Fortegra Financial Corporation (NYSE: FRF), an insurance services
company providing distribution and administration services and
insurance-related products, today reported results for the third
quarter ended September 30, 2012.
- Direct and assumed written premiums increased 6.3%
year-over-year to a record $100.4 million
- Net revenues climbed 8.6% compared to prior-year, including the
impact from a change in accounting estimate
- Third quarter net income was $4.1 million ($0.20 per diluted
share) with Adjusted Net Income of $4.7 million ($0.23 per diluted
share)
- Third quarter Adjusted EBITDA was $10.9 million ($0.53 per
diluted share) with Adjusted EBITDA margin of 34.9%
"I am pleased with the progress we are making at Fortegra. We
continued to build strength throughout the organization not only
with our current suite of products but also with the launch of
additional complementary products," said Richard S. Kahlbaugh,
Chairman, President and Chief Executive Officer of Fortegra. "While
cross-selling and direct marketing initiatives continue, we
recently conducted market tests on SnapBack, a warranty product
providing glass protection to mobile devices and tablets. Based on
the positive customer feedback, this confirmed SnapBack's market
potential. With SnapBack and other product development initiatives
underway in our business, I am confident we have the products and
programs that allow us to deliver on our long term growth
strategy."
Third Quarter Results Total revenues
increased 13.8% to $64.3 million for the third quarter of 2012,
compared to $56.5 million for the third quarter of 2011. Net
revenues (total revenues less net losses and loss adjustment and
commissions expenses) increased 8.6% to $31.3 million for the third
quarter of 2012, compared to $28.8 million for the prior-year
period. The change in accounting estimate recorded during the three
months ended September 30, 2012 increased total revenues and net
revenues by $4.0 million and $1.2 million, respectively.
Operating expenses were $20.7 million compared with $18.2
million one year ago. The 2011 acquisition of Pacific Benefits
Group contributed $1.4 million of the increase.
Net income for the third quarter 2012 was $4.1 million or $0.20
per diluted share, comparable to $4.1 million, or $0.19 per diluted
share in the third quarter 2011. The change in accounting estimate
contributed $1.0 million during the quarter. In addition, as
previously announced, the company experienced a one-time charge of
$0.7 million (pre-tax) during the quarter related to the retirement
of the previous debt facility.
Adjusted EBITDA for the third quarter of 2012 was $10.9 million,
compared to $10.8 million for the third quarter of 2011. Adjusted
EBITDA margin for the third quarter of 2012 was 34.9%, compared to
37.7% for the prior-year period.
Segment Results Payment Protection For the
three months ended September, 2012, net revenues for the Payment
Protection segment were $17.5 million, compared to $15.8 million
for the prior-year period. The current period included net revenues
of $1.2 million attributable to the change in accounting estimate.
EBITDA for the Payment Protection segment was $7.9 million for the
third quarter of 2012, compared to $7.3 million for the prior-year
period. EBITDA margin for the Payment Protection segment was 45.3%
for the third quarter of 2012, compared to 46.4% for the prior-year
period. Direct and assumed written premiums increased 6.3%
year-over-year to a record $100.4 million.
Business Process Outsourcing (BPO) Net revenues for the BPO
segment increased to $5.0 million for the third quarter of 2012,
compared to $3.8 million for the third quarter of 2011, primarily
attributable to the PBG acquisition. EBITDA for the BPO segment was
essentially flat at $1.1 million for the third quarter of 2012
compared to the prior-year period. EBITDA margin for the BPO
segment declined to 22.5% for the third quarter of 2012, compared
to 29.1% for the prior-year period. The decline reflects weaker
than expected margins from Pacific Benefits Group.
Brokerage Net revenues for the Brokerage segment declined to
$8.8 million for the third quarter of 2012 from $9.2 million in the
prior-year period. EBITDA for the Brokerage segment fell modestly
to $1.6 million for the third quarter of 2012, compared to $1.7
million for the prior-year period. EBITDA margin for the Brokerage
segment declined 80 bps year over year to 17.8%. Bliss &
Glennon revenues continued to outpace prior year results, while a
soft reinsurance market is impacting eReinsure.
Balance Sheet Total invested assets and
cash and cash equivalents amounted to $129.2 million as of
September, 2012 compared to $127.1 million as of December 31, 2011.
Unearned premiums were $231.1 million as of September 30, 2012
compared to $227.9 million as of December 31, 2011. Total debt
outstanding at September 30, 2012 was $106.2 million compared to
$108.0 million as of December 31, 2011. Stockholder's equity
increased to $137.3 million as of September, 30, 2012 compared to
$127.6 million as of December 31, 2011.
During the quarter Fortegra continued to execute on its share
repurchase authorization, repurchasing 147,503 shares at an average
price of $8.02 per share. Since inception, the company repurchased
979,634 shares while $3.5 million remains available on the
authorization.
Conference Call Information Fortegra's
executive management will host a conference call to discuss its
third quarter 2012 results tomorrow, Tuesday, November 13, 2012 at
8:30 a.m. Eastern Time. To participate in the live call, dial (877)
407-3982 within the U.S., or (201) 493-6780 for international
callers. A live audio webcast will also be available on the
Investors page of the company's website, http://www.fortegra.com. A
replay of the call will be available beginning November 13, 2012 at
11:30 a.m. ET and ending on November 20, 2012 11:59 p.m. ET on the
company's website, and by dialing (877) 870-5176 in the U.S. or
(858) 384-5517 for international callers. The passcode for the
replay is 402337.
Statistical Supplement In addition, the
company has provided a statistical supplement which can be accessed
through the "Investor Relations" section of Fortegra's website at:
http://www.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. Fortegra's
brands include: Life of the South, Consecta, Bliss & Glennon
(B&G), eReinsure (eRe), Auto Knight Motor Club, Continental Car
Club, United Motor Club, Pacific Benefits Group (PBG), Universal
Equipment Recovery Group (UERG), and South Bay Acceptance
Corporation (SBAC).
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.
In this Earnings Release, we present EBITDA and Adjusted EBITDA.
These financial measures as presented in this Earnings Release are
considered Non-GAAP financial measures and are not recognized terms
under U.S. GAAP and should not be used as an indicator of, and are
not an alternative to, net income as a measure of operating
performance. EBITDA as used in this Earnings Release is net income
before interest expense, income taxes, non-controlling interest,
depreciation and amortization. Adjusted EBITDA as used in this
Earnings Release means "Consolidated Adjusted EBITDA" which is
defined under our credit facility with Well Fargo Bank, N.A., is
generally consolidated net income before consolidated interest
expense, consolidated amortization expense, consolidated
depreciation expense and consolidated income tax expense. The other
items excluded in this calculation may include if applicable, but
are not limited to, specified acquisition costs, impairment of
goodwill and other non-cash charges, stock-based compensation
expense and unusual or non-recurring charges. The calculation below
does not give effect to certain additional adjustments permitted
under our credit facility, which if included, would increase the
amount of Adjusted EBITDA reflected in this table. We believe
presenting EBITDA and Adjusted EBITDA provides investors with a
supplemental financial measure of our operating performance.
In addition to the financial covenant requirements under our
credit facility, management uses EBITDA and Adjusted EBITDA as
financial measures of operating performance for planning purposes,
which may include, but are not limited to, the preparation of
budgets and projections, the determination of bonus compensation
for executive officers, the analysis of the allocation of resources
and the evaluation of the effectiveness of business strategies.
Although we use EBITDA and Adjusted EBITDA as financial measures to
assess the operating performance of our business, both measures
have significant limitations as analytical tools because they
exclude certain material expenses. For example, they do not include
interest expense and the payment of income taxes, which are both a
necessary element of our costs and operations. Since we use
property and equipment to generate service revenues, depreciation
expense is a necessary element of our costs. In addition, the
omission of amortization expense associated with our intangible
assets further limits the usefulness of this financial measure.
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. Because EBITDA and Adjusted EBITDA do not account
for these expenses, its utility as a financial 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 financial performance measure.
We believe EBITDA and Adjusted EBITDA are frequently used by
securities analysts, investors and other interested parties in the
evaluation of similar companies in similar industries and to
measure the company's ability to service its debt and other cash
needs. Because the definitions of EBITDA and Adjusted EBITDA (or
similar financial measures) may vary among companies and
industries, they may not be comparable to other similarly titled
financial measures used 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 most current Annual Report on Form 10-K and most
current Quarterly Report on Form 10-Q. 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 charge at the SEC's
website at http://www.sec.gov and 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 For the Nine Months
Ended Ended
------------------------- ------------------------
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
----------- ------------ ----------- -----------
Revenues:
Service and
administrative fees $ 10,056 $ 10,125 $ 28,790 $ 28,041
Brokerage commissions
and fees 8,411 8,611 27,295 25,686
Ceding commission 11,122 7,027 25,396 21,428
Net investment income 744 801 2,219 2,636
Net realized (losses)
gains on the sale of
investments (16) 1,196 (6) 2,423
Net earned premium 33,893 28,673 97,770 84,646
Other income 52 18 172 138
----------- ------------ ----------- -----------
Total revenues 64,262 56,451 181,636 164,998
Net losses and loss
adjustment expenses 11,430 9,714 32,272 28,338
Commissions 21,548 17,926 61,479 53,766
----------- ------------ ----------- -----------
Net Revenues 31,284 28,811 87,885 82,894
----------- ------------ ----------- -----------
Expenses:
Personnel costs 12,503 10,746 36,020 32,825
Other operating
expenses 7,876 7,252 21,425 23,704
Stock based
compensation expense 288 214 657 615
Depreciation 871 886 2,584 2,283
Amortization of
intangibles 1,127 998 3,775 3,428
Interest expense 2,025 1,906 5,267 5,862
Loss on sale of
subsidiary - 477 - 477
----------- ------------ ----------- -----------
Total expenses 24,690 22,479 69,728 69,194
----------- ------------ ----------- -----------
Income before income
taxes and non-
controlling interest 6,594 6,332 18,157 13,700
Income taxes 2,455 2,259 6,520 4,847
----------- ------------ ----------- -----------
Income before non-
controlling interest 4,139 4,073 11,637 8,853
Less: net income
(loss) attributable
to non-controlling
interest 29 1 62 (171)
----------- ------------ ----------- -----------
Net income $ 4,110 $ 4,072 $ 11,575 $ 9,024
=========== ============ =========== ===========
Earnings per share:
Basic $ 0.21 $ 0.20 $ 0.59 $ 0.44
Diluted $ 0.20 $ 0.19 $ 0.56 $ 0.42
Weighted average common
shares outstanding:
Basic 19,531,694 20,404,441 19,705,105 20,355,057
Diluted 20,463,238 21,214,365 20,620,084 21,375,184
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(All Amounts in Thousands Except Share and Per Share Amounts)
September June 30, March 31, December
30, 2012 2012(1) 2012(1) 31, 2011
---------- ---------- ---------- ----------
Assets:
Investments:
Fixed maturity securities
available-for-sale at
fair value (amortized
cost of $107,150 at
September 30, 2012 and
$92,311 at December 31,
2011) $ 110,833 $ 88,021 $ 92,843 $ 93,509
Equity securities
available-for-sale at
fair value (cost of
$5,882 at September 30,
2012 and $1,203 at
December 31, 2011) 6,085 5,653 3,793 1,219
Short-term investments 970 970 970 1,070
---------- ---------- ---------- ----------
Total investments 117,888 94,644 97,606 95,798
Cash and cash equivalents 11,284 28,350 18,676 31,339
Restricted cash 21,232 23,659 18,959 14,180
Accrued investment income 1,115 985 927 929
Notes receivable, net 4,281 3,783 3,802 3,603
Accounts and premiums
receivable, net 25,056 27,384 31,184 20,172
Other receivables 15,708 14,505 16,798 9,103
Reinsurance receivables 197,184 191,671 186,421 194,740
Deferred acquisition costs 56,903 55,983 52,517 55,467
Property and equipment, net 17,227 16,915 15,728 14,666
Goodwill 104,668 104,668 104,500 104,500
Other intangibles, net 50,803 51,930 52,928 54,410
Other assets 6,452 6,702 5,836 6,070
---------- ---------- ---------- ----------
Total assets $ 629,801 $ 621,179 $ 605,882 $ 604,977
========== ========== ========== ==========
Liabilities:
Unpaid claims $ 32,041 $ 31,618 $ 32,497 $ 32,583
Unearned premiums 231,114 228,991 221,059 227,929
Policyholder account
balances 26,223 26,942 27,565 28,040
Accrued expenses, accounts
payable, income taxes and
other liabilities 51,785 49,347 42,348 35,446
Deferred revenue 19,164 18,386 17,617 20,781
Note payable 71,168 72,000 74,700 73,000
Preferred trust securities 35,000 35,000 35,000 35,000
Deferred income taxes, net 26,023 25,691 24,815 24,614
---------- ---------- ---------- ----------
Total liabilities 492,518 487,975 475,601 477,393
---------- ---------- ---------- ----------
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; 20,681,252 and
20,561,328 shares issued at
September 30, 2012 and
December 31, 2011,
respectively, including
shares in treasury 207 207 206 206
Treasury stock, at cost;
1,024,212 shares and
516,132 shares at September
30, 2012 and December 31,
2011, respectively (6,651) (5,468) (4,122) (2,728)
Additional paid-in capital 97,095 96,785 96,378 96,199
Accumulated other
comprehensive loss, net of
tax (673) (1,480) (1,324) (1,754)
Retained earnings 46,725 42,615 38,613 35,150
---------- ---------- ---------- ----------
Stockholders' equity before
non-controlling interest 136,703 132,659 129,751 127,073
Non-controlling interest 580 545 530 511
---------- ---------- ---------- ----------
Total stockholders'
equity 137,283 133,204 130,281 127,584
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $ 629,801 $ 621,179 $ 605,882 $ 604,977
========== ========== ========== ==========
(1) The balance sheets for March 31, 2012 and June 30, 2012 have been
recast to reflect prior period adjustments related to business combination
valuation adjustments
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME- Segments (Unaudited)
(All Amounts in Thousands)
---------------------- ----------------------
For the Three Months For the Nine Months
Ended Ended
---------------------- ----------------------
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
----------- ---------- ----------- ----------
Segment Net Revenue
Payment Protection $ 17,494 $ 15,770 $ 45,676 $ 43,871
BPO 4,951 3,833 13,565 11,088
Brokerage 8,839 9,208 28,644 27,935
Corporate - - - -
----------- ---------- ----------- ----------
Segment net revenues 31,284 28,811 87,885 82,894
Net losses and loss
adjustment expenses 11,430 9,714 32,272 28,338
Commissions 21,548 17,926 61,479 53,766
----------- ---------- ----------- ----------
Total segment revenue 64,262 56,451 181,636 164,998
----------- ---------- ----------- ----------
Operating Expenses
Payment Protection 9,563 8,445 26,205 25,857
BPO 3,836 2,717 10,320 8,164
Brokerage 7,268 7,491 21,577 21,837
Corporate - 36 - 1,763
----------- ---------- ----------- ----------
Total operating expenses 20,667 18,689 58,102 57,621
Net losses and loss
adjustment expenses 11,430 9,714 32,272 28,338
Commissions 21,548 17,926 61,479 53,766
----------- ---------- ----------- ----------
Total operating expenses
before depreciation,
amortization and
interest expense 53,645 46,329 151,853 139,725
----------- ---------- ----------- ----------
EBITDA
Payment Protection 7,931 7,325 19,471 18,014
BPO 1,115 1,116 3,245 2,924
Brokerage 1,571 1,717 7,067 6,098
Corporate - (36) - (1,763)
----------- ---------- ----------- ----------
Total EBITDA 10,617 10,122 29,783 25,273
----------- ---------- ----------- ----------
Depreciation and
amortization
Payment Protection 863 927 2,577 3,204
BPO 494 307 1,495 824
Brokerage 641 650 2,287 1,683
Corporate - - - -
----------- ---------- ----------- ----------
Total depreciation and
amortization 1,998 1,884 6,359 5,711
----------- ---------- ----------- ----------
Interest Expense
Payment Protection 1,359 1,053 3,342 3,622
BPO 294 96 820 258
Brokerage 372 757 1,105 1,982
Corporate - - - -
----------- ---------- ----------- ----------
Total interest expense 2,025 1,906 5,267 5,862
----------- ---------- ----------- ----------
Income before income taxes
and non-controlling
interest
Payment Protection 5,709 5,345 13,552 11,188
BPO 327 713 930 1,842
Brokerage 558 310 3,675 2,433
Corporate - (36) - (1,763)
----------- ---------- ----------- ----------
Total income before income
taxes and non-controlling
interest 6,594 6,332 18,157 13,700
Income taxes 2,455 2,259 6,520 4,847
Less: net income (loss)
attributable to non-
controlling interest 29 1 62 (171)
----------- ---------- ----------- ----------
Net income $ 4,110 $ 4,072 $ 11,575 $ 9,024
=========== ========== =========== ==========
FORTEGRA FINANCIAL CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION - ADJUSTED EBITDA
(Unaudited)
(All Amounts in Thousands, except for percentages)
For the Three Months For the Nine Months
Ended Ended
---------------------- ----------------------
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
---------- ---------- ---------- ----------
Net income $ 4,110 $ 4,072 $ 11,575 $ 9,024
Depreciation 871 886 2,584 2,283
Amortization of
intangibles 1,127 998 3,775 3,428
Interest expense 2,025 1,906 5,267 5,862
Income taxes 2,455 2,259 6,520 4,847
Net income (loss)
attributable to non-
controlling interest 29 1 62 (171)
---------- ---------- ---------- ----------
EBITDA 10,617 10,122 29,783 25,273
Transaction costs (a) 5 36 139 829
Stock-based compensation
expense 288 214 657 615
Corporate governance
study - - - 248
Relocation expenses - - - 207
Statutory audits - - - 98
Loss on sale of
subsidiary - 477 - 477
Adjusted EBITDA $ 10,910 $ 10,849 $ 30,579 $ 27,747
========== ========== ========== ==========
EBITDA Margin 33.9% 35.1% 33.9% 30.5%
Adjusted EBITDA Margin 34.9% 37.7% 34.8% 33.5%
(a) Represents transaction costs associated with acquisitions.
FORTEGRA FINANCIAL CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION - NET INCOME (Unaudited)
(All Amounts in Thousands Except Share and Per Share Amounts)
For the Three Months For the Nine Months
Ended Ended
----------------------- -----------------------
September September September September
30, 2012 30, 2011 30, 2012 30, 2011
----------- ----------- ----------- -----------
Net income $ 4,110 $ 4,072 $ 11,575 $ 9,024
Non-GAAP Adjustments, net
of tax
Transaction costs
associated with
acquisitions (1) 5 36 139 829
Stock-based compensation 186 138 425 398
Corporate governance
study - - - 156
Relocation expenses - - - 130
Statutory audits - - - 62
Loss on sale of
subsidiary - 300 - 300
Retirement of debt (2) 439 - 439 560
----------- ----------- ----------- -----------
Total Non-GAAP
adjustments, net of tax 630 474 1,003 2,435
----------- ----------- ----------- -----------
Net income - Non-GAAP basis $ 4,740 $ 4,546 $ 12,578 $ 11,459
=========== =========== =========== ===========
GAAP Earnings per share -
basic $ 0.21 $ 0.20 $ 0.59 $ 0.44
Non-GAAP adjustments, net
of tax 0.03 0.02 0.05 0.12
----------- ----------- ----------- -----------
Non-GAAP Earnings per common
share - basic $ 0.24 $ 0.22 $ 0.64 $ 0.56
=========== =========== =========== ===========
GAAP Earnings per share -
diluted $ 0.20 $ 0.19 $ 0.56 $ 0.42
Non-GAAP adjustments, net
of tax 0.03 0.02 0.05 0.12
----------- ----------- ----------- -----------
Non-GAAP Earnings per common
share - diluted $ 0.23 $ 0.21 $ 0.61 $ 0.54
=========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic 19,531,694 20,404,441 19,705,105 20,355,057
Diluted 20,463,238 21,214,365 20,620,084 21,375,184
(1) Adjustments not tax effected.
(2) Adjustments not tax effected for the 2011 periods presented. 2012
amounts represent the write off of $678 in previously capitalized
transactions costs on the termination of the SunTrust Bank, N.A., revolving
credit line, net of tax.
Contact: Stephanie Gannon 904-352-2759 Email Contact
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