Fortegra Financial Corporation (the "Company") (NYSE: FRF) an
insurance services company providing distribution and
administration services and insurance-related products, today
reported results for the first quarter ended March 31, 2011.
"The year has gotten off to a strong start from a top-line
perspective, driven by a combination of organic growth and
strategic acquisitions. We did incur some one-time expenses in the
quarter and higher costs related to operating as a public company.
As a result, we instituted a company-wide expense management
program to achieve better flow-through on each dollar of revenue
and ensure that we are tightly controlling our costs. Overall, we
are encouraged by the strengthening of our revenues, which is
evidence of our efforts to continue to expand our product and
service offerings as well as acquire businesses that complement and
enhance our growth strategies," said Richard S. Kahlbaugh, Chairman
and CEO of Fortegra.
Gross revenues increased 7.6% to $54.7 million for the first
quarter of 2011 compared to $50.9 million for the first quarter of
2010. Net revenues (revenues net of losses, loss adjustment
expenses, and commission expenses), increased 17.9% to $26.8
million for the first quarter of 2011 compared to $22.7 million for
the first quarter of 2010. Net income was $3.6 million, or $0.17
per diluted share, for the quarter ended March 31, 2011 compared to
$3.5 million, or $0.21, for the quarter ended March 31, 2010. Net
income for the first quarter of 2011 included a $0.5 million loss
on the early retirement of debt, as well as $0.2 million of
transaction costs related to acquisitions completed in 2011. Net
income for the first quarter of 2010 included $0.3 million of costs
related to acquisitions completed in 2010. Excluding these items,
net income for the quarter ended March 31, 2011 would have been
$4.3 million, or $0.20 per diluted share, compared to $3.8 million,
or $0.23 per diluted share, for the quarter ended March 31,
2010.
Adjusted EBITDA for the first quarter of 2011 increased 2.9% to
$9.1 million compared to $8.8 million for the first quarter of
2010.
Net earned premium revenues decreased 0.2% to $28.4 million from
$28.5 million for the comparable quarter last year, as growth in
direct and assumed earned premium from new customers distributing
Fortegra's credit insurance and warranty products was offset by a
corresponding increase in ceded earned premiums.
Brokerage commission and fee revenues increased 16.9% to
$7.9 million compared to $6.7 million for the first quarter of
2010 due to higher fee revenue from the acquisition of eReinsure,
which was completed on March 3, 2011, as well as growth in
contingent commissions.
Ceding commission revenues earned under coinsurance agreements
increased 23.2% to $8.2 million from $6.6 million for the
comparable quarter last year, driven principally by increased
service and administrative fees and favorable underwriting
performance.
Net investment income was $0.9 million for the first quarter of
2011, consistent with the first quarter of 2010.
Service and administrative fee revenues increased 14.3% to $9.1
million for the quarter ended March 31, 2011 from $8.0 million for
the comparable quarter last year, primarily due to the contribution
of revenues from the acquisition of Auto Knight, which was
completed on January 1, 2011, as well as the contribution from
acquisitions completed in 2010.
Segment Results
Payment Protection
Revenues for the Payment Protection segment increased 44.8% to
$14.3 million in the first quarter of 2011 compared to $9.9 million
for the first quarter of 2010. The increase was driven by the three
car club acquisitions completed over the past year, which
contributed $2.4 million in revenues during the first quarter, as
well as an increase in ceding commission. Income before taxes for
the Payment Protection segment increased 25.9% to $3.4 million for
the first quarter of 2011 compared to $2.7 million for the first
quarter of 2010.
BPO
Revenues for the BPO segment decreased 21.9% to $3.6 million for
the first quarter of 2011 compared to $4.6 million for the first
quarter of 2010, primarily due to lower volumes of new credit cards
issued and regulatory changes that temporarily slowed production at
one of the Company's customers. Income before taxes for the BPO
segment decreased 57.5% to $0.6 million for the first quarter of
2011 compared to $1.5 million for the first quarter of 2010.
Brokerage
Revenues for the Brokerage segment increased 7.7% to $8.9
million for the first quarter of 2011 compared to $8.3 million in
the first quarter of 2010. The increase was driven by profit
commissions during the first quarter and the acquisition of
eReinsure. Income before taxes for the Brokerage segment was $1.2
million for the first quarter of 2011 compared to $1.6 million for
the first quarter of 2010.
Balance Sheet
Total invested assets and cash were $119.6 million as of March
31, 2011 compared to $148.0 million as of December 31, 2010. Cash
and cash equivalents decreased $25.0 million to $18.4 million from
$43.4 million as of December 31, 2010 to partially fund the two
acquisitions completed in 2011. Unearned premiums were $200.6
million compared to $210.4 million as of December 31, 2010.
Borrowings under our line of credit facility increased to $61.5
million compared to $36.7 million as of December 31, 2010 primarily
due to funding of the acquisition of eReinsure and Auto Knight.
Stockholder's equity increased to $126.9 million as of March 31,
2011 compared to $123.9 million as of December 31, 2010.
Outlook
Based on the Company's first quarter performance and
management's operating assumptions for the remainder of the year,
Fortegra is maintaining its previously provided outlook for the
fiscal year ending December 31, 2011:
- Net revenues in the range of $106 to
$111 million
- Diluted earnings per share in the range
of $0.88 to $0.97 based on a weighted fully diluted share count of
21.6 million shares
- Adjusted EBITDA in the range of $47 to
$50 million
Conference Call Information
Fortegra's executive management will host a conference call to
discuss its fourth quarter and full year 2010 results on Friday,
May 13, 2011 at 8:30 a.m. Eastern Time. Analysts, media and
individual investors are invited to participate in the conference
call by calling (877) 407-9039, or for international callers, (201)
689-8470. A simultaneous Webcast of the conference call audio will
be available online at http://investors.fortegra.com. Participants
are encouraged to call or sign in at least 15 minutes prior to the
scheduled conference call time to ensure participation and, if
required, to download and install the necessary software. A replay
of the call will be available shortly after the call until May 20,
2011, by dialing (877) 870-5176, or for international callers,
(858) 384-5517. The passcode for the replay is 370354. A replay of
the call will also be available online at
http://investors.fortegra.com.
About Fortegra
Fortegra Financial Corporation is an insurance services company
that provides distribution and administration services and
insurance-related products to insurance companies, insurance
brokers and agents and other financial services companies in the
United States. It sells services and products directly to
businesses rather than directly to consumers. Fortegra's brands
include Life of the South, Consecta, Bliss & Glennon and
eReinsure.
Use of Non-GAAP Financial Information
Fortegra presents certain additional financial measures related
to its Business Segments that are "Non-GAAP measures" within the
meaning of Regulation G under the Securities Act of 1934. Fortegra
presents these Non-GAAP measures to provide investors with
additional information to analyze Fortegra's performance from
period to period. Management also uses these measures to
assess performance for Fortegra's segments and to allocate
resources in managing Fortegra's businesses. However, investors
should not consider these Non-GAAP measures as a substitute for the
financial information that Fortegra reports in accordance with
GAAP. These Non-GAAP measures reflect subjective determinations by
management, and may differ from similarly titled Non-GAAP measures
presented by other companies.
Forward-Looking Statements
This press release may contain forward-looking statements within
the meaning of the Private Securities Litigation Act of 1995. Such
statements are subject to risks and uncertainties. All statements
other than statements of historical fact included in this press
release are forward-looking statements. Forward-looking statements
give our current expectations and projections relating to our
financial condition, results of operations, plans, objectives,
future performance and business. You can identify forward-looking
statements by the fact that they do not relate strictly to
historical or current facts. These statements may include words
such as "anticipate," "estimate," "expect," "project,'' "plan,"
"intend," "believe," "may," "should," "can have," "likely" and
other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial
performance or other events.
The forward-looking statements contained in this press release
are based on assumptions that we have made in light of our industry
experience and our perceptions of historical trends, current
conditions, expected future developments and other factors we
believe are appropriate under the circumstances. As you read this
press release, you should understand that these statements are not
guarantees of performance or results. They involve risks,
uncertainties (some of which are beyond our control) and
assumptions. Although we believe that these forward-looking
statements are based on reasonable assumptions, you should be aware
that many factors could affect our actual financial results and
cause them to differ materially from those anticipated in the
forward-looking statements. We believe these factors include, but
are not limited to, those described under Item 1A. - "Risk Factors"
in Fortegra's Annual Report on Form 10-K. Should one or more of
these risks or uncertainties materialize, or should any of these
assumptions prove incorrect, our actual results may vary in
material respects from those projected in these forward-looking
statements.
Any forward-looking statement made by us in this press release
speaks only as of the date on which we make it. Factors or events
that could cause our actual results to differ may emerge from time
to time, and it is not possible for us to predict all of them. We
undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future
developments or otherwise, except as may be required by law.
Further information concerning Fortegra and its business,
including factors that potentially could materially affect
Fortegra's financial results, is contained in Fortegra's filings
with the SEC, which are available free of charges at the SEC's
website at http://www.sec.gov and or
from Fortegra's website in the "Investor Relations" section under
"SEC Filings" at http://www.fortegra.com.
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(All Amounts in Thousands Except Share
and Per Share Amounts)
For the Three Months Ended March 31, 2011
March 31, 2010 Revenues: Service and
administrative fees $ 9,116 $ 7,975 Brokerage commissions and fees
7,867 6,730 Ceding commission 8,158 6,624 Net investment income 941
948 Net realized gains 95 2 Net earned premium 28,437 28,493 Other
income 82 81 Total Revenues 54,696 50,853 Net
losses and loss adjustment expenses 9,373 8,777 Commissions 18,517
19,349 Net Revenues 26,806 22,727
Expenses: Personnel costs 10,992 9,081 Other operating
expenses 6,944 5,136 Depreciation and amortization of intangibles
1,635 1,054 Interest expense 2,031 1,891 Total Expenses
21,602 17,162 Income before income taxes and
non-controlling interest 5,204 5,565 Income Taxes 1,775
2,076 Income before non-controlling interest 3,429 3,489 Less: net
income (loss) attributable to non-controlling interest (174 ) 15
Net income $ 3,603 $
3,474
Earnings per
share:
Basic $ 0.18 $ 0.22 Diluted $ 0.17 $ 0.21
Weighted average
common shares outstanding:
Basic 20,464,592 15,742,336 Diluted 21,668,333 16,941,372
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(All Amounts in Thousands Except Share
Amounts)
March 31, 2011 December 31, 2010
Assets: Investments Fixed maturity securities
available-for-sale at fair value (amortized cost of $83,205 in 2011
and $82,124 in 2010) $ 86,412 $ 85,786 Equity securities
available-for-sale at fair value (cost of $1,955 in 2011 and $1,955
in 2010) 1,951 1,935 Short-term investments 1,070 1,170
Total investments 89,433 88,891 Cash and cash equivalents
18,360 43,389 Restricted cash 11,793 15,722 Accrued investment
income 992 880 Notes receivable 1,443 1,485 Other receivables
26,496 25,473 Reinsurance receivables 161,674 169,382 Deferred
acquisition costs 61,883 65,142 Property and equipment, net 13,985
11,996 Goodwill 120,672 84,387 Other intangibles, net 30,894 29,283
Other assets 6,506 5,505 Total assets $ 544,131
$ 541,535
Liabilities: Unpaid claims $
30,534 $ 32,693 Unearned premiums 200,588 210,430 Accrued expenses
and accounts payable 40,476 41,844 Deferred revenue 25,171 25,611
Notes payable 61,463 36,713 Preferred trust securities 35,000
35,000 Redeemable preferred stock 575 11,040 Deferred income taxes
23,416 24,317 Total liabilities 417,223
417,648
Stockholders' Equity: Preferred
stock, par value $0.01; 10,000,000 shares authorized; none issued —
— Common stock, par value $0.01; 150,000,000 shares authorized;
20,515,035 and 20,256,735 shares issued in 2011 and 2010,
respectively 205 203 Treasury stock (44,578 shares in 2011 and
2010, respectively) (176 ) (176 ) Additional paid-in capital 95,559
95,556 Accumulated other comprehensive income, net of tax (expense)
of $(658) and $(1,235), in 2011 and 2010, respectively 1,880 2,293
Retained earnings 28,911 25,308 Stockholders' equity
before non-controlling interest 126,379 123,184 Non-controlling
interest 529 703 Total stockholders' equity 126,908
123,887 Total liabilities and stockholders' equity $
544,131 $ 541,535
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME-
Segments (Unaudited)
(All Amounts in Thousands)
(Unaudited) For the Three Months Ended
March 31, 2011 March 31, 2010 Segment Net
Revenue Payment Protection Service and administrative Fees $ 4,528
$ 1,883 Ceding commission 8,158 6,624 Net investment income 941 948
Net realized gains (losses) 95 2 Other income 82 81 Net earned
premium 28,437 28,493 Net losses and loss adjustment expenses
(9,373 ) (8,777 ) Commissions (18,517 ) (19,349 ) Payment
Protection 14,351 9,905 BPO 3,564 4,563 Brokerage Brokerage
Commissions and fees 7,867 6,728 Service and administrative Fees
1,024 1,531 Total Brokerage 8,891 8,259
Total 26,806 22,727 Operating Expenses Payment
Protection 8,498 5,094 BPO 2,619 2,774 Brokerage 6,819 6,119
Corporate — 230 Total 17,936 14,217
EBITDA Payment Protection 5,853 4,811 BPO 945 1,789
Brokerage 2,072 2,140 Corporate — (230 ) Total 8,870
8,510 Depreciation and amortization Payment
Protection 953 470 BPO 240 174 Brokerage 442 410
Total 1,635 1,054 Interest Payment Protection
1,526 1,661 BPO 63 106 Brokerage 442 124 Total 2,031
1,891 Income before income taxes and
non-controlling interest Payment Protection 3,374 2,680 BPO 642
1,509 Brokerage 1,188 1,606 Corporate — (230 ) Total income
before income taxes and non-controlling interest 5,204 5,565 Income
taxes 1,775 2,076 Less: net income (loss) attributable to
non-controlling interest (174 ) 15
Net income
$ 3,603 $ 3,474
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME-
Segments (Unaudited)
(All Amounts in Thousands)
Reconciliation of Segment Net Revenue and EBITDA to Total
Revenue and Net Income For the Three Months Ended
(Unaudited) March 31, 2011 March 31,
2010 Revenue Payment Protection $ 14,351 $ 9,905 BPO 3,564
4,563 Brokerage 8,891 8,259 Segment revenue 26,806
22,727 Net losses and loss adjustment expenses 9,373 8,777
Commissions 18,517 19,349 Total revenue 54,696
50,853 Operating Expenses Payment Protection 8,498
5,094 BPO 2,619 2,774 Brokerage 6,819 6,119 Corporate
-
230 Total Operating Expenses 17,936 14,217 Net losses
and loss adjustment expenses 9,373 8,777 Commissions 18,517
19,349 Total expenses before depreciation, amortization and
interest 45,826 42,343 EBITDA Payment
Protection 5,853 4,811 BPO 945 1,789 Brokerage 2,072 2,140
Corporate
-
(230 ) Total 8,870 8,510 Depreciation
and amortization Payment Protection 953 470 BPO 240 174 Brokerage
442 410 Total 1,635 1,054
Interest Payment Protection 1,526 1,661 BPO 63 106 Brokerage 442
124 Total 2,031 1,891 Income
before income taxes and non-controlling interest Payment Protection
3,374 2,680 BPO 642 1,509 Brokerage 1,188 1,606 Corporate
-
(230 ) Total Income before income taxes and non-controlling
interest 5,204 5,565 Income taxes 1,775 2,076 Less: net income
(loss) attributable to non-controlling interest (174 ) 15
Net income $ 3,603 $
3,474
We present EBITDA and Adjusted EBITDA in this Earning Release to
provide investors with a supplemental measure of our operating
performance and, in the case of Adjusted EBITDA, information
utilized in the calculation of the financial covenants under our
revolving credit facility and in the determination of compensation.
EBITDA, as used in this Earnings Release is defined as net income
before interest expense, income taxes, non-controlling interest and
depreciation and amortization. Adjusted EBITDA differs from the
term "EBITDA" as it is commonly used. Adjusted EBITDA, as used in
this Earnings Release, means "Consolidated Adjusted EBITDA" as that
term is defined under our revolving credit facility, which is
generally consolidated net income before consolidated interest
expense, consolidated amortization expense, consolidated
depreciation expense and consolidated tax expense, in each case as
defined more fully in the agreement governing our revolving credit
facility. The other items excluded in this calculation include, but
are not limited to, specified acquisition costs and unusual or
non-recurring charges. The calculation below does not give effect
to certain additional adjustments that are permitted under our
revolving credit facility which, if included, would increase the
amount reflected in this table.
We believe EBITDA and Adjusted EBITDA are frequently used by
securities analysts, investors and other interested parties in the
evaluation of companies in industries similar to ours. Adjusted
EBITDA is also used by management to measure operating performance
and by investors to measure a company's ability to service its debt
and other cash needs. Management believes the inclusion of the
adjustments to EBITDA and Adjusted EBITDA are appropriate to
provide additional information to investors about certain material
non-cash items and about unusual items that we do not expect to
continue at the same level in the future.
EBITDA and Adjusted EBITDA are not recognized terms under
accounting principles generally accepted in the United States, or
U.S. GAAP. Accordingly, they should not be used as an indicator of,
or alternative to, net income as a measure of operating
performance. Although we use EBITDA and Adjusted EBITDA as measures
to assess the operating performance of our business, EBITDA and
Adjusted EBITDA have significant limitations as analytical tools
because they exclude certain material costs. For example, they do
not include interest expense, which has been a necessary element of
our costs. Since we use capital assets, depreciation expense is a
necessary element of our costs and ability to generate service
revenues. In addition, the omission of the substantial amortization
expense associated with our intangible assets further limits the
usefulness of this measure. EBITDA and Adjusted EBITDA also do not
include the payment of taxes, which is also a necessary element of
our operations. Because EBITDA and Adjusted EBITDA do not account
for these expenses, its utility as a measure of our operating
performance has material limitations. Due to these limitations,
management does not view EBITDA and Adjusted EBITDA in isolation or
as a primary performance measure and also uses other measures, such
as net income. Because the definitions of EBITDA and Adjusted
EBITDA (or similar measures) may vary among companies and
industries, they may not be comparable to other similarly titled
measures used by other companies.
The following table presents a reconciliation of net income to
EBITDA and Adjusted EBITDA for each of the periods presented:
(Unaudited, all amounts in thousands) For the
Three Months Ended March 31, 2011 March 31,
2010 Net income $ 3,603 $ 3,474 Depreciation and amortization
of intangibles 1,635 1,054 Interest expense 2,031 1,891 Income
taxes 1,775 2,076 Net income (loss) attributable to non-controlling
interest (174 ) 15 EBITDA 8,870 8,510 Transaction costs (a) 181
288 Adjusted EBITDA $ 9,051 $ 8,798
(a) Represents transaction costs
associated with acquisitions.
FORTEGRA FINANCIAL CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL
INFORMATION (Unaudited)
(All Amounts in Thousands Except Share
and Per Share Amounts)
(Unaudited) For the Three Months Ended
March 31, 2011 March 31, 2010 Net income $
3,603 $ 3,474 Retirement of debt 546
-
Transaction costs associated with acquisitions 181 288 Net
income - Non-GAAP basis $ 4,330 $ 3,762 Earnings per
share - basic $ 0.18 $ 0.22 Retirement of debt and transaction
costs 0.04 0.02 Non-GAAP Earnings per common share - basic $
0.22 $ 0.24 Earnings per share - diluted $ 0.17 $
0.21 Retirement of debt and transaction costs 0.03 0.02
Non-GAAP Earnings per common share - diluted $ 0.20 $ 0.23
Weighted average common shares outstanding: Basic 20,464,592
15,742,336 Diluted 21,668,333 16,941,372
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