Cannae Holdings, Inc.

Previous wording

The statements contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding our expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this Quarterly Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other comparable terminology. It is important to note that our actual results could vary materially from those forward-looking statements contained herein due to many factors, including, but not limited to: changes in general economic, business and political conditions, including changes in the financial markets and changes in macroeconomic conditions resulting from the outbreak of a pandemic or escalation of the conflicts in Ukraine and the Middle East; risks associated with the Investment Company Act of 1940; our potential inability to find suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in integrating acquisitions; significant competition that our operating subsidiaries face; risks related to the externalization of certain of our management functions to our Manager; and other risks detailed in the "Statement Regarding Forward-Looking Information," "Risk Factors" and other sections of our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report") and other filings with the Securities Exchange Commission ("SEC").

Current wording

The statements contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding our expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this Quarterly Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology. It is important to note that our actual results could vary materially from those forward-looking statements contained herein due to many factors, including but not limited to: changes in general economic, business and political conditions, including among others, consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange rates, commodity prices, inflation levels, changes in trade policy, tariffs on goods, and supply chain disruptions; risks associated with the Investment Company Act of 1940; our potential inability to find suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in integrating acquisitions; significant competition that our operating subsidiaries face; risks related to the externalization of certain of our management functions to our Manager; the occurrence of any event, change or other circumstances that could give rise to the termination or inability to complete the D&B Sale; and other risks detailed in the "Statement Regarding Forward-Looking Information," "Risk Factors" and other sections of our Annual Report on Form 10-K for the year ended December 31, 2024 (our "Annual Report") and other filings with the Securities Exchange Commission ("SEC").

Previous wording

As of September 30, 2024, the fair value of our ownership interest in Alight based on quoted market prices was $388.3 million and the book value of our recorded asset for Alight was $485.3 million. While the fair value of our investment in Alight is below our book value as of September 30, 2024, there are other indicators that our investment is not other than temporarily impaired as of September 30, 2024. The fair value of our investment in Alight has been below book value for approximately 5 months. Alight recently completed the sale of the Payroll & Professional Services Business and used a portion of the proceeds to pay off a significant portion of its debt, improving its' capital strength. Alight has consistently reported strong gross profit and operating cash flows subsequent to our initial investment. Due to these factors, we consider the decline in fair value to be temporary as of September 30, 2024. Though we do not currently believe our investment in Alight is other than temporarily impaired, because the fair value is below the book value of our investment as of September 30, 2024, further declines in fair value of the investment, deterioration in Alight's actual or forecasted results of operations or adverse changes in the U.S. macroeconomic environment could result in an impairment charge in future periods to record our asset at fair value.

Current wording

As of March 31, 2025, the fair value of our ownership interest in Alight based on quoted market prices was $240.0 million and the book value of our recorded asset for Alight was $369.5 million. While the fair value of our investment in Alight is below our book value as of March 31, 2025, there are other indicators that our investment is not other than temporarily impaired as of March 31, 2025. The fair value of our investment in Alight has been below the book value for approximately 11 months. Alight recently completed the sale of the Payroll & Professional Services Business and used a portion of the proceeds to pay off a significant portion of its debt, improving its' capital strength. Alight has consistently reported strong gross profit and operating cash flows subsequent to our initial investment and implemented a dividend to shareholders in 2024. Due to these factors, we consider the decline in fair value to be temporary as of March 31, 2025. Though we do not currently believe our investment in Alight is other than temporarily impaired, because the fair value is below the book value of our investment as of March 31, 2025, further declines in fair value of the investment, deterioration in Alight's actual or forecasted results of operations or adverse changes in the U.S. macroeconomic environment could result in an impairment charge in future periods to record our asset at fair value.

Previous wording

As of September 30, 2024, we had a net deferred tax asset of $69.4 million, which is primarily attributable to temporary differences for our investments in unconsolidated affiliates held through partnerships. In the nine months ended September 30, 2024, we recorded an additional valuation allowance of $58.9 million on the Company's federal net operating loss ("NOL") carryforwards and certain deferred taxes related to our consolidated partnerships. In the first quarter of 2024 it was determined that the net taxable capital gain from our sales of shares of Dayforce and D&B would likely be offset by other sources of current year taxable loss. Accordingly, we determined it was uncertain whether we would be able to use the Company's available federal NOL carryforwards and certain other deferred taxes. One of the factors used in assessing the need for a valuation allowance on net deferred tax assets is whether a company is in a three-year cumulative book loss position and for the three years ended December 31, 2023, the Company was in a cumulative book loss position. The Company is relying on deferred tax liabilities, and the ability to carry back capital losses, as sources of income to facilitate the recovery of its remaining deferred tax assets. The Company’s prospective investment strategy, fluctuations in the fair market value of its ownership interests prior to any dispositions and other factors may influence the timing of reversals of deferred tax assets and liabilities and their ultimate impact on taxable income or loss, which could have an effect on the recoverability of deferred tax assets. As of September 30, 2024, the Company has a federal valuation allowance of $58.7 million representing a full valuation allowance on its federal NOL carryforwards and certain other deferred taxes where it is not more likely than not that the tax benefit will be realized. Additionally, a state valuation allowance of $4.8 million has been recorded representing certain state NOLs where it is not more likely than not that the tax benefit of certain state NOLs will be realized before the NOLs in those certain states expire. At this time, we consider it more likely than not that we will have sufficient taxable income and available excess capital gain from prior year periods that will allow us to realize our other deferred tax assets. The Company will continue to monitor the recoverability of deferred tax assets on a quarterly basis and may need to record an additional valuation allowance on its net deferred tax asset in future periods.

Current wording

As of March 31, 2025, we had a net deferred tax asset of $55.0 million, which is primarily attributable to temporary differences for our investments in unconsolidated affiliates held through partnerships. In the three months ended March 31, 2025, we recorded an additional valuation allowance of $28.3 million on the Company's federal net operating loss ("NOL") carryforwards, state net operating loss carryforwards, and certain deferred taxes related to our investments. In the first quarter of 2025 it was determined that due to the current market and investee-specific conditions, the ability to utilize the entirety of our deferred tax asset related to investments was less likely than prior periods. One of the factors used in assessing the need for a valuation allowance on net deferred tax assets is whether a company is in a three-year cumulative book loss position and for the three years ended December 31, 2024, the Company was in a cumulative book loss position. The Company’s prospective investment strategy, fluctuations in the fair market value of its ownership interests prior to any dispositions and other factors may influence the timing of reversals of deferred tax assets and liabilities and their ultimate impact on taxable income or loss, which could have an effect on the recoverability of deferred tax assets. As of March 31, 2025, the Company has a federal valuation allowance of $74.2 million representing a full valuation allowance on its federal NOL carryforwards and certain other deferred taxes related to our ownership interests where it is not more likely than not that the tax benefit will be realized. Additionally, a state valuation allowance of $6.9 million has been recorded representing certain state NOLs where it is not more likely than not that the tax benefit of certain state NOLs will be realized before the NOLs in those certain states expire. At this time, we consider it more likely than not that we will have sufficient taxable income and available excess capital gain from prior year periods that will allow us to realize our remaining deferred tax assets. The Company will continue to monitor the recoverability of deferred tax assets on a quarterly basis and may need to record an additional valuation allowance on its net deferred tax asset in future periods.

Previous wording

Earnings (loss) before income taxes and equity in losses of unconsolidated affiliates increased (decreased loss) $188.3 million, or 101.7%, in the three months ended September 30, 2024 compared to the corresponding period in 2023.

Current wording

Earnings (loss) before income taxes and equity in losses of unconsolidated affiliates increased (decreased loss) $19.6 million, or 54.1%, in the three months ended March 31, 2025 compared to the corresponding period in 2024.

Previous wording

Income tax benefit was $6.2 million and $40.5 million in the three-month periods ended September 30, 2024 and 2023, respectively. Our effective tax rate was (193.8)% and 21.9% in the three months ended September 30, 2024 and 2023, respectively. Our effective tax rate fluctuates depending on our estimate of ultimate income tax liability and changes in the characteristics of net earnings, such as the weighting of operating income versus other income or earnings and losses of unconsolidated affiliates. The change in our effective tax rate in the three months ended September 30, 2024 compared to the corresponding period in 2023 is primarily attributable to the impact to the rate of equity in losses of unconsolidated affiliates relative to pre-tax losses.

Current wording

Income tax expense was $20.2 million and $56.5 million in the three-month periods ended March 31, 2025 and 2024, respectively. Our effective tax rate was (121.7)% and (156.1)% in the three months ended March 31, 2025 and 2024, respectively. Our effective tax rate fluctuates depending on our estimate of ultimate income tax liability and changes in the characteristics of net earnings, such as the weighting of operating income versus other income or earnings and losses of unconsolidated affiliates. The change in our effective tax rate in the three months ended March 31, 2025 compared to the corresponding period in 2024 is primarily attributable to the impact to the rate of equity in losses of unconsolidated affiliates relative to pre-tax losses and the recording of valuation allowances.

Previous wording

Equity in losses of unconsolidated affiliates for thethree months ended September 30, 2024 and 2023 consisted of the following:

Current wording

Equity in (losses) earnings of unconsolidated affiliates for thethree months ended March 31, 2025 and 2024 consisted of the following:

Previous wording

Comparable Store Sales. One method we use in evaluating the performance of our restaurants is to compare sales results for restaurants period over period. A new restaurant is included in our comparable store sales figures starting in the first period following the restaurant's first seventy-eight weeks of operations. Changes in comparable store sales reflect changes in sales for the comparable store group of restaurants over a specified period of time. This measure highlights the performance of existing restaurants, as the impact of new restaurant openings is excluded. Comparable store sales for our O'Charley's and 99 Restaurants brands decreased by 11.3% and 4.4%, respectively, in the three months ended September 30, 2024 compared to the corresponding period in 2023. The decrease is primarily attributable to a decrease in guest counts, partially offset by an increase in the average amount spent by guests each visit.

Current wording

Comparable Store Sales. One method we use in evaluating the performance of our restaurants is to compare sales results for restaurants period over period. A new restaurant is included in our comparable store sales figures starting in the first period following the restaurant's first seventy-eight weeks of operations. Changes in comparable store sales reflect changes in sales for the comparable store group of restaurants over a specified period of time. This measure highlights the performance of existing restaurants, as the impact of new restaurant openings is excluded. Comparable store sales for our O'Charley's and 99 Restaurants brands decreased by 14.9% and 0.3%, respectively, in the three months ended March 31, 2025 compared to the corresponding period in 2024. The decrease is primarily attributable to a decrease in guest counts, partially offset by an increase in the average amount spent by guests each visit.

Previous wording

Cost of restaurant revenue decreased directionally consistent with Restaurant revenue in the period. Cost of restaurant revenue as a percentage of Restaurant revenue was 91.1% and 88.3% in the three months ended September 30, 2024 and 2023, respectively. The increase was primarily attributable to promotional initiatives at O'Charley's to drive increased guest counts implemented in the in three months ended September 30, 2024.

Current wording

Cost of restaurant revenue decreased directionally consistent with Restaurant revenue in the period. Cost of restaurant revenue as a percentage of Restaurant revenue was 91.8% and 88.5% in the three months ended March 31, 2025 and 2024, respectively. The increase was primarily attributable to inflation of commodities, including items like beef and poultry, in the three months ended March 31, 2025.

Previous wording

As of September 30, 2024, we own approximately 9.8% of the outstanding common stock of Alight. We account for our ownership of Alight under the equity method of accounting; therefore, its results do not consolidate into ours.

Current wording

As of March 31, 2025, we own approximately 7.6% of the outstanding common stock of Alight. We account for our ownership of Alight under the equity method of accounting; therefore, its results do not consolidate into ours.

Previous wording

Summarized statement of operations information for Alight for the relevant dates and time periods included in Equity in earnings (losses) of unconsolidated affiliates in our Condensed Consolidated Statements of Operations is presented below.

Current wording

Summarized statement of operations information for Alight for the relevant dates and time periods included in Equity in (losses) earnings of unconsolidated affiliates in our Condensed Consolidated Statements of Operations is presented below.

Previous wording

As of September 30, 2024, we own approximately 45.5% of the ownership interest of Black Knight Football. We account for our ownership of BKFC under the equity method of accounting and report our equity in the earnings or loss of BKFC on a three-month lag; therefore, its results do not consolidate into ours. Accordingly, our net loss for the three and nine months ended September 30, 2024 includes our equity in Black Knight Football’s losses for the three and nine months ended June 30, 2024 and our net loss for the three and nine months ended September 30, 2023 includes our equity in Black Knight Football's losses for the three months ended June 30, 2023 and the period from December 13, 2022 (the date we acquired our initial interest in BKFC) through June 30, 2023, respectively.

Current wording

As of March 31, 2025, we own approximately 44.3% of the ownership interest of Black Knight Football. We account for our ownership of BKFC under the equity method of accounting; therefore, its results do not consolidate into ours. We report our equity in the earnings or loss of BKFC on a three-month lag, and accordingly, our net loss for the three months ended March 31, 2025 and 2024 includes our equity in Black Knight Football’s losses for the three months ended December 31, 2024 and 2023, respectively.

Previous wording

Summarized statement of operation information for Black Knight Football for the relevant dates and time periods included in Equity in earnings (losses) of unconsolidated affiliates in our Condensed Consolidated Statements of Operations is presented below.

Current wording

Summarized statement of operation information for Black Knight Football for the relevant dates and time periods included in Equity in (losses) earnings of unconsolidated affiliates in our Condensed Consolidated Statements of Operations is presented below.

Previous wording

Black Knight Football's total revenue is primarily attributable to Premier League media rights revenue earned by AFCB and matchday and sponsorship revenue. Total revenues for Black Knight Football increased $9.8 million, or 14.4%, in the three months ended June 30, 2024, compared to the corresponding period in 2023. The increase in revenue was primarily attributable to an increase in matchday and sponsorship revenue. Total revenues for Black Knight Football increased $66.0 million, or 57.9%, in the nine months ended June 30, 2024, compared to the corresponding period in 2023. The increase in revenue was primarily attributable to the fact that the period in 2023 was shorter due to the date we acquired our initial interest in BKFC along with an increase in matchday and sponsorship revenue. Personnel costs for BKFC increased $13.0 million, or 35.3%, in the three months ended June 30, 2024. The increase in these costs was attributable to the acquisition of new players at AFC Bournemouth. Personnel costs for BKFC increased $58.9 million, or 76.1%, in the nine months ended June 30, 2024 compared to the corresponding period in 2023. The increase was attributable to the acquisition of new players at AFC Bournemouth and the fact that the period in 2023 was shorter due to the date we acquired our initial interest in BKFC (December 13, 2022). Net loss in the three and nine months ended June 30, 2024 was further impacted by an impairment charge of $12.0 million to BKFC's investment in FC Lorient resulting from the club's relegation to Ligue 2.

Current wording

Black Knight Football's total revenue is primarily attributable to Premier League media rights revenue earned by AFCB and matchday and sponsorship revenue. Total revenues for Black Knight Football increased $18.6 million, or 35.3%, in the three months ended December 31, 2024, compared to the corresponding period in 2023. The increase in revenue was primarily attributable to an increase in matchday and sponsorship revenue. Operating loss decreased $13.5 million in the three months ended December 31, 2024 compared to the three months ended December 31, 2023. The decrease was primarily attributable to the increase in revenue, partially offset by increased personnel costs.

Previous wording

Personnel costs increased $20.8 million in the nine months ended September 30, 2024, compared to the corresponding period in 2023. The change in personnel costs was primarily driven by a $12.8 million increase in stock-based compensation cost and a $5.7 million increase in success bonuses paid related to our sales of shares of Dayforce.

Current wording

Personnel costs decreased $7.1 million in the three months ended March 31, 2025, compared to the corresponding period in 2024. The change in personnel costs was primarily driven by a decrease in success bonuses paid related to our sales of shares of Dayforce in 2024, partially offset by increased stock-based compensation expense in 2025.

Previous wording

Other operating expenses decreased $5.0 million in the three months ended September 30, 2024 compared to the prior year period. The change in the three-month period was primarily attributable to decreased fees paid to Trasimene, partially offset by an increase in professional fees.

Current wording

Other operating expenses decreased $12.9 million in the three months ended March 31, 2025 compared to the prior year period. The decrease in the three-month period was primarily attributable to decreased fees paid to Trasimene.

Previous wording

Recognized gains (losses), net in our Corporate and Other segment consists of the following:

Current wording

Recognized gains, net in our Corporate and Other segment consists of the following:

Previous wording

Cash Requirements. Our short and long term cash requirements include management fees, personnel costs, other operating expenses, taxes, payments of interest and principal on our debt, capital expenditures, dividends on our common stock, and other potential business acquisitions or investments, including the Watkins Acquisition. On November 7, 2024, our Board declared cash dividends of $0.12 per share, payable on December 31, 2024, to Cannae common shareholders of record as of December 17, 2024. There are no restrictions on our retained earnings regarding our ability to pay dividends to stockholders. The declaration of any future dividends is at the discretion of our Board. Additional uses of cash flow over the short and long term are expected to include stock repurchases and debt repayments.

Current wording

Cash Requirements. Our short and long term cash requirements include management fees, personnel costs, other operating expenses, taxes, payments of interest and principal on our debt, capital expenditures, dividends on our common stock, and other potential business acquisitions or investments, including the JANA Investment and our commitments to invest $25.0 million in BKFC and $30.0 million in funds of JANA. On May 8, 2025, our Board declared cash dividends of $0.12 per share, payable on June 30, 2025, to Cannae common shareholders of record as of June 16, 2025. There are no restrictions on our retained earnings regarding our ability to pay dividends to stockholders. The declaration of any future dividends is at the discretion of our Board. Additional uses of cash flow over the short and long term are expected to include stock repurchases and debt repayments.

Previous wording

As of September 30, 2024, we had cash and cash equivalents of $160.7 million, of which $146.5 million was cash held by the corporate holding company, $8.9 million of short-term investments held by the corporate holding company, and $49.0 million of immediate capacity under our existing holding company credit facilities with the ability to add an additional $350.0 million of borrowing capacity by amending our 2020 Margin Facility. As of September 30, 2024, we have pledged $7.0 million of our short term investments as collateral for letters of credit for our Restaurant Group.

Current wording

As of March 31, 2025, we had cash and cash equivalents of $126.2 million, of which $109.9 million was cash held by the corporate holding company, and $49.0 million of immediate capacity under our existing holding company credit facilities with the ability to add an additional $350.0 million of borrowing capacity by amending our 2020 Margin Facility.

Previous wording

Cash Flows for the Nine Months Ended September 30, 2024

Current wording

Cash Flows for the Three Months Ended March 31, 2025

Previous wording

Operating Cash Flow. Our cash flows used in operations for the nine months ended September 30, 2024 and 2023 totaled $78.1 million and $54.5 million, respectively. The increase in cash used in operations of $23.6 million is primarily attributable to increased investment success bonuses paid related to sales of Dayforce and professional fees and termination fees associated with the Third Amended MSA.

Current wording

Operating Cash Flow. Our cash flows provided by (used in) operations for the three months ended March 31, 2025 and 2024 totaled $9.1 million and $(36.0) million, respectively. The increase in cash provided by operations of $45.1 million is primarily attributable to tax refunds received and lower operating expenses in the 2025 period compared to the 2024 period.

Previous wording

Investing Cash Flows. Our cash flows provided by (used in) investing activities for the nine months ended September 30, 2024 and 2023 were $307.1 million and $(33.6) million, respectively. The increase in cash provided by investing activities of $340.7 million in the 2024 period from the 2023 period is primarily attributable to higher proceeds from sales of investments and a decrease in new investments made in the 2024 period compared to the 2023 period.

Current wording

Investing Cash Flows. Our cash flows (used in) provided by investing activities for the three months ended March 31, 2025 and 2024 were $(7.0) million and $194.5 million, respectively. The decrease in cash provided by investing activities of $201.5 million in the 2025 period from the 2024 period is primarily attributable to less proceeds from sales of investments and a decrease in new investments made in the 2025 period compared to the 2024 period.

Previous wording

Financing Cash Flows. Our cash flows used in financing activities for the nine months ended September 30, 2024 and 2023 were $174.5 million and $101.5 million, respectively. The increase in cash used in financing activities of $73.0 million is primarily attributable to the Tender Offer, partial repayment of the FNF Note and dividends paid in the nine months ended September 30, 2024, partially offset by a net increase in debt borrowings in the nine months ended September 30, 2024 and treasury repurchases in the nine months ended September 30, 2023.

Current wording

Financing Cash Flows. Our cash flows used in financing activities for the three months ended March 31, 2025 and 2024 were $7.4 million and $26.4 million, respectively. The decrease in cash used in financing activities of $19.0 million is primarily attributable to the partial repayment of the FNF Revolver in the three months ended March 31, 2024 partially offset by the dividends paid in the three months ended March 31, 2025.