SOURCE: Fortegra Financial Corporation

Fortegra Financial Corporation

November 11, 2013 16:15 ET

Fortegra Financial Corporation Reports Results for the Third Quarter of 2013

JACKSONVILLE, FL--(Marketwired - Nov 11, 2013) - Fortegra Financial Corporation (NYSE: FRF), a diversified insurance services company offering a wide array of revenue enhancement products, including service contracts, device and warranty services, and distribution and administration services, reported its results for the third quarter and nine months ended September 30, 2013.

  • Total revenues increased 33.0% to $102.6 million for the third quarter of 2013 from $77.1 million for the third quarter of 2012.

  • Net revenues for the third quarter of 2013 increased 14.3% to $35.6 million from $31.1 million for the third quarter of 2012.

  • Direct and assumed written premiums for the third quarter of 2013 increased 16.0% to $116.5 million from $100.4 million for the third quarter of 2012.

  • Net income was $3.2 million for the third quarter of 2013 compared to $4.0 million for the third quarter of 2012.

  • Net Income on a Non-GAAP basis was $3.9 million for the third quarter of 2013 compared to $3.8 million for the third quarter of 2012.

  • Diluted earnings per share were $0.16 for the third quarter of 2013 compared to $0.20 for the third quarter of 2012.

  • Non-GAAP earnings per share on a diluted basis were $0.19 for both the third quarter of 2013 and 2012.

"Overall, our third quarter was very productive despite the challenges we faced given the regulatory and economic environments in which we operated," said Richard S. Kahlbaugh, Chairman, President and Chief Executive Officer of Fortegra. "Our quarterly results reflected continued pressures facing our motor clubs coupled with a seasonally weak period for ProtectCELL. Still, revenue gains from ProtectCELL and 4Warranty contributed a combined $6.0 million to our net revenues for the quarter and our written premium across the enterprise grew 16.0% to $116.5 million for the quarter. Our brokerage segment posted stable results and we made substantive progress on our strategic goals which we believe will drive organic growth and create value. Our operating expenses decreased almost 7% on a comparable basis. The Company also delivered on its commitment to further develop new products and cultivate new channels and initiatives. I am pleased to report we are making meaningful progress on multiple fronts and I am very encouraged by the direction in which we are heading."

Third Quarter Results
Total revenues increased 33.0% to $102.6 million for the third quarter of 2013, compared to $77.1 million for the third quarter of 2012, and include $0.8 million of net realized investment gains. Net revenues, which are comprised of total revenues less net losses and loss adjustment, member benefit claims and commissions expenses, increased 14.3% to $35.6 million for the third quarter of 2013, compared to $31.1 million for the prior-year period. Both total revenues and net revenues were favorably impacted by the acquisitions of ProtectCELL and 4Warranty. During the third quarter of 2012, a change in accounting estimate increased total revenues and net revenues by $4.0 million and $1.2 million, respectively. Operating expenses for the third quarter of 2013 increased 23.4% to $25.5 million compared to $20.7 million in the prior-year period. Excluding operating expenses associated with ProtectCELL and 4Warranty and costs to support the direct-to-consumer initiative, operating expenses decreased 6.8% or $1.4 million for the third quarter of 2013, compared to the prior-year period. Income tax expense for the third quarter of 2013 includes the effect of income tax provision-to-return true-ups of $0.3 million, compared to $0.1 million of similar true-ups recorded in the third quarter of 2012.

Net income for the third quarter of 2013 was $3.2 million, or $0.16 per diluted share, compared to $4.0 million, or $0.20 per diluted share, for the prior-year period. The prior year period net income included a $1.0 million favorable impact, or $0.05 per diluted share, from a change in accounting estimate. Adjusted EBITDA for the third quarter of 2013 was $10.6 million, compared to $9.3 million for the third quarter of 2012. Adjusted EBITDA margin for the third quarter of 2013 was 29.9%, compared to 31.0% for the prior-year period.

Segment Results
Payment Protection
Net revenues for the Payment Protection segment increased 31.5% to $22.8 million for the third quarter of 2013, compared to $17.4 million for the prior-year period. The increase resulted primarily from a $5.3 million increase in net revenue attributable to the 2012 acquisition of ProtectCELL and $0.6 million for 4Warranty. In addition, realized gains increased by $0.8 million due to gains on invested assets sold in the third quarter of 2013 and growth in the direct-to-consumer initiative contributed $0.5 million to the increase, while Motor Club net revenues increased $0.1 million. These increases were partially offset by the 2012 change in accounting estimate that increased 2012 net revenues by $1.2 million.

EBITDA for the Payment Protection segment was $7.0 million for the third quarter of 2013, compared to $7.8 million for the prior-year period. EBITDA margin percentage for the Payment Protection segment was 30.6% for the third quarter of 2013, compared to 44.9% for the prior-year period. The lower EBITDA margin percentage for 2013, resulted primarily from a change in the mix of business with the addition of ProtectCELL, 4Warranty and our direct to consumer initiative.

Business Process Outsourcing (BPO)
Net revenues for the BPO segment decreased 24.9% to $3.7 million for the third quarter of 2013 compared to $5.0 million for the prior-year period. EBITDA for the BPO segment was $1.3 million for the third quarter of 2013, compared to $1.1 million for the prior-year period. EBITDA margin percentage for the BPO segment was 36.2% for the third quarter of 2013, compared to 22.5% for the prior-year period. The higher margin percentage resulted from decreases in operating expenses.

Brokerage
Net revenues for the Brokerage segment increased 2.5% to $9.1 million for the third quarter of 2013 compared to $8.8 million for the prior-year period. Net revenues at Bliss & Glennon increased $0.5 million, compared to the same period in 2012, partially offset by a decline in collateral recovery revenues of $0.2 million. EBITDA for the Brokerage segment was $1.8 million for the third quarter of 2013, compared to $1.6 million for the prior-year period. EBITDA margin percentage for the Brokerage segment increased to 19.5% for the third quarter of 2013, compared to 17.8% for the prior-year period.

Balance Sheet
Total investments and cash and cash equivalents increased to $147.3 million at September 30, 2013 compared to $133.3 million at December 31, 2012. Unearned premiums were $249.7 million at September 30, 2013 compared to $235.9 million at December 31, 2012. Total debt outstanding at September 30, 2013 decreased to $117.8 million compared to $124.4 million at December 31, 2012. Stockholder's equity increased to $153.0 million at September 30, 2013 from $145.7 million at December 31, 2012.

Conference Call Information
Fortegra Financial's executive management will host a conference call to discuss its third quarter 2013 results on Tuesday, November 12, 2013 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.fortegrafinancial.com. A replay of the call will be available beginning November 12, 2013 at 11:30 a.m. ET and ending on November 19, 2013 at 11:59 p.m. Eastern Time on the Company's website, and by dialing (877) 870-5176 in the U.S. or (858) 384-5517 for international callers. The pass code for the replay is 13572646.

Statistical Supplement
In addition, the Company has provided a statistical supplement, which can be accessed through the "Investor Relations" section of Fortegra Financial's website at: http://www.fortegrafinancial.com.

About Fortegra Financial Corporation
Fortegra Financial Corporation is a diversified insurance services company offering a wide array of revenue enhancement products, including service contracts, device and warranty services, and distribution and administration services, to insurance companies, insurance brokers and agents and other financial services companies, primarily in the United States. Fortegra Financial's brands include Fortegra™, Life of the South®, 4Warranty, ProtectCELL™, Continental Car Club™, Auto Knight Motor Club™, United Motor Club™, Consecta™, Pacific Benefits Group™, Bliss & Glennon™, eReinsure™, South Bay Acceptance Corporation and Universal Equipment Recovery Group.

Use of Non-GAAP Financial Information
We present certain additional financial measures related to our Business Segments that are "Non-GAAP measures" within the meaning of Regulation G under the Securities Act of 1934. We present these Non-GAAP measures to provide investors with additional information to analyze our performance from period to period. Management also uses these measures to assess performance for our segments and to allocate resources in managing our businesses. However, investors should not consider these Non-GAAP measures as a substitute for the financial information that we report 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 Net Income - Non-GAAP Basis, Non-GAAP Earnings per share - basic and diluted, 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 or earnings per share as a measure of operating performance. Net Income - Non-GAAP Basis as used in this Earnings Release, generally means net income adjusted (on a tax-effected basis) by transaction costs associated with acquisitions, stock-based compensation, restructuring expenses, and unusual or non-recurring charges and items that affect comparability of results. Non-GAAP earnings per share - basic and diluted as presented in this Earnings Release adjust for the impact of the Non-GAAP adjustments to net income, net of tax, on a per share basis, EBITDA as used in this Earnings Release is net income before interest expense, income taxes, net income attributable to non-controlling interests, depreciation and amortization. Adjusted EBITDA as used in this Earnings Release means "Consolidated Adjusted EBITDA" which is defined under our credit facility with Wells Fargo Bank, N.A., and which generally means consolidated net income before net income attributable to non-controlling interests, 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 and items that affect comparability of results. 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 Net Income - Non-GAAP Basis, Non-GAAP Earnings per share - basic and diluted, 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 Net Income - Non-GAAP Basis, Non-GAAP Earnings per share - basic and diluted, 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 Net Income- Non-GAAP Basis, Non-GAAP Earnings per share - basic and diluted, 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 Net Income- Non-GAAP Basis, Non-GAAP Earnings per share - basic and diluted, 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 Financial 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 Financial's website in the "Investor Relations" section under "SEC Filings" at http://www.fortegrafinancial.com.

   
FORTEGRA FINANCIAL CORPORATION  
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)  
(All Amounts in Thousands Except Share and Per Share Amounts)  
   
    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2013     September 30, 2012     September 30, 2013   September 30, 2012  
                               
Revenues:                              
  Service and administrative fees   $ 49,238     $ 22,898     $ 135,022   $ 67,195  
  Brokerage commissions and fees     8,787       8,411       28,409     27,295  
  Ceding commission     8,731       11,122       22,851     25,396  
  Net investment income     772       744       2,433     2,219  
  Net realized investment gains (losses)     756       (16 )     2,043     (6 )
  Net earned premium     34,106       33,893       100,929     97,770  
  Other income     179       52       529     172  
  Gain on sale of subsidiary     --       --       402     --  
Total revenues     102,569       77,104       292,618     220,041  
  Net losses and loss adjustment expenses     9,957       11,430       31,096     32,272  
  Member benefit claims     13,834       1,157       34,624     3,558  
  Commissions     43,175       33,377       120,148     96,647  
Net Revenues     35,603       31,140       106,750     87,564  
                               
Expenses:                              
  Personnel costs     14,649       12,708       45,089     36,467  
  Other operating expenses     10,850       7,959       30,438     21,635  
  Depreciation and amortization     1,378       871       4,063     2,584  
  Amortization of intangibles     1,870       1,127       5,598     3,775  
  Interest expense     1,501       2,025       4,489     5,267  
Total expenses     30,248       24,690       89,677     69,728  
Income before income taxes and non-controlling interests     5,355       6,450       17,073     17,836  
  Income taxes     2,268       2,397       6,048     6,392  
Income before non-controlling interests     3,087       4,053       11,025     11,444  
  Less: net (loss) income attributable to non-controlling interests     (135 )     29       868     62  
Net income   $ 3,222     $ 4,024     $ 10,157   $ 11,382  
                               
Earnings per share:                              
    Basic   $ 0.17     $ 0.21     $ 0.52   $ 0.59  
    Diluted   $ 0.16     $ 0.20     $ 0.49   $ 0.56  
Weighted average common shares outstanding:                              
    Basic     19,405,597       19,531,694       19,500,430     19,705,105  
    Diluted     20,404,508       20,463,238       20,531,122     20,620,084  
                                   
                                   
                                   
FORTEGRA FINANCIAL CORPORATION  
CONSOLIDATED BALANCE SHEETS (Unaudited)  
(All Amounts in Thousands)  
   
    At  
    September 30, 2013     December 31, 2012  
Assets:                
Investments:                
  Fixed maturity securities available-for-sale, at fair value   $ 122,760     $ 110,641  
  Equity securities available-for-sale, at fair value     6,372       6,220  
  Short-term investments     971       1,222  
    Total investments     130,103       118,083  
Cash and cash equivalents     17,213       15,209  
Restricted cash     28,792       31,142  
Accrued investment income     1,006       1,235  
Notes receivable, net     5,818       11,290  
Accounts and premiums receivable, net     32,785       27,302  
Other receivables     36,109       13,393  
Reinsurance receivables     211,835       203,988  
Deferred acquisition costs     67,529       59,320  
Property and equipment, net     16,805       17,900  
Goodwill     127,679       127,679  
Other intangible assets, net     65,139       70,310  
Income taxes receivable     --       2,919  
Other assets     9,062       7,667  
      Total assets   $ 749,875     $ 707,437  
                 
Liabilities:                
Unpaid claims   $ 33,471     $ 33,007  
Unearned premiums     249,671       235,900  
Policyholder account balances     24,403       26,023  
Accrued expenses, accounts payable and other liabilities     76,298       58,660  
Income taxes payable     237       --  
Deferred revenue     69,188       55,043  
Note payable     82,750       89,438  
Preferred trust securities     35,000       35,000  
Deferred income taxes, net     25,844       28,651  
    Total liabilities     596,862       561,722  
                 
Stockholders' Equity:                
Preferred stock     --       --  
Common stock     209       207  
Treasury stock, at cost     (8,014 )     (6,651 )
Additional paid-in capital     98,893       97,641  
Accumulated other comprehensive loss, net of tax     (3,471 )     (631 )
Retained earnings     59,974       49,817  
    Stockholders' equity before non-controlling interests     147,591       140,383  
Non-controlling interests     5,422       5,332  
    Total stockholders' equity     153,013       145,715  
        Total liabilities and stockholders' equity   $ 749,875     $ 707,437  
                 
 
 
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME- Segments (Unaudited)
(All Amounts in Thousands)
 
    For the Three Months Ended   For the Nine Months Ended
    September 30, 2013     September 30, 2012   September 30, 2013   September 30, 2012
Segment Net Revenue                          
  Payment Protection (1)   $ 22,823     $ 17,350   $ 65,332   $ 45,355
  BPO     3,717       4,951     11,900     13,565
  Brokerage     9,063       8,839     29,518     28,644
    Segment net revenues     35,603       31,140     106,750     87,564
                           
Operating Expenses                          
  Payment Protection     15,833       9,563     44,805     26,205
  BPO     2,370       3,836     8,706     10,320
  Brokerage     7,296       7,268     22,016     21,577
    Total operating expenses     25,499       20,667     75,527     58,102
                           
EBITDA                          
  Payment Protection     6,990       7,787     20,527     19,150
  BPO     1,347       1,115     3,194     3,245
  Brokerage     1,767       1,571     7,502     7,067
    Total EBITDA     10,104       10,473     31,223     29,462
                           
Depreciation and Amortization                          
  Payment Protection     1,736       863     5,145     2,577
  BPO     845       494     2,512     1,495
  Brokerage     667       641     2,004     2,287
    Total depreciation and amortization     3,248       1,998     9,661     6,359
                           
Interest Expense                          
  Payment Protection     1,022       1,359     3,044     3,342
  BPO     176       294     528     820
  Brokerage     303       372     917     1,105
    Total interest expense     1,501       2,025     4,489     5,267
                           
Income before income taxes and non-controlling interests                          
  Payment Protection     4,232       5,565     12,338     13,231
  BPO     326       327     154     930
  Brokerage     797       558     4,581     3,675
Total income before income taxes and non-controlling interests     5,355       6,450     17,073     17,836
  Income taxes     2,268       2,397     6,048     6,392
  Less: net (loss) income attributable to non-controlling interests     (135 )     29     868     62
Net income   $ 3,222     $ 4,024   $ 10,157   $ 11,382
                           
(1) - Includes the $402 gain on sale of subsidiary for the nine months ended September 30, 2013.
   
   
   
FORTEGRA FINANCIAL CORPORATION  
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION  
EBITDA AND ADJUSTED EBITDA (Unaudited)  
(All Amounts in Thousands, except for percentages)  
   
    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2013     September 30, 2012     September 30, 2013     September 30, 2012  
                                 
Net income   $ 3,222     $ 4,024     $ 10,157     $ 11,382  
  Depreciation and amortization     1,378       871       4,063       2,584  
  Amortization of intangibles     1,870       1,127       5,598       3,775  
  Interest expense     1,501       2,025       4,489       5,267  
  Income taxes     2,268       2,397       6,048       6,392  
  Net (loss) income attributable to non-controlling interests     (135 )     29       868       62  
EBITDA     10,104       10,473       31,223       29,462  
    Transaction costs (1)     25       5       166       139  
    Stock-based compensation expense     357       288       989       657  
    Restructuring expenses     --       --       1,234       --  
    Gain on sale of subsidiary     --       --       (402 )     --  
    Legal expenses     152       --       395       --  
    Change in accounting estimate     --       (1,509 )     --       (1,509 )
Adjusted EBITDA   $ 10,638     $ 9,257     $ 33,605     $ 28,749  
                                 
EBITDA Margin     28.4 %     33.6 %     29.2 %     33.6 %
Adjusted EBITDA Margin (2)     29.9 %     31.0 %     31.5 %     33.3 %
                                 
(1) - Represents transaction costs associated with acquisitions.  
                                 
(2) - The change in accounting estimate affecting the three and nine month periods ending September 30, 2012 impacted net revenues by $1.2 million and other operating expense by ($0.3) million. The Adjusted EBITDA Margin for these periods is computed based on net revenues and income before tax adjusted for these impacts.  
   
   
   
FORTEGRA FINANCIAL CORPORATION  
RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION -  
NET INCOME - NON-GAAP BASIS (Unaudited)  
(All Amounts in Thousands Except Share and Per Share Amounts)  
   
    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2013   September 30, 2012     September 30, 2013     September 30, 2012  
                               
Net income   $ 3,222   $ 4,024     $ 10,157     $ 11,382  
  Non-GAAP Adjustments, net of tax                              
    Transaction costs associated with acquisitions (1)     25     5       166       139  
    Stock-based compensation     232     186       642       425  
    Restructuring expenses     --     --       799       --  
    Gain on sale of subsidiary     --     --       (261 )     --  
    Legal     99     --       257       --  
    Retirement of debt (2)     --     439       --       439  
    Change in accounting estimate     --     (976 )     --       (976 )
    Income tax provision-to-return true-ups     312     116       312       103  
  Total Non-GAAP adjustments, net of tax     668     (230 )     1,915       130  
Net income - Non-GAAP basis   $ 3,890   $ 3,794     $ 12,072     $ 11,512  
                               
GAAP earnings per share - basic   $ 0.17   $ 0.21     $ 0.52     $ 0.59  
  Non-GAAP adjustments, net of tax     0.03     (0.01 )     0.10       0.01  
Non-GAAP earnings per share - basic   $ 0.20   $ 0.20     $ 0.62     $ 0.60  
                               
GAAP earnings per share - diluted   $ 0.16   $ 0.20     $ 0.49     $ 0.56  
  Non-GAAP adjustments, net of tax     0.03     (0.01 )     0.09       0.01  
Non-GAAP earnings per share - diluted   $ 0.19   $ 0.19     $ 0.58     $ 0.57  
                               
Weighted average common shares outstanding:                              
    Basic     19,405,597     19,531,694       19,500,430       19,705,105  
    Diluted     20,404,508     20,463,238       20,531,122       20,620,084  
                               
(1) Adjustments not tax effected.  
                               
(2) - 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.  
                               
Note: Schedule may not add or recalculate due to rounding.  

 

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