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Cannae Holdings, Inc. (NYSE:CNNE): Navigating Transformation and Unlocking Value
Published on September 24, 2024 | Ticker: CNNE

Cannae Holdings, Inc. (NYSE:CNNE) is a diversified holding company that actively manages and operates a core group of companies while seeking meaningful equity ownership stakes in quality companies. As of March 31, 2024, the company's primary assets included ownership interests in Dun & Bradstreet Holdings, Inc. (D&B), Dayforce, Inc. (Dayforce), Alight, Inc. (Alight), Paysafe Limited (Paysafe), Sightline Payments Holdings, LLC (Sightline), System1, Inc. (System1), Black Knight Football and Entertainment, LP (BKFE), Computer Services, Inc. (CSI), JANA Partners Capital, LLC and JANA Partners Management, LP (JANA), High Sierra Distillery, LP (Minden Mill), AmeriLife Group, LLC (AmeriLife), O'Charley's Holdings, LLC (O'Charley's), and 99 Restaurants Holdings, LLC (99 Restaurants), among various other controlled subsidiary companies and minority equity ownership interests.

Financials

For the full year 2023, Cannae reported annual net income of -$313.4 million, annual revenue of $570.0 million, annual operating cash flow of -$35.1 million, and annual free cash flow of -$45.1 million. In the first quarter of 2024, the company generated quarterly revenue of $110.7 million, a decrease from $154.3 million in the prior year period, primarily due to the restructuring of the Restaurant Group segment.

Key Holdings Performance

Dun & Bradstreet, one of Cannae's largest holdings, reported revenue of $564.5 million in the first quarter of 2024, representing 4.3% year-over-year organic growth, an acceleration compared to 3.2% organic growth in the prior year period. The company generated 6% growth in adjusted EBITDA in the quarter, which equated to $201 million at a 36% margin. Dun & Bradstreet's leverage also improved, with debt-to-EBITDA ratio declining from 4x a year ago to 3.7x as of the first quarter of 2024, and management expects to be at 3.5x by the end of 2024.

Alight, another key holding, reported first quarter 2024 revenue of $559.0 million, representing a year-over-year decline of 4.6%, primarily associated with lower volumes, timing of large deals, and the wind down of Alight's hosted business. However, adjusted EBITDA increased to $116 million, representing a year-over-year gain of 4%, and total company operating cash flow increased nearly 39% to $100 million from the prior year. Alight has also announced the sale of its Payroll and Professional Services business, which is expected to simplify the company's business model, improve profitability, reduce leverage, and allow for more aggressive capital return to shareholders.

Restaurant Group Segment

Cannae's Restaurant Group segment, which includes O'Charley's and 99 Restaurants, saw a 28.3% decrease in total revenues to $106.5 million in the first quarter of 2024, compared to $148.5 million in the prior year period. This decline was primarily attributable to the closure of 77 O'Charley's stores in 2023, as the company undertook a project to renegotiate or terminate leases and close underperforming stores. The segment's operating loss improved from $3.3 million in the first quarter of 2023 to $3.1 million in the first quarter of 2024, as the company focused on more profitable locations.

Recent Developments

In the first quarter of 2024, Cannae completed the sale of 10 million shares of Dun & Bradstreet for $100.9 million and 2.5 million shares of Dayforce for $177.1 million. The company used the proceeds from these sales to fund a $222 million Dutch tender offer, where it repurchased 9.7 million shares, representing 13% of the outstanding shares. Cannae also announced a new quarterly dividend of $0.12 per share, payable on June 28, 2024, to provide an additional return of capital to shareholders.

Cannae's investment in BKFE, which owns AFC Bournemouth, an English Premier League football club, has shown promising results. In the first full season under Cannae's ownership, AFC Bournemouth achieved its highest Premier League point total in the club's 125-year history. The company has also made progress in improving the club's business operations, with a 50% increase in hospitality revenue, 40% increase in sponsorship, and a 13% increase in ticketing, all compared to the previous year.

Risks and Challenges

Cannae's investment in Sightline has underperformed, as the company has experienced declining operational results and a challenged liquidity position due to lower-than-expected uptake on certain of their cashless products. Management has refocused their efforts to improve Sightline's performance and liquidity position, including the sale of their mobile app engagement platform in the first quarter.

Outlook

Cannae's strategy going forward is focused on three main levers: improving the performance and valuation of its portfolio companies, making new investments, primarily in private companies that will grow net asset value (NAV), and returning capital to shareholders through share repurchases and dividends. The company is actively seeking new private company investments that align with its expertise in the financial services and fintech sectors, with a focus on cash flow-generating businesses.

Liquidity

The company's balance sheet and liquidity position remain solid, with $238.3 million in cash and cash equivalents as of March 31, 2024, and $150 million in immediate capacity on its margin loan. Cannae has also reduced its management fees through the internalization and wind-down of its external management agreement with Trasimene Capital, which is expected to result in annual savings of approximately $29.4 million.

Conclusion

In terms of guidance, Cannae has not provided specific financial targets for the full year 2024. However, the company's management has expressed confidence in the continued progress of its portfolio companies, particularly Dun & Bradstreet and Alight, and the potential for new private company investments to drive growth in NAV.

Overall, Cannae Holdings is navigating a period of transformation, as it focuses on improving the performance of its existing portfolio, making strategic new investments, and returning capital to shareholders. The company's diversified holdings, strong liquidity position, and experienced management team position it well to capitalize on opportunities and create long-term value for its shareholders.

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