind of started from a single, small, little title company. Last one for me, you guys closed the quarter at almost a billion in cash. Obviously, there's kind of a flurry of events here post-quarter. You're either, I guess, deploying or set to deploy about $640 million, and then that leaves you, I guess, with about $325 in cash post all this. Does that sound about right, or am I missing anything in that math?

I think that's right. Does that sound right to you, Brian?

That sounds actually a little bit high. We might not be counting the last SPAC in there, the $150 million for FTAC II.

Okay, got it. Of course, those... Those forward purchase agreements are deployed when there's actually an acquisition, so there's not a pending disbursement. Okay, great. Thank you, guys.

Our next question will come from David Eller with Wells Fargo.

Please go ahead. Hey, good morning, and thank you for taking the questions. I think you've kind of answered some of my questions in part, but, you know, I guess I'll ask them maybe a little different way, but... Can you just talk about your plans for your Dun & Bradstreet stake? I think you mentioned the $1.9 billion. What are your plans for that following the IPO?

Well, we're locked up for six months. The endgame in Dun & Bradstreet has not yet been told. Dun & Bradstreet is now in its own acquisition mode, and because of the size of the offering we were able to accomplish, Dun & Bradstreet has a half a billion dollars or so in cash available and can make some very accretive transactions so we feel the Dun & Bradstreet story is just unfolding and we don't have any plans to dispose of any of the Dun & Bradstreet shares we really feel like there's going to be a lot of value created in Dun & Bradstreet over the next 18 months and after that time period we would probably then start looking at a slow dispersal or disbursement of Some of the shares over a long period of time, just as we've done with Ceridian, where we started with about 39 million shares that we owned. And over the last few years, that share count has dropped down to about 16.1 million. What I don't want to do is, unless there's a serious need for a very large amount of capital, I don't want to leave the party too soon. And that's the way I feel about Ceridian, and I certainly feel that way about Dun & Bradstreet, which is... It's probably in the first or second inning of its turnaround, in my view.

Expectations there for how to allocate capital with that excess cash?

We don't have plans to, but we're locked into our senior secured notes and unsecured notes until I believe it's February of 2022. So we were able to do on the IPO, we were able to claw back 40% of those two debt instruments. And of course we completely prepaid the preferred It's expensive, but we need to get this balance sheet in much better shape. So I don't see us paying down the unsecured or secured until February of 2022 when we can do so, and there won't be a make-hole, because the make-hole is pretty prohibitive. So I see Dun & Bradstreet making tuck-in acquisitions and looking very seriously at the international market. As you may recall, Dun & Bradstreet was a significant international player across the world and over time they sold many of those businesses frankly to create a short-term gain so they could meet numbers but they really mortgaged their future. So we're very active in looking at international partners that may be ready to sell back to Dun & Bradstreet. So that's going to be a major focus of our acquisition strategy plus tuck-ins because Dun & Bradstreet needs to have more products, needs to develop products. If they can make a small tuck-in acquisition of a product that fits within their core offerings, then that's the way Dun & Bradstreet will really accelerate its growth and get some quarter-over-quarter serious revenue growth. So that's really the Dun & Bradstreet philosophy at this point, and a lot more will be revealed over the next two or three quarters as we move down that path.

Got it. And then last question for me, Optimal Blue, can you talk about the funding structure there, provide a little more detail? Will Black Knight raise debt themselves, or will that be raised in a separate box, or how do you expect that to be funded?

There will be debt associated with Optimal Blue, about $500 million. That debt will be raised by Black Knight and will be a mirror note into the subsidiary Optimal Blue at a premium interest rate. So Black Knight will raise money at X and will fund the transactions at X plus Y. And then the THL and ourselves that are 20% owners We're minority owners in a subsidiary of Black Knight, and Black Knight will own 60%. That's kind of the way we put together the structure. Logically, it would have been great if Black Knight could have acquired the company itself, but it would have really fouled up their debt-to-cap ratios. What we're trying to do is to keep Black Knight at 3.9 debt to cap with a way to see us down to the high twos pretty quickly. So that's really the reason for the structure. Great. Thank you for all the detail.

Our next question will come from Carter Trent with Stevens. Please go ahead.

Hey, guys. I just got one quick question. On the press release, I was looking at the cost of invested capital section. and notice the equity fund was broken out separately from CoreLogic. Just to confirm, is the equity fund separate from CoreLogic? Are they making their own investments in other companies?

Brian, Brian?

No, they're not. The equity fund is CoreLogic. It's CoreLogic, yes. Okay, okay, perfect. Awesome. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Bill Foley for any closing remarks.

Thank you for your time today. To conclude, we are very pleased with our second quarter results. I remain optimistic that the current market environment will continue to offer attractive opportunities for our team. Canai continues to vet potential investments that arise as we work to expand our portfolio and deliver long-term value to our shareholders. Please continue to stay safe and healthy, and thank you for your time today. The conference has now concluded. Thank you for attending today's presentation.