Cannae Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Cannae is an investment and operating company with interests in Dun & Bradstreet, Alight, BKFE, and other businesses. Its consolidated operating revenue is primarily from its restaurant businesses; equity-method investee revenue is not consolidated.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $110.7 million | $154.3 million |
| Operating loss | $40.6 million | $22.7 million |
| Net loss attributable to Cannae shareholders | $89.9 million | $4.1 million |
| Loss per diluted share | $1.27 | $0.05 |
| Cash used in operating activities | $36.0 million | $19.7 million |
| Cash provided by (used in) investing activities | $194.5 million | $(44.4) million |
| Cash used in financing activities | $26.4 million | $1.2 million provided |
Revenue declined 28.3%. The operating loss equaled approximately 36.7% of revenue, versus 14.7% a year earlier. Restaurant cost of revenue was 88.5% of restaurant revenue, compared with 88.6%. Net loss included $8.6 million of recognized net losses, versus $52.1 million of gains in Q1 2023, and $53.4 million of income tax expense. The tax expense reflected a $59.9 million valuation allowance on federal NOL carryforwards and certain deferred taxes.
Equity-method results were $11.3 million of earnings versus $32.1 million of losses in the prior-year quarter, primarily reflecting $40.9 million of CSI equity earnings following a partial sale of CSI by the entity through which Cannae holds its interest. Results also included losses from D&B, Alight, Sightline, and BKFE.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $238.3 million, short-term investments $45.8 million, and total assets $2.61 billion. Cash included $223.8 million at the corporate holding company; $8.8 million of short-term investments secured restaurant letters of credit.
- Notes payable were $79.3 million, down from $105.0 million at year-end 2023; total liabilities were $344.7 million. The $59.7 million FNF Revolver balance bears a fixed 7.0% rate, with no available borrowing capacity. The margin facility had no outstanding balance and $150 million of capacity, with a possible increase to $500 million by amendment.
- Cash, short-term investments, and stated unused margin-facility capacity totaled $434.1 million before considering restrictions or future cash needs. Cannae reported $36.0 million of operating cash use; investing cash inflows included sales of Dayforce shares ($177.1 million) and investments ($100.9 million).
Material changes and significant developments
- Restaurant revenue decreased $42.0 million, including approximately $34.9 million of prior-year revenue from stores closed before 2024. Comparable sales fell 6.5% at O’Charley’s and 2.8% at 99 Restaurants, mainly due to lower guest counts. Cannae closed 77 O’Charley’s stores during 2023.
- Cannae sold 2.5 million Dayforce shares for $177.1 million and 10.0 million D&B shares for $100.9 million; it held approximately 1.0% of Dayforce and 15.6% of D&B at quarter-end. It purchased 1.6 million Paysafe shares for $23.4 million, bringing its ownership to 5.5%.
- Cannae acquired a 19.99% interest in JANA for consideration valued at $55.5 million, including 1.85 million treasury shares and $18.3 million cash, and committed to invest $50 million in JANA funds.
- On February 26, Cannae amended its management agreement with Trasimene: the annual fee becomes fixed at $7.6 million beginning July 2, 2024; a $20 million termination fee is payable in installments through July 1, 2026; and Cannae may terminate the agreement effective June 30, 2027. Cannae incurred $9.1 million of management fee expense in Q1.
- After quarter-end, the April 1 tender offer accepted 9,672,540 shares at $22.95 per share for $222.0 million, excluding fees. The accepted shares included an additional purchase under Cannae’s right to acquire up to 2% of outstanding shares. On April 30, 62,772,438 shares were outstanding.
- Alight agreed to sell its professional services and payroll/HCM outsourcing businesses, with closing subject to conditions and expected by mid-2024. Cannae accounts for Alight under the equity method.
Outlook, risks and contingencies
The filing provides no specific consolidated earnings or revenue guidance. Management says results may fluctuate and identifies restaurant commodity and labor inflation, guest traffic, seasonality, macroeconomic and market conditions, competition, acquisition and integration risks, and risks associated with external management. Management expects the 2023 restaurant closures to reduce revenue and improve operating profitability, but says the long-term financial impact is uncertain. It also states that additional deferred-tax valuation allowances may be required.
Cannae guarantees certain BKFE investment-commitment payments estimated at $41.9 million to $76.2 million, potentially payable over four years if BKFE cannot meet obligations and specified options are exercised. Restaurant unconditional purchase commitments totaled $60.4 million. The filing reports ordinary-course litigation and regulatory matters; recorded legal accruals were not material, and management did not expect pending matters to materially adversely affect the company overall. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor facts to verify
- Whether the tender-offer share count and cash cost, and the resulting post-tender share count, reconcile to subsequent filings.
- Progress and closing conditions for Alight’s planned business sale and its effect on Alight’s results and Cannae’s investment value.
- Restaurant comparable-sales trends, effects of store closures, and whether cost inflation or traffic changes affect margins.
- Use of Cannae’s cash and available credit, debt repayment needs, and the $50 million JANA fund commitment.
- Recoverability of deferred tax assets and potential further valuation allowances; performance and valuation of D&B, Alight, and other significant investments.
- Potential BKFE guarantee payments and the terms, timing, and cost of the Trasimene management agreement termination.