Cannae Holdings, Inc. (CNNE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon, ladies and gentlemen, and welcome to the Cannae Holdings, Incorporated First Quarter 2021 Earnings Conference Call. I will momentarily open up the conference lines for questions, until then all parties remain in a listen-only mode with instructions to follow at that time. As a reminder, this conference is being recorded. Joining me today are Chief Executive Officer, Rick Massey; President, David Ducommun; and Chief Financial Officer, Bryan Coy. A replay of this call will be available through 11:59 p.m. Eastern Time on May 17, 2021. Before we begin, I would like to remind you that this conference may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our 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.
Operator: We will now begin the question-and-answer session. Our first question comes from Ian Zaffino from Oppenheimer. Please go ahead.
Ian Zaffino: Hi, guys. Thank you very much.
Richard Massey: Hi, Ian.
Ian Zaffino: How are you?
Richard Massey: Good. Thanks for your coverage and your interest.
Ian Zaffino: Absolutely. I didn't know if you guys could maybe talk a little bit about the Wynn deal and Austerlitz and tell us about, maybe Bill, your role when it comes to that? Thanks.
Richard Massey: Yes. Sure. So that's probably why Mr. Foley is not on the call. We announced the – for those of you who don't know today, Austerlitz I announced a merger agreement with the interactive gaming, sports betting and gambling assets that we announced incredible set of assets. And Austerlitz I will be merging, and the Austerlitz I has $690 million of cash and that will be injected into Wynn to essentially fund it, blow out marketing efforts that it's going to undertake in the next few months leading up to the NFL 2021 season. Cannae had a forward purchase agreement, which is essentially a standby source of capital. Wynn wanted no more than $690 million of capital, so that forward purchase agreement will not be effectuated. And the only involvement that Cannae has is it has agreed to backstop the full $690 million against redemptions. And we actually hope there are redemptions because we'd love to buy this at, whatever, $10 a share. So that's our role. That's Cannae's role. And we're getting a 50 basis point fee for the standby plus the opportunity to buy some shares. It's a $3.25 million – $3.5 million, sorry.
Ian Zaffino: Okay. So now Bill, because I know he has an interest in the iGaming side on PaySafe. I didn't know if he was going to be involved in this? Or is there anything that might be shared as far as knowledge gained from the PaySafe side? Or should we really assume that they're completely separate?
Richard Massey: I'm not sure about the latter question about whether there is something to be done between the two. Obviously, PaySafe is in the vendor side of the business, the payment side in particular. And Wynn is in the front-end, they're actually a B2C company. There will be – and we look forward to seeing your name on the WynnBET site and we will be following your bets. But I'm not sure that’s plenty of expertise that Bill is going to bring to bear based on what he has learned, not only with the PaySafe deal, but with Sightline, another company, a small company we invested in that basically owned the brick-and mortar payments side of the business with the large casinos.
Ian Zaffino: Got you. And then on the Trebia side, and this will be my last question unless someone else jump on. On the Trebia side, I guess from the wording of your letter, you are kind of playing things a little bit close to the best, but should we assume that the deal that was targeted, something didn’t work out and now you're on the prowl for something new? Or is it the existing target is still kind of in play?
Richard Massey: I don't know if it's appropriate for me to comment on it, except to say we're not looking for something new right now. How about that for stating around on the answer.
Ian Zaffino: Perfect. Thank you very much.
Richard Massey: Anybody else.
Operator: Our next question comes from John Campbell with Stephens. Please go ahead.
Unidentified Analyst: Hi. This is stepping in for John Campbell.
Richard Massey: Hi, James.
Unidentified Analyst: Hey, how are you doing?
Richard Massey: We heard Campbell is going to bail on us. Are you…
Unidentified Analyst: It’s not like that. Come on. Congrats on the new deal. That's really exciting.
Richard Massey: Thank you. Tomorrow morning, I would get up and have breakfast and go down to the trading floor and buy as much as we can because it's very reasonably priced.
Unidentified Analyst: Yes. It looks very attractive. It's very exciting. Just to backpedal a little bit, I just had a couple of questions here on some of your older deals. So given the market kind of in the SPAC environment, in the recent months here, Alight has been kind of lagging a little bit, so – and it's – a lot of it is SPAC-related and then it's not necessarily company specific. So can you talk a little bit about what you're seeing there and anything that you would comment on versus kind of the overall environment and then Alight itself?
Richard Massey: I’ll have two comments on it – we'll have two comments, and one I'll make, and then the other, if Duke you want, you can make. So the Alight continues to blow through its plan. They had a great fourth quarter. They're going to have a great first quarter. And we believe that there is a stable of shareholders out there in the world who really want to own this thing. I don't know if you noticed, but we picked up one or two sell-side research analysts, and they're kind of in like $20 price target. So it's available. And we think he is right. This is really, really a cool company, and it's got the best management in that industry. So we're still very excited about it. We had no reason to believe investors won't be, but you're right, this more SPAC specific than it is sort of a company specific.
Unidentified Analyst: Yes. Sure. Go ahead.
Richard Massey: It's been interesting – it's probably going to be interesting for you and others SPACs. Duke, are you on the line and would you mind addressing that?
David Ducommun: Yes, happy to walk through it. So we saw Alight trading around $10. We got a little worried internally that there could be redemptions in the deal, even though, obviously, we love the business, and they continue to outperform. And what we found were three things. First, if the stock is trading above $10 or $12, okay, there’s no redemption risk. So this only applies to stocks in the $10 range. Once you get into the $10 range, there's really two things you look at, it's the size of the SPAC, and more importantly the amount of turnover. So in general, just larger SPACs tend to get redeemed less. There were bigger books to fill out. I think you get more sophisticated investors. We found even multi-plan. For example, it didn't get redeemed. It was a very large SPAC. It may not have been the best received deal, but still didn't get redeemed despite performance issues that was fairly large. More instructive, what we found was turnover . So Alight shares have turned over almost 200% since we announced the deal, which means the shares are now held in the hands of long-term investors who know the company they're buying and are comfortable with the asset. So those are shareholders we expect would not redeem. It's when there's really light turnover and maybe 20%, 30% of the shares turnover post-deal announcement that your shares are still really held by the original hedge funds that bought into your SPAC and may or may not like the underlying asset. So that's the quick explanation. Does that make sense? I'm happy to dive into some more of this, but we looked at every SPAC deal that's been done and kind of a lot of this and spent a lot of time with it on a deal-by-deal basis as well.
Unidentified Analyst: Yes. That's really helpful. That gave a lot of color. That was definitely helpful. Just to switch, I don’t want to stay on for too long here so give someone else a chance. Just one other quick one here, any thoughts again on recent buybacks and any appetite for that going forward here?
Richard Massey: It's cheap. It would make – and it's below book, so it would make total sense to buy back. But we've got, as you can probably tell – right, it's all about capital allocation and we think we get better returns at this stage investing in some of these portfolio companies than we were buying back our own shares. Although it's very tempting and it's not to say we wouldn't – Bill wouldn't want to pull the trigger on it tomorrow because it is frustrating how low it's trading despite all the great wins we've had just this year. So it is – it’s your right to ask. And I'd say it's on the drawing board. It's not something we forget about. Duke, do you agree with that?
David Ducommun: I agree with that. I absolutely agree with that.
Unidentified Analyst: Okay. Thanks guys. Appreciate the time and congrats again.
Richard Massey: Sure. Thanks for your interest.
Operator: The next question is a follow-up from Ian Zaffino with Oppenheimer. Please go ahead.
Ian Zaffino: Hi. Great. Maybe a question for Bryan, and I guess for all of you guys. But how are we thinking about not like per se current liquidity, but maybe like access to liquidity. Obviously this is a big kind of a bet announcement on the Austerlitz side. You have other SPACs out there. Should we expect sort of like the same deal size on these other SPACs as this Wynn deal now and how are we thinking, Bryan, again on the liquidity side and access to that and maybe what we should expect? Thanks.
Bryan Coy: Fair question. I'll start with part of it, and maybe, if Rick or Duke, you want to jump in on the other side as far as deal size. As far as liquidity, we ended the quarter with nearly $400 million in corporate cash. Still have not drawn on any of our credit lines. We have $100 million still with the FNF revolver and an up to $500 million under the margin loan we entered into last year, and neither of those have been drawn on. In addition to that, we still have quite a sizable chunk. We still have 14 million shares of Ceridian, even at today's price, that’s about $1.2 billion of powder sitting there, Ian. Rick, do you want to talk about the deal size or part of that question?
Richard Massey: So how about for Duke, if you don't mind, Duke.
David Ducommun: Yes, I'm happy too. I'd say we're going to approach them on a case-by-case basis. I think that our appetite for really large forward purchase agreements has probably waned a little bit. But it's hard to never say never just depends on what's in the pipeline and our degree of conviction frankly with the transaction. But I think we'll always be judicious about capital resources. As Bryan laid out, we've got plenty of sources of liquidity for existing and new transactions.
Ian Zaffino: Okay. Great. Thanks for the color guys. Appreciate that.
Richard Massey: Sure, Ian. Any more questions operator?
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rick Massey for any closing remarks.
Richard Massey: Thank you for your interest in our company. We appreciate that you understand that it's undervalued, and we hope – and thank you for helping us tell the story. Please feel free either of you guys to reach out to Bryan or me or Duke with any more questions that you might have. Have a great rest of the day.
Operator: This concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
