Cannae Holdings, Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing was signed February 29, 2024. Cannae is a holding company that owns and actively manages operating businesses and minority stakes. Its principal investments include Dun & Bradstreet (D&B), Alight, BKFE, and interests in Dayforce, Paysafe, Sightline and System1. D&B, Alight and BKFE are accounted for under the equity method, so their revenues are not consolidated into Cannae’s reported revenue.
Key financial results
| Metric ($ millions, except per-share data) | 2023 | 2022 | Change / context |
|---|---|---|---|
| Operating revenue | 570.0 | 662.1 | Down 13.9%; primarily lower restaurant revenue |
| Operating loss | (118.9) | (144.6) | Loss narrowed by $25.7 million |
| Recognized losses, net | (83.9) | (181.2) | Lower investment losses than in 2022 |
| Equity in losses of unconsolidated affiliates | (194.0) | (183.9) | Losses increased, notably from System1, BKFE and Alight |
| Net loss attributable to Cannae common shareholders | (313.4) | (428.1) | Loss narrowed by $114.7 million |
| Net loss per diluted share | $(4.27) | $(5.25) | Improved year over year |
| Cash used in operating activities | 87.8 | 205.1 | Use declined, mainly due to lower tax payments and carried interest expense |
| Cash provided by investing activities | 53.1 | 521.2 | Much lower, reflecting fewer investment-sale proceeds |
| Cash used in financing activities | 106.8 | 154.2 | Use declined, including lower share repurchases |
At December 31, 2023, assets were $2.69 billion, liabilities $377.5 million and total equity $2.31 billion. Cash and cash equivalents were $106.2 million, short-term investments $15.6 million, and notes payable $105.0 million. The company reported $150 million of unused capacity under its margin facility; it could seek to increase the facility to $500 million by amendment. Operating lease liabilities were $156.1 million, including current and long-term amounts. The filing states that management believes available cash, investments, investment cash flows and credit capacity will meet anticipated liquidity needs over the next 12 months and beyond.
Restaurant cost of revenue was 88.6% of restaurant revenue in 2023, versus 90.6% in 2022. A consolidated operating margin is not a useful standalone measure here because much of the portfolio’s activity is reported through equity-method earnings or losses rather than consolidated revenue.
Material changes and unusual items
- Restaurant revenue fell 15.0% to $536.0 million. Cannae cited revenue from stores closed before year-end and lower comparable sales. Comparable sales declined 2.1% at 99 Restaurants and 3.4% at O’Charley’s. The Restaurant Group closed 77 O’Charley’s locations during 2023.
- Restaurant operating loss widened to $55.0 million from $22.0 million, including $36.8 million of property, equipment, lease-asset and intangible impairments. Recognized gains included $30.2 million associated with O’Charley’s lease liabilities and lease accounting changes.
- Cannae recorded impairments of $70.2 million on Sightline and $63.9 million on System1, reflecting declines in fair value and outlook. System1’s carrying value in Cannae’s investment schedule was zero at year-end, although the filing also reports a quoted market value of approximately $60.0 million for Cannae’s ownership; investors should review the relevant impairment and investment notes for reconciliation.
- Cannae recognized a $28.3 million Dayforce fair-value gain and a $4.4 million gain on revaluation of Paysafe after it ceased applying equity-method accounting to Paysafe. Cannae held 2.8% of Paysafe at year-end and subsequently bought shares, bringing its disclosed stake to 5.5%.
- Cannae sold 2.0 million Dayforce shares for $144.7 million during 2023 and sold a further 2.0 million shares for $141.9 million after year-end. It invested $109.8 million in BKFE during 2023 and acquired an 89% interest in Minden Mill for $52.1 million.
- Share repurchases totaled approximately $118.5 million during 2023, or 6.14 million shares at an average $19.31 per share. In February 2024, Cannae announced a planned $200 million modified Dutch auction tender offer at $20.75–$23.75 per share, funded from cash on hand.
Outlook, risks and other disclosures
The filing provides no quantified company-wide earnings or revenue guidance. Management describes a long-term ownership and active-management strategy, with continued evaluation of acquisitions, asset sales, share repurchases and other capital allocation. Restaurant performance remains exposed to consumer demand, labor and food costs, competition and execution of store closures. Other significant risks include investment-value declines and illiquidity, impairments, cybersecurity and data privacy, regulatory changes affecting portfolio companies, acquisition and integration risk, and conflicts arising from Cannae’s external manager and related-party relationships.
Management reported effective disclosure controls and internal control over financial reporting as of year-end; the auditor issued unqualified opinions on the financial statements and internal controls. The audit identified Sightline and System1 impairment judgments as a critical audit matter. In February 2024, the management agreement was amended to set a $7.6 million annual fee beginning July 2024, provide for a $20 million termination fee paid in installments, and permit termination by Cannae effective June 30, 2027. The company also disclosed post-year-end investments and agreements involving JANA and new executive employment and equity awards.
Important facts for investors to verify
- Reconcile the reported investment values, impairments and fair-value disclosures for System1 and other significant unconsolidated affiliates.
- Review the full debt, collateral, maturity and covenant terms, including the FNF Revolver amendment and the margin facility’s loan-to-value requirements.
- Assess the cash consequences of the tender offer, repurchases, post-year-end investments and management-agreement termination payments.
- Examine the operating trajectory of the restaurant portfolio after 77 O’Charley’s closures, including comparable sales, impairment charges and expected cost savings.
- Evaluate portfolio-company results and risks, especially D&B, Alight, BKFE, Sightline and System1; their results are not fully reflected in Cannae’s consolidated revenue.
- Review related-party governance, manager fees and carried-interest provisions, as well as the detailed terms of the February 2024 management agreement and JANA transactions.