Business Overview A Chronicle of Opportunistic Growth

Cannae Holdings, Inc. (NYSE:CNNE) is a diversified holding company that has built a portfolio of strategic investments poised to generate significant long-term value for shareholders. With a focus on actively managing and operating its core businesses, Cannae has demonstrated an ability to identify and nurture promising opportunities that capitalize on evolving market dynamics.

Cannae Holdings, Inc. was formed in 2017 when Fidelity National Financial, Inc. (FNF) redeemed each outstanding share of its FNF Ventures FNFV Group common stock and contributed its portfolio of companies unrelated to its primary insurance and real estate operations to the newly formed entity, Cannae. On November 20, 2017, Cannae common stock began regular-way trading on The New York Stock Exchange under the CNNE stock symbol.

In its early years, Cannae focused on acquiring majority and minority equity interests in various entities and certain fixed income investments. The company adopted a long-term, active approach to managing and operating the companies in its portfolio, leveraging its operational expertise for each subsidiary. Significant early investments included stakes in Dun & Bradstreet, Alight, and Black Knight Football Club.

As Cannae continued to expand its portfolio through various acquisitions and investments, it faced challenges such as the impact of the COVID-19 pandemic on its restaurant operations. The company navigated these obstacles through active management, operational improvements, and strategic adjustments to its holdings.

In 2021, Cannae further diversified its portfolio by acquiring a 52.8% ownership interest in Watkins Holdings, which owns The Watkins Company, a leading producer of high-quality flavoring products. The company also invested in JANA Partners, an investment management firm, taking a 19.99% equity stake in 2024.

One of Cannae's most notable investments is its 15.6% ownership stake in Dun & Bradstreet Holdings, Inc. (NYSE:DNB), a leading global provider of business decisioning data and analytics. Cannae has worked closely with Dun & Bradstreet's management team to enhance the company's operations, including implementing a comprehensive transformation strategy that has driven improved financial performance. In 2024, Dun & Bradstreet reported revenue of $2.38 billion, reflecting 3% organic growth, and expanded adjusted EBITDA to $927 million.

Cannae also holds a 7.6% ownership interest in Alight, Inc. (NYSE:ALIT), a technology-enabled services company delivering human capital management solutions. In 2024, Alight generated revenue of $2.33 billion from continuing operations and reported adjusted EBITDA of $794 million. Cannae has been actively involved in Alight's strategic direction, including the $1.2 billion sale of its payroll and professional services divisions, which has allowed the company to significantly deleverage and initiate a dividend.

Another key component of Cannae's portfolio is its 47.2% ownership stake in Black Knight Football Club US, LP (BKFC), a partnership that owns and operates AFC Bournemouth, an English Premier League football club, as well as minority interests in other European football clubs. BKFC's revenue increased 41.7% year-over-year in fiscal 2024, driven by growth in media rights, matchday, and sponsorship revenue. The company has also made strategic investments in infrastructure and player development to drive long-term value creation.

Cannae's diversified portfolio also includes investments in Computer Services, Inc. (CSI), a leading fintech, regtech, and cybersecurity partner, Watkins Holdings, LLC, a leading producer of high-quality flavoring products, and JANA Partners, an investment management firm, among other holdings.

Financial Performance Navigating Challenges, Optimizing Capital Allocation

Cannae's financial performance in recent years has been impacted by the challenges faced by some of its portfolio companies, particularly in the restaurant industry. In 2024, the company reported total operating revenue of $452.5 million, a decrease of 20.6% from the prior year, primarily due to lower restaurant revenues. However, Cannae has taken steps to optimize its restaurant portfolio, including renegotiating or terminating leases and closing underperforming locations, which has resulted in improved profitability.

The company's net loss for the year ended December 31, 2024, was $304.6 million, or $4.73 per share, compared to a net loss of $313.4 million, or $4.27 per share, in the prior year. Cannae's equity in losses of unconsolidated affiliates, which includes its investments in Dun & Bradstreet, Alight, and BKFC, among others, was $46.6 million in 2024, a significant improvement from $194.0 million in the previous year.

Despite the challenging environment, Cannae has remained focused on optimizing its capital allocation. In 2024, the company repurchased 9.7 million shares of its common stock for approximately $222 million and initiated a quarterly dividend of $0.12 per share, returning an additional $23 million to shareholders. As of December 31, 2024, Cannae had $131.5 million in cash and cash equivalents and $49 million of immediate capacity under its existing holding company credit facilities, providing ample liquidity to support its strategic initiatives.

For the most recent fiscal year (2024), Cannae reported annual operating cash flow of -$90.1 million and annual free cash flow of -$97.1 million. In the fourth quarter of 2024, the company reported revenue of $109.9 million, a decrease of 8% compared to the prior year's fourth quarter, and a net loss of $46.1 million.

Liquidity

As mentioned above, Cannae had $131.5 million in cash and cash equivalents as of December 31, 2024. Additionally, the company had $49 million of immediate capacity under its existing holding company credit facilities, with the ability to add an additional $500 million of borrowing capacity. This strong liquidity position provides Cannae with the financial flexibility to pursue strategic initiatives and weather potential economic uncertainties.

Cannae's debt-to-equity ratio stood at 0.18 as of December 31, 2024. The company's current ratio and quick ratio were both 1.34, indicating a solid short-term liquidity position.

Strategic Initiatives Unlocking Value through Active Management

Cannae's strategy is centered on actively managing and operating its core portfolio companies to drive long-term value creation. The company's management team, led by Chairman and CEO William P. Foley, II, has a proven track record of identifying, acquiring, and successfully managing businesses across diverse industries.

One of Cannae's key priorities is to continue improving the operational performance and financial positioning of its portfolio companies. For example, the company has worked closely with Dun & Bradstreet and Alight to implement strategic initiatives that have enhanced profitability and positioned these businesses for future growth. At the same time, Cannae has been actively involved in the management and oversight of BKFC, driving improvements in the on-field performance, commercial activities, and infrastructure of its football clubs.

In addition to optimizing its existing investments, Cannae has demonstrated a disciplined approach to capital allocation, seeking to deploy capital in new opportunities that align with its long-term value creation strategy. The company's recent investment in JANA Partners, for instance, provides Cannae with access to a well-respected investment management platform and the potential to source and collaborate on new investment opportunities.

Segment Performance A Closer Look at Key Holdings

Restaurant Group Segment: This segment, which includes Cannae's 65.4% ownership in O'Charley's and 88.5% ownership in 99 Restaurants, faced significant challenges in 2024. Total revenues decreased by 21.7% compared to 2023, primarily due to the closure of approximately 100 stores and a decline in comparable store sales. However, cost management efforts led to a 21.8% decrease in the cost of restaurant revenue. The segment reported an operating loss of $8.8 million in 2024, an improvement from the $55.0 million operating loss in 2023, primarily driven by lower impairment charges related to property, equipment, and lease assets.

Dun & Bradstreet (DB) Segment: Cannae's 15.6% ownership in Dun & Bradstreet has proven to be a valuable asset. Based on quoted market prices, the fair market value of Cannae's ownership in DB was $860.3 million as of the end of 2024, compared to a book value of $691.9 million. DB's total revenues increased by 3.0% in 2024 compared to the prior year, while its operating income grew by 38.7%, demonstrating the company's operational efficiency and profitability.

Alight Segment: Cannae's 7.6% ownership interest in Alight, Inc. had a fair market value of $280.1 million as of December 31, 2024, while the book value was $374.0 million. Alight's total revenues decreased by 2.5% in 2024, while its net loss from continuing operations improved from $317.0 million in 2023 to $140.0 million in 2024.

Black Knight Football (BKFC) Segment: Cannae's 47.2% ownership in BKFC saw strong performance, with total revenues increasing by 41.7% in the year ended September 30, 2024, compared to the prior period. This growth was driven by increases in media rights, matchday, and sponsorship revenue.

Corporate and Other Segment: This segment, which includes Cannae's revenue and net earnings or losses from the operations of certain controlled portfolio companies, other equity investments, and the corporate holding company, reported an operating loss of $94.9 million in 2024, compared to a $63.9 million operating loss in 2023. The increased loss was primarily due to higher personnel costs related to non-cash stock-based compensation.

Risks and Challenges Navigating Industry Headwinds and Macroeconomic Conditions

As a diversified holding company, Cannae's performance is subject to the operational and financial performance of its portfolio companies, which can be influenced by various industry-specific and macroeconomic factors. The restaurant industry, for example, has faced significant challenges in recent years, including labor shortages, supply chain disruptions, and changing consumer preferences, all of which have impacted the financial results of Cannae's restaurant holdings.

Furthermore, Cannae's investments in industries such as fintech, human capital management, and sports entertainment are subject to rapidly evolving regulatory environments, technological advancements, and competitive dynamics, which can create both opportunities and risks for the company.

Macroeconomic conditions, including rising interest rates, inflationary pressures, and potential recessionary concerns, may also affect the performance of Cannae's portfolio companies and the company's ability to execute on its strategic initiatives.

To mitigate these risks, Cannae has emphasized the importance of active management, maintaining a disciplined approach to capital allocation, and fostering strong partnerships with the management teams of its portfolio companies. The company's diversified portfolio and focus on long-term value creation also help to provide some insulation against industry-specific and macroeconomic headwinds.

Outlook Positioning for Sustained Growth and Value Creation

Despite the challenges faced in recent years, Cannae remains well-positioned to drive long-term value creation for its shareholders. The company's focus on actively managing and optimizing its portfolio, coupled with its disciplined approach to capital allocation, has laid the foundation for sustained growth.

As Cannae continues to work closely with the management teams of its portfolio companies to enhance their operational and financial performance, the company expects to see improved results across its diversified holdings. Furthermore, Cannae's strategic investments in emerging sectors, such as its partnership with JANA Partners, offer the potential for additional value creation opportunities.

While navigating industry-specific and macroeconomic uncertainties will undoubtedly remain a focus, Cannae's experienced management team, diversified portfolio, and commitment to active ownership position the company to weather these challenges and capitalize on future growth prospects. As Cannae continues to execute on its strategic initiatives, the company is poised to unlock significant value for its shareholders over the long term.

Looking ahead, Cannae plans to continue rebalancing its portfolio away from some public company investments and prioritize share buybacks as a use of capital recovered from these public company share sales. The company also intends to use proceeds to pay down outstanding debt and invest in new and existing portfolio companies that they believe have outsized return potential to drive growth in net asset value (NAV).

While Cannae has not provided specific forward guidance for the company as a whole, its portfolio companies have generally performed well. For instance, Alight provided its 2025 outlook, expecting mid-to-high single digit growth in adjusted EBITDA and double digit growth in free cash flow. These positive trends in its portfolio companies, combined with Cannae's strategic focus on active management and value creation, suggest a promising outlook for the company's future performance.