Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Inc. Fourth Quarter and Full Year 2022 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 pm Eastern Time on March 1, 2023. With that, I would like to turn the call over to Jamie Lillis of Solebury Strategic Communications.

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 newly appointed 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 the 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 questions.

Thanks, Jamie. Welcome to our fourth quarter 2022 call and our full-year 2022 call. I'm Rick Massey. I would like to formally introduce our new President, Ryan Caswell, who is joining us today. He is replacing David Ducommun, who is moving on to FNF. We will miss David; he was an excellent President. I believe he will bring a lot of value to FNF, but I am very excited to partner with Ryan. I think you will find him to be straightforward and insightful. I will highlight a couple of points from the quarter before opening it up for questions. In the fourth quarter of 2022, the main highlight was that we bought back 2.3 million shares at an average price of around $21, slightly below that level.

Yep. $20.96.

$20.96, okay, there we go. And that was $51 million of proceeds. So for 2022, we told you we were going to buy back shares and we bought back 10.8 million shares, that's 12% of the outstanding as of December 31, 2021, which is when we really started accelerating our buyback program. You may recall we accelerated that after our conference in Las Vegas early on December 20, 2021. So since we embarked on our repurchases, we bought back about 15.6 million shares and that's 17% of the then outstanding and about $400 million returned to our shareholders. Unfortunately, the gap between our stock price and our liquidation value didn't close. We had hoped that the gap would close significantly when we showed aggressive buybacks, but it just didn't happen. But nonetheless, we returned a lot of shares and a lot of cash to shareholders. We closed the last leg of our AmeriLife Transaction in November of last year. We still retain a 29% portion of AmeriLife and we're booking that at $95 million. We are excited about that and we are, obviously, very excited for the accomplishments where we received a MOIC of 2.7 times our money. So that was in really just about three years. So not a bad trade for us. Caswell is up here, and I assume remains on the Board of AmeriLife. He does remain on the Board, but it was still that they did a nice job in bringing in some new investors at a very nice valuation. I guess it's kind of a sign of the times that we're bragging on selling one of our portfolio securities for a loss, but we did that. We sold Cannae shares for $27 million in cash and as you know there has been a split, so how many shares do we sell?

We sold 19.2 million pre-split.

Okay. $192 million pre-split and that's like 1.6 million. There's 12 to 1 post-split.

Yes.

We sold shares because we had gains from the sale of AmeriLife and some CDAY, and it wouldn't have made sense for Cannae to pay taxes while carrying significant unrealized losses. Therefore, we decided to sell some of those shares. Consequently, Cannae won't be liable for taxes in 2022, and we will receive a refund of our advances. However, this realized loss affects our ability to earn carried interest, which is how we get compensated. Many portfolio managers might have avoided this move because of that reason, but we wanted to ensure Cannae wasn't burdened by unnecessary taxes. We sold 1 million shares of Ceridian for about $78 million each, which represents a 13 times return on our investment from 2007. Currently, we own 5 million shares of Ceridian. We completed our investment in Computer Services on November 16, 2022. This is a small bank core processor based in Kentucky. Both Bill and I, along with Frank Martire, who is on our Board and a former CEO of Medavante and FIS, were familiar with this business for quite some time, but they were never willing to sell. When they finally chose to sell, we weren't the primary focus, but Centerbridge was. Centerbridge allowed us to invest about $86 million in the deal, and we are optimistic about the potential returns from Computer Services. There may also be chances for additional investments as they pursue mergers and acquisitions, depending on their targets and how Centerbridge plans to value the business. We invested 51.1% of the required equity to acquire ASC Bournemouth, an English Premier League Football Club, paying approximately 0.8 times revenues, which is significantly lower than the industry average. The club was undervalued and poorly managed, with neglect in areas such as ticket sales, merchandise, and hospitality. We believe that Bill, his team, and our partner Ryan will successfully improve the business side. As you may know, Bournemouth has signed several new players in an effort to remain in the Premier League, and their performance has improved. We are hopeful that they avoid relegation and that this investment yields strong results for us. This is not merely a family heirloom deal; it's an investment. If you've been following the news about the current prices teams are fetching, you can see that we secured a good deal and are likely to profit from it. Ryan will provide further details if you're interested, but we've used the FNF credit facility to buy back approximately 5% of the company during our buyback window at a significantly lower price than what we were paying in the market. We utilized this facility to finance those shares, totaling $85 million, and now we must repay it according to an amortization schedule. Additionally, we have a margin loan of $250 million readily available and $272 million in cash and short-term investments at present. However, not all of these funds can be allocated for share buybacks or new deals due to existing expenses and potential follow-on investments. Therefore, it's challenging at this moment to ascertain how much will truly be available for future initiatives, but we should have more clarity by the end of the quarter. I don’t want to take up too much of your time detailing our entire portfolio, but a couple of highlights to mention are that Dun & Bradstreet reported their fourth-quarter results, where we are their largest shareholder. They disappointed the market, even though we were expecting their results since they fell within their guidance range. Three main factors negatively impacted them: first, significant foreign exchange losses affected revenue and EBITDA; second, they lost a contract with the GSA, likely resulting in approximately $0.5 million less in organic revenue growth; and third, the marketing segment of Dun & Bradstreet is currently facing challenges. As you might have observed, companies from Google on down are under pressure as digital marketing budgets tend to be among the first cuts when managements reduce expenses. Consequently, we’re not seeing the budget allocations for these services, and I’m unsure how long this trend will persist. This situation has also influenced the results of System1, where we have an investment valued at $272 million. On a more positive note, Alight posted excellent quarterly results, with their stock climbing about 10% after their announcement. They provided guidance suggesting 11% to 12% revenue growth and 12% to 13% EBITDA growth along with margin expansion. They've also secured several significant contracts, including ones with all three GE entities, Exxon, and others. This company is performing exceptionally well, and we are extremely proud of their management team. It is undoubtedly the most undervalued stock in our current portfolio. There could be some secondary sales from larger holders, but neither Bill nor I intend to sell at this low valuation. Did I overlook anything, Bryan or Ryan?

I think...

Okay. I'm going to stop there and open up for questions. Thank you very much.

Thank you. We will now begin the question-and-answer session. Our first question comes from John Campbell with Stephens Inc. Please go ahead with your question.

Hi guys, good afternoon.

Hey, John.

Hey. First, Ryan, congratulations on the promotion. I'm looking forward to working with you. I noticed you shared your cash balance as of yesterday, which I believe was $272 million. I also saw that you have paid or are expecting to pay the $40 million for the White Night Football commitment in the first quarter. Does the cash balance you provided include that payment, or is it not reflected yet?

The cash payment that's coming. Yes, we've already paid the one that was in the first quarter; that was the first week of January. There's only one left that's in probably the third quarter of this year.

Okay.

That's about $40 million.

Okay, all right. I want to go maybe high level here. Just looking for some insights on your vision for both Black Knight football and CSI. So maybe just starting off on Black Knight football, if you could help frame up the type of returns you guys expect over time. And just also just how large do you envision this organization getting over the long haul.

I'll let Bryan provide more details. I want to emphasize that we view this as a multiple of investment, with projections presented to our Board showing a potential three to three and a half times multiple on invested capital in five years for Black Knight football. Regarding CSI, I'd like Ryan to share insights on the team. We anticipate a similar five-year timeframe for CSI, which involves numerous tuck-in acquisitions and growth potential that will attract interest from key buyers. We expect around three times return on this investment in five years as well, with minimal risk in both businesses and increasing demand. Ryan will discuss the team further.

Yes, just a little bit more details on how we think about that. As Rick mentioned in the opening, we think we've got a really good price; we paid roughly GBP100 million for the purchase price of the small earn-out. If you look around the Premier League, kind of, the next cheap business is kind of mid GBP200 millons and then it's probably closer to GBP500 million per team. So we think we're in a very attractive value. As Rick mentioned, there's a lot of work both on the commercial side and infrastructure. We're also, as you probably saw, we made an investment in FC Lorient, which is a League 1 team in France. We're looking at other leagues to really try and bring down the cost of players. And there's a lot of work around that, both in terms of how you put that together and how you effectively kind of get talent from those to the Premier League. I think an example is Bournemouth did buy a player in the transfer window from FC Lorient, you can understand the pieces of how it works. But look, we think there's a lot of work to do, but as Massey said, we think there's a lot of upside to it, but we have to keep the team in the Premier League over time, as well as build out all these ancillary revenue streams and investments.

Okay, that's helpful. I've got one more and I'll hop back in the queue. I mean, I've got a lot more work to do when kind of building out a valuation framework for club valuations. But with Bournemouth, it sounds like you guys presented a five-year multi-year kind of forecast of returns, which you guys are expecting. Just out of curiosity, how impactful is the relegation event for smaller EPL teams? I mean, clearly we're pulling for Bournemouth as they hit kind of the homestretch here, but if there is an event of relegation, how does that affect?

The word existential comes to mind for me; that may be a little dramatic.

We invested a significant amount of effort into this. We analyzed various opportunities within the second tier of the championship and evaluated the teams there. Honestly, we believe our value aligns closely with the trading of some of those teams, although there is still considerable work to be done. In addition, I would be glad to discuss this in more detail. There are parachute payments, which are funds awarded to teams that get relegated, providing them a substantial short-term advantage. Therefore, given our ongoing efforts, even if we were relegated, we believe we would still have the means to recover quickly. There is certainly a disparity in value, but we trust that we have the right team and infrastructure to prevent that situation and, if necessary, to recover within a year or two.

Okay. Very helpful. Thanks guys.

Thank you, John.

Thank you. And our next question is from Ian Zaffino with Oppenheimer. Please proceed with your question.

Hey, good afternoon. This is Isaac Sellhausen on for Ian. Just another follow-up question on Black Knight football and congrats on the FC Lorient investment as well. Is there any option, I guess, in the agreement for Cannae to acquire more than the 50% investment or ownership, I should say, in the Black Knight football partnership?

No, we have the right to participate in any future offerings on a pro-rata basis, as you would expect. However, we didn't want to own more than 51%.

Okay, got it. Thank you. And then I guess the bigger question. I guess, what other areas of the market outside of sports leagues either private or public do you have an eye toward at the moment for you guys? I guess the Computer Services investment was the most recent one in the technology space. But I guess there is anything in other sectors that you're looking at or have an eye toward?

Yes, I can say that there are quite a few technology software companies, specifically vertical software companies in areas we like such as supply chain and health care, that are currently trading significantly below their IPO prices. It's interesting to note that there's been a shift in the valuations between public and private companies, with public company valuations being considerably lower. We're starting to see leveraged buyouts occurring, and we see some opportunities in that space, particularly among smaller companies valued between $1 billion and $2 billion, often in health care, that hold a significant market share. However, to make these investments viable, usually some debt needs to be added to the balance sheet, and the high-yield market is still facing challenges. Therefore, we don't have any immediate plans in that direction. For now, we're mainly focused on keeping our team prepared for when the debt capital markets recover.

Got it. Okay, thank you for your thoughts. And then last question actually you guys have been active buying back stock. Just quick question, what is the, I guess, the remaining amount on the buyback authorization?

9 million. A little short of 9 million shares.

Okay, got it. Thank you.

Is that right, Bryan?

Yes.

And our next question is from John Campbell with Stephens Inc. Please proceed with your question.

Hey, guys. Me again. I got two quick ones here. How much of a commitment for FC Lorient and I don't know if you guys disclosed the percent ownership.

We didn't disclose it.

Okay.

It's a minority, but it's a substantial minority. And we got the right to own more. And I think basically we got the right to control, correct? Maybe, maybe not.

It's a different liquidity option.

Okay, helpful. And then really good work on the successful AmeriLife monetization. It sounds like you guys are retaining about 5% of that interest. Are there any lingering payments? I mean, what more proceeds do you guys expect from here, is that $243 million?

No, we're done. It was a great.

Okay, that's all I got. Thank you, guys.

Thank you, John.

Thank you. And our next question is from Kenneth Lee with RBC Capital Markets. Please proceed with your question.

Hey, good evening, and thanks for taking my question.

Hey, Ken.

Hey, how's it going? Just one on Black Knight football again, in terms of the LP interest, is there any kind of expected revenue streams in the interim, or should we consider this as a similar to either an equity kind of investments? And also as well...

We don't expect a dividend or any sort of revenue streams out of that asset, at least not in the foreseeable future. They're going to need the capital for operations and players and so forth.

Got you. And just relatedly any financial commitments or obligations otherwise.

With respect to Black Knight football?

Yes, with Black Knight football.

We’ve disclosed our obligation. Yes, it's $40 million.

Got you. And one final follow-up regarding the ownership of FC Lorient and FC Bournemouth. I believe you mentioned having a minority stake in FC Lorient, which could potentially be converted to a majority stake in the future. Is there any potential impact from the regulations concerning multi-club ownership and participation, particularly related to the Champions League and similar competitions?

Hey, Ken, ready to go, man. That was the question of the day. You're going to start...

I prefer this question to the first one. Currently, considering the status of the teams, the Champions League goals seem a bit distant. Only one team can participate in the Champions League, and neither of our teams is there right now, although Lorient is closer. We don’t have control over it, as you mentioned. However, we've considered this. Our team needs to improve significantly before it becomes a priority. We hope they do, as it could be a positive issue to have.

Got you, got you. Fair enough. Thanks again. Really appreciate it.

Thank you, Ken.

As there are no further questions at this time, I would like to turn the floor back over to Cannae Holdings management for closing comments.

Thank you very much interested parties and shareholders for our story. We're working really hard to create some value for our shareholders. And never hesitate to give us a call, if you've got more questions. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.