Cannae Holdings, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021; filed February 25, 2022. This is an annual report, not a standalone fourth-quarter report.
Business context
Cannae is an externally managed holding company that invests in and actively supports operating businesses. Its portfolio included equity-method interests in Dun & Bradstreet (15.8% at year-end), Alight (10.0%), Paysafe (8.3%), Optimal Blue (20.0%), AmeriLife (19.8%) and Sightline (32.6%), as well as majority-owned restaurant businesses. Equity-method investees’ revenues and operating results generally do not consolidate into Cannae’s reported totals; consolidated revenue is principally from the Restaurant Group.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Operating revenue | $742.2 million | $585.7 million |
| Operating loss | $(133.5) million | $(188.5) million |
| Net income (loss) attributable to Cannae common shareholders | $(287.0) million | $1,786.2 million |
| Basic earnings (loss) per share | $(3.19) | $20.84 |
| Cash flow from operations | $(176.1) million | $(113.9) million |
| Cash flow from investing activities | $(272.4) million | $(74.2) million |
| Cash flow from financing activities | $(190.4) million | $379.1 million |
Restaurant revenue rose 25.9% to $704.7 million. Restaurant Group operating loss narrowed to $11.6 million from $84.4 million; cost of restaurant revenue was 87.6% of restaurant revenue, versus 93.7% in 2020. No consolidated profit margin was stated in the filing.
At December 31, 2021, cash and cash equivalents were $85.8 million, total assets $3.89 billion, total liabilities $548.5 million and shareholders’ equity $3.34 billion. Notes payable totaled $16.4 million; lease liabilities totaled $189.9 million. Cannae reported $300 million of available capacity under its holding-company margin facility, with potential capacity to increase it to $500 million. Holding-company cash, cash equivalents and unrestricted marketable securities totaled $575.8 million, excluding marketable securities accounted for as unconsolidated affiliates. Management said liquidity should meet requirements over the next 12 months and beyond.
Material changes and unusual items
- Net loss in 2021 contrasts with 2020’s unusually large profit, which included substantial investment-related gains. 2021 recognized losses and gains netted to a $310.8 million loss, primarily reflecting a $391.8 million Paysafe impairment and market-value losses, partly offset by a $111.1 million gain on the D&B share sale.
- Cannae invested in Alight, Paysafe and Sightline during 2021, and sold shares of Ceridian and D&B. It repurchased 4.83 million Cannae shares for $167.3 million during the year.
- Restaurant same-store sales improved year over year as COVID-19 restrictions eased, but remained below 2019 levels. Cannae sold Village Inn-related assets and Legendary Baking during 2021, recording losses on those dispositions.
- On February 15, 2022, after year-end, Cannae sold Optimal Blue for $144.5 million cash and 21.8 million D&B shares. Following carried interest paid to its Manager in D&B shares, Cannae reported a 20.5% D&B interest.
- Other 2021 portfolio realizations included the sale of Rock Creek assets, generating an $18.9 million gain, and the Colt transaction, generating a $20.3 million gain. These items and investment marks make reported earnings volatile.
Outlook, risks and contingencies
The filing provides no quantified earnings or revenue guidance. Management’s stated strategy is long-term ownership, active portfolio-company support, selective acquisitions and capital reallocation. Management cited ongoing uncertainty from COVID-19 variants, restaurant labor and food costs, consumer demand, and the pace of economic recovery.
Key risks include volatility and potential impairment in equity-method investments; reliance on market liquidity to monetize holdings; restaurant competition, commodity inflation and pandemic disruption; cybersecurity and data-protection exposure across portfolio companies; and regulatory and chargeback, fraud and compliance risks at Paysafe. Cannae also disclosed conflicts-of-interest risks involving its external Manager and related-party relationships. Manager fees are based on invested capital, regardless of company performance, and carried interest may reduce cash available to shareholders. A stockholder derivative suit concerning the Manager agreement and incentive arrangements remained pending; the company stated that its legal accruals were not material and it did not expect pending matters to have a material adverse effect, while noting outcomes are uncertain.
The independent auditor gave an unqualified opinion on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective. The auditor identified equity-method accounting for Paysafe and Alight, including the Paysafe impairment assessment, as a critical audit matter.
Important facts for investors to verify
- Whether the Paysafe investment’s fair value and carrying value recover, and whether further impairment is required.
- Portfolio-company performance and market valuations, especially for equity-method holdings whose results are not consolidated.
- Available liquidity and facility terms, including collateral and loan-to-value requirements on the margin facility.
- Restaurant recovery against 2019 levels and the effects of labor, food, lease and other operating costs.
- Post-year-end Optimal Blue sale proceeds, D&B shares received and carried-interest settlement, plus subsequent portfolio transactions.
- Manager fees, carried interest, related-party governance and the status or outcome of the derivative litigation.