Fidelity National Information Services, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Kenai Holdings, Inc. Third Quarter 2021 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 and a replay is available through 1159 p.m. Eastern Time on November 23rd With that, I would like to turn the call over to Jamie Lillis of Solberry Trout.

Thank you, Operator, and thank you to all of you joining us today. On the call today, we have our Chief Executive Officer, Rick Massey, and I's President, David Ducamin, and Brian Coy, the company's Chief Financial Officer. Before we begin, I would like to remind you 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 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 the 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 Kani's CEO, Rick Mastey, who will open with a few brief remarks and then open the line for questions.

Rick Mastey Okay, thanks, Jamie. Bill is, our leader, Bill, is momentarily delayed. He's actually off working on He hasn't excused us because he's working on a canine business or maybe a potential piece of canine business. So he may join us, he may not during the call. So you've got the backup quarterback today. Before we start, I just want to refer you to what we think is a pretty nice document, our third quarter quarterly update. It's on our website. It's got a lot more detail about our numbers. our portfolio companies, Bill's outlook on the business, recent events, and so forth. It's going to cover a lot more detail than we're going to be able to on this call. I always want to start off by acknowledging that both Duke and Brian do a really nice job on that. You know, we're an active manager, and results of our active management approach began with this quarter with Dun & Bradstreet's third quarterly results, which were driven by an acceleration in organic revenue growth, which we believe is a key to improving the company's multiple valuation. We think eventually they're going to get a re-rate as their organic revenue continues to accelerate. In the quarter, they grew revenues 22 percent. They had adjusted EBITDA growth at 12 percent, both compared to the third quarter of 2020. The best part of the story was their organic revenue growth accelerated to 3.7% in constant currency as compared with about 120 basis points below that in the second quarter. That was 3.3, sorry, not 120 basis points. The growth is all an execution of Anthony Jabbour's strategy. which is continued growth in international. They got low-digit growth in North America, and they got that from what he calls the four horsemen. They added new logos. They upsold new products to their existing enterprise customers. They affected price increases, and they continue to grow their products small and medium sized marketing business. They have a lot of organic growth momentum and we believe that's gonna accelerate through 2022. You know, it's been said that D&B is a show me stock and we believe they're beginning to show you. So we're happy owners. I'm happy to own it personally. I know a number of you on the call own it. I think you're gonna be happy shareholders. It's been sort of some dark days here lately, but they're coming out. We believe they're coming out of the ditch, and it's going to be a great stock to own. We're also pleased with Alight and Ceridian. They posted great results this quarter. Alight reported earlier today 20% revenue growth in their BPAS revenue, which is their enterprise software platform. They had a 42% increase in in BPAS bookings in the third quarter, so incredible growth in the growth engine of Alight. They actually reported that at the end of the third quarter, they had achieved already 99% of the revenue that they had originally projected to achieve for the full year. So we're obviously, we're really happy with this company. They've done a few deals to expand their product offerings. Those are listed in the quarterly report and in their own press release, but that was Benify, Consumer Medical, and the Aon Retiree Health Exchange. We think Stephan and his team, Katie, Katinka, are best in class, and we share his vision, Stephan's vision, with the unlocking the power of Alight's BPAS platform. And it's funny because we were just talking, Alight started this year or started out as a public company. They talked about organic revenue growth of 1% for 2021. Then sometime in the second quarter, they said, well, we're going to get maybe 3% revenue growth, 3%, 4%, maybe up to 5%. Then today they got it to 5% to 6%. and 2021, and that obviously boats very well. I don't think they got it for 22, but you can expect the revenue to continue to accelerate. This company, in my own personal opinion, is going to be a high single digits grower in the very near future. That's going to get you a re-rate, a much higher multiple of EBITDA, and we think you're going to be a very happy owner there. Ceridian continues to deliver consistent results and continues to gain a wider following as evidenced by their inclusion in the S&P 500. This is an affirmation of their consistent growth and outstanding leadership. Their cloud revenue increased very strongly in the third quarter, which supports our belief that Ceridian has a long runway ahead for value creation and growth. And we're very excited about the bill in particular. We're very excited about the prospect of their wallet product and its expanding feature set. CDA is up almost three times in the past five years, and it represents a moik from our original investment of, what, 11 times? More than that? I'm sorry, I didn't write the number down, but it's incredible. David Ducamin, our president here, is... is the man in charge of our Sightline investment besides Bill. And I particularly, and we are all very excited about it. The Sightline is that we put in 240 on a $1 billion post-money valuation, and Kenai now owns 33% of Sightline. It is the provider, the lead, maybe the only provider of cashless payment solutions to online and physical casino gaming betting markets. Its solution includes cashless payment methods for slot machines and table games and casinos, plus payment methods for iCasinos and online sports betting. We're very impressed with management team there. We think this ultimately is a public company, don't we, dude? And they're really, everybody says transformational. This company is transforming the payments business inside of these casinos from cash and ATMs and all this old school cash advances and so forth to a slick digital wallet. It's a very exciting business. PaySafe, another one of our portfolio companies, announced several wins across digital commerce verticals as well as three acquisitions that broadens their position in e-cash and open banking. and they report Thursday morning before the market opens. Trebia's merger with System 1 continues to move forward. They're in the middle of the registration process. We think that's going to happen kind of fourth quarter of this year, first quarter of next year. I got a chance to meet Michael Bland, very impressive, very smart guy. It is not an easy business to understand. We're going to ask you to have the patience to study this business because we think it's a rule of 40 company, but it also generates a gob of cash. That's a pretty rare combination. We like the business. We think it's durable. We like the management. We think it's going to be a lot bigger. We're encouraged with our progress as we work with our management teams to unlock the value within our portfolio, but we know we've got a lot more to do, and we, and particularly Bill, will remain engaged in supporting our portfolio companies. I'm going to mention this again, but I can't go without mentioning our portfolio conference next month. All of our significant portfolio companies will be organized, as well as Black Knight and F&F. It's here in Vegas on December 8th. If you have not been invited and would like an invitation, I'm sure Jamie can get you there or Brian Coy, our CFO. So with that, we're ready, operator, for Q&A.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate the 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 key. Our first question comes from the line of John Campbell with Stevens. Please proceed with your question. Hey, guys.

Good afternoon. Hey, John. Rick, you mentioned the backup quarterback comments. I think Brady coming in for Bledsoe, you know, several years ago, I think that worked out all right.

I think we're in good hands. No, I would say this is more like Bledsoe going in for Romo.

I got you. In the shareholder letter, I noticed the cash balance. You guys mentioned as of yesterday that was $81 million. I think you ended the quarter $173 million holding company cash, and then you picked up the $120 million or so of the C-Day shares sold a couple weeks ago. It looks like a pretty big deployment there. Was that just to pay off the debt? Is that kind of a short-term thing, or is that a new investment maybe you can shed some light on?

John, this is Brian Coy. We entirely paid off the margin loan in October, all $200 million of it.

Okay, that math scores up. And then outside of the C-Day monetization you guys did a couple weeks ago, it looks like you've got a couple more coming. You've got a partial legendary baking sale, and then you've got the TripleTree deal. You guys have been busy. I think you're always busy, but just curious about the expected gross proceeds from those deals and any other ones I might be missing here.

Hey, John, this is Brian. Proceeds we'll get this year on that will be probably less than $50 million all in. We've got some earnouts that will come in the two or three years ahead and another, I think, combined with all of the properties in there you mentioned, maybe another $5 to $10 million that will come in January.

Got it. And then, you know, a question I think we ask quite often is, You know, things tend to be fluid, so I think the answer to this might change here and there. You guys probably are going to address this in a couple weeks in Vegas, but just talk to me a little bit high level about the investment strategy and just kind of the way you think about it going forward. I mean, you guys were very heavy in SPACs late last year, and then, you know, the latest large investment was back on the private side with Sightline, which looks like a really enticing type deal. Is that a shift in strategy, or is it going to kind of You know, will it come and go depending on what the market's giving you? Just any kind of high-level thoughts there.

You know, we're opportunistic investors. If you go back and look at 2020, I would say in 2019, as you told us that we were going to do, what, four SPACs and have two deployed and two looking, that would have been a surprise to us. We're not... We're gonna get these two that we have open. We're gonna get those deployed, but I'm not sure we're gonna go back into that realm. Our bread and butter has been and probably will continue to be, John, making private investments in companies, having more influence on their management, more likely taking stuff that looks more like control positions or at least shared control with management or founders. That's kind of where we cut our teeth, and that's where I think you'll see us heading. And it's not to say we won't do another SPAC, but, you know, that gold vein is going to run out eventually.

Yeah, makes sense to me. I'm going to jump back in the queue. Thanks, guys.

That's all you had?

I'll be back.

Our next question comes from the line of Dean Zafino with Oppenheimer. Please proceed with your question.

Hi, Greg. Thank you very much. You know, as far as the SPAC comment you made, there's still a SPAC that hasn't found its target yet, right? What should we expect there as far as the consummation of a deal or announcement of a deal on the ASC? ASC...

We have identified and have had discussions with a number of very attractive targets. We have identified a number of others. People are still wanting to talk to Bill and partner with us. And we are going to be patient about it, in part because we've got plenty of time. The ASZ is not even a year old yet. And we're a little nervous about valuations right now. So we're disciplined investors. And so, yeah, we're not going to let it right, and we're not going to get in a hurry and cut corners and not do something that's going to meet bill standards. But there are There are plenty of companies out there. Believe it or not, as fished out as the SPAC market might seem, there still are companies that will only talk to us. When we compete, we're not competing with other SPACs. We're competing with IPOs and M&A.

Okay, great. And then as far as capital, the private investments now, You also have a buyback in place. How are we thinking about maybe shareholder returns versus alternative investments out there?

You know, we're in a spot – I kind of – let me – I want to answer your question, but I want to twist it just a little bit. We've got – presently we have two backstops out there, and we are – We have the resources to satisfy those backstops. And within the next few weeks, we're going to have a much better picture of the extent to which those are going to be called. And that's going to give us a much better picture of how much available capital that we have for other investments and how much we have for buybacks. But their other investments and buybacks are always going to be on the plate. And we're always going to think about them. And we're always going to think about the return on an alternative investment and the return on buying our own stock back. And I'll say the return on buying our own stock back, even at 36 and change, still looks pretty good to me.

All right, guys. Thank you very much. I'll hop back in here.

Thank you, Ian. Thanks for your interest. Is that – John, I know you had – you may still be on the phone. I know you had a question around all that. I hope I answered that one too.

As a reminder, ladies and gentlemen, it is Star 1 Now Ask Your Question. Our next question is a follow-up from John Campbell with Stephen. Please proceed with your question.

There we go. Told you I'd be back. Yeah, well – One last question for me. I've got kids myself. I know it's impossible to name your favorite child, but in the past, you guys have kind of called out. You've pointed to Alight as one of the top risk-weighted return potentials out of the portfolio. Obviously, it's had a really good move. It's good to get past the D-SPAC event and all that stuff. It feels like it's got a lot more to go, but considering that move and then considering some of the disconnects you guys are seeing across the portfolio, I'm curious if Alight still holds that throne or what else might kind of stand out to you guys at this stage?

You know, this is just me and not Bill and not Duke and not Brian, but I still love a light. You can see the results. You go look at what they reported this morning. They were just knocking the thing out of the park. We love the management team. It's a big idea. I do think they're going to get a re-rate. I do think they're going to hit high single-digit revenue growth eventually. And I think eventually some – some big-ass company is going to come buy them. So hopefully we'll get a double or a triple and then that happens. But I'll say me personally, and Duke knows more about this than I do, this Sightline investment could be a real – it's growing like a weed. It also is a big idea, a big total addressable market. It's got the only real product in this whole cashless – cashless gambling, casino gambling business. So I really like that. And look, Anthony has almost completely dug his way out on Donnie Bradstreet. They got behind the eight ball on organic revenue growth for reasons that I'm sure you are aware. And I think he's bowed out. I think they're showing a lot of momentum. And I think that one's going to trade nicely next year. Lord willing, and the markets hang on.

Got it. Thanks for the call, guys.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Oh, I think that's me. So thank you, operator. We continue to be excited about our opportunities. I want to remind you again about our portfolio company conference in Las Vegas this on December 8th and 9th. Management teams from, like I said, our substantial portfolio will be hosting presentations, group meetings, one-on-ones, and so forth. It'll be really fun. Bill will give the keynote or something like that, the introduction. Bill will be there. The whole team will be there. You're going to be very impressed with these folks. So we hope to see you there. Thank you for your interest in our company. I know it's a lot of work to... to understand this, but I think if you do it, it'll pay off.

Thank you, Operator.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.