SEC Filing | Cannae Holdings, Inc.

View:

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-38300

CANNAE HOLDINGS, INC.

______________________________________________________________________________________________________________________________________________________

(Exact name of registrant as specified in its charter)



Delaware					82-1273460
(State or other jurisdiction of incorporation or organization)					(I.R.S. Employer Identification Number)

1701 Village Center Circle	,	Las Vegas	,	Nevada	89134
(Address of principal executive offices)					(Zip Code)

(702) 323-7330

___________________________________________________________________

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Cannae Common Stock, $0.0001 par value	CNNE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes ☑ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	☑	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☑

As of July 31, 2019 there were 72,223,692 shares of the Registrant's common stock outstanding.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended June 30, 2019

TABLE OF CONTENTS




	Page
Part I: FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	1
B. Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2019 and 2018	2
C. Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the three and six-month periods ended June 30, 2019 and 2018	3
D. Condensed Consolidated Statements of Equity for the three and six-month periods ended June 30, 2019 and 2018	4
E. Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2019 and 2018	5
F. Notes to Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosure About Market Risk	32
Item 4. Controls and Procedures	32
Part II: OTHER INFORMATION
Item 1. Legal Proceedings	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6. Exhibits	34

Table of Contents

Part I: FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



	June 30, 2019			December 31, 2018

ASSETS
Current assets:
Cash and cash equivalents	$	73.7		$	323.0
Short-term investments	1.8			31.4
Trade receivables	33.1			49.8
Inventory	32.5			22.3
Prepaid expenses and other current assets	24.2			25.2
Total current assets	165.3			451.7
Investments in unconsolidated affiliates	913.3			397.2
Lease assets - see Note B	228.4			—
Property and equipment, net	160.4			176.4
Other intangible assets, net	158.0			175.8
Goodwill	164.8			164.8
Fixed maturity securities available for sale, at fair value	17.7			17.8
Deferred tax asset	9.4			16.9
Other long term investments and non-current assets	55.1			58.9
Total assets	$	1,872.4		$	1,459.5

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and other accrued liabilities, current	$	98.2		$	98.4
Lease liabilities, current - see Note B	43.0			—
Income taxes payable	4.1			24.2
Deferred revenue	25.3			31.5
Notes payable, current	5.9			5.9
Total current liabilities	176.5			160.0
Lease liabilities, long term - see Note B	218.0			—
Deferred revenue, long term	0.2			0.2
Notes payable, long term	195.2			42.2
Accounts payable and other accrued liabilities, long term	30.1			57.4
Total liabilities	620.0			259.8
Commitments and contingencies - see Note G
Equity:
Cannae common stock, $0.0001 par value; authorized 115,000,000 shares as of June 30, 2019 and December 31, 2018; issued and outstanding of 72,234,330 and 72,223,692, respectively, as of June 30, 2019 and December 31, 2018	—			—
Preferred stock, $0.0001 par value; authorized 10,000,000 shares; issued and outstanding, none as of June 30, 2019 and December 31, 2018	—			—
Retained earnings	90.9			45.8
Additional paid-in capital	1,150.9			1,146.2
Less: Treasury stock, 10,638 shares as of June 30, 2019 and December 31, 2018, at cost	(0.2		)	(0.2		)
Accumulated other comprehensive loss	(56.1		)	(67.2		)
Total Cannae shareholders' equity	1,185.5			1,124.6
Noncontrolling interests	66.9			75.1
Total equity	1,252.4			1,199.7
Total liabilities and equity	$	1,872.4		$	1,459.5

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018

Revenues:
Restaurant revenue	$	266.5		$	276.2		$	524.3		$	550.0
Other operating revenue	18.6			26.1			35.3			44.7
Total operating revenues	285.1			302.3			559.6			594.7
Operating expenses:
Cost of restaurant revenue	231.6			240.1			458.6			480.9
Personnel costs	30.9			90.3			55.3			114.4
Depreciation and amortization	13.3			14.9			27.2			29.2
Other operating expenses	33.8			25.1			57.6			46.3
Total operating expenses	309.6			370.4			598.7			670.8
Operating loss	(24.5		)	(68.1		)	(39.1		)	(76.1		)
Other income (expense):
Interest, investment and other income	1.4			1.6			12.4			2.9
Interest expense	(5.5		)	(0.2		)	(9.2		)	(3.2		)
Realized gains, net	74.5			66.5			76.1			66.5
Total other income (expense)	70.4			67.9			79.3			66.2
Earnings (loss) before income taxes and equity in losses of unconsolidated affiliates	45.9			(0.2		)	40.2			(9.9		)
Income tax expense (benefit)	8.5			2.6			3.7			(2.9		)
Earnings (loss) before equity in losses of unconsolidated affiliates	37.4			(2.8		)	36.5			(7.0		)
Equity in losses of unconsolidated affiliates	(22.4		)	(19.6		)	(19.5		)	(20.7		)
Net earnings (loss)	15.0			(22.4		)	17.0			(27.7		)
Less: Net loss attributable to non-controlling interests	(4.5		)	(2.6		)	(7.6		)	(6.8		)
Net earnings (loss) attributable to Cannae Holdings, Inc. common shareholders	$	19.5		$	(19.8	)	$	24.6		$	(20.9	)
Earnings per share
Basic
Net earnings (loss) per share	$	0.27		$	(0.28	)	$	0.34		$	(0.30	)
Diluted
Net earnings (loss) per share	$	0.27		$	(0.28	)	$	0.34		$	(0.30	)
Weighted Average Shares Outstanding
Weighted average shares outstanding Cannae Holdings common stock, basic basis	71.6			71.1			71.6			70.8
Weighted average shares outstanding Cannae Holdings common stock, diluted basis	71.9			71.1			71.8			70.9

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In millions)

(Unaudited)



	Three months ended June 30,						Six months ended June 30,
	2019			2018			2019			2018
Net earnings (loss)	$	15.0		$	(22.4	)	$	17.0		$	(27.7	)
Other comprehensive earnings (loss), net of tax:
Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1)	0.1			(0.4		)	(0.1		)	1.8
Unrealized gain (loss) relating to investments in unconsolidated affiliates (2)	5.3			(0.1		)	11.5			(6.9		)
Reclassification adjustments for unrealized gains and losses, net of tax, included in net earnings (3)	4.1			16.7			4.7			16.7
Other comprehensive earnings (loss)	9.5			16.2			16.1			11.6
Comprehensive earnings (loss)	24.5			(6.2		)	33.1			(16.1		)
Less: Comprehensive loss attributable to noncontrolling interests	(4.5		)	(2.6		)	(7.6		)	(6.8		)
Comprehensive earnings (loss) attributable to Cannae Holdings, Inc.	$	29.0		$	(3.6	)	$	40.7		$	(9.3	)

_________________________________


(1)	Net of income tax expense (benefit) of less than $0.1 million and $(0.1) million for the three months ended June 30, 2019 and 2018, respectively, and less than $(0.1) million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively.


(2)	Net of income tax expense (benefit) of $1.4 million and less than $(0.1) million for the three months ended June 30, 2019 and 2018, respectively and $3.0 million and $(1.8) million for the six months ended June 30, 2019 and 2018, respectively.


(3)	Net of income tax benefit of $1.0 million and $1.2 million for the three and six months ended June 30, 2019, respectively, and of $4.4 million for the three and six months ended June 30, 2018.

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In millions)

(Unaudited)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp (Loss) Earnings			Treasury Stock				Non-controlling Interests			Total Equity
	Shares	$		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp (Loss) Earnings			Shares	$			Non-controlling Interests			Total Equity

Balance, March 31, 2018	70.9	$	—	$	1,131.9		$	1.0		$	(75.6	)	—	$	—		$	89.5		$	1,146.8
Adjustment for adoption of ASU 2018-02	—	—		—			16.1			(16.1		)	—	—			—			—
Other comprehensive earnings — unrealized loss on investments and other financial instruments, net of tax	—	—		—			—			(0.4		)	—	—			—			(0.4		)
Other comprehensive earnings — unrealized loss on investments in unconsolidated affiliates, net of tax	—	—		—			—			(0.1		)	—	—			—			(0.1		)
Reclassification adjustments for unrealized gains and losses, net of tax, included in net earnings	—	—		—			—			16.7			—	—			—			16.7
Shares issued for investment success bonuses, net of issuance costs	1.0	—		19.8			—			—			—	—			—			19.8
Stock-based compensation	—	—		0.4			—			—			—	—			—			0.4
Contribution of CSA services from FNF	—	—		0.3			—			—			—	—			—			0.3
Ceridian stock-based compensation	—	—		3.0			—			—			—	—			—			3.0
Sale of noncontrolling interest in consolidated subsidiary	—	—		—			—			—			—	—			4.1			4.1
Net loss	—	—		—			(19.8		)	—			—	—			(2.6		)	(22.4		)
Balance, June 30, 2018	71.9	$	—	$	1,155.4		$	(2.7	)	$	(75.5	)	—	$	—		$	91.0		$	1,168.2

Balance, March 31, 2019	72.2	$	—	$	1,148.8		$	71.4		$	(65.6	)	—	$	(0.2	)	$	71.6		$	1,226.0
Other comprehensive earnings — unrealized loss on investments and other financial instruments, net of tax	—	—		—			—			0.1			—	—			—			0.1
Other comprehensive earnings — unrealized earnings on investments in unconsolidated affiliates, net of tax	—	—		—			—			5.3			—	—			—			5.3
Reclassification adjustments for unrealized gains and losses, net of tax, included in net earnings	—	—		—			—			4.1			—	—			—			4.1
Dun & Bradstreet equity issuance costs	—	—		(1.4		)	—			—			—	—			—			(1.4		)
Stock-based compensation	—	—		1.0			—			—			—	—			—			1.0
Contribution of CSA services from FNF	—	—		0.3			—			—			—	—			—			0.3
Ceridian stock-based compensation	—	—		2.2			—			—			—	—			—			2.2
Subsidiary dividends paid to noncontrolling interests	—	—		—			—			—			—	—			(0.2		)	(0.2		)
Net earnings (loss)	—	—		—			19.5			—			—	—			(4.5		)	15.0
Balance, June 30, 2019	72.2	$	—	$	1,150.9		$	90.9		$	(56.1	)	—	$	(0.2	)	$	66.9		$	1,252.4

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In millions)

(Unaudited)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp (Loss) Earnings			Treasury Stock				Non-controlling Interests			Total Equity
	Shares	$		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp (Loss) Earnings			Shares	$			Non-controlling Interests			Total Equity

Balance, December 31, 2017	70.9	$	—	$	1,130.2		$	0.2		$	(71.0	)	—	$	—		$	93.7		$	1,153.1
Adjustment for cumulative effect of adoption of ASC Topic 606	—	—		—			1.9			—			—	—			—			1.9
Adjustment for adoption of ASU 2018-02	—	—		—			16.1			(16.1		)	—	—			—			—
Other comprehensive earnings — unrealized gain on investments and other financial instruments, net of tax	—	—		—			—			1.8			—	—			—			1.8
Other comprehensive earnings — unrealized loss on investments in unconsolidated affiliates, net of tax	—	—		—			—			(6.9		)	—	—			—			(6.9		)
Reclassification adjustments for unrealized gains and losses, net of tax, included in net earnings	—	—		—			—			16.7			—	—			—			16.7
Shares issued for investment success bonuses, net of issuance costs	1.0	—		19.8			—			—			—	—			—			19.8
Stock-based compensation	—	—		0.9			—			—			—	—			—			0.9
Contribution of CSA services from FNF	—	—		0.6			—			—			—	—			—			0.6
Ceridian stock-based compensation	—	—		3.9			—			—			—	—			—			3.9
Sale of noncontrolling interest in consolidated subsidiary	—	—		—			—			—			—	—			4.1			4.1
Net loss	—	—		—			(20.9		)	—			—	—			(6.8		)	(27.7		)
Balance, June 30, 2018	71.9	$	—	$	1,155.4		$	(2.7	)	$	(75.5	)	—	$	—		$	91.0		$	1,168.2

Balance, December 31, 2018	72.2	$	—	$	1,146.2		$	45.8		$	(67.2	)	—	$	(0.2	)	$	75.1		$	1,199.7
Adjustment for cumulative effect of adoption of accounting standards by unconsolidated affiliates	—	—		—			20.5			(5.0		)	—	—			—			15.5
Other comprehensive earnings — unrealized loss on investments and other financial instruments, net of tax	—	—		—			—			(0.1		)	—	—			—			(0.1		)
Other comprehensive earnings — unrealized earnings on investments in unconsolidated affiliates, net of tax	—	—		—			—			11.5			—	—			—			11.5
Reclassification adjustments for unrealized gains and losses, net of tax, included in net earnings	—	—		—			—			4.7			—	—			—			4.7
Dun & Bradstreet equity issuance costs	—	—		(1.4		)	—			—			—	—			—			(1.4		)
Stock-based compensation	—	—		1.9			—			—			—	—			—			1.9
Contribution of CSA services from FNF	—	—		0.7			—			—			—	—			—			0.7
Ceridian stock-based compensation	—	—		3.5			—			—			—	—			—			3.5
Subsidiary dividends paid to noncontrolling interests	—	—		—			—			—			—	—			(0.6		)	(0.6		)
Net earnings (loss)	—	—		—			24.6			—			—	—			(7.6		)	17.0
Balance, June 30, 2019	72.2	$	—	$	1,150.9		$	90.9		$	(56.1	)	—	$	(0.2	)	$	66.9		$	1,252.4

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Six months ended June 30,

	2019			2018

Cash flows from operating activities:
Net earnings (loss)	$	17.0		$	(27.7	)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	27.3			29.2
Equity in losses of unconsolidated affiliates	19.5			20.7
Distributions from investments in unconsolidated affiliates	2.0			0.9
Realized gains and asset impairments, net	(64.4		)	(61.4		)
Lease asset amortization	18.0			—
Stock-based compensation cost	1.9			20.6
Changes in assets and liabilities, net of effects from acquisitions:
Net decrease (increase) in trade receivables	16.5			(1.0		)
Net increase in inventory, prepaid expenses and other assets	(15.6		)	(8.4		)
Net decrease in lease liabilities	(22.0		)	—
Net decrease in accounts payable, accrued liabilities, deferred revenue and other	(4.0		)	(15.9		)
Net change in income taxes	(20.7		)	(4.5		)
Net cash used in operating activities	(24.5		)	(47.5		)
Cash flows from investing activities:
Proceeds from sale of investment securities and investments in unconsolidated affiliates	—			17.7
Proceeds from Ceridian Share Sale - See Note A	100.5			—
Additions to property and equipment and other intangible assets	(10.3		)	(6.2		)
Proceeds from sales of property and equipment	11.4			3.2
Proceeds from sale of investments in unconsolidated affiliates	4.3			4.6
Investments in Dun & Bradstreet, net of capitalized syndication fees - see Note D	(526.2		)	—
Purchases of other long-term investments	—			(3.6		)
Distributions from investments in unconsolidated affiliates	0.3			0.3
Net proceeds from sales and maturities of (cash paid for purchases of) short-term investment securities	29.6			(17.3		)
Net other investing activities	2.6			0.6
Net cash used in investing activities	(387.8		)	(0.7		)
Cash flows from financing activities:
Borrowings	262.1			0.1
Debt service payments	(111.7		)	(123.9		)
Subsidiary distributions paid to noncontrolling interest shareholders	(0.6		)	—
Sale of noncontrolling interest in consolidated subsidiary	—			4.1
Proceeds from ABRH sale and leaseback of corporate office, net of issuance costs- see Note A	13.2			—
Net cash provided by (used in) financing activities	163.0			(119.7		)
Net decrease in cash and cash equivalents	(249.3		)	(167.9		)
Cash and cash equivalents at beginning of period	323.0			245.6
Cash and cash equivalents at end of period	$	73.7		$	77.7

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note A — Basis of Financial Statements

Description of the Business

We are a holding company engaged in actively managing and operating a group of companies and investments with a net asset value of approximately $1.3 billion as of June 30, 2019. Our business consists of managing and operating certain majority-owned subsidiaries, as well as making additional majority and minority equity portfolio investments in businesses, in order to achieve superior financial performance and maximize the value of these assets. As of June 30, 2019, our primary investments include our minority ownership interests in Ceridian HCM Holding, Inc. ("Ceridian") and The Dun & Bradstreet Corporation ("DNB"); majority equity ownership stakes in American Blue Ribbon Holdings, LLC ("ABRH"), 99 Restaurants H