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 March 31, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
Commission File Number 1-38300
______________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||||||||||||||
| (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 | ||||||||||||
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 such files). 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):
| ☑ | 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 April 29, 2022 there were 84,916,034 shares of the Registrant's common stock outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2022
TABLE OF CONTENTS
| Page | |||||
i
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CANNAE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Equity securities, at fair value | |||||||||||
| Investments in unconsolidated affiliates | |||||||||||
| Lease assets | |||||||||||
| Property and equipment, net | |||||||||||
| Other intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Other long term investments and non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and other accrued liabilities, current | $ | $ | |||||||||
| Lease liabilities, current | |||||||||||
| Income taxes payable | |||||||||||
| Deferred revenue | |||||||||||
| Notes payable, current | |||||||||||
| Total current liabilities | |||||||||||
| Lease liabilities, long term | |||||||||||
| Deferred tax liability | |||||||||||
| Notes payable, long term | |||||||||||
| Accounts payable and other accrued liabilities, long term | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies - see Note F | |||||||||||
| Equity: | |||||||||||
Cannae common stock, | |||||||||||
Preferred stock, | |||||||||||
| Retained earnings | |||||||||||
| Additional paid-in capital | |||||||||||
Less: Treasury stock, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Cannae shareholders' equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
1
CANNAE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues: | |||||||||||
| Restaurant revenue | $ | $ | |||||||||
| Other operating revenue | |||||||||||
| Total operating revenues | |||||||||||
| Operating expenses: | |||||||||||
| Cost of restaurant revenue | |||||||||||
| Personnel costs | |||||||||||
| Depreciation and amortization | |||||||||||
| Other operating expenses | |||||||||||
| Total operating expenses | |||||||||||
| Operating loss | ( | ( | |||||||||
| Other income (expense): | |||||||||||
| Interest, investment and other income | |||||||||||
| Interest expense | ( | ( | |||||||||
| Recognized losses, net | ( | ( | |||||||||
| Total other expense | ( | ( | |||||||||
| Loss before income taxes and equity in earnings of unconsolidated affiliates | ( | ( | |||||||||
| Income tax benefit | ( | ( | |||||||||
| Loss before equity in earnings of unconsolidated affiliates | ( | ( | |||||||||
| Equity in earnings of unconsolidated affiliates | |||||||||||
| Net loss | ( | ( | |||||||||
| Less: Net loss attributable to noncontrolling interests | ( | ( | |||||||||
| Net loss attributable to Cannae Holdings, Inc. common shareholders | $ | ( | $ | ( | |||||||
| Earnings per share | |||||||||||
| Basic | |||||||||||
| Net loss per share | $ | ( | $ | ( | |||||||
| Diluted | |||||||||||
| Net loss per share | $ | ( | $ | ( | |||||||
| Weighted Average Shares Outstanding | |||||||||||
| Weighted average shares outstanding Cannae Holdings common stock, basic basis | |||||||||||
| Weighted average shares outstanding Cannae Holdings common stock, diluted basis | |||||||||||
See Notes to Condensed Consolidated Financial Statements
2
CANNAE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Other comprehensive earnings (loss), net of tax: | |||||||||||
| Unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1) | |||||||||||
| Unrealized losses of investments in unconsolidated affiliates (2) | ( | ( | |||||||||
| Reclassification adjustments for unrealized gains and losses of unconsolidated affiliates, net of tax, included in net earnings (3) | |||||||||||
| Other comprehensive loss | ( | ( | |||||||||
| Comprehensive loss | ( | ( | |||||||||
| Less: Comprehensive loss attributable to noncontrolling interests | ( | ( | |||||||||
| Comprehensive loss attributable to Cannae Holdings, Inc. common shareholders | $ | ( | $ | ( | |||||||
_________________________________
(1)Net of income tax expense of $0.1 million for the three months ended March 31, 2021.
(2)Net of income tax benefit of $0.3 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.
(3)Net of income tax expense of $0.1 million for the three months ended March 31, 2021.
See Notes to Condensed Consolidated Financial Statements
3
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 | $ | Shares | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings — unrealized gain on investments and other financial instruments, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings — unrealized losses of investments in unconsolidated affiliates, net of tax | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustments for unrealized gains and losses on unconsolidated affiliates, net of tax, included in net earnings | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, consolidated subsidiaries | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, unconsolidated affiliates | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Subsidiary dividends paid to noncontrolling interests | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings — unrealized losses of investments in unconsolidated affiliates, net of tax | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock repurchases | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, consolidated subsidiaries | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, unconsolidated affiliates | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements
4
CANNAE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Equity in earnings of unconsolidated affiliates | ( | ( | |||||||||
| Distributions from investments in unconsolidated affiliates | |||||||||||
| Recognized losses and asset impairments, net | |||||||||||
| Lease asset amortization | |||||||||||
| Stock-based compensation cost | |||||||||||
| Non-cash carried interest expense | |||||||||||
| Changes in assets and liabilities, net of effects from acquisitions: | |||||||||||
| Net decrease in other assets | |||||||||||
| Net decrease in lease liabilities | ( | ( | |||||||||
| Net decrease in accounts payable, accrued liabilities, deferred revenue and other liabilities | ( | ( | |||||||||
| Net change in income taxes | ( | ( | |||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from partial sale of Ceridian shares | — | ||||||||||
| Additions to property and equipment and other intangible assets | ( | ( | |||||||||
| Collections of notes receivable | |||||||||||
| Additions to notes receivable | ( | ||||||||||
| Proceeds from sales of property and equipment | |||||||||||
| Proceeds from sale of investments in unconsolidated affiliates and other long term investments | |||||||||||
| Investment in System1 | ( | — | |||||||||
| Investment in Paysafe, net of subscription fees earned | ( | ||||||||||
| Purchase of AAII Warrants | ( | ||||||||||
| Additional investments in unconsolidated affiliates | — | ( | |||||||||
| Purchases of other long term investments | ( | ||||||||||
| Distributions from investments in unconsolidated affiliates | |||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings | |||||||||||
| Debt service payments | ( | ( | |||||||||
| Sale of noncontrolling interest in consolidated subsidiary | |||||||||||
| Treasury stock repurchases | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents classified as held for sale | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See Notes to Condensed Consolidated Financial Statements
5
CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A — Basis of Financial Statements
The following describes the significant accounting policies of Cannae Holdings, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” "Cannae," "CNNE," or the "Company”), which have been followed in preparing the accompanying Condensed Consolidated Financial Statements.
Description of the Business
We primarily acquire interests in operating companies and are engaged in actively managing and operating a core group of those companies, which we are committed to supporting for the long-term. From time to time, we also seek to take meaningful equity ownership stakes where we have the ability to control or significantly influence quality companies, and we bring the strength of our operational expertise to each of our subsidiaries. We are a long-term owner that secures control and governance rights of other companies primarily to engage in their lines of business and we have no preset time constraints dictating when we sell or dispose of our businesses. We believe that our long-term ownership and active involvement in the management and operations of companies helps maximize the value of those businesses for our shareholders. Our primary assets as of March 31, 2022 include our ownership interests in Dun & Bradstreet Holdings, Inc. ("Dun & Bradstreet" or "D&B"), Ceridian HCM Holding, Inc. ("Ceridian"), Alight, Inc. ("Alight"), Paysafe Limited ("Paysafe"), Sightline Payments Holdings, LLC ("Sightline" or "Sightline Payments"), System1, Inc. ("System1") and AmeriLife Group, LLC ("AmeriLife"); majority equity ownership stakes in O'Charley's Holdings, LLC ("O'Charley's") and 99 Restaurants Holdings, LLC ("99 Restaurants"); various other controlled portfolio companies and certain minority equity ownership interests.
See Note G for further discussion of the businesses comprising our reportable segments.
We conduct our business through our wholly-owned subsidiary Cannae Holdings, LLC ("Cannae LLC"), a Delaware limited liability company. Our board of directors ("Board") oversees the management of the Company, Cannae LLC and its businesses, and the performance of our external manager, Trasimene Capital Management, LLC (“Trasimene” or our “Manager”).
Principles of Consolidation and Basis of Presentation
The accompanying Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and the instructions to Form 10-Q and Article 10 of Regulation S-X and include the historical accounts as well as wholly-owned and majority-owned subsidiaries of the Company. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All adjustments made were of a normal, recurring nature. This report should be read in conjunction with our Annual Report on Form 10-K (our "Annual Report") for the year ended December 31, 2021.
All intercompany profits, transactions and balances have been eliminated. Our ownership interests in non-majority-owned partnerships and affiliates are accounted for under the equity method of accounting or as equity securities. Earnings attributable to noncontrolling interests are recorded on the Consolidated Statements of Operations relating to majority-owned subsidiaries with the appropriate noncontrolling interest that represents the portion of equity not related to our ownership interest recorded on the Condensed Consolidated Balance Sheets in each period.
Management Estimates
The preparation of these Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include the fair value measurements (Note C). Actual results may differ from estimates.
Recent Developments
Ceridian
In January 2022, we completed the sale of 2.0 million shares of common stock of Ceridian pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended ("Rule 144"). In connection with the sale, we received proceeds of $173.3 million.
6
CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
We owned 8.0 million shares of Ceridian common stock as of March 31, 2022, which represented approximately 5.3 % of its outstanding stock as of March 31, 2022.
Refer to Notes C and D for further discussion of our accounting for our investment in Ceridian and other equity securities.
System1
On January 10, 2022, we entered into an amendment to the backstop facility agreement (the "S1 Backstop Agreement") pursuant to which our commitment to fund redemptions of shareholders of Trebia Acquisition Corp. ("Trebia") in conjunction with its merger with System1 (the "Trebia System1 Business Combination") increased from $200.0 million to $250.0 million. Also on January 10, 2022, we entered into an amended and restated sponsor agreement with the sponsors of Trebia pursuant to which the sponsors will forfeit up to an additional Trebia 1,352,941 Class B ordinary shares to Trebia, and Trebia will issue to Cannae an equal number of shares of Trebia Class A common stock in connection with, and based upon the extent of, Cannae’s obligation with respect to the increase in our backstop commitment. Trebia was co-sponsored by entities affiliated with the chairman and a member of our board of directors ("Board"), William P. Foley II and Frank R. Martire, respectively.
On January 27, 2022, the Trebia System1 Business Combination was completed and System1 merged with and into Trebia, with System1 as the surviving corporation. Beginning on January 28, 2022, System1’s common stock began trading on the NYSE under the ticker symbol "SST." Upon the completion of the Trebia System1 Business Combination, Cannae has invested a total of $248.3 million in System1, directly and indirectly owned 28.2 million of System1 common shares and indirectly owned 1.2 million warrants to purchase SST common shares (the "System1 Warrants"). As a result, Cannae has an approximate 26.5 % ownership of System1.
On March 17, 2022, the trading price of System1 Class A common stock exceeded certain thresholds resulting in the conversion of System1's outstanding Class D common stock to Class A common stock. As a result, the 833,750 shares of System1 Class D common stock held by the sponsor of Trebia, Trasimene Trebia LP ("Trebia Sponsor"), in which the Company owns a 26.1 % limited partnership interest converted to shares of System1 Class A common stock. Cannae's ratable portion of such shares is 217,500 shares.
We account for our direct ownership of the common equity of System1 under the equity method of accounting. See Notes C and D for further discussion of our accounting for our ownership of the common equity of System1.
On April 18, 2022, Trebia Sponsor exercised its System1 warrants on a cashless basis in exchange for System 1 Class A common stock. As a result, Cannae no longer has an indirect interest in any System1 warrants and has an indirect interest in an additional 0.5 million shares of System1 common stock held by Trebia Sponsor.
Subsequent to March 31, 2022, Cannae sold 1.4 million shares of System1 common stock for proceeds of $19.5 million.
As of the date of this Quarterly Report, Cannae directly and indirectly owns 27.5 million shares of System1 common stock representing an approximate 24.8 % ownership interest.
Optimal Blue
On February 15, 2022, we completed the disposition (the "Optimal Blue Disposition") of our ownership interests in Optimal Blue Holdco, LLC ("Optimal Blue") to Black Knight, Inc. ("Black Knight") pursuant to a purchase agreement dated as of February 15, 2022, by and among Black Knight, Cannae, and Optimal Blue, among others. In conjunction with the Optimal Blue Disposition, Cannae received aggregate consideration of (y) $144.5 million in cash and (z) 21.8 million shares of common stock, par value $0.0001 per share, of Dun & Bradstreet. Following the consummation of the Optimal Blue Disposition, Cannae no longer has any ownership interest in Optimal Blue. We recorded a gain of $313.0 million on the sale which is included in Recognized gains (losses), net on the Consolidated Statement of Operations.
Dun & Bradstreet
On February 15, 2022, we received 21.8 million shares of D&B as partial consideration for the Optimal Blue Disposition. Subsequently, we transferred to our Manager 1.6 million of the D&B shares we received as part of our carried interest paid related to the Optimal Blue Disposition. Following the receipt of these additional shares of D&B and payment of carried interest, we own 88.3 million shares of D&B which represents approximately 20.3 % of its outstanding common stock as of March 31, 2022. See Note D for further discussion of our accounting for our increased ownership interest in D&B.
7
CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Alight
In March 2022, the sponsor of Foley Trasimene Acquisition Corp. ("FTAC") distributed all of its interest in Alight to its limited partners. As a result, Cannae now directly holds all of its interest in common equity of Alight. As of March 31, 2022, Cannae directly holds approximately 9.7 % of the outstanding common equity of Alight.
Other Developments
Effective February 26, 2021, our Board authorized a -year stock repurchase program (the "2021 Repurchase Program") under which the Company may repurchase up to 10 million shares of its common stock. Purchases may be made from time to time in the open market at prevailing prices or in privately negotiated transactions through February 26, 2024. The repurchase program does not obligate the Company to acquire any specific number of shares and may be suspended or terminated at any time. During the quarter ended March 31, 2022, we repurchased 2,000,000 shares of CNNE common stock for approximately $54.0 million in the aggregate, or an average of $26.96 per share, pursuant to the 2021 Repurchase Program. Of the total 2,000,000 shares of CNNE common stock we repurchased during the quarter ended March 31, 2022, 1,000,000 shares were purchased from FNF for an aggregate amount of $24.0 million.
Earnings Per Share
Basic earnings per share, as presented on the Condensed Consolidated Statement of Operations, is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period.
In periods when earnings are positive, diluted earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus the impact of assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted loss per share is equal to basic loss per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain shares of restricted stock that have been treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which positive earnings have been reported.
Income Tax
Our effective tax rate was 18.0 % and 17.7 % in the three months ended March 31, 2022 and 2021, respectively. The change in the effective tax rate in the three-month period ended March 31, 2022 compared to the corresponding prior year period was primarily attributable to the varying impact of equity in earnings of unconsolidated affiliates on loss before taxes.
We have a Deferred tax liability of $2.3 million as of March 31, 2022 and of $143.8 million as of December 31, 2021. The $141.5 million change in deferred taxes in the three months ended March 31, 2022 is primarily attributable to the sales of Ceridian shares during the three months ended March 31, 2022, the mark to market losses recorded on Ceridian and other securities, and the impairment recorded to the value of our ownership in Paysafe.
8
CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Note B — Revenue Recognition
Disaggregation of Revenue
Our revenue consists of:
| Three Months Ended March 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||
| Revenue Stream | Segment | Total Revenue | ||||||||||||||||||
| Restaurant revenue: | (in millions) | |||||||||||||||||||
| Restaurant sales | Restaurant Group | $ | $ | |||||||||||||||||
| Bakery sales | Restaurant Group | |||||||||||||||||||
| Franchise and other | Restaurant Group | |||||||||||||||||||
| Total restaurant revenue | ||||||||||||||||||||
| Other operating revenue: | ||||||||||||||||||||
| Real estate and resort | Corporate and other | |||||||||||||||||||
| Other | Corporate and other | |||||||||||||||||||
| Total other operating revenue | ||||||||||||||||||||
| Total operating revenues | $ | $ | ||||||||||||||||||
Restaurant revenue consists of restaurant sales, bakery operations, and, to a lesser extent, franchise revenue and other revenue. Restaurant sales include food and beverage sales and gift card breakage, are net of applicable state and local sales taxes and discounts, and are recognized at a point in time as services are performed and goods are provided.
Revenue from bakery operations is recognized at a point in time in the period during which the products are shipped and control transfers to the customer.
Franchise and other revenue consist of development fees and royalties on sales by franchised units. Initial franchise fees are recognized as income upon commencement of the franchise operation and completion of all material services and conditions by the Company. Royalties are calculated as a percentage of the franchisee sales and recognized in the period in which the sales are generated. Revenue resulting from the sale of gift cards is recognized in the period in which the gift card is redeemed and is recorded as deferred revenue until recognized.
Other operating revenue consists of income generated by our resort operations, which includes sales of real estate, lodging rentals, food and beverage sales, and other income from various resort services offered. Revenue is recognized upon closing of the sale of real estate or once goods and services have been provided and billed to the customer.
Contract Balances
The following table provides information about trade receivables and deferred revenue:
| March 31, | December 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| (In millions) | |||||||||||
| Trade receivables, net | $ | $ | |||||||||
| Deferred revenue (contract liabilities) | |||||||||||
There was no impairment related to contract balances.
9
CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Note C — Fair Value Measurements
The fair value hierarchy established by the accounting standards on fair value measurements includes three levels, which are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities that are recorded in the Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access.
Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3. Financial assets and liabilities whose values are based on model inputs that are unobservable.
Recurring Fair Value Measurements
The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, respectively:
| March 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Ceridian | $ | $ | $ | $ | |||||||||||||||||||
| AAII FPA | |||||||||||||||||||||||
| Total equity securities | |||||||||||||||||||||||
| Other noncurrent assets: | |||||||||||||||||||||||
| Paysafe Warrants | |||||||||||||||||||||||
| AAII Warrants | |||||||||||||||||||||||
| Total other noncurrent assets | |||||||||||||||||||||||
| Total Assets | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Ceridian | $ | $ | $ | $ | |||||||||||||||||||
| AAII FPA | |||||||||||||||||||||||
| Total equity securities | |||||||||||||||||||||||
| Other noncurrent assets: | |||||||||||||||||||||||
| S1 Backstop Agreement | |||||||||||||||||||||||
| Paysafe Warrants | |||||||||||||||||||||||
| AAII Warrants | |||||||||||||||||||||||
| Total other noncurrent assets | |||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | |||||||||||||||||||
AAII FPA
On February 25, 2021, we entered into a forward purchase agreement (the "AAII FPA") with Austerlitz Acquisition Corp. II ("AAII"), a SPAC whose business purpose is to effect a merger, capital stock exchange, asset acquisition, stock purchase,
10
CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
reorganization or similar business combination with one or more businesses or entities (the "AAII Initial Business Combination"). AAII is co-sponsored by entities affiliated with William P. Foley II. Under the AAII FPA, we agreed to purchase an aggregate of 12,500,000 shares of AAII’s Class A common stock, plus an aggregate of 3,125,000 redeemable warrants to purchase one share of AAII's Class A common stock at $11.50 per share for an aggregate purchase price of $125.0 million in a private placement to occur concurrently with the closing of the AAII Initial Business Combination. Additionally, Cannae directly invested $29.6 million for a 20 % indirect economic interest in the founder shares held by the sponsor and a direct interest in 19,733,333 private placement warrants of AAII (the "AAII Warrants") at the initial public offering. The AAII FPA is contingent upon the closing of the AAII Initial Business Combination.
The AAII FPA is accounted for at fair value pursuant to Accounting Standards Codification ("ASC") Topic 321 Investment - Equity Securities. We utilized a Monte Carlo Simulation in determining the fair value of this agreement, which is considered to be a Level 3 fair value measurement. The Monte Carlo Simulation model simulates the current security price to a simulated date for the consummation of the underlying initial business combination based on probabilities of consummation. The value of the agreement is then calculated as the difference between the future simulated price and the fixed purchase price for the underlying security to be purchased. The primary unobservable input utilized in determining the fair value of the AAII FPA is the probability of consummation of the business combinations of each underlying transaction. The probability assigned to the consummation of the AAII Initial Business Combination was 70 %. Determination of such probability is based on a hybrid approach which considers observed success rates of business combinations for SPACs, the sponsor of AAII's track record for consummating similar transactions and the current market for SPAC transactions. Based on the total fair value of the Austerlitz II FPA as of March 31, 2022, changes in the probability utilized will not result in a change in fair value that is significant or material to the Company's financial position or results of operations.
AAII Warrants
The AAII Warrants are accounted for at fair value pursuant to ASC Topic 815 Derivatives and Hedging. These private placement warrants are valued using the trading price of AAII's publicly traded warrants (NYSE: ASZ-WT) and are considered a Level 2 fair value measurement.
The following table presents a summary of the changes in the fair values of Level 3 assets measured on a recurring basis (in millions).
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||
| AAII | Corporate debt | Forward Purchase | Subscription | AAII | |||||||||||||||||||||||||||||||
| FPA | securities | Agreements | Agreements | Warrants | Total | ||||||||||||||||||||||||||||||
| Fair value, beginning of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Net valuation (loss) gain included in earnings (1) | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Reclassification to investments in unconsolidated affiliates and warrants | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||
| Purchase of AAII Warrants | — | — | — | — | |||||||||||||||||||||||||||||||
| Net valuation gain included in other comprehensive earnings (2) | — | — | — | ||||||||||||||||||||||||||||||||
| Fair value, end of period | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
_____________________________________
(1) Included in Recognized gains and (losses), net on the Condensed Consolidated Statements of Operations
(2) Included in Unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) on the Condensed Consolidated Statements of Comprehensive Earnings (Loss)
Transfers into or out of the Level 3 fair value category occur when unobservable inputs become more or less significant to the fair value measurement or upon a change in valuation technique. There were no transfers between Level 2 and Level 3 in the three months ended March 31, 2022 and 2021.
All of the unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) on our Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the three months ended March 31, 2021 relate to fixed maturity securities considered Level 3 fair value measures.
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CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Additional information regarding the fair value of our investment portfolio is included in Note D.
The carrying amounts of trade receivables and notes receivable approximate fair value due to their short-term nature. The fair value of our notes payable is included in Note E.
Note D — Investments
Equity Securities
Gains (losses) on equity securities included in Recognized losses, net on the Condensed Consolidated Statements of Operations consisted of the following for the three months ended March 31, 2022 and 2021:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions) | |||||||||||
| Net losses recognized during the period on equity securities | $ | ( | $ | ( | |||||||
| Less: net (losses) gains recognized during the period on equity securities sold or transferred during the period | ( | ||||||||||
| Unrealized losses recognized during the reporting period on equity securities held at the reporting date | $ | ( | $ | ( | |||||||
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates recorded using the equity method of accounting as of March 31, 2022 and December 31, 2021 consisted of the following:
Ownership at March 31, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Dun & Bradstreet | % | $ | $ | ||||||||||||||
| Paysafe | % | ||||||||||||||||
| Alight/FTAC Sponsor (1) | % | ||||||||||||||||
| System1/Trebia Sponsor (2) | % | ||||||||||||||||
| Optimal Blue | % | ||||||||||||||||
| AmeriLife | % | ||||||||||||||||
| Sightline | % | ||||||||||||||||
| Other | various | ||||||||||||||||
| Total | $ | $ | |||||||||||||||
_____________________________________
(1) As of December 31, 2021, represents both the Company's direct interest in Alight and indirect interest in Alight held through our interest in the FTAC Sponsor.
(2) Represents both the Company's direct interest in System1 and indirect interest in System1 held through our interest in the Trebia Sponsor.
The aggregate fair value of our direct and indirect ownership in the common stock of unconsolidated affiliates that have quoted market prices as of March 31, 2022 consisted of the following:
| March 31, 2022 | |||||
| (in millions) | |||||
| Dun & Bradstreet | $ | ||||
| Paysafe | |||||
| Alight | |||||
| System1 | |||||
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CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Equity in earnings of unconsolidated affiliates for the three months ended March 31, 2022 and 2021 consisted of the following:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (in millions) | |||||||||||
| Dun & Bradstreet | $ | ( | ( | ||||||||
| Paysafe/Trasimene Capital FT, LP II ("FTAC II Sponsor") (1) | |||||||||||
| Alight/FTAC Sponsor | |||||||||||
| System1/Trebia Sponsor (2) | |||||||||||
| Optimal Blue | ( | ( | |||||||||
| AmeriLife | ( | ( | |||||||||
| Sightline | ( | ||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
_____________________________________
(1) The amount for the quarter ended March 31, 2021 represents the Company's equity in earnings of FTAC II Sponsor only.
(2) The amount for the quarter ended March 31, 2022 represents the Company's equity in earnings of Trebia Sponsor only.
Dun & Bradstreet
As of February 15, 2022, there was a $244.2 million difference between the amount of our recorded ownership interest in D&B and the amount of the Company's ratable portion of the underlying equity in the net assets of D&B as a result of our increased ownership resulting from the Optimal Blue Disposition. We have evaluated the accounting treatment of such basis difference and allocated $147.7 million to amortizing intangible assets, $59.7 million to indefinite-lived intangible assets and the remaining basis difference of $36.8 million to equity method goodwill, which represent the excess of our basis difference over our equity in D&B's net assets that are not attributable to their identifiable net assets.
Summarized financial information for Dun & Bradstreet for the relevant dates and time periods included in Investments in unconsolidated affiliates and Equity in earnings of unconsolidated affiliates in our Condensed Consolidated Balance Sheets and Statements of Operations, respectively, is presented below.
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Total current assets | $ | $ | |||||||||
| Goodwill and other intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Current liabilities | $ | $ | |||||||||
| Long-term debt | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
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CANNAE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In millions) | |||||||||||
| Total revenues | $ | $ | |||||||||
| Loss before income taxes | ( | ( | |||||||||
| Net loss | ( | ( | |||||||||
| Net income attributable to noncontrolling interest | ( | ( | |||||||||
| Net loss attributable to Dun & Bradstreet | ( | ( | |||||||||
System1
We account for our ownership of System1 pursuant to the equity method of accounting. We intend to report our equity in earnings or loss of System1 on a three-month lag and we acquired our ownership interest on January 27, 2022. Accordingly, our net loss for the quarter ended March 31, 2022 does not include any equity in earnings or loss of System1.
Paysafe
Based on quoted market prices, the aggregate value of our ownership of Paysafe common stock was $