SEC Filing | Cannae Holdings, Inc.

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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 September 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 October 31, 2019 there were 72,048,053 shares of the Registrant's common stock outstanding.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended September 30, 2019

TABLE OF CONTENTS




	Page
Part I: FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	1
B. Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2019 and 2018	2
C. Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the three and nine-month periods ended September 30, 2019 and 2018	3
D. Condensed Consolidated Statements of Equity for the three and nine-month periods ended September 30, 2019 and 2018	4
E. Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2019 and 2018	6
F. Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosure About Market Risk	38
Item 4. Controls and Procedures	38
Part II: OTHER INFORMATION
Item 1. Legal Proceedings	39
Item 1A. Risk Factors	39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6. Exhibits	41

Table of Contents

Part I: FINANCIAL INFORMATION


Item 1.	Condensed Consolidated Financial Statements

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



	September 30, 2019			December 31, 2018

ASSETS
Current assets:
Cash and cash equivalents	$	153.2		$	323.0
Short-term investments	0.2			31.4
Trade receivables	34.4			49.8
Inventory	32.5			22.3
Prepaid expenses and other current assets	20.5			25.2
Total current assets	240.8			451.7
Investments in unconsolidated affiliates	851.9			397.2
Lease assets - see Note B	218.6			—
Property and equipment, net	155.8			176.4
Other intangible assets, net	154.2			175.8
Goodwill	164.8			164.8
Fixed maturity securities available for sale, at fair value	18.7			17.8
Deferred tax asset	19.9			16.9
Other long term investments and non-current assets	69.0			58.9
Total assets	$	1,893.7		$	1,459.5

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and other accrued liabilities, current	$	91.6		$	98.4
Lease liabilities, current - see Note B	43.2			—
Income taxes payable	20.3			24.2
Deferred revenue	22.4			31.5
Notes payable, current	7.4			5.9
Total current liabilities	184.9			160.0
Lease liabilities, long term - see Note B	210.5			—
Deferred revenue, long term	0.2			0.2
Notes payable, long term	193.8			42.2
Accounts payable and other accrued liabilities, long term	29.6			57.4
Total liabilities	619.0			259.8
Commitments and contingencies - see Note G
Equity:
Cannae common stock, $0.0001 par value; authorized 115,000,000 shares as of September 30, 2019 and December 31, 2018; outstanding of 72,081,360 and 72,223,692 shares as of September 30, 2019 and December 31, 2018, respectively, and issued of 72,236,998 and 72,234,330 shares as of September 30, 2019 and December 31, 2018, respectively	—			—
Preferred stock, $0.0001 par value; authorized 10,000,000 shares; issued and outstanding, none as of September 30, 2019 and December 31, 2018	—			—
Retained earnings	119.1			45.8
Additional paid-in capital	1,156.3			1,146.2
Less: Treasury stock, 155,638 and 10,638 shares as of September 30, 2019 and December 31, 2018, respectively, at cost	(4.1		)	(0.2		)
Accumulated other comprehensive loss	(59.2		)	(67.2		)
Total Cannae shareholders' equity	1,212.1			1,124.6
Noncontrolling interests	62.6			75.1
Total equity	1,274.7			1,199.7
Total liabilities and equity	$	1,893.7		$	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 September 30,						Nine months ended September 30,
	2019			2018			2019			2018

Revenues:
Restaurant revenue	$	247.7		$	269.3		$	772.0		$	819.3
Other operating revenue	22.7			24.2			58.0			68.9
Total operating revenues	270.4			293.5			830.0			888.2
Operating expenses:
Cost of restaurant revenue	220.1			244.5			678.7			725.4
Personnel costs	31.1			30.6			86.4			145.0
Depreciation and amortization	12.9			16.1			40.1			45.3
Other operating expenses	29.9			27.6			87.5			73.9
Total operating expenses	294.0			318.8			892.7			989.6
Operating loss	(23.6		)	(25.3		)	(62.7		)	(101.4		)
Other income (expense):
Interest, investment and other income	1.3			1.6			13.7			4.5
Interest expense	(5.2		)	(0.4		)	(14.4		)	(3.6		)
Realized gains, net	93.0			11.3			169.1			77.8
Total other income (expense)	89.1			12.5			168.4			78.7
Earnings (loss) before income taxes and equity in losses of unconsolidated affiliates	65.5			(12.8		)	105.7			(22.7		)
Income tax expense (benefit)	15.6			(0.9		)	14.3			(3.8		)
Earnings (loss) before equity in losses of unconsolidated affiliates	49.9			(11.9		)	91.4			(18.9		)
Equity in (losses) earnings of unconsolidated affiliates	(8.3		)	3.8			(50.8		)	(16.9		)
Net earnings (loss)	41.6			(8.1		)	40.6			(35.8		)
Less: Net loss attributable to non-controlling interests	(4.6		)	(9.6		)	(12.2		)	(16.4		)
Net earnings (loss) attributable to Cannae Holdings, Inc. common shareholders	$	46.2		$	1.5		$	52.8		$	(19.4	)
Earnings per share
Basic
Net earnings (loss) per share	$	0.65		$	0.02		$	0.74		$	(0.27	)
Diluted
Net earnings (loss) per share	$	0.64		$	0.02		$	0.73		$	(0.27	)
Weighted Average Shares Outstanding
Weighted average shares outstanding Cannae Holdings common stock, basic basis	71.6			71.6			71.6			71.1
Weighted average shares outstanding Cannae Holdings common stock, diluted basis	71.9			71.6			71.9			71.1

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 September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Net earnings (loss)	$	41.6		$	(8.1	)	$	40.6		$	(35.8	)
Other comprehensive earnings (loss), net of tax:
Unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1)	0.6			1.5			0.4			3.3
Unrealized (loss) gain relating to investments in unconsolidated affiliates (2)	(4.7		)	1.0			3.4			(5.9		)
Reclassification adjustments for unrealized gains and losses on investments and other financial instruments, net of tax, (excluding investments in unconsolidated affiliates) included in net earnings (3)	(0.3		)	7.0			(0.4		)	7.0
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings (4)	4.6			(1.5		)	9.6			15.2
Other comprehensive earnings	0.2			8.0			13.0			19.6
Comprehensive earnings (loss)	41.8			(0.1		)	53.6			(16.2		)
Less: Comprehensive loss attributable to noncontrolling interests	(4.6		)	(9.6		)	(12.2		)	(16.4		)
Comprehensive earnings attributable to Cannae Holdings, Inc.	$	46.4		$	9.5		$	65.8		$	0.2

_________________________________


(1)	Net of income tax expense of less than $0.2 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and $0.1 million and $1.1 million for the nine months ended September 30, 2019 and 2018, respectively.


(2)	Net of income tax (benefit) expense of $(1.2) million and less than $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and $0.9 million and $(1.5) million for the nine months ended September 30, 2019 and 2018, respectively.


(3)	Net of income tax (benefit) expense of $(0.1) million and $2.5 million for the three months ended September 30, 2018 and $(0.1) million and $2.5 million for the nine months ended September 30, 2019 and 2018, respectively.


(4)	Net of income tax expense (benefit) of $1.2 million and $(0.4) million for the three months ended September 30, 2019 and 2018, respectively, and $2.5 million and $4.0 million for the nine months ended September 30, 2019 and 2018, respectively.

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, June 30, 2018	71.9	$	—	$	1,155.4	$	(2.7	)	$	(75.5	)	—	$	—		$	91.0		$	1,168.2
Other comprehensive earnings — unrealized gain on investments and other financial instruments, net of tax	—	—		—		—			1.5			—	—			—			1.5
Other comprehensive earnings — unrealized earnings of investments in unconsolidated affiliates, net of tax	—	—		—		—			1.0			—	—			—			1.0
Reclassification adjustments for unrealized gains and losses on investments and other financial instruments, net of tax, (excluding investments in unconsolidated affiliates) included in net earnings	—	—		—		—			7.0			—	—			—			7.0
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings	—	—		—		—			(1.5		)	—	—			—			(1.5		)
Stock-based compensation, consolidated subsidiaries	—	—		0.5		—			—			—	—			—			0.5
Contribution of CSA services from FNF	—	—		0.3		—			—			—	—			—			0.3
Stock-based compensation, unconsolidated affiliates	—	—		1.2		—			—			—	—			—			1.2
Net earnings (loss)	—	—		—		1.5			—			—	—			(9.6		)	(8.1		)
Balance, September 30, 2018	71.9	$	—	$	1,157.4	$	(1.2	)	$	(67.5	)	—	$	—		$	81.4		$	1,170.1

Balance, June 30, 2019	72.2	$	—	$	1,152.0	$	72.9		$	(59.4	)	—	$	(0.2	)	$	66.9		$	1,232.2
Other comprehensive earnings — unrealized gain on investments and other financial instruments, net of tax	—	—		—		—			0.6			—	—			—			0.6
Other comprehensive earnings — unrealized losses on investments in unconsolidated affiliates, net of tax	—	—		—		—			(4.7		)	—	—			—			(4.7		)
Reclassification adjustments for unrealized gains and losses on investments and other financial instruments, net of tax, (excluding investments in unconsolidated affiliates) included in net earnings	—	—		—		—			(0.3		)	—	—			—			(0.3		)
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings	—	—		—		—			4.6			—	—			—			4.6
Treasury stock repurchases	—	—		—		—			—			0.2	(3.9		)	—			(3.9		)
Stock-based compensation, consolidated subsidiaries	—	—		1.0		—			—			—	—			0.3			1.3
Contribution of CSA services from FNF	—	—		0.4		—			—			—	—			—			0.4
Stock-based compensation, unconsolidated affiliates	—	—		2.9		—			—			—	—			—			2.9
Net earnings (loss)	—	—		—		46.2			—			—	—			(4.6		)	41.6
Balance, September 30, 2019	72.2	$	—	$	1,156.3	$	119.1		$	(59.2	)	0.2	$	(4.1	)	$	62.6		$	1,274.7

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	—	—		—			—			3.3			—	—			—			3.3
Other comprehensive earnings — unrealized earnings of investments in unconsolidated affiliates, net of tax	—	—		—			—			(5.9		)	—	—			—			(5.9		)
Reclassification adjustments for unrealized gains and losses on investments and other financial instruments, net of tax, (excluding investments in unconsolidated affiliates) included in net earnings	—	—		—			—			7.0			—	—			—			7.0
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings	—	—		—			—			15.2			—	—			—			15.2
Shares issued for investment success bonuses, net of issuance costs	1.0	—		19.8			—			—			—	—			—			19.8
Stock-based compensation, consolidated subsidiaries	—	—		1.3			—			—			—	—			—			1.3
Contribution of CSA services from FNF	—	—		0.9			—			—			—	—			—			0.9
Stock-based compensation, unconsolidated affiliates	—	—		5.2			—			—			—	—			—			5.2
Sale of noncontrolling interest in consolidated subsidiary	—	—		—			—			—			—	—			4.1			4.1
Net loss	—	—		—			(19.4		)	—			—	—			(16.4		)	(35.8		)
Balance, September 30, 2018	71.9	$	—	$	1,157.4		$	(1.2	)	$	(67.5	)	—	$	—		$	81.4		$	1,170.1

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 gain on investments and other financial instruments, net of tax	—	—		—			—			0.4			—	—			—			0.4
Other comprehensive earnings — unrealized earnings of investments in unconsolidated affiliates, net of tax	—	—		—			—			3.4			—	—			—			3.4
Reclassification adjustments for unrealized gains and losses on investments and other financial instruments, net of tax, (excluding investments in unconsolidated affiliates) included in net earnings	—	—		—			—			(0.4		)	—	—			—			(0.4		)
Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings	—	—		—			—			9.6			—	—			—			9.6
Dun & Bradstreet equity issuance costs	—	—		(1.4		)	—			—			—	—			—			(1.4		)
Treasury stock repurchases	—	—		—			—			—			0.2	(3.9		)	—			(3.9		)
Stock-based compensation, consolidated subsidiaries	—	—		3.0			—			—			—	—			0.3			3.3
Contribution of CSA services from FNF	—	—		0.9			—			—			—	—			—			0.9
Stock-based compensation, unconsolidated affiliates	—	—		7.6			—			—			—	—			—			7.6
Subsidiary dividends paid to noncontrolling interests	—	—		—			—			—			—	—			(0.6		)	(0.6		)
Net earnings (loss)	—	—		—			52.8			—			—	—			(12.2		)	40.6
Balance, September 30, 2019	72.2	$	—	$	1,156.3		$	119.1		$	(59.2	)	0.2	$	(4.1	)	$	62.6		$	1,274.7

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CANNAE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Nine months ended September 30,

	2019			2018

Cash flows from operating activities:
Net earnings (loss)	$	40.6		$	(35.8	)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Depreciation and amortization	40.1			45.3
Equity in losses of unconsolidated affiliates	50.8			16.9
Distributions from investments in unconsolidated affiliates	2.0			1.2
Realized gains and asset impairments, net	(152.7		)	(71.0		)
Lease asset amortization	27.1			—
Stock-based compensation cost	3.3			21.0
Changes in assets and liabilities, net of effects from acquisitions:
Net decrease in trade receivables	15.2			1.6
Net decrease (increase) in inventory, prepaid expenses and other assets	(4.8		)	(10.6		)
Net decrease in lease liabilities	(33.0		)	—
Net decrease in accounts payable, accrued liabilities, deferred revenue and other	(13.6		)	(9.7		)
Net change in income taxes	(14.1		)	(7.7		)
Net cash used in operating activities	(39.1		)	(48.8		)
Cash flows from investing activities:
Proceeds from sale of investment securities and investments in unconsolidated affiliates	—			17.7
Proceeds from Ceridian Share Sales - See Note A	212.5			—
Additions to property and equipment and other intangible assets	(19.0		)	(10.3		)
Proceeds from sales of property and equipment	18.7			3.2
Proceeds from sale of investments in unconsolidated affiliates and other long term investments	4.8			7.0
Investments in Dun & Bradstreet, net of capitalized syndication fees - see Note D	(526.2		)	—
Purchases of other long-term investments	(15.0		)	(5.5		)
Distributions from investments in unconsolidated affiliates	0.7			0.3
Net proceeds from sales and maturities of (cash paid for purchases of) short-term investment securities	31.1			(32.2		)
Net other investing activities	2.5			0.7
Net cash used in investing activities	(289.9		)	(19.1		)
Cash flows from financing activities:
Borrowings	364.0			0.1
Debt service payments	(213.5		)	(124.1		)
Subsidiary distributions paid to noncontrolling interest shareholders	(0.6		)