Cannae Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 1, 2023. This is an annual report, not a standalone fourth-quarter filing. Cannae is a long-term owner and manager of operating businesses and minority investments. Its financial statements consolidate controlled businesses, principally its restaurant operations, while many major investments are accounted for under the equity method and are not consolidated.
Financial results
| Metric (USD millions, except per-share data) | 2022 | 2021 |
|---|---|---|
| Operating revenue | $662.1 | $742.2 |
| Operating loss | $(144.6) | $(133.5) |
| Recognized net losses | $(181.2) | $(310.8) |
| Equity in earnings (losses) of unconsolidated affiliates | $(183.9) | $72.6 |
| Net loss attributable to Cannae common shareholders | $(428.1) | $(287.0) |
| Diluted loss per share | $(5.25) | $(3.19) |
| Cash used in operating activities | $(205.1) | $(176.1) |
- Revenue declined $80.1 million, primarily reflecting lower Restaurant Group revenue. Restaurant revenue was $630.6 million, down from $704.7 million.
- Restaurant Group operating loss was $22.0 million, versus $11.6 million. Restaurant costs were 90.6% of restaurant revenue, up from 87.6%, reflecting higher labor, food and supply costs. Comparable sales were up 7.5% at 99 Restaurants and down 5.8% at O’Charley’s.
- Equity-method losses included $144.2 million from Paysafe. Cannae recorded impairment charges of $236.0 million for Paysafe, $101.7 million for System1 and $32.8 million for QOMPLX. These and other valuation changes contributed to recognized net losses.
- Material gains partly offset losses: $313.0 million on the Optimal Blue disposition; gains related to AmeriLife sales and revaluation; and a $23.2 million gain on D&B share sales. The net recognized loss was $181.2 million.
- Cash used in investing activities was $521.2 million, including proceeds from asset and investment sales; financing activities used $154.2 million. Capital expenditures were $14.3 million.
Balance sheet, debt and liquidity
- At year-end, cash and cash equivalents were $247.7 million, including $231.8 million at the corporate holding company. Holding-company cash, cash equivalents and unrestricted marketable securities totaled $266.7 million.
- Notes payable totaled $97.4 million: $84.7 million outstanding under the FNF Revolver and $12.7 million in other notes. The FNF Revolver carried an 8.94% rate at year-end and matures in 2025.
- The $250 million 2020 Margin Facility had no outstanding balance and $250 million of unused capacity, with the ability to increase capacity to $500 million by amendment. It matures November 30, 2023 and is secured by Cannae’s Ceridian and D&B shares; borrowing is subject to loan-to-value requirements.
- Total assets were $3.13 billion and total liabilities were $410.6 million. Operating lease liabilities were $173.8 million. Contractual obligations totaled $543.2 million, including purchase commitments, leases, notes payable and management fees.
Material changes and transactions
- Sold Optimal Blue for $144.5 million cash plus 21.8 million D&B shares; recorded a $313.0 million gain. Cannae no longer owns Optimal Blue.
- Sold portions of AmeriLife for gross proceeds of approximately $250 million. Cannae’s remaining 4.6% interest is no longer equity-method accounted for; it is carried as an equity security without a readily determinable fair value.
- Sold all of its CorroHealth interest for $78.7 million. Reduced its Paysafe holding through sales and ended 2022 with 5.6% ownership. Cannae ended the year with 24.0% of System1 and recorded an impairment on that investment.
- Invested approximately $86.1 million for an indirect 9.1% economic interest in Computer Services, Inc. Committed $132.8 million for a 50.1% interest in BKFE, which acquired AFC Bournemouth; additional BKFE funding and a minority investment in FC Lorient followed or were expected in 2023.
- Repurchased approximately 10.75 million Cannae shares in 2022 for about $225.3 million across the 2021 and 2022 programs. A new program authorizes repurchases of up to 10 million additional shares through August 2025.
Outlook, risks and unusual items
- Management expects cash, operating cash generation, dividends, potential asset sales and available borrowing capacity to meet anticipated requirements over the next 12 months and beyond. No specific earnings or revenue guidance is provided.
- The company paused its SPAC capital-raising strategy amid market saturation and weak performance of SPAC-linked companies. In Q4, Austerlitz Acquisition Corporations I and II redeemed their public shares; Cannae reported no remaining investment in either at year-end.
- Management cites inflation and elevated labor, food and supply costs as pressures on restaurants; demand, guest counts and margins are sensitive to consumer spending and competition. Other key risks include market-price volatility and further impairments in portfolio investments, regulatory exposure at payment businesses, cybersecurity and data privacy risks, and limited liquidity of private investments.
- Cannae’s external manager receives a fee based on invested capital regardless of company performance, plus potential carried interest. The filing reports 2022 management fees of $40.1 million and carried interest expense of $49.3 million. Related-party, time-allocation and investment-opportunity conflicts are disclosed.
- A stockholder derivative action concerning the management agreement and incentive compensation had an agreement-in-principle to settle, subject to documentation and court approval. Proposed terms included a $6 million cash payment to Cannae, management-agreement amendments and governance changes. The filing says ordinary-course litigation accruals were not material; ultimate outcomes may differ.
- Auditors issued unqualified opinions on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Reconcile portfolio-level market values and carrying values, particularly for D&B, Alight, Paysafe and System1, and assess the assumptions behind impairment conclusions.
- Review the full debt and collateral terms, including the 2020 Margin Facility’s November 2023 maturity, loan-to-value triggers and refinancing or repayment plans.
- Track restaurant comparable sales, guest counts and cost ratios to determine whether pricing is offsetting inflation and labor pressures.
- Confirm the status and final terms of the derivative-action settlement and the effects of management fees, carried interest and related-party arrangements.
- Assess the timing and amount of remaining BKFE commitments and contingent guarantees; Cannae disclosed estimated BKFE-related obligations of approximately $99 million that may be payable over five years if specified conditions occur.