# Cannae Holdings, Inc. (CNNE) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Cannae Holdings, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1704720/000170472024000030/cnne-20231231.htm
Accession: 0001704720-24-000030
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CNNE/
All MD&A years: /company/CNNE/mda/
Previous year: /company/CNNE/mda/fy2022/ (FY 2022)
Next year: /company/CNNE/mda/fy2024/ (FY 2024)

Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations

For a description of our business, including descriptions of segments and recent business trends, see the discussion under Business in Item 1 of Part I of this Annual Report, which is incorporated by reference into this Part II, Item 7 of this Annual Report. The following discussion should also be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in Item 8 of Part II of this Annual Report.

Recent Developments

Dayforce

In the year ended December 31, 2023, we completed the sale of 2.0 million shares of common stock of Dayforce. In connection with the sale, we received proceeds of $144.7 million.

As of December 31, 2023, we owned 4.0 million shares of Dayforce common stock which represented approximately 2.6% of the outstanding common stock of Dayforce.

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Refer to Note B - Investments and Note C - Fair Value Measurements for further discussion of our accounting for our ownership interest in Dayforce and other equity securities.

Subsequent to December 31, 2023 through the date of this Annual Report, we sold 2.0 million shares of common stock of Dayforce for proceeds of $141.9 million.

Dun & Bradstreet

On February 9, 2023, April 26, 2023, July 26, 2023, and October 26, 2023, the board of directors of D&B declared quarterly cash dividends of $0.05 per share of D&B common stock. In the year ended December 31, 2023, we received $15.8 million of cash dividends from D&B which are recorded as a reduction to the basis of our recorded asset for D&B.

As of December 31, 2023, we owned 79.0 million shares of D&B, which represented approximately 18.0% of its outstanding common stock.

See Note B - Investments for further discussion of our accounting for our ownership interest in D&B and other equity method investments.

Black Knight Football and Entertainment

In the year ended December 31, 2023, we invested $109.8 million in BKFE. BKFE used the proceeds from investments from Cannae and others to acquire its interests in football clubs and further invest in its infrastructure and playing squads.

As of December 31, 2023, we hold a 47.7% ownership interest in BKFE.

See Note B - Investments for further discussion of our accounting for our ownership interest in BKFE and other equity method investments.

Paysafe

During the year ended December 31, 2023, we completed the sale of 1.6 million shares of common stock of Paysafe for aggregate proceeds of $18.5 million and generating expected tax savings for the Company.

As a result of our sales of Paysafe common stock, certain of our rights to nominate members to Paysafe's board of directors pursuant to a shareholders agreement were reduced. As a result of our reduction in governance rights over Paysafe's board of directors, we no longer exercise significant influence over Paysafe as of the fourth quarter of 2023. As of December 31, 2023 we account for our investment in Paysafe at fair value pursuant to the investment in equity security guidance of Accounting Standards Codification ("ASC") 321. The change resulted in the revaluation of our investment in Paysafe to its fair value of $22.4 million as of December 31, 2023 and recording a gain on such revaluation of $4.4 million (net of $0.6 million of before-tax gains reclassified from other comprehensive earnings), which is included in Recognized gains and losses, net on the Consolidated Statement of Operations for the year ended December 31, 2023.

As of December 31, 2023, we owned 1.8 million shares of Paysafe which represented approximately 2.8% of the outstanding common equity of Paysafe.

See Note B - Investments and Note C - Fair Value Measurements for further discussion of our accounting for our ownership interest in Paysafe and other equity securities.

Subsequent to December 31, 2023, we purchased 1.6 million shares of Paysafe for $23.4 million. Following the purchases, Cannae holds a 5.5% ownership interest in Paysafe.

Other Developments

On August 3, 2022, our Board authorized a three-year stock repurchase program (the "2022 Repurchase Program"), under which we may repurchase up to an additional 10.0 million shares of our common stock. Purchases may be made from time to time in the open market at prevailing prices or in privately negotiated transactions through August 3, 2025. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or terminated at any time. During the year ended December 31, 2023, we repurchased 6,137,355 shares of CNNE common stock for approximately $118.5 million in the aggregate, or an average of $19.31 per share, pursuant to the 2022 Repurchase Program.

On October 29, 2023, our Board authorized a new stock repurchase program (the "2023 Repurchase Program"), under which the Company may repurchase up to 10.0 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. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or terminated at any time. The 2023 Repurchase Program does not supersede or impact the repurchase capacity under the 2022 Repurchase Program.

On May 22, 2023, we invested $52.1 million for an 89% ownership interest in Minden Mill. Minden Mill, through its wholly-owned subsidiaries, owns and operates an estate distillery and related hospitality venues. Entities affiliated with our Chief Executive Officer, Chief Investment Officer and Chairman of our Board, Bill Foley, are the general partner of Minden

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Mill and manage all aspects of its operation on behalf of the Company. The investment in Minden Mill is accounted for as an investment in an unconsolidated affiliate. See Note B - Investments for further discussion of our investments in unconsolidated affiliates.

On September 30, 2023, the Company, Cannae LLC and Trasimene entered into a Second Amended and Restated Management Services Agreement (the "Second Amended MSA") which amended and restated the Management Services Agreement dated as of August 27, 2019, as amended on January 27, 2021 and further amended on August 4, 2021 (the "Original MSA"). The Second Amended MSA amended and restated the Original MSA primarily to (i) reduce the management fee from 1.5% to 1.25% for amounts greater than $2.5 billion of cost of invested capital, (ii) reduce the base fee for terminating the agreement from the average annual management fee for the preceding 24-month period as of a termination date (approximately $40 million for the period ended September 30, 2023) to $20 million, except in the event the termination results from a third party change of control in which case the base fee was $40 million, and (iii) require all transactions with affiliates of the Manager be reviewed by a new Related Person Transaction Committee of our Board. The Second Amended MSA had an initial term of five years.

On February 26, 2024, the Company, Cannae LLC and Trasimene entered into a Third Amended and Restated Management Services Agreement (the "Third Amended MSA") which amends and restates the Second Amended MSA. The Third Amended MSA amends the Second Amended MSA primarily to (i) provide for a termination of the agreement by the Company effective June 30, 2027, (ii) reduce the management fee to a fixed amount of $7.6 million annually effective beginning July 2, 2024 and (iii) provide for payment of the termination fee under the agreement of $20 million to be paid by the Company to Trasimene in installments of $6.7 million annually over the three-year period ended July 1, 2026. The Third Amended and Restated MSA has a termination date of June 30, 2027 unless earlier terminated by the Company or Trasimene.

On December 28, 2023, we received a distribution of $36.8 million from BGPT Catalyst, LP ("CSI LP"), the entity through which we own our interest in CSI. The distribution resulted from CSI LPs sale of a portion of CSI to a third party. Following the transaction, Cannae owns a 6.5% indirect interest in CSI.

On February 21, 2024, we announced the Tender Offer. We are conducting the Tender Offer through a procedure commonly referred to as a "modified Dutch auction." This procedure allows shareholders to select the price within a price range specified by us at which the shareholders are willing to sell their shares. The Company intends to commence the Tender Offer in early March 2024 and will be funded by cash on hand. Further details, including the terms and conditions of the Tender Offer, will be provided in the offer to purchase and other documents to be filed with the SEC in connection with the Tender Offer.

On February 21, 2024, we issued 1.85 million shares of common stock of the Company from the Company’s treasury and paid $18.3 million in cash, in the aggregate, to certain partners of JANA Partners Capital, LLC and JANA Partners Management, LP (together, "JANA") in exchange for a minority interest in JANA. The shares of Company common stock issued to JANA are subject to customary lock-up provisions. The transaction is valued at $55.5 million based on the closing price of the Company's common stock on February 21, 2024. Cannae also committed to invest $50 million into JANA funds. JANA is an investment manager founded in 2001. Cannae’s investment in JANA and JANA funds will not be subject to fees under the Management Services Agreement with Trasimene. The Company plans to partner alongside JANA on situations that may present an attractive control acquisition or other similar strategic investment opportunities that are consistent with Cannae’s primary business of acquiring operating companies and actively engaging in managing and operating those companies. Cannae's $50 million investment in JANA funds and any future investments in JANA funds will not be subject to customary fees charged by JANA.

Related Party Transactions 

Our financial statements for all years presented reflect transactions with our Manager and certain members of our Board. See Note O - Related Party Transactions to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further discussion.

Critical Accounting Policies and Estimates 

Our consolidated financial statements are prepared in accordance with U.S. GAAP. See Note A - Basis of Financial Statements to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for discussion of all our significant accounting policies.

The accounting policies and estimates described below are those we consider critical in preparing our Consolidated Financial Statements. Management is required to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosures with respect to contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates.

Investments in unconsolidated affiliates - applicability of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 323. Investments in unconsolidated affiliates are recorded using the equity method of

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accounting. If an investor does not possess a controlling financial interest over an investee but has the ability to exercise significant influence over the investee’s operating and financial policies, the investor must account for such an investment under the equity method of accounting. For investments in common stock or in-substance common stock of an investee, which an investor does not control, the general but rebuttable presumption exists that an ownership of greater than 20% of the outstanding common stock of an investee indicates the investor has significant influence. For investments in partnerships and similar entities for which an investor does not control, equity method of accounting for the investment is generally required unless the investor's interest is so minor that the investor has virtually no influence.

In the ordinary course of our business, we make investments in companies that provide us with varying degrees of control and influence over the underlying investees through our level of ownership of the outstanding equity of the investee, participation in management of the investee, participation on the board of directors of the investee, and/or legal agreements with other investors with control implications. As a result, our analysis of the appropriate accounting for our various ownership interests often requires judgment regarding the level of control, significant influence or lack thereof the Company has over each investee. If we are required to account at fair value for certain of our ownership interests in which we have concluded the Company has significant influence resulting in the application of the equity method of accounting, the impact of such change could significantly impact the Company's Consolidated Financial Statements.

As a result of our sales of Paysafe common stock, certain of our rights to nominate members to Paysafe's board of directors pursuant to a shareholders agreement were reduced. As a result of our reduction in governance rights over Paysafe's board of directors, we no longer exercise significant influence over Paysafe as of the fourth quarter of 2023. As of December 31, 2023 we account for our investment in Paysafe at fair value pursuant to the investment in equity security guidance of ASC 321. The change resulted in the revaluation of our investment in Paysafe to its fair value of $22.4 million as of December 31, 2023 and recording a gain on such revaluation of $4.4 million (net of $0.6 million of before-tax gains reclassified from other comprehensive earnings), which is included in Recognized losses, net on the Consolidated Statement of Operations for the year ended December 31, 2023.

As of December 31, 2023, we hold less than 20% of the outstanding common equity of Dun & Bradstreet but continue to account for our ownership interest under the equity method because (i) we continue to exert significant influence through, and in connection with, our 18.0% ownership and (ii) certain of our senior management and directors serve on Dun & Bradstreet's board of directors.

As of December 31, 2023, the book value of our investment in D&B accounted for under the equity method of accounting is $827.7 million. Based on quoted market prices, the aggregate fair market value of our ownership of Dun & Bradstreet common stock was $924.9 million as of December 31, 2023.

As of December 31, 2023, we hold less than 20% of the outstanding common equity of Alight but we account for our ownership under the equity method because we exert significant influence: (i) through, and in connection with, our 9.7% ownership, (ii) because certain of our senior management and directors serve on Alight's board of directors, including our Chief Executive Officer, Chief Investment Officer and Chairman of our Board, Bill Foley, who is also the chairman of Alight's board of directors, and (iii) because we are party to an agreement with Alight pursuant to which we have the ability to appoint or be consulted on the election of the directors of Alight.

As of December 31, 2023, the book value of our investment in Alight accounted for under the equity method of accounting is $507.2 million. Based on quoted market prices, the aggregate fair market value of our ownership of Alight common stock was approximately $447.6 million as of December 31, 2023.

Investments in unconsolidated affiliates - impairment monitoring. On an ongoing basis, management monitors our investments in unconsolidated affiliates to determine whether there are indications that the fair value of an investment may be other-than-temporarily below our recorded book value of the investment. Factors considered when determining whether a decline in the fair value of an investment is other-than-temporary include but are not limited to: the length of time and the extent to which the market value has been less than book value, the financial condition and near-term prospects of the investee, and the intent and ability of the Company to retain its investment in the investee for a period of time sufficient to allow for any anticipated recovery in market value.

For the years ended December 31, 2022 and 2021, we recorded impairment charges to our interest in Paysafe of $236.0 million and $391.8 million, respectively, which are included in Recognized (losses) gains, net, on our Consolidated Statement of Operations for the years then ended. The impairment charge in 2022 resulted from significant impairments recorded by Paysafe to its intangible assets, the quantum of the decrease in the fair market value of our ownership interest, negative trends in the alternative payments industry and decreasing market multiples of peer companies at that time, management determined the decrease in value of our ownership interest in Paysafe was other-than-temporary. The impairment charge in 2021 resulted from significant impairments recorded by Paysafe to its intangible assets and the quantum of the decrease in the fair market value of our investment. The fair value used in the impairment analyses in each period were determined using the publicly traded price for Paysafe common stock.

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In the year ended December 31, 2023, we recorded an impairment to our interest in Sightline of $70.2 million which is included in Recognized (losses) gains, net, on our Consolidated Statement of Operations for the year ended December 31, 2023. Our interest was determined to be impaired in the quarter ended September 30, 2023 due to the quantum of the decrease in the fair market value of our ownership interest subsequent to our acquisition, declines in the forecasted results of operations and liquidity of Sightline, and the uncertainty of the impact of the economic environment on Sightline's business. The aggregate fair market value of our ownership of Sightline equity was approximately $162.3 million as of September 30, 2023 and was based on a valuation using a hybrid discounted cash flow and market comparison approach. The fair value measurement is considered a level 3 fair value measure. The primary inputs in the valuation were the forecasted results of operations of Sightline and the discount rate used in the discounted cash flow analysis. The primary significant unobservable input used was the 29% discount rate used in the discounted cash flow analysis.

In the year-ended December 31, 2023, we recorded an impairment to our interest in System1 of $63.9 million which is included in Recognized (losses) gains, net, on our Consolidated Statement of Operations. The investment was determined to be impaired in the quarter ended September 30, 2023 due to the quantum of the decrease in the fair market value of our ownership interest subsequent to our acquisition, declines in the forecasted results of operations and liquidity of System1, and the uncertainty of the impact of the economic environment on System1's business. As of September 30, 2023, the book value of our investment in System1 accounted for under the equity method of accounting prior to any impairment was $96.5 million. Based on quoted market prices, the aggregate fair market value of our ownership of System1 common stock was approximately $32.7 million as of September 30, 2023.

As of December 31, 2023, the fair value of our ownership interest in Alight based on quoted market prices was $447.6 million and the book value of our recorded asset for Alight was $507.2 million. While the fair value of our interest in Alight is below our book value, there are no other indicators that our interest is other-than-temporarily impaired. Alight has generally outperformed market expectations and our expectations for its results of operations from when we initially invested in Alight and there are no indications that the book value of our interest will not be recoverable at this time. Due to these factors, we consider the decline in value to be temporary as of December 31, 2023. Though we do not currently believe our interest in Alight is other-than-temporarily impaired, because the fair value is currently below the book value of our interest in Alight, further declines in fair value of the interest, deterioration in Alight's actual or forecasted results of operations or adverse changes in the US macroeconomic environment could result in an impairment charge in future periods to record our asset at fair value.

Accounting for Income Taxes. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact of changes in tax rates and laws on deferred taxes, if any, is applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period enacted.

As of December 31, 2023, we had a net deferred tax asset of $82.0 million, which primarily includes $41.6 million related to temporary differences for our investments held through partnerships and $35.2 million for holding company net operating loss ("NOL") carryforwards. 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 is 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 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 December 31, 2023, the Company has a valuation allowance of $4.6 million related to state NOLs as it is more likely than not that the tax benefit of certain state NOLs will not be realized before the NOLs 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 a valuation allowance on its net deferred tax asset in future periods.

Refer to Note L - Income Taxes to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further discussion of our accounting for income taxes.

Recent Accounting Pronouncements 

We have completed our evaluation of the recently issued accounting pronouncements and we did not identify any that are expected to, if currently adopted, have a material impact on our Consolidated Financial Statements.

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Certain Factors Affecting Comparability 

Year ended December 31, 2023. In the year ended December 31, 2023, the Restaurant Group undertook a project to renegotiate or terminate leases and close O'Charley's stores with unfavorable store-level cash flow profiles. Through this process they have closed 77 O'Charley's stores in the year ended December 31, 2023.

Year ended December 31, 2021. On July 30, 2021, we closed on the sale of the net assets of VIBSQ Holdco, LLC ("VIBSQ") which owned the Village Inn and Bakers Square brands and related assets. On September 1, 2021, we closed on the sale of certain net assets of Rock Creek Idaho Holdings, LLC ("RC") and its subsidiaries. On September 3, 2021, we closed on the sale of Legendary Baking Holdings I, LLC ("Legendary Baking"). Our consolidated results of operations for the year ended December 31, 2021 include the results of operations of VIBSQ, RC and Legendary Baking through their respective dates of sale.

Results of Operations

 Consolidated Results of Operations

 Net earnings.  The following table presents certain financial data for the years indicated:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2023","","2022","","2021"],["","(In millions)"],["Revenues:"],["Restaurant revenue","$","536.0","","","$","630.6","","","$","704.7"],["Other operating revenue","34.0","","","31.5","","","37.5"],["Total operating revenues","570.0","","","662.1","","","742.2"],["Operating expenses:"],["Cost of restaurant revenue","474.9","","","571.4","","","617.4"],["Personnel costs","52.1","","","59.5","","","80.1"],["Depreciation and amortization","19.0","","","22.8","","","26.6"],["Other operating expenses, including asset impairments","142.9","","","153.0","","","151.6"],["Total operating expenses","688.9","","","806.7","","","875.7"],["Operating loss","(118.9)","","","(144.6)","","","(133.5)"],["Other income (expense):"],["Interest, investment and other income","13.6","","","2.5","","","21.1"],["Interest expense","(17.9)","","","(12.3)","","","(9.8)"],["Recognized losses, net","(83.9)","","","(181.2)","","","(310.8)"],["Total other expense","(88.2)","","","(191.0)","","","(299.5)"],["Loss before income taxes and equity in (losses) earnings of unconsolidated affiliates","(207.1)","","","(335.6)","","","(433.0)"],["Income tax benefit","(77.0)","","","(89.9)","","","(74.0)"],["Loss before equity in (losses) earnings of unconsolidated affiliates","(130.1)","","","(245.7)","","","(359.0)"],["Equity in (losses) earnings of unconsolidated affiliates","(194.0)","","","(183.9)","","","72.6"],["Net loss","(324.1)","","","(429.6)","","","(286.4)"],["Less: Net (loss) earnings attributable to non-controlling interests","(10.7)","","","(1.5)","","","0.6"],["Net loss attributable to Cannae Holdings, Inc. common shareholders","$","(313.4)","","","$","(428.1)","","","$","(287.0)"]]
[[/GREPCENT_TABLE]]

Revenues 

Total revenue in 2023 decreased $92.1 million compared to 2022, primarily driven by a decrease in revenue in the Restaurant Group segment. Total revenue in 2022 decreased $80.1 million compared to 2021, primarily driven by a decrease in revenue in the Restaurant Group segment.

The change in revenues from our segments is discussed in further detail at the segment level below.

Expenses

Our operating expenses consist primarily of personnel costs, cost of restaurant revenue, other operating expenses, and depreciation and amortization.

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Cost of restaurant revenue includes cost of food and beverage, primarily the costs of beef, groceries, produce, seafood, poultry and alcoholic and non-alcoholic beverages, net of vendor discounts and rebates, payroll and related costs and expenses relating directly to restaurant level activities, and restaurant operating costs including occupancy and other operating expenses at the restaurant level.

Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. Personnel costs that are directly attributable to the operations of the Restaurant Group are included in Cost of restaurant revenue.

Other operating expenses include management fees, carried interest fees, professional fees, advertising costs, travel expenses and impairments of operating assets.

Depreciation and amortization expense consists of our depreciation related to investments in property and equipment as well as amortization of intangible assets.

The change in expenses from our segments is discussed in further detail at the segment level below. 

Income tax benefit was $77.0 million, $89.9 million, and $74.0 million for the years ended December 31, 2023, 2022, and 2021, respectively. The effective tax rate for the years ended December 31, 2023, 2022, and 2021 was 37.2%, 26.8%, and 17.1%, respectively. The change in the effective tax rate in all periods is primarily attributable to the varying impact of earnings or losses from unconsolidated affiliates on our consolidated pretax earnings or losses. The fluctuation in income tax benefit as a percentage of loss before income taxes is attributable to our estimate of ultimate income tax liability or benefit and changes in the characteristics of net earnings or loss year to year, such as the weighting of operating income versus investment income.

For a detailed breakout of our effective tax rate and further discussion on changes in our taxes, see Note L - Income Taxes to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.

Equity in (losses) earnings of unconsolidated affiliates for the periods indicated consisted of the following (in millions):

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2023","","2022","","2021"],["","(in millions)"],["Dun & Bradstreet (1)","$","(17.1)","","","$","(8.8)","","","$","(13.5)"],["Alight","(35.1)","","","(1.6)","","","38.2"],["Sightline (2)","(18.0)","","","(19.3)","","","(2.4)"],["BKFE","(51.9)","","","\u2014","","","\u2014"],["System1","(66.8)","","","(14.2)","","","\u2014"],["Paysafe (3)","(2.3)","","","(144.2)","","","53.3"],["Other","(2.8)","","","4.2","","","(3.0)"],["Total","$","(194.0)","","","$","(183.9)","","","$","72.6"]]
[[/GREPCENT_TABLE]]

_____________________________________

(1) Equity in losses for D&B includes $8.6 million and $7.5 million of loss for the year ended December 31, 2023 and 2022, respectively, related to amortization of Cannae's basis difference between the book value of its ownership interest and ratable portion of the underlying equity in net assets of D&B.

(2) Equity in losses for Sightline includes $7.3 million and $7.7 million of loss for the year ended December 31, 2023 and 2022, respectively, related to amortization of Cannae's basis difference between the book value of its ownership interest and ratable portion of the underlying equity in net assets of Sightline.

(3) The amount for the year ended December 31, 2023 represents the Company's equity in losses of Paysafe in the period from January 1, 2023 to December 31, 2023 prior to the change in accounting for the investment beginning December 31, 2023. See Note A - Business and Summary of Significant Accounting Policies.

Net Loss

Net loss attributable to Cannae decreased $114.7 million in the year ended December 31, 2023, compared to 2022. Total net loss attributable to Cannae increased $141.1 million in the year ended December 31, 2022, compared to 2021.

The change in net loss is attributable to the factors discussed above and net loss from the segments is discussed in further detail at the segment level below.

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Segment Results of Operations

Restaurant Group

The following table presents the results from operations of our Restaurant Group segment:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["","(In millions)"],["Revenues:"],["Restaurant revenue","$","536.0","","","$","630.6","","","$","704.7"],["Operating expenses:"],["Cost of restaurant revenue","474.9","","","571.4","","","617.4"],["Personnel costs","23.2","","","24.2","","","34.5"],["Depreciation and amortization","17.0","","","20.5","","","24.0"],["Other operating expenses, including asset impairments","75.9","","","36.5","","","40.4"],["Total operating expenses","591.0","","","652.6","","","716.3"],["Operating loss","(55.0)","","","(22.0)","","","(11.6)"],["Other income (expense):"],["Interest expense","(6.1)","","","(4.2)","","","(8.8)"],["Recognized gains, net","36.0","","","7.8","","","2.1"],["Total other income (expense)","29.9","","","3.6","","","(6.7)"],["Loss before income taxes and equity in (losses) earnings of unconsolidated affiliates","(25.1)","","","(18.4)","","","(18.3)"]]
[[/GREPCENT_TABLE]]

Total revenues for the Restaurant Group segment decreased $94.6 million, or 15.0%, in the year ended December 31, 2023 from 2022. The decrease was primarily attributable to approximately $79.6 million of incremental revenue included in the year ended December 31, 2022 associated with stores that were closed prior to December 31, 2023 and a decline in comparable store sales.

Total revenues for the Restaurant Group segment decreased $74.1 million, or 10.5%, in the year ended December 31, 2022 from 2021. The decrease was primarily attributable to decreased revenue related to our sale of the Village Inn, Baker's Square, and Legendary Baking concepts in 2021 and the closure and sales of underperforming O'Charley's locations. Revenue associated with our Legendary Baking, Village Inn, and Baker's Square brands was $62.0 million in the year ended December 31, 2021. Revenue recorded for these brands in the year ended December 31, 2021 represents these brands' revenues through their respective dates of sales in the third quarter of 2021 and subsequent run-off sales of the remaining inventory of Legendary Baking.

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 99 Restaurants brand changed (2.1)%, 7.5%, and 39.4% in the years ended December 31, 2023, 2022 and 2021, respectively, from the prior fiscal years. The decrease in 2023 is primarily attributable to a decrease in guest counts, partially offset by an increase in the average amount spent by customers each visit. The increase in 2022 is primarily attributable to an increase in the average amount spent by customers each visit offset by a decrease in guest counts. The increase in 2021 is primarily attributable to increased guest counts resulting from the loosening of COVID-19 restrictions and an increase in the average amount spent by customers each visit. Comparable store sales for our O'Charley's brand changed (3.4)%, (5.8)% and 24.7% in the years ended December 31, 2023, 2022 and 2021, respectively, from the prior fiscal years. The decrease in 2023 is primarily attributable to a decrease in guest counts, partially offset by an increase in the average amount spent by customers each visit. The decrease in 2022 is primarily attributable to decreased guest counts offset by an increase in the average amount spent by customers each visit. The increase in 2021 is primarily attributable to increased guest counts resulting from the abatement of COVID-19 restrictions and an increase in the average amount spent by customers each visit.

Cost of restaurant revenue decreased $96.5 million, or 16.9%, in the year ended December 31, 2023 from 2022. Cost of restaurant revenue decreased $46.0 million, or 7.5%, in the year ended December 31, 2022 from 2021. Cost of restaurant revenue as a percentage of restaurant revenue was approximately 88.6%, 90.6%, and 87.6% in the years ended December 31, 2023, 2022 and 2021, respectively. The decrease in cost of restaurant revenue as a percentage of restaurant revenue in 2023 compared to 2022 is primarily attributable to an easing of inflation in the cost of labor, food and supplies relative to customary

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increases in menu pricing. The increase in cost of restaurant revenue as a percentage of restaurant revenue in 2022 compared to 2021 is primarily attributable to increased costs of labor, food, and supplies.

Personnel costs decreased by $10.3 million, or 29.9%, in the year ended December 31, 2022 from 2021. The decrease is primarily attributable to our sale of the Village Inn, Baker's Square, and Legendary Baking concepts in the prior year.

Other operating expenses increased by $39.4 million, or 107.9%, in the year ended December 31, 2023 from 2022. The increase is primarily attributable to $36.8 million of impairment recorded to the Restaurant Group's property and equipment, lease assets and other intangible assets in the year ended December 31, 2023.

Recognized gains, net, increased $28.2 million, or 361.5%, in the year ended December 31, 2023 from 2022. The increase is primarily attributable to $30.2 million of gains recorded upon derecognition of O'Charley's lease liabilities associated with stores closed in 2023 and upon conversion of certain stores from a failed sale lease back in previous years to operating leases in 2023.

Dun & Bradstreet

As of December 31, 2023, we owned approximately 18.0% of the outstanding common stock of Dun & Bradstreet. We account for our ownership interest in D&B under the equity method of accounting; therefore, its results of operations do not consolidate into ours.

Summarized financial information for Dun & Bradstreet for the relevant dates and time periods included in Equity in (losses) earnings of unconsolidated affiliates in our Consolidated Statements of Operations is presented below.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2023","","2022","","2021"],["","(In millions)"],["Total revenues","$","2,314.0","","","$","2,224.6","","","$","2,165.6"],["Operating income","140.3","","","149.9","","","145.6"],["Net (loss) earnings","(43.7)","","","4.1","","","(65.9)"],["Less: net earnings attributable to noncontrolling interest","3.3","","","6.4","","","5.8"],["Net loss attributable to Dun & Bradstreet","(47.0)","","","(2.3)","","","(71.7)"]]
[[/GREPCENT_TABLE]]

Details relating to the results of operations of Dun & Bradstreet (NYSE: "DNB") can be found in its periodic reports filed with the SEC.

Alight

As of December 31, 2023, we owned approximately 9.7% of the outstanding common stock of Alight. We account for our ownership of Alight under the equity method of accounting; therefore, its results of operations do not consolidate into ours.

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

[[GREPCENT_TABLE]]
[["","For the year ended December 31, 2023","","For the year ended December 31, 2022","","For the period from July 2, 2021 through December 31, 2021"],["","(In millions)"],["Total revenues","$","3,410.0","","","$","3,132.0","","","$","1,554.0"],["Gross profit","1,140.0","","","996.0","","","532.0"],["Net loss","(362.0)","","","(72.0)","","","(48.0)"],["Net loss attributable to noncontrolling interests","(17.0)","","","(10.0)","","","(13.0)"],["Net loss attributable to Alight","(345.0)","","","(62.0)","","","(35.0)"]]
[[/GREPCENT_TABLE]]

Details relating to the results of operations of Alight (NYSE: "ALIT") can be found in its periodic reports filed with the SEC.

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Black Knight Football and Entertainment

As of December 31, 2023, we owned approximately 47.7% of the ownership interest of BKFE. We account for our ownership of BKFE under the equity method of accounting and report our equity in the earnings or loss of BKFE on a three-month lag; therefore, its results do not consolidate into ours. Accordingly, our net loss for the year ended December 31, 2023 includes our equity in BKFE’s losses for the period from December 13, 2022 (the date we acquired our initial interest in BKFE) through September 30, 2023.

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

[[GREPCENT_TABLE]]
[["","For the period from December 13, 2022 through September 30, 2023"],["","(In millions)"],["Total revenues","$","149.0"],["Operating loss","(93.8)"],["Losses of unconsolidated affiliates","(5.3)"],["Net loss attributable to BKFE","(103.8)"]]
[[/GREPCENT_TABLE]]

BKFE's total revenue is primarily attributable to Premier League media rights revenue earned by AFCB. Revenues were more than offset by $118.0 million of personnel cost and $99.8 million of depreciation and amortization of property and equipment and intangible assets by AFCB.

Corporate and Other

The Corporate and Other segment consists of our share in the operations of certain controlled businesses and other equity investments, activity of the corporate holding company and certain intercompany eliminations and taxes.

The following table presents the results from operations of our Corporate and Other segment:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2023","","2022","","2021"],["","(In millions)"],["Revenues:"],["Other operating revenue","$","34.0","","","$","31.5","","","$","37.5"],["Operating expenses:"],["Personnel costs","28.9","","","35.3","","","45.6"],["Depreciation and amortization","2.0","","","2.3","","","2.6"],["Other operating expenses","67.0","","","116.5","","","111.2"],["Total operating expenses","97.9","","","154.1","","","159.4"],["Operating loss","(63.9)","","","(122.6)","","","(121.9)"],["Other income (expense):"],["Interest, investment and other income","13.6","","","2.5","","","21.1"],["Interest expense","(11.8)","","","(8.1)","","","(1.0)"],["Recognized losses, net","(119.9)","","","(189.0)","","","(312.9)"],["Total other expense","(118.1)","","","(194.6)","","","(292.8)"],["Loss before income taxes and equity in (losses) earnings of unconsolidated affiliates","(182.0)","","","(317.2)","","","(414.7)"]]
[[/GREPCENT_TABLE]]

Revenues associated with Brasada Ranch were $33.5 million, $30.9 million, and $29.3 million in the years ended December 31, 2023, 2022 and 2021, respectively. Total operating expenses associated with Brasada Ranch were $30.2 million, $28.3 million and $24.4 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Personnel costs decreased $6.4 million, or 18.1%, in the year ended December 31, 2023 compared to 2022, and decreased $10.3 million, or 22.6%, in the year ended December 31, 2022 compared to 2021. The change in both periods is primarily driven by a change in investment success bonuses paid related to our sales of shares of Dayforce, as the Company sold 2 million shares of Dayforce in 2023 compared to 4 million in each of 2022 and 2021.

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Other operating expenses decreased $49.5 million, or 42.5%, in the year ended December 31, 2023 compared to 2022. The decrease is primarily attributable to $49.3 million of carried interest expense attributable to our sale of Optimal Blue in 2022, of which $31.8 million was paid in D&B stock.

Interest, investment and other income increased $11.1 million in the year ended December 31, 2023 compared to 2022. The increase was primarily attributable to increased interest income on our cash and short term investments resulting from increased market interest rates. Interest, investment and other income decreased $18.6 million in the year ended December 31, 2022 compared to 2021. The decrease was primarily attributable to $15.1 million of income in the 2021 period related to fees earned for the Company's funding of redemptions for Alight's SPAC merger.

Interest expense increased $7.1 million in the year ended December 31, 2022 compared to 2021. The increase was attributable to an increase in corporate debt outstanding. See Note K - Notes Payable to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further discussion of our outstanding debt.

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

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2023","","2022","","2021"],["Dayforce fair value adjustments","$","28.3","","","$","(374.1)","","","$","45.5"],["Sightline impairment","(70.2)","","","\u2014","","","\u2014"],["Paysafe impairment","\u2014","","","(236.0)","","","(391.8)"],["System1 impairment","(63.9)","","","(101.7)","","","\u2014"],["QOMPLX impairment","(9.0)","","","(32.8)","","","\u2014"],["Dun & Bradstreet gain on partial sales","\u2014","","","19.3","","","111.1"],["Optimal Blue gain on sale","\u2014","","","313.0","","","\u2014"],["AmeriLife fair value adjustment (1)","\u2014","","","67.3","","","\u2014"],["AmeriLife gain on partial sales","\u2014","","","176.4","","","\u2014"],["Paysafe and other warrant securities mark to market adjustments","\u2014","","","(23.5)","","","(35.1)"],["Other, net","(5.1)","","","3.1","","","(42.6)"],["Recognized losses, net","$","(119.9)","","","$","(189.0)","","","$","(312.9)"]]
[[/GREPCENT_TABLE]]

_____________________________________

(1) Represents the gain recorded upon the revaluation of our investment to fair value on November 15, 2022.

Liquidity and Capital Resources

Cash Requirements. Our current cash requirements include personnel costs, operating expenses, taxes, capital expenditures and business acquisitions. There are no restrictions on our retained earnings regarding our ability to pay dividends to stockholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as a result of provisions in certain debt agreements. The declaration of any future dividends is at the discretion of our Board of Directors. Additional uses of cash flow are expected to include stock repurchases, acquisitions, and debt repayments.

As of December 31, 2023, we had cash and cash equivalents of $106.2 million, of which $92.8 million was cash held by the corporate holding company, $15.6 million of short term investments, and $150.0 million of available borrowing 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 December 31, 2023, we were committed under letters of credit totaling $8.9 million issued primarily in connection with casualty insurance programs for our Restaurant Group employees.

We continually assess our capital allocation strategy, including decisions relating to reducing debt, repurchasing our stock, and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets, and borrowings on existing credit facilities. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the Company's liquidity needs and periodically review the short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. As part of such forecasting, we actively manage the impact of rising interest rates on both our idle cash and our outstanding debt.

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The Company believes the holding company's balances of cash, cash equivalents, short term investments, marketable equity securities, cash generated by its investments and capacity under its credit agreements, will be sufficient to satisfy its cash requirements over the next 12 months and beyond.

We are focused on evaluating our assets and investments as potential vehicles for creating liquidity. Our intent is to use that liquidity for general corporate purposes, including, funding future investments, other strategic initiatives and/or conserving cash.

Operating Cash Flows. Our cash flows used in operations for the years ended December 31, 2023, 2022, and 2021 were $87.8 million, $205.1 million and $176.1 million, respectively. The decrease in cash used in operations of $117.3 million from 2023 compared to 2022 is primarily attributable to lower tax payments and carried interest expense incurred with our Manager. The decrease in cash provided by operations of $29.0 million from 2022 compared to 2021 is primarily attributable to increased operating loss and timing of payment and receipt of accounts payable and receivable.

Investing Cash Flows. Our cash flows provided by (used in) investing activities for the years ended December 31, 2023, 2022, and 2021 were $53.1 million, $521.2 million and $(272.4) million, respectively. The change in cash provided by (used in) investing activities of $468.1 million from 2023 compared to 2022 is primarily attributable to higher proceeds from sales of Dayforce, AmeriLife, Optimal Blue, D&B and CorroHealth in the 2022 period compared to lower proceeds from sales of Dayforce in 2023 period, partially offset by increased proceeds from distributions from unconsolidated affiliates in the 2023 period and the investment in System1 in the 2022 period. The change in cash provided by (used in) investing activities of $793.6 million from 2022 compared to 2021 is primarily attributable to proceeds from sales of investments partially offset by a decrease in new investment purchases. See our consolidated statement of cash flows included in Item 8 of Part II of this Annual Report for a detailed breakout of cash flows from purchases and sales of investments.

Capital Expenditures. Total capital expenditures for property and equipment and other intangible assets were $10.0 million, $14.3 million and $13.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. Capital expenditures in all years primarily consisted of purchases of equipment and leasehold improvements in our Restaurant Group segment and property improvements at our real estate operations.

Financing Cash Flows. Our cash flows used in financing activities for the years ended December 31, 2023, 2022, and 2021 were $106.8 million, $154.2 million and $190.4 million, respectively. The decrease in cash used in financing activities of $47.4 million from 2023 compared to 2022 is primarily attributable to a reduction in treasury stock repurchases in 2023 compared to 2022 and lower proceeds from debt, net of repayments. The decrease in cash used in financing activities of $36.2 million from 2022 compared to 2021 is primarily attributable to a reduction in borrowings partially offset by increased purchases of treasury stock in 2022.

Financing Arrangements. For a description of our historical financing arrangements see Note K - Notes Payable to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.

Contractual Obligations. Our long-term contractual obligations generally include our credit agreements and debt facilities, lease payments and financing obligations on certain of our premises and equipment, purchase obligations of the Restaurant Group and payments to our Manager.

See Note G - Leases to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further discussion of our leasing arrangements.

On September 30, 2023, the Company, Cannae LLC and Trasimene entered into the Amended MSA which amends and restates the Original MSA primarily to (i) reduce the management fee from 1.5% to 1.25% for amounts greater than $2.5 billion of cost of invested capital, (ii) reduce the base fee for terminating the agreement from the average annual management fee for the preceding 24-month period as of a termination date (approximately $40 million for the period ended September 30, 2023) to $20 million, except in the event the termination results from a third party change of control in which case the base fee is $40 million, and (iii) require all transactions with affiliates of the Manager be reviewed by a new Related Person Transaction Committee of the Company's Board of Directors. The Amended MSA has an initial term of five years. The Amended MSA will be automatically renewed for one-year terms thereafter unless terminated by either the Company or the Manager in accordance with the terms of the Amended MSA.

Pursuant to the terms of the Amended MSA, we are obligated to pay our Manager a quarterly management fee as of the last day of each fiscal quarter, payable in arrears in cash, as may be adjusted pursuant to the terms of the Management Services Agreement. Management fees payable to our Manager are included for the initial 5-year term of the Management Services Agreement that began in September 2023 and are based on our cost of invested capital of $2,403.8 million as of December 31, 2023.

Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and

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the approximate timing of the transaction. The Restaurant Group has unconditional purchase obligations with various vendors, primarily related to food and beverage obligations with fixed commitments in regard to the time period of the contract and the quantities purchased with annual price adjustments that can fluctuate. Future purchase obligations are estimated by assuming historical purchase activity over the remaining, non-cancellable terms of the various agreements. For agreements with minimum purchase obligations, at least the minimum amounts we are legally required to purchase are included. These agreements do not include fixed delivery terms. We used both historical and projected volume and pricing as of December 31, 2023 to determine the amount of the obligations.

Restaurant Group financing obligations include its agreements to lease its corporate office and certain O'Charley's restaurant locations that are accounted for as failed sale and leaseback transactions.

     As of December 31, 2023, our required annual payments relating to these contractual obligations were as follows:

[[GREPCENT_TABLE]]
[["","2024","","2025","","2026","","2027","","2028","","Thereafter","","Total"],["Unconditional purchase obligations","$","27.1","","","$","9.1","","","$","5.6","","","$","2.9","","","$","0.8","","","$","\u2014","","","$","45.5"],["Operating lease payments","24.7","","","23.3","","","21.8","","","20.4","","","18.5","","","125.9","","","234.6"],["Notes payable","3.0","","","85.8","","","11.9","","","0.5","","","2.4","","","1.8","","","105.4"],["Management fees payable to Manager","36.1","","","36.1","","","36.1","","","36.1","","","27.0","","","\u2014","","","171.4"],["Restaurant Group financing obligations","1.3","","","1.2","","","1.2","","","1.3","","","1.3","","","7.2","","","13.5"],["Total","$","92.2","","","$","155.5","","","$","76.6","","","$","61.2","","","$","50.0","","","$","134.9","","","$","570.4"]]
[[/GREPCENT_TABLE]]

Capital Stock Transactions. For information on our 2022 Repurchase Program, 2023 Repurchase Program and the Tender Offer, see discussion under the header Purchases of Equity Securities by the Issuer included in Item 5 of Part II of this Annual Report.