Cannae Holdings, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Canai Holdings Inc. First Quarter 2023 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, this conference call is being recorded as a replay and is available through 1159 p.m. Eastern Time on May 16, 2023. With that, I would like to turn the call over to Rory Remore of Silbury Strategic Communications. Please go ahead.

Thank you, Operator, and all of you for joining us this afternoon. On the call today, we have our Chief Executive Officer, Rick Massey, Kenai's President, Ryan Caswell, and Brian 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 Kaniyia'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 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 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 Kenai's Chief Executive Officer, Rick Massey, who will open with a few brief remarks and then open the line for your questions.

Hey, thanks, Rory. It's Rick Massey. Thank you all for joining the call. I'll try to be brief, but I'm going to stand on a soapbox here for a second. Everybody on these calls, including us, listen to a lot of earnings calls, and we've heard a lot of management prognostications on the market and the economy and all that. We're not dumb enough to get out and start making guesses about where Where the economy is headed, I'll say talking to the CEOs of the companies that we deal with, there's a lot of uncertainty out there. What we are convinced of is that our portfolio almost to a company is grossly undervalued. And I'm going to go through just a few examples of companies that have recently reported. Our largest holding, for an example, is Dun & Bradstreet. We've got 79 and change million shares. It's trading at a very low multiple of EBITDA, enterprise value to EBITDA. They reported a overall organic growth of 3%. That may or may not disappoint you, but if you look at their peers, you'll see that there are two U.S. peers in the consumer credit business, the closest peers to Dun & Bradstreet. One of them had revenue growth at 2%, and one had revenue shrinkage of 4.5%. Yet those two companies trade at almost twice the EBITDA multiple of Dun & Bradstreet. We're a little clueless about that. Dun & Bradstreet does not have that much more debt than some of its peers. It has a better margin. And like I said, it has better growth than its peers have shown. And what you'll see if you look under the cover on Dun & Bradstreet is Anthony and the team there have done an incredible job of turning around their marketing services divisions by using essentially a data management platform where customers can use their own data, third-party data, and Dun & Bradstreet data to perfect their account-based marketing. It's going like gangbusters. Hoover's had a 60% churn rate. That is a 40% customer retention rate just a few years ago when they set about to fix Hoopers. And it has a retention rate now in the 80s. So stunning turnaround for Dun & Bradstreet. And yet the market is selling it off. And it's really disappointing to us. We wish that there's more attention to be paid to Dun & Bradstreet because they've done a really nice job Under the covers fixing a very broken company, they've got it back to growth and growth faster than peers, and yet they've not been rewarded for that. Peers trade it, like I said, twice the multiple. I said I'd be brief. I'll try to be a little quicker. Alight reported today 15% revenue growth in the first quarter, 15%. Their BPAS, which is sort of their enterprise offering, multi-application offering, Their BPAS sales were up 50%. Their bookings were a little soft, but that's because they have had all these giant jumbo contracts that they've signed and are now in execution mode like Exxon and GE and others. So ADP, the closest comp to Alight, grew at 9%. This company, Alight, one of my favorites in the whole universe of stocks, grew at 15, and yet Alight's trading at about half the multiple of ADP. Go figure. It's a little depressing. We know that the market was disappointed that Stefan and the team at Alight didn't forecast or upgrade their forecast for 23, and I would just ask all of you and those investors to to listen to a number of calls that have been made in the first quarter and see how many companies who beat their guidance actually for the first quarter actually came out and raised for 23. In my own anecdotal experience, it's a very low percentage because of the uncertainty in the markets out there. And who can blame Stefan and Katie for not sticking their necks out and forecasting increasing growth in a choppy sort of economy. Look at C-Day. C-Day beat the market substantially in terms of its guidance and the stock's down 15% since their earnings call. You go figure. It doesn't make, it makes no sense It's trading in like the mid 50s now. And it's in our last sale, we sold a million chairs and 78 bucks. And that was a good trade. And we probably would sell another million at 78 bucks if it ever gets back there. But at 55, it's dumb. It's just a really dumb price. PaySafe, everybody's whipping child. Paysafe actually turned in high single digits, revenue growth, flat EBITDA growth, which is pretty amazing given the mess that Bruce and the team inherited. The stock's up a little bit, but they did, this is a business that did 420 million of EBITDA and 22. And on track to do even better than that and So it's kind of been thrown out with the bathwater too. So this quarter, we're looking at a lot of things. We are not sure it's timely given all the noise in the capital markets, especially the debt capital markets, and all the uncertainty in the economy on the back half of the year. So, you know, don't be surprised if we don't strike at something in the second quarter. And don't be surprised if we do. We did not buy back any shares in the first quarter. And it's principally because we don't have a lot of extra capital to do so. And in order to raise that capital, We're going to have to sell one of those aforementioned holdings at a very disappointing price. And we're just not that dumb. It doesn't make sense to sell down at Bradstreet at 10 bucks when it's worth 15. And so that you can go buy your shares back at a deep discount too. It just doesn't make sense to me. The math doesn't work. So you may be disappointed. Some of our investors may be disappointed we didn't buy back any shares. But we think it's just prudent portfolio management. Ryan Caswell is our president. He's been busy with our Black Knight Financial. I know there may be some questions about that. Where are we sitting? How's Bournemouth doing? Are they out of the death zone? And what's your view?

No, I think we talked about it last time. We spent some money in the transfer window. And the team has performed much better. So it looks like we are very close, if not out of the relegation zone, which is a great outcome. And we're doing a lot on the business side from a commercial perspective in terms of increasing sponsorships, thinking about optimizing ticketing revenue. And so we're very pleased with the football performance to hopefully stay up in the Premier League, which will allow all of the other stuff in the multi-club strategy to perform much better.

We think we got a steal on Bournemouth. Our Bill got a steal. He and Ryan were the ones that wormed their way into the process and got a deal. We paid .8 times revenues. The comps are now probably double what they were at the time, maybe five times. you're seeing people pay five times for small EPL teams. So that's going to turn out to be a really good one for us, and we're excited about it. I don't have anything else. Did I miss anything, Brian? No? Okay. Brian Coy, our CFO, is here with us. Unless you have anything to report, we'll just go to questions.

That's a good questions, operator.

Thank you. We will now begin our question and answer session. To ask a question, you may press Start and 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Start and 2. At this time, we'll pause momentarily to assemble our roster. The first question comes with Ian Zaffino with Oppenheimer. Please go ahead.

Hi, thank you very much. Hi, Ian. How are you guys?

Good, good. Great.

Thanks for all the commentary. This is helpful. And since you threw that out there, I'm going to press you a little bit on this. You know, you basically almost have 100% upside if you buy back your stock, right? And so, I mean, my argument is bird in the hand if you buy back your stock versus, you know, one or two in the bush. So... help us understand this, right? Because if I'm sitting here, I would rather buy back something that's worth half the price right now as opposed to sitting and waiting, kind of like what your prepared remarks indicate. So just square that and push you a little bit on your thinking there. Thanks.

I think the underlying assumption is that is that we are buying back at a 50% discount to book value. It's not clear that buybacks have any effect on market value. And I'll say we ran a grand experiment in 22 and we bought back, I don't know, 12 or 15% of our company, and the stock actually declined. So it doesn't seem, yes, if you buy our stock at 20 bucks and the net book value per share is 40 bucks, it's a theoretical double, but it's a theoretical double to book value per share And clearly, we don't trade on book value per share. And I would rather we think that the market for our stock is depressed, not because we don't buy back enough shares, but because our portfolio companies are poorly valued. And that's why our strategy is that's just before we go sell something, let's wait for it to hit, you know, the target price, the price that we sort of thought about when we went into the deals in the first place. I don't know if that satisfies you or not, but when you, when the, the assumption behind the it's a double, it's an instant double is only in the case of a liquidation and we're not in liquidation. And yeah, we could buy it at, we could buy it at 20. And then if we liquidate it tomorrow, we'd get 40 a share. So these are rough. I don't know what our actual stuff is, but it's 40, 42 or whatever. What is it? You tell me. It's 35 bucks roughly today. So 35. But that's only in the case of a liquidation. We're not in a liquidation. If the shareholders want us to liquidate, we'd be glad to listen to that. But even then, liquidating at these values would be It seems to me to be pretty dumb. You know, we're not naturally sellers at deep discounts.

Okay, understood. And then maybe a little bit in the same vein here. You kind of threw out the straw man of selling Dun & Bradstreet. You know, and this kind of dovetails into the next question is you sold some C-Day, but why not more C-Day? Why talk about selling down on Bradstreet and why not talk about selling C-Day or more C-Day or maybe just your thinking is different on C-Day.

Well, we sold a million. Great point. Great question. And I appreciate you pushing us on these because our credibility is everything. That's not to say – we sold a million shares. We've got five left, five million a year left. I'm not going to say, we can't and shouldn't say one way or another what we're going to do with that inventory, but it wouldn't surprise me for us to sell more. I think we'd prefer to sell it back in the $78 range versus the $55 or $56 range. And you might forgive us if we hold out a little bit to see if it doesn't bounce back to that. If you look at the chart, it's really interesting. Because they blew out their numbers and their stock's down 15% since May 3rd when their numbers came out. It doesn't make any sense at all.

Okay, great. Thank you very much. Sure. Thank you, Ian.

Thank you. The next question comes with John Campbell with Stephen Sink. Please go ahead.

Hey, guys. Good afternoon. Hey, John. Hey, Rick. You were on fire with the valuation rundowns on your soapbox. We agree with your stance there. You got a lot of puzzling kind of disconnects across a handful of these public investments, so we hear you there. On Bournemouth, I mean, obviously, great kind of run of things of late, you know, several points above that relegation line, so it does seem like you guys are in a good spot. I know you mentioned last call that I think you were kind of tongue-in-cheek, but mentioned existential threat if you were to go and be relegated, so that's a good outcome so far.

Um, Oh no, it wasn't a, it wasn't an existential threat for Brian and I, it was just for Ryan Caswell who's sitting here with us.

I heard that, heard that. Um, but in the, you know, in the past cause you guys have talked to maybe three to four times your investment, uh, on Bournemouth and you're talking about maybe a five, seven year type horizon. Um, and then Matthew, I think you've repeated twice that the implied takeout or the implied value is about 8.8 times revenues. So a really good price. Um, You know, when you look at man-use stock, I'm not close enough to that to determine whether that's, you know, pure apples to apples. But that one's at about five times revenues. And, Rick, I think you mentioned your perceived peer groups about five times. So that seems to kind of check up. You know, if you guys were to get that on Bournemouth, I mean, that's pretty substantial. I think it's about $8 for share of incremental value for you guys, about a 40% boost.

I was just doing the math in my head. Yeah, I think you're in the right range, John.

Yeah, so that seems to be a pretty meaningful opportunity. I mean, obviously – As we assess the portfolio, the lion's share of the value is kind of tied to public assets. We can see the price day to day. On the private side, that's where there's maybe a little bit of extra torque. Bournemouth seems to be the clear opportunity here. So my question here after that rambling is, what do you think the steps you guys need to take to juice the revenue to get things going where you think you can eventually be awarded that five times valuation?

Ron will handle that. Yeah, I mean, I think when we took over Bournemouth, if you looked at the commercial side of the business, it wasn't run as well as we would have hoped or as well as we think that we can do it. So we believe that was a big opportunity. We've hired some people over there specifically focused on that. Clearly, part of the thesis is you have to stay in the Premier League to get that valuation, which we think we're doing. We also believe that building out the multi-club model, which started with our investment in L'Orient, and we're looking at a few others, we think that further cements and helps the value because it helps create sort of additional sponsorship to build, to make your brand look more like some of the clubs if you look further up the standings or the table. So, look, I don't think we can sell it. I don't think we're looking to sell it tomorrow. I think there's some work that we need to do, but we think we're very much on the way in terms of, one, requalification for the Premier League, secondly, building out all of the commercial side of the business, and then really taking the learnings from the Vegas Golden Knights and kind of super, excuse me, enhancing what they were doing. But, you know... I don't think it's a, and I don't think we could flip it today, John, but I think we are creating the value to get to those comparable transaction multiples that you mentioned earlier.

Yeah, John, we were kind of thinking of this as a, you know, five to seven year hold. And, you know, kind of three, four times our money as sort of a baseline IRR. I'm not promising that, but that's what we were thinking. It's going to take a while, but you've got the best. You know, Bill brought, what's the guy's name?

Jim Pravola.

Jim Pravola over there from the Knights. And according to Bill, he's already working magic. And Pravola was ran with the business side. I mean, I don't know, you call it the revenue, the tickets, sponsorships, concessions, food, beverage, all that stuff. Correct. And they were more of mine. They were unmanaged over there. So there's a long way to go on the downside, but there's a lot of upside. Yeah, I agree.

Yeah, makes sense. That seems like a very promising opportunity. So we'll be keeping tabs on that. And this is one just kind of minor housekeeping item, but I noticed in the shareholder letter last go-round, I think you guys said a 50.1%, so a majority ownership position in BKFE. It looks like on the April update and also in the shareholder letter, it's saying 49%. Obviously not a big difference.

Yeah, I just took those extra shares and put them in my pocket, John. Now, what happened was the company established, as with all companies that we're associated with, a management incentive plan with equity for people like for Ebola. And we were slightly diluted by that. And we wrote a check this week to get us back. It was a three and a half million bucks to, to get us back to 50.1%. Good catch. Okay. You're reading our stuff. We appreciate it.

Yeah, absolutely. And then the last one here, and this is another housekeeping item, but the 133 million commitment you guys have called out for BKFE is, That includes both Bournemouth and Lorient, right?

Yes. And there is in there that we have to pay the seller of Bournemouth another check, another 20 for staying in the Premier League. Staying in the Premier League, yeah.

Okay, and that's incremental to the 40 that's already planned for free queue?

Nope, that's included.

Okay, included. All right, that's all I got. Thanks, guys.

Thank you, John. Appreciate your interest.

The next question comes with Chris Sakai with Singular Research. Please go ahead.

Hi. Good afternoon. Hi, Chris. Just wanted to ask about potential investments. Where are you seeing better valuations now in public or private investments?

I don't think the private market has adjusted its valuation expectations to where you see a lot of publicly traded companies trading right now. And all I have to do is refer to the portfolio discussion that I had at the outset. Those are public companies, and they've just been crushed. And we don't think the internal valuations that PE has have gotten anywhere near that.

Okay.

You're likely to see us do. You're likely to see us. There are some privates out there that we're looking at, but you're likely to see us probably tilt toward the kind of go private model or investing in public companies at these depressed prices versus the kind of crazy prices that we're still seeing with PE. But I want to emphasize, go privates depend on the functioning debt capital markets, and that's not going on now. They're just not. Nobody's doing deals now. It is totally dead.

Okay. Yeah, thanks for that. And then can you mention or provide some color on where you're looking for your next investment?

Not without getting too specific enough that we're still, I'll just say we're still, Ryan and Bill are, are definitely looking at building out the multi-club strategy. And I like the idea of building a multi-sport business under Bill and Ryan's leadership. And so that's one area that I know that there's been a lot of time on. I'm kind of spending my time on the traditional sports I would call it traditional Bill Foley companies, Chris. Utilities, tech-heavy, either tech services or just pure software. And another thing is we start our investment approaches at home, and it may be that some of the best investments we make over the next year could be in some of our existing portfolio companies.

Okay, great. Thanks for the answers. Thank you.

This concludes our Q&A session. I would like to turn the conference back over to Mr. Rick Massey, Chief Executive Officer, for any closing remarks. Please go ahead.

I want to make sure that we've not... Ms. Operator, we've got another... We usually have RBC on the call. Are they... I don't want to drop off if they have a question. So can we have a moment of silence for our group there and see if they want to ping in on us? And if not, I'll say thank you. Thanks for joining us. Thanks for your interest. I hope you see the value in our stock and in the portfolio that we have. It's clearly there. And we're excited about maximizing that.

Okay. All right. I see here that we do have another questioner. Okay. So it comes from Kenneth Lee with RBC Capital. There we go. Please go ahead.

Hey, guys. Good afternoon, and thanks for taking my question.

Sure, man. We knew you'd probably be on the call, but we didn't want to just hang up without giving you a chance to badger us one way or another.

Absolutely. Appreciate the time. Just one on the AFC and Bournemouth. As you look out further, and perhaps this also goes with the other clubs as well, how dependent are the profitability of club ownership, how dependent is it going to be upon the enforcement of UEFA fair play regulations? I just want to gauge your thoughts around that. Do you need to have fair play strongly enforced, or are your projections pretty able to handle it without a strong enforcement there? Thanks.

Yeah. I mean, I think there's a few different components of UEFA Fair Play, but in general, a lot of that stuff is aimed more at the big clubs and people who are spending a lot of money to try and get into European competitions. You know, I think it's a little bit less focused. You know, obviously, everyone has the same regulations, but it's less focused on the smaller teams. And frankly, I think it probably helps the competitive balance for smaller teams on the margins. So we've definitely thought about it. It's definitely incorporated in our projections. And, you know, I don't – I think there are other teams that are going to have bigger issues with it than Bournemouth Woods.

Gotcha. Gotcha. Very helpful there. And one follow-up, if I may. Okay. Is there any thoughts around the legacy restaurant business? What are your longer-term thoughts there? Could we potentially see some either some actions or view around that business? Thanks.

Hey, Ken, this is Brian. I mean, the one thing I'll say is that our restaurant group has just done a yeoman's job in the last 24 months. They've faced a pandemic they've faced great labor crisis they've faced commodity and late literally facing inflation they've done a great job we've closed just year over year they closed 17 restaurants that were underperforming and had a drag on the business uh and it's had great effects they you know average average guest check they've raised prices average guest checks up nine percent um i think they're doing a yeoman's job in an industry that just had unprecedented and it's passed a couple of years. We like the business. I don't know that we're going to be in it long term, but with what's been going on the last couple of years, it's definitely not been the right time to think about moving it. But we're very happy with the way that they have managed through that.

Gotcha. Gotcha. Very helpful there. Very helpful there. And one last question.

Can you ask all the questions you want? Our time is yours. We appreciate your interest.

I really appreciate it again. Just looking at a higher level, just based on all the comments early on the call, would you say that further monetizations within the portfolio, is that going to be predicated upon improving valuations or or would a deeper discount in your own shares cause you to review further? I just want to, once again, gauge what could be the potential catalyst down the line in terms of further portfolio monetizations. Thanks.

That is a really good question. And the answer from, and Bill may have a different point of view, but Our job is to manage the portfolio of companies that we have, and it's really hard to work on a dual track where you're watching out for your own shares and the discounts there. We think we get paid to maximize the value of the portfolio, not the shares, and so our I would say the vast, it's yet, the answer to your question is yes. It's like, but I would say it's like 70%, this is me, 75% of that's dependent on about portfolio valuation and 25% stock valuation. So that's kind of the way we look at it. It just doesn't make a lot of sense to sell shares of Dun & Bradstreet at $10 down here at half the multiple that it's comps trade so that we can buy our shares back or sit on cash or do whatever else there is with it. Or make another investment. It doesn't make a lot of sense. We think that the market's going to eventually reward both Kenai and Dun & Bradstreet with Dun & Bradstreet. And we think it's going to reward both canine and a light with a light.

And hopefully they'll happen together and we won't have to choose.

Gotcha. Gotcha. Very helpful there. Thanks again.

Well, that was a helpful question. And you're helping us sharpen the way we think about this. And this is hard. These are hard questions that we have to answer. These are hard.

Right now, it just feels dumb to sell any of these things at anywhere near the prices that we're talking about.

And with that, we conclude our question and answer session. I would like to turn the conference back over to Mr. Rick Massey for any closing remarks. Please go ahead, sir.

Okay, I think I already did, but thanks a lot. Thanks for your interest, and we look forward to speaking with you again next quarter. Obviously, any of you want to have some side chats with us, work through Rory and Brian to set something up. We'd be happy to talk. So have a good rest of the day.

This concludes today's conference. Thank you for attending today's presentation. You may now disconnect. Have a good day.