Cannae Holdings, Inc. (NYSE:CNNE) Q1 2023 Earnings Call Transcript May 9, 2023

Cannae Holdings, Inc. misses on earnings expectations. Reported EPS is $-0.05 EPS, expectations were $0.06.

Operator: Good afternoon, ladies and gentlemen. And welcome to the Cannae Holdings Inc. First Quarter 2023 Financial Results Conference Call. During today’s presentation, all parties will be in 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 it is available to 11:59 pm Eastern Time on May 16, 2023. With that, I would like to turn the call over to Rory Rumore of Solebury Strategic Communication. Please go ahead.

Rory Rumore: Thank you, operator and all of you for joining us this afternoon. On the call today, we have our Chief Executive Officer, Rick Massey, 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 an information currently available to management.

Because such statements are based on conditions 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 Cannae’s Chief Executive Officer, Rick Massey, who will open with a few brief remarks, and then open the line for your question.

Rick Massey: 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. We are not in — everybody on these calls are 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. And 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. And of companies 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 peer court — there to U.S. peers in the consumer credit business, now the closest peers to Dun & Bradstreet one of them had revenues — revenue growth at 2% and one had revenue shrinkage of 4.5% 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 they Anthony and the team there have done a an incredible job of turning around their marketing services divisions by using a essentially a data management platform where customers can 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 said about to fix Hoover’s. And it has a retention right now in the 80s. So stunning turnaround for Dun & Bradstreet. And yet the market is — it’s they’re selling it off. And it’s really disappointing to us that we wish that 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 got it back to growth and growth faster than peers. And yet they’ve not been rewarded for that peers trade, like I said twice the multiple. I said I’d be brief, I’ll try to be a little quicker. All right. Reported today 15% revenue growth in the first quarter 15%.

Their bypass which is sort of their enterprise offering multi-application offering. Their sales rep, speed pass sales were up 50%, their bookings were a little soft, but that’s because they have had all these giant jumbo contracts to 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 at 15. And Alight trading at about half the multiples of ADP of go figure. It’s a little depressing. We know that the market was disappointed that Stephan and the team at Alight didn’t forecast or upgrade or forecast for ’23. And I would just ask all of you and those investors 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 end the markets out there and who can blame Stephan in and Katie for not sticking their necks out and forecasting, increasing growth in a choppy sort of economy. Look at CDAY. CDAY beat the market substantially in terms of its guidance, and the stocks 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 in our last sale, we sold the [Indiscernible] fan 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 down high-single-digits revenue growth, flat EBITDA growth, which is pretty amazing given the mess that that Bruce, and the team inherited.

The stocks up a little bit, but they did this as a business to get $420 million of EBITDA in ’22 and on track to do even better than that in ’23. So it’s kind of been thrown out with the bathwater, too. So this quarter, we are — we’re looking at a lot of things. But we are not sure it’s timely given the all the noise in the capital markets, especially the debt capital on the markets and all the uncertainty in the economy on the back half of the year. So, don’t be surprised if we don’t strike at something in the second quarter and don’t be surprised if we do. We are not — we did not buyback 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. Doesn’t make sense to sell Dun & Bradstreet at 10 bucks when it’s worth 15. And so that you can go buy your shares back at a deep discount to, 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 prudent — it’s just prudent portfolio management. Ryan Caswell is our President. He’s been busy with our Black Knight Financial, I know there will — there may be some questions about that. Where we sit in house has Bournemouth doing and what did they — are they out of the dead zone and what’s your view?

Ryan Caswell : I think we talked about 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-cloud strategy to perform much better.

Rick Massey: We think we got a steal on Bournemouth, our bill got a steal. He’s and Ryan and where’s it wormed their way into the process and got a deal. We paid 0.8 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 win for us. And we’re excited about it. I don’t have anything else. Did I miss anything, Bryan? No. Okay, Bryan Coy are CFO is here with us. Unless you have anything to report, we’ll just go to questions.

Rory Rumore: Questions operator?

Q&A Session

Operator: Thank you. We will now begin our question-and-answer session. [Operator Instructions] The first question comes with Ian Zaffino with Oppenheimer. Please go ahead.

Operator: Sure. Thank you, Ian.

Operator: Thank you. The next question comes with John Campbell with Stephens Inc. Please go ahead.

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

Operator: 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.

Rick Massey: I want to make sure that we’ve not miss operator, we’ve got another RBC will usually have RBC on the call. I don’t want to drop off if they have a question. So can I just — can we have a moment of silence for our group there and see if they want to ping in on us? And if not, we’ll 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 portfolios that we have — portfolio that we have, it’s it’s clearly there. And we’re excited about maximizing that.

Operator: All right. I see here that we do have another questioner. Okay, so it comes from Kenneth Lee with RBC Capital Markets. Please go ahead.

Operator: 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.

Rick Massey: Okay. I think already does, 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 Bryan and to set something up. We’d be happy to talk. So have a good rest of the day.

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