Title

Presentation

Cannae Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.74 EPS, expectations were $-0.42.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings Fourth Quarter 2024 Financial Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the company’s prepared remarks, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded and a replay is available through 11:59 p.m. Eastern Time on March 10, 2025. With that, I would like to turn the conference over to Jamie Lillis of Solebury Strategic Communications. Please go ahead.

Jamie Lillis : Thank you, operator, and all of you for joining us. On the call today, we have Cannae’s President, Ryan Caswell and Bryan Coy, our Chief Financial Officer. But 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 Ryan.

Ryan Caswell : Thank you, Jamie. On this call one year ago, we laid out a long term strategic plan designed to increase the net asset value or NAV of Cannae and narrow the discount to intrinsic value that our shares trade. The plan consisted of improving the performance and valuation of our portfolio companies, making new investments primarily in private companies that will grow NAV and returning capital to our shareholders. We believe this plan will drive an increase in our stock price and I would like to highlight significant actions we have taken in each area before going into a more detailed review of select portfolio companies. I will then turn the call over to Bryan Coy to go through our financials. First, we continue to work closely and actively with our existing portfolio companies and management teams to improve their operations, cash flows and long term positioning.

For example, we worked with Alight on the $1.2 billion sale of its payroll and professional services divisions, which simplified the remaining business and provided capital to allow the company to significantly delever, repurchase shares and initiate a dividend. We also worked with Alight on the transition to a new CEO and added four new experienced board members, all of which we will all of which we believe better position the business for future success. Another example is we spent significant time with Black Knight Football and AFC Bournemouth with a specific focus on increasing commercial activity and cash flow, improving the on field performance and managing infrastructure improvements. From a commercial perspective, AFC Bournemouth revenues increased nearly GBP20 million or 14% in fiscal year 2024 and are expected to increase again in 2025.

From a sporting perspective, AFC sits in sixth place in the Premier League, its highest ranking ever, has achieved the longest unbeaten streak in club history and top traditional Premier League contenders in Arsenal, Tottenham, Manchester City, Newcastle and Manchester United. And from an infrastructure perspective, next month we will open a new world class first team training facility. We are optimistic about our portfolio and its ability to drive future value creation and grow NAV. In 2024, we made several new private investments, which we believe will generate high returns on our investment and provide interim cash flows to Cannae. One of these investments was a 20% equity interest in JANA Partners that we believe has significant upside, provides cash distributions and is strategic for Cannae in terms of working with JANA on potential investments, as well as JANA’s ability to help source and create new investment opportunities.

Since our initial investment, we worked with JANA on our first public opportunity and continue to collaborate on multiple live situations regarding potential investment targets. We are optimistic about our partnership and investment opportunities going forward. We also acquired a majority stake in the Watkins Company, a 150 year old flavoring products company with a strong brand that has demonstrated consistent long term growth and profitability. The company ended 2024 with sales up in the mid-single digits and EBITDA in the high single digits and expect 2025 results to improve. Additionally, we have received cash distributions related to our preferred security. We are also excited about Watkins’ prospects going forward. Lastly, we returned significant capital to our shareholders through share repurchases and our quarterly dividend, which was instituted in 2024.

In the second quarter of 2024, Cannae repurchased 9.7 million Cannae shares in a Dutch auction, returning approximately $222 million to shareholders. The newly initiated quarterly dividend has resulted in returning an additional $23 million to shareholders in 2024 and this dividend will continue in 2025. Finally, in 2024, we internalized our external manager and brought Bill Foley back as the CEO of Cannae. As part of the internalization, key management are now compensated primarily with Cannae shares. We believe these actions further align our management and Cannae shareholders. Going forward, we plan to continue to rebalance our portfolio away from some of our public company investments and plan to prioritize share buybacks as a use of capital is recovered from these public company share sales.

Additionally, we plan to use proceeds to pay down outstanding debt and invest the capital in new and existing portfolio companies that we believe hold outsized return potential for our shareholders will drive growth in NAV. Collectively, the Cannae management team and bard hold more than 12% of Cannae shares and we remain laser focused on executing our plan to increase the NAV of our portfolio and close our share price discount to NAV. I’m now going to talk about a few of our portfolio companies in a bit more detail starting with DNB. Dun and Bradstreet reported revenue of $632 million equating to less than 1% constant currency organic growth compared to the prior year’s fourth quarter. Adjusted EBITDA was $260 million for the fourth quarter of 2024, down $600,000 to the prior year’s fourth quarter.

While these numbers were below consensus, DNB management noted that the quarter was affected by delayed timing of certain deals, a decision to exit unprofitable partnerships and the ongoing strategic process. For the full year 2024, DNB achieved 3% organic revenue growth and expanded adjusted EBITDA to $927 million which is up from the $569 million at the time of our take private. The company also improved its capital structure by reducing net leverage to 3.6 times and adjusting their fixed versus floating rate debt. Finally, the company announced its ongoing — that strategic discussions were ongoing and it expects to share the outcome of those discussions in the first quarter of 2025. Turning to Alight, which posted total revenue from continuing operations of $680 million for the fourth quarter of 2024, a 0.3% decrease from the 2023 fourth quarter.

Adjusted EBITDA was $217 million in the fourth quarter of 2024, a 5% increase to the fourth quarter of 2023. Alight’s net leverage at quarter end was 2.8 times, which reflects a $740 million debt pay down. Alight also provided their 2025 outlook and expects mid-to high single digit growth in adjusted EBITDA and double digit growth in free cash flow. Computer Services or CSI had another solid quarter of growth following record growth in the first half of fiscal year 2025. On a pro forma basis integrating recent acquisitions, the company grew revenue in the high single digit range and continues to sign new logos building its annual recurring revenue pool. Adjusted EBITDA grew in the mid-single digits with higher revenue offset by one time non personnel expenses.

Minden Mill Distilling also continues on plan as it develops, launches and began successfully selling its initial products. In the second half of 2024, the company launched Minden Mill Nevada Bourbon, Minden Mill Nevada Rye Whiskey and Evil Bean Coffee Liquor following High Ground Vodka’s release in earlier in 2024. These products have seen a claim in both receiving high points ratings of 92 to 99 and several gold and best of class awards. Sales are also starting to track and we expect significant growth in 2025 as the products hit market. I’ll now turn the call over to Bryan to touch on our financial position.

Bryan Coy : Thanks, Ryan. Cannae’s fourth quarter total operating revenue was $110 million or 8% lower than the 2023 comparable, primarily on lower restaurant revenue. The aggregate decrease in restaurant revenue reflects store closures in both the prior year fourth quarter and in ’24, as well as general headwinds in the casual dining sector as many brands continue to fight for their portion of a shrinking food away from home budget. Notably, the 99 brand, which is much more concentrated geographically, achieved an increase in same store sales as their average guest check exceeded the guest count headwinds, resulting in a slight increase in same store revenues for the fourth quarter ‘24. Turning to operations. Restaurant operating expenses in the fourth quarter ’24 were $170 million or 81% of the total operating expenses and approximately 300 basis points lower than the fourth quarter 2023.

Cost of restaurant revenue of $92 million comprises 89% of restaurant revenue, a 20 basis point improvement over the prior year fourth quarter, but importantly a 200 basis point improvement from the third quarter 2024. Our team at the restaurant group are focusing on menu rationalization and streamlining staff to further reduce cost at the store level. Management also continues to scrutinize and find savings in brand support and administration costs, including recently negotiated an early exit in ‘25 from the support center location. We expect these savings to be more apparent in 2025. Personnel cost of $18 million for the 2024 fourth quarter reflect the wind down of our external management agreement, and you’ll note the lower management fees reported in other operating expenses.

Cannae recognized a $12.5 million gain on that early exit from the restaurant support center office noted above. This was offset by losses from the sale of 12 million shares of Alight in December and 917,000 shares of Paysafe, from which Cannae harvested significant tax losses and avoiding tax payments from the sale of Dayforce shares in 2024 and allowing Cannae to carry back against gains from Dayforce sales in previous tax years. Net losses from equity method investments were $12 million in the fourth quarter 2024, a material reduction from the prior year, which included significant losses from System One and Alight, which were not repeated in the current year period, as well as improved results of Black Knight Football. In 2024, we sold select public securities totaling $470 million and received $16 million in dividends from DNB Alight.

Additionally, Cannae received $14 million or two times cost from the sale of the division of Wine Direct and still retains its 21% ownership in the remaining fulfillment business. Today, Cannae has over $108 million in corporate cash and short term investments, $101 million on our margin loan and $60 million on the F&F note or approximately $60 million of net debt at a weighted average of 7.35%. We also have $49 million of undrawn capacity on our margin loan and hold $1 billion of listed securities. Our aggregate net asset value of approximately $1.9 billion equates to $29.78 per Cannae share on an after tax basis, and Cannae shares closed at $19.19 today or a 36% discount to NAV. I’ll now turn the call back to the operator to begin our question-and-answer session.

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from John Campbell from Stephens. Please go ahead.

John Campbell: Hey, guys. Good afternoon.

Ryan Caswell : Hey, John. How are you?

John Campbell: Hey, I’m doing well. Thanks. Maybe starting here on Bournemouth, it’s been a great season so far. It looks like you guys are just a single point outside of the top five. Looks like the EPL is in a good position to get, it looks like maybe five Champions League placements this year. I know there’s a lot of season left. You don’t want to get ahead of yourself. But just assuming you guys stay where you’re at and maybe bump up into the top five, just maybe talk to the impact you’d expect to see, maybe starting off with the prize or monetary award for the Champions League or Europa League placements? And then also just higher level what those European qualifications can mean for the club over time?

Ryan Caswell : Yeah. Thanks for the question, John. I think as you stated, Bournemouth has obviously been performing exceptionally well. We are in the mix for all the European competitions. I think those will — they could have a significant financial impact. There’s multiple different leagues and each could have a significant financial impact from a revenue perspective on the club both in terms of additional media dollars that they would receive as well as match day revenues from hosting the additional matches. So I think that’s all good. Obviously, that’s only for one year. I think the bigger question, at least as we think about it, just what it means from an enterprise value and from the value of Bournemouth and Black Knight football.

We think showing the trajectory and the ability to play in European competition, again assuming that we can get there and there’s a lot of season to go. We think it really lends and shows credibility of the plan and our view of Bournemouth being kind of a mid to upper table consistent Premier League, which we think has a lot more value than what we’ve paid or have invested in the team. So we’re really excited about what the team has done, but there’s obviously a lot more work and a lot of season to go. So we don’t want to get ahead of ourselves on that. But regardless, really impressed with the entire team over there.

John Campbell: Yeah. It’s great color. I appreciate that. And then two quick ones here on just capital allocation as a whole. I mean, looks like you’ve got about $30 million or so kind of earmarked for the dividend annually. Maybe starting there, out of the dividends you have from some of your holdings and then just operating cash, how close are you to funding that through cash flow?

Ryan Caswell : Look, I think in the prepared remarks, as we think about investments and as we think about allocating capital and managing the investments that we have, generating cash flow to the holding company is really important. We think both to cover the dividend, but also just as a way for people to think about the cash flow that our investments produce. So we are still a ways away from covering I put the dividend and the operating cash or the operating expenses together, right? And so we still have some more room that we need to work on there, but we are — it is a focus of ours. And I think this wasn’t exactly your question, but I think the other point just to flag is we’re definitely as we go through this year and as we look at the portfolio and potentially kind of rebalancing our portfolio away from some of our public companies and thinking about how we use that capital and return it to shareholders primarily in the form of stock buybacks.

John Campbell: Yes, that’s great. And that’s kind of what I was going to the second question. So I mean, you said, I think you guys reported $108 million or so of cash and short term investment balance. You got $30 million on the dividend. So you’ve got some dry powder on that front. And I guess it just really depends on how active you get on the monetization efforts, but I’m hoping you might be able to expand a little bit on the appetite for buybacks. I don’t know if it’s something you’ve considered as a certain level you’re looking to get to this year. Is it all just kind of contingent on where the stock sits? Just a little more thoughts on that front.

Ryan Caswell : Yeah. It’s definitely something that we have considered and are considering. I think part of it is going to be — we do have some holding company cash. We also have some debt, right? But we are definitely prioritizing. We will prioritize using our capital for share buybacks. We continue to think that the stock is cheap. And I think the size of those depends on some of the potential monetization events of some of our biggest holdings. We obviously, on a couple of quarters now have talked about Dun and Bradstreet and its ongoing strategic review, which they said there should be an outcome within the first quarter. So can’t really speak more to it than that, but I think we are very aware and we want to over time monetize some of our public company investments and use a significant portion of those proceeds to buy back stock.

Now exactly what that means and how much it depends on Cannae stock price, it depends on other things that are going on, but share buybacks are something that is definitely a priority for us as it was last year.

John Campbell: Okay, great. Thanks for the time guys.

Ryan Caswell : Thank you.

Operator: The next question comes from Ian Zaffino from Oppenheimer. Please go ahead.

Ian Zaffino: Okay. Thank you very much. As far as Black Knight football, maybe you could help us think about the capital funding for it and maybe what that could look like? Thanks.

Ryan Caswell : Yeah. I think there are a couple of key levers in the capital funding, and they are — some of them somewhat dynamic. But probably the biggest that we have funded thus far is the investment in AFC Bournemouth. Well, the acquisition investment. As we’ve talked about on this call historically, we believe, and we saw this last year and the improvement of the financial performance of AFC Bournemouth. But AFC Bournemouth is dependent on players that we sell in addition to their ongoing commercial revenues. So we continue to believe we have developed very high-quality salable assets. We don’t necessarily want to sell them, but we think that we’ve created a lot of value there. So that is a lever as we think about the capital needs of AFC Bournemouth.

And the other one is kind of the infrastructure, which is stadium and the training facility. Those are kind of the big needs. And we have some of the other teams, but those are much kind of smaller in comparison. We do believe that we will look to put some more capital into AFC Bournemouth going forward. It will be less than what we have done historically. But we want to make sure that from a sporting perspective, we are continuing to perform and grow the enterprise value of the team. And so while I don’t have a specific number for you, we are very conscious around trying to reduce or kind of reduce the size of what that capital need is, and we’ll manage kind of the P&L appropriately to do that.

Ian Zaffino: Okay. Fine. And then maybe a question on Alight. Maybe walk us through why Bill stepped down. And how are you thinking about your position in the company — maybe the company is self-buying it back? Or is there an opportunity to do something like that? Or do you have to sell it in the market or alternatively maybe have like a strategic sale or something along those lines to kind of monetize the stake? Thanks.

Ryan Caswell : Yeah. So Bill stepped down from the Chairman role at Alight. However, he is still on the board of Alight and is very involved with Alight. Some of the new board members are people that Bill and the team have known and we believe will be very value additive to the kind of the long-term strategic positioning and growth of Alight. In terms of how we think about the investment and how we think about what are the options going forward. I think there was a press release that — in Bill’s press release and stepping off the board, he noted we continue to be supporters of Alight, and we don’t particularly like where the stock of Alight is today. In terms of is there a strategic transaction or something else that they can do, that is probably a question that is better answered by them.

But we believe that with the changes in the management team, with some of the additions and changes of the board that strategically the business is very well positioned to basically to succeed in what it has set up. Like we obviously sold the payroll and processing business last year, which simplified the business. So we think everything is set up for them to continue stand-alone and be very successful.

Ian Zaffino: Alright. Thanks for the color, guys. Thank you very much.

Operator: [Operator Instructions] The next question comes from Kenneth Lee from RBC Capital Markets. Please go ahead.

Kenneth Lee : Hey, thanks for taking my question. Just one on the JANA partnership. And I think in the prepared remarks, you mentioned that there are some discussions on some potential live deals there. Wonder if you could just give a little bit more color in terms of how would you characterize the level of discussions and activity? How active is it in the current environment here? Thanks.

Ryan Caswell : Thanks, Ken. I would say discussions with them are very active. We speak to the principals at JANA regularly. We believe that there are some very — a few very specific targets and situations that we have been discussing with them. And again, I don’t want to get into the specifics of what they are, but we think some of them could be incredibly additive for Cannae. And so we are in very active and ongoing dialogue with them. And again, we’re optimistic that as we move forward, we will find a material transaction for Cannae.

Kenneth Lee : Got you. And then one on the BK, the Black Knight FC there. And you mentioned to the previous question around potential for maybe some incremental capital investment there. Would that be specifically in relation to, for example, like player transfers for the upcoming summer window? Or were there any other areas that you’re looking for capital needs there? Thanks.

Ryan Caswell : Yeah. The only other area — so those are — you hit on the — obviously, operating cash flow. There is — if you recall, we do own 40% of Lorient in Ligue 2. We have a put-call arrangement with them going forward such that there’s a possibility that this summer that we could buy an additional 40% of the business. We’ve also looked at a couple of other or one other in particular, smaller team and another league, much smaller capital dollars, but both are, we believe, strategic to Black Knight Football, where we’ve been investing a lot of time in developing, hiring the right management team and developing the right infrastructure that connects the teams better together that we believe will drive better performance across all the clubs and reduce the cost at AFC Bournemouth.

So those are the two others. And then I think the third one you didn’t say, I know I alluded to it earlier, is just around infrastructure, stadium. This is something that we’ve been thinking about whether we redevelop, whether we do a new stadium. So we continue down that path as well. And again, some of those are more near term than others, but those are the other buckets besides the — what I’ll call the operating cash flow of the teams.

Kenneth Lee : Got you. And that last one, the stadium plans there potentially for AFC Bournemouth, what — how early are you in the stages there in terms of the planning and the potential financing that’s going to be? Is it still relatively early in the stage there? Thanks.

Ryan Caswell : Yeah. It is. I mean I think the first — the big question is, do we redevelop the existing stadium or do we build a new stadium? And we’re honing in on an answer to that question. And then once you determine that, the planning and the actual construction, there’s a long runway. But I would guess within kind of the next — on our next call, we’ll have a better view of whether we’re building a new stadium or whether we’re redeveloping the existing one. And again — and then I think the rest kind of fall off from there.

Kenneth Lee : Got you. Helpful there. Thanks, again.

Ryan Caswell : Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ryan Caswell for closing remarks.

Ryan Caswell : Thank you, operator. In conclusion, we are excited with the opportunities ahead and confident in our strategy, which we believe will deliver value to our shareholders. We look forward to speaking with you again on our first quarter 2025 earnings call in May. Thank you again for your time today.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.