Cannae Holdings Inc
NYSE:CNNE
Earnings Call Analysis
Q4-2023 Analysis
Cannae Holdings Inc
Cannae Holdings reported an aggregate net asset value (NAV) of $2.43 billion, or $33.61 per share, a slight increment from $2.38 billion in the previous quarter. The stabilization of NAV per share from $33.67 to $33.61 showcases a sound asset base. The firm's liquidity is emphasized by $149 million in corporate cash and an available $150 million under its existing margin loan, while managing debt prudently with the only notable liability being approximately $60 million under a revolver with a maturity in late 2025.
Cannae is actively managing its capital through a tender offer to accelerate its share repurchase program, a strategy used to retire shares and potentially enhance shareholder value by reducing the share count. Funding the tender offer can be comfortably covered by available corporate cash, with additional capacity through the margin loan or potential liquidation of some public securities.
The company is transitioning from public to private investments. Executives express strong preference for private investments, which may better leverage the permanent capital structure of Cannae. This strategic shift aims to utilize expertise and resources with greater flexibility and control compared to the public market investments. Public company investments that Cannae holds often originate from private assets that later went public. This includes companies like Alight and Ceridian or Dayforce, whereby Cannae gradually decreases its stake post-public offering.
Cannae is exploring strategic partnerships, notably with the Jana Group, to propel growth and diversification. This may include various collaborative endeavors from investing in Cannae's existing portfolio to supporting new acquisitions or divestiture strategies. The executives underscore their enthusiasm for the anticipated outcomes from this partnership.
Cannae's pursuit of a multi-club network in the football industry, showcased through their investment in clubs like Bournemouth and Hibernian, is poised to create synergies and financial benefits. These investments create a system of player development and transfers that enhances the value of each club within the network. This strategy is part of a broader aim to grow their presence in the sports industry and bolster the performance of their flagship club, Bournemouth, in the competitive Premier League landscape.
In closing remarks, executive William Foley expressed confidence in the company's strategic direction and anticipated transformation of the portfolio. He conveyed optimism about future prospects, particularly in delivering shareholder value and affirmed the company's eagerness to update on their progress in the next earnings call.
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Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings Inc. Fourth Quarter and Full Year 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded, and a replay is available through 11:59 p.m. Eastern Time on February 28, 2024. With that, I would like to turn the call over to Jamie Lillis of Solebury Strategic Communications. Please go ahead.
Thank you, operator, and all of you for joining us. On the call today, we have our Chairman and Chief Executive Officer, Bill Foley, Cannae's 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 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 our Chairman and CEO, Bill Foley, who will open with a few brief remarks, followed by Ryan Caswell. We will then open the line for your questions.
Thanks, Jamie. As we previously announced, I have assumed the role of CEO and Rick Massey has taken on the role of Vice Chairman of our Board of Directors. I'd like to thank Rick for his many contributions to Cannae over the last 4 years and look forward to continuing to work with him. As CEO, I will focus on returns to shareholders both immediate and longer term. I am very aware of the deep discount that Cannae shares trade to net asset value and appreciate the input from our shareholders on the importance of share buybacks.
In my letter release this afternoon, I noted the company's intention to commence a modified Dutch auction tender to repurchase $200 million worth of Cannae's common stock at a price per share between $20.75 and $23.75. The transaction will commence in early March and will be funded by cash on hand. Further details, including the terms and conditions of the tender offer will be filed with the SEC over the coming weeks. The Dutch tenders in addition to our previously approved share repurchase programs, which -- under which we repurchased approximately 24% of our shares outstanding compared to March 31, 2021, having returned more than $510 million in capital.
Additionally, Cannae still has 12.6 million shares remaining on our previous share buyback authorization, which is in addition to the tender offer that we have announced today. And when taken together speaks to our commitment and when we were looking to close Cannae's share price discount to net asset value. As a top 5 holder of Cannae, I am very aligned with our shareholders in creating value and seeing our share price not only appreciate towards the fair value of our portfolio, but also growing that value. Looking back over our history, private company investments have been an important part of Cannae's success. Ceridian is the best example where we've now received over $2.1 billion in gross proceeds from the sales of stock in this company. I'll now turn the call over to Ryan Caswell, our President.
Thank you, Bill. Continuing to find attractive investments is critical to our long-term success, and I'm excited with our announcement today of our strategic investment and partnership with Jana Partners where we acquired a minority stake for approximately [indiscernible] million Cannae common shares and $18 million in cash. I'm thrilled to partner with Barry Rosenstein, Scott Ostfeld, and the Jana team, who have built an incredible track record as a public company investor. . We believe a partnership with Jana creates significant upside for Cannae as a result of one, sourcing of new control opportunities for Cannae. Jana's business is based on finding undervalued public companies with specific catalysts to unlock value. Cannae and Jana can collectively work together to find a situation where Cannae can be part of the catalyst to unlock value with the target company, i.e., Cannae acquire to carve out the company or provide other capital solutions. This relationship will be beneficial to both Cannae through the sourcing of these opportunities as well as Jana by giving them a different tool to execute their strategy that is leveraging Cannae as a catalyst to a target company and thus driving returns for both entities.
The second reason why we're excited about this investment is we believe there will be an increase in the value of the Jana platform. Jana's stand-alone business is well positioned for success, given its -- given its industry-leading returns and long track record of success. We believe their stand-alone business, coupled with the opportunities from our partnership will enable Jana to enhance their already strong performance and help their grow their business to its optimal scale, thus increasing the overall value of Jana's business.
Three, closing of Cannae stock price NAV gap. Over time, we believe by leveraging the Jana relationship, Cannae's ability to source proprietary acquisition opportunities and make new investments and with the improving performance of Cannae underlying portfolio, the stock price to NAV gap will close, resulting in significant returns to our shareholders. Crossequity ownership of the transaction aligns both parties and the other's success. I would note that Cannae will not pay fees on its investment in Jana funds or future opportunities. And additionally, the Jana investment will not be subject to any of the Trasimene management or incentive fees.
I would also like to talk about the CSI investment. Through our relationship with Frank Martire and Bridgeport Partners, we participate in CSI's LBO in 2022. CSI has outperformed all expectations and brought in a new large investor in December, valuing the company at approximately $2 billion, a 31% increase from the take private valuation. As part of this investment, Cannae received a $37 million cash distribution or 43% of the initial capital that we invested, while the implied value of our ongoing position represents 104% of our original investment.
I would next like to turn to Black Knight football. At AFC Bournemouth, our management team has done a terrific job transforming Bournemouth on both on and off the field. Currently, the team is ranked in 13th place, which is up from last year's 15th place, and we believe we can move higher than that. Additionally, the business side for [indiscernible] very strong with hospitality up approximately 50% year-over-year ticketing up 13% year-over-year and sponsorship up 40% year-over-year.
In January, Black Knight football announced that it purchased a minority interest in Hibernian Football Club of the Scottish premiere. We are excited to partner with the Gordon family and believe that Hibernian will be a strong contributor to our multi-cloud ownership strategy. We believe finding private investments like these where we can acquire operating companies, partner with management teams and actively engaged to help grow their businesses will drive value for our shareholders.
Moving on to our listed companies. D&B's constant currency growth of 5.1% from the quarter is an acceleration from the 4.8% in the third quarter and 3.2% in the second and first quarters. While Life's top line revenue growth was 1.9%, the company posted 12% growth in adjusted EBITDA and hit $2.2 billion in BPaaS total contract value bookings in 2021 and $70 million over the 3-year target of $1.5 billion that they had set. Alight also has more than $6.5 billion of future revenue under contract.
The team is also working with Stephen on a life strategic portfolio review, which they announced this morning. We believe that we can expand the life's profitability and recurring revenue model while building a more valuable business. Finally, starting in the third quarter of this year, TRaSamine's fees will be reduced by approximately 16% going forward as a result of Rick Massey moving into the Vice Chairman role.
To conclude, we are very optimistic with what the future holds for Cannae and our shareholders as we find new high-return investments, continue with our share buybacks and gradually rebalance our portfolio. Taken together, I believe this will have the dual effect of driving our net asset value higher while closing our share price to NAV discount. I'll now turn the call over to Bryan Coy to touch on our financial position.
Thanks, Ryan. At the close today, Cannae's aggregate net asset value was $2.43 billion or $33.61 per Cannae share compared with the third quarter's $2.38 or $33.67 per share. Cannae's liquidity position is strong with $149 million of corporate cash and short-term investments, net of the cash invested in the Jana transaction. The company also has $150 million of undrawn capacity under its existing margin loan. The only outstanding debt presently is approximately $60 million under our revolver that matures near the end of 2025. Under an amendment to that revolver, we paid down $25 million of the balance and fixed the interest rate at 7% and saving Cannae approximately $4 million annually in interest payments. I'll now turn the call back to the operator to begin the Q&A session. .
[Operator Instructions] Our first question comes from Kenneth Lee of RBC Capital Markets.
First one on the tender offer. Wonder if you could talk a little bit more about the motivation for pursuing a tender offer versus perhaps some of the other options you could have perceived.
Well, really, we went to the tender offer plan to accelerate our share repurchase program to retire shares. We found that as we were repurchasing shares, first, we blacked out at various points in time due to earnings releases or activities we are involved in, for example, the Jana transaction. And also, we're limited by the number of shares we can buy per day. And while we can do a large bulk or large share block transactions, they were really becoming a human part between for us to execute against. So we feel like at this point, with our share price to trade at this NAV discount, that we should just accelerate our buyback program, which is in fact, that's what the tender offer is doing and retire more shares more quickly.
Got you. And then in terms of funding the tender offer, you mentioned using cash on hand. I presume that there could be some drawdown potentially in the loan facilities, but just want to get a little bit more color around that.
Yes, it could be a combination of drawdown under our margin loan facility or it could be a sale of a continued sale of some of our liquid securities, public securities. We have about $150 million of cash on hand right now. So the $200 million figure really is only $50 million short of what we actually have on hand in the bank at this point. So we're really not concerned about raising the additional $50 million. And if we actually have a green shoe, which will be 15% of the $200 million, that would be an additional $30 million, but we're very confident that we can raise those funds really expeditiously and easily.
Got you. Very helpful there. And if I could ask another follow-up here. Could you just talk a little bit more about the -- in terms of the Jana partnership. Wonder if you could get a little bit more detail in terms of the voting arrangements and any kind of detail around that in terms of supporting the management and the Board there.
Yes. So as we noted in our press release, we agreed to a voting agreement with Jana. We view this as a partnership. We're excited to work together. They are taking stock in Cannae, and we are taking stock in Jana. And we believe kind of the cross ownership will incentivize both of us to work together, and we believe it will be a benefit to both businesses through theirs in terms of driving returns and increasing AUM and to ours in terms of sourcing, proprietary acquisitions of operating businesses.
Got you. And just one final follow-up for me, if I may. You talked a little bit about how some of the partnering on potential opportunities with [indiscernible] could look like. But wondering if you could just further flesh that out in terms of potential structures of making control acquisitions with Jana, and I think you mentioned a bit about some carve-outs. Just wonder if you could just perhaps talk on a hypoesthetical or some other further flesh out of some of the opportunities? How could they look like?
Yes. I think you really ought to take a look at Jana's deck, investment deck, it'd be very revealing to you and Ryan could provide that to you if you would like to see it. It's a document they use when they're raising funds from third-party sources. There is no specific transaction currently on the table. A number of things that Jana is looking at and that they've shared with us appear to be very interesting, but there's no one transaction that's pending at this time. We anticipate several transactions occurring each year and that we'll be partners with them on.
Got you. And actually just one more, if I could squeeze in. Would it also be possible for Jana, perhaps to invest in any of the portfolio companies within the Cannae portfolio? Is that also a possibility? .
Everything really is on the table with Jana. I'm sure they can help us with some of our portfolio companies in terms of looking at alternative strategies relative to sale of all or a portion of the assets going private transactions, all kinds of different situations. So the Jana Group is a very skilled group of investment professionals. And really, we look forward to the partnership.
[Operator Instructions] Our next question comes from Jonathan Base of Stephens. .
I was hoping you could address the public versus private investment philosophy. Where do you guys see the team spending the majority of their time and efforts moving forward? And out of the private investments you have today, ignoring the size, what do you see as having the most promising potential over the next handful of years?
Look, I think in terms of -- in terms of public versus private, we are going to be more -- much more focused on private investments going forward. I think it's a -- I think it works better. If you think of what Cannae is and the capital it has and how we can most effectively leverage our permanent capital, we believe, looking at private businesses, it will be better than the public. And we like the public businesses that we have, but I think you'll see us sell down those names over time and look to reinvest in private businesses.
And then in terms of the portfolio of private businesses that we have today, I don't have a perfect answer, but I'll say just because we were talking about it before. I think you heard a little bit about some of the results that you've seen at Bournemouth and Black Knight football. In terms of the success that we've had in both the business side and the football side. We believe that -- we believe that going forward, we'll be able to continue those successes. And furthermore, we think the multi-club network that we are building -- we'll -- as we build that out, there's more value to extract from that. So we're very excited about the investment. We're very excited about what the team has done to date, and we think there's big upside going forward.
And also, if you look back at our public company investments, they're really a result of something that was private that converted into public assets. So [indiscernible], we engaged in a going private transaction, then took it public, and we still have our position in that in that company. Alight was the result of a private company that was converted into a public company via a SPAC that we had sponsored. And Ceridian or Dayforce -- of course, it's a long-term investment that was private for years and years and years. And as it went public, we then began to disposing of our interest in Dayforce, and we're down to a fairly small number of shares. . Paysafe, again, was a SPAC transaction that we participated in and were a sponsor up and the same with System1. So really, our public company assets that we've acquired have generally started out as private asset, private company assets that converted into a public company.
Okay. And on Ryan's last point there, touching on the multi-club strategy. With the new minority stake in Hibernian, can you maybe highlight the multi-club strategy, what it is and why it makes sense, why it can be successful?
Well, the Premier League is a difficult league to compete in. It's the best football league in the world with sovereign wealth funds as owners, private equity firms as owners, and obviously, we own the interest in Bournemouth. But we found, as we got involved in the investment that having interest in other clubs and top leagues is very advantageous in terms of the transfer window in acquiring players and also loaning players to those clubs. And the Scottish Premier League is a terrific football league. It's -- obviously, there's no immigration issue with regard to Scotland and the U.K. They developed a lot of good players that can also work their way down to [indiscernible].
And the other thing that we can do with Hibernia is actually give them players on loan to develop in the Scottish Premier League so they can eventually rotate back to the English Premier League. And the same is true with FC Laurent, which is, again, in league 1 in France. And recently, we had loaned a player to [indiscernible], and we just took that player back in January. And last year, we acquired a player for [indiscernible] Dango Atara, and EC is now playing at Bornemouth. And the result is, if you own a piece of another team, say 40% that we own of the League One team, when we buy a player, we really are only paying 60% to the other owners.
So it's strategically and financially is a very advantageous situation to be in. And we frankly like to invest in a couple of more clubs and other leagues that could be supportive of our our goal to make -- continue to develop [indiscernible] and move it up in the table in the Premier League. And right now, you'd have to say that Bournemouth sits at the top of the pyramid and the other teams are supporting [indiscernible]. But we're also supporting them in terms of delivering players and helping them develop their teams and coordinate on the manner in which we play, coordinating in the transfer window. So it's really a it's not an original model, and it's a Manchester City really has developed over the last 15 or 20 years, and they now have 13 or 14 clubs that they're invested in. So we will never have that many clubs, but a few more would be interesting.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bill Foley for any closing remarks.
Yes. Thank you, operator. We are very excited with the opportunities ahead and confident in our strategy as we transform our portfolio, which we believe will deliver value to our shareholders. We look forward to speaking with you again on our first quarter 2024 earnings call. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.