SOURCE: Fortegra Financial Corporation

Fortegra Financial Corporation

August 12, 2013 16:15 ET

Fortegra Financial Corporation Reports Second Quarter 2013 Results

JACKSONVILLE, FL--(Marketwired - Aug 12, 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 second quarter and six months ended June 30, 2013.

  • Diluted earnings per share increased 15.8% to $0.22 for the quarter compared to $0.19 for the same prior year period.

  • Total revenues increased 40.9% to $100.1 million for the second quarter of 2013 from $71.1 million for the second quarter of 2012.

  • Net Revenues increased 26.5% to $36.8 million from $29.1 million in the prior-year period.

  • Direct and assumed written premiums for the second quarter of 2013 increased 7.8% to $100.0 million.

  • The Board of Directors authorized a $5.0 million increase to the existing $10.0 million share repurchase plan, which increases the remaining share repurchase capacity to $7.2 million. The Company repurchased 200,000 shares of its common stock in the second quarter.

"We are pleased to report that our second quarter of 2013 continues to build on our successful first quarter. Our 2012 acquisitions continue to produce top-line revenues and earnings growth, and our underlying business continues to generate favorable returns despite a challenging market environment," said Richard S. Kahlbaugh, Chairman, President and Chief Executive Officer of Fortegra. "The revenue gains from ProtectCELL and 4Warranty contributed a combined $7.3 million to our net revenues for the second quarter of 2013. Additionally, we continue to see consistency in our other business units with Life of the South increasing net revenues by 6.0% and growing direct and assumed premiums to $100.0 million, a new record for second quarter premiums. Brokerage revenues increased 5.1% over the same period last year. We expect the market uncertainty to remain, so it's essential that we continue to make strategic investments to support revenue growth and remain vigilant on cost containment."

Second Quarter Results
Total revenues increased 40.9% to $100.1 million for the second quarter of 2013, compared to $71.1 million for the second quarter of 2012, and include $1.3 million of net realized investment gains and a $0.4 million gain on the sale of Magna Insurance Company. Net revenues, which are comprised of total revenues less net losses and loss adjustment, member benefit claims and commissions expenses, increased 26.5% to $36.8 million for the second quarter of 2013, compared to $29.1 million for the prior-year period. Both total revenues and net revenues were favorably impacted by the acquisitions of ProtectCELL and 4Warranty. Operating expenses for the second quarter of 2013 increased 29.9% to $25.1 million compared to $19.3 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 were flat year over year.

Net income for the second quarter of 2013 was $4.4 million, or $0.22 per diluted share, compared to $3.9 million, or $0.19 per diluted share, for the prior-year period. Non-GAAP net income for the second quarter of 2013 was $4.7 million, or $0.23 per diluted share, compared to Non-GAAP net income of $4.1 million, or $0.20 per diluted share, for the prior-year period. Adjusted EBITDA for the second quarter of 2013 was $12.0 million, compared to $10.0 million for the second quarter of 2012. Adjusted EBITDA margin for the second quarter of 2013 was 32.7%, compared to 34.4% for the prior-year period.

Segment Results
Payment Protection
Net revenues for the Payment Protection segment increased 51.4% to $22.6 million for the second quarter of 2013, compared to $14.9 million for the prior-year period. The increase resulted primarily from a $6.8 million increase in net revenue attributable to the 2012 acquisition of ProtectCELL and $0.5 million for 4Warranty. In addition, net revenues included $1.3 million of realized investment gains due to invested assets sold in the second quarter of 2013 and a gain of $0.4 million on the sale of Magna Insurance Company in June 2013. These increases were partially offset by credit and warranty products net revenue decreasing $1.0 million and reduced Motor Club net revenues of $0.4 million. EBITDA for the Payment Protection segment increased to $7.8 million for the second quarter of 2013, compared to $6.2 million for the prior-year period. EBITDA margin for the Payment Protection segment was 34.5% for the second quarter of 2013, compared to 41.5% for the prior-year period. The lower margin primarily resulted from a change in the mix of business with the addition of ProtectCELL and higher operating expenses within our Motor Clubs division.

Business Process Outsourcing (BPO)
Net revenues for the BPO segment decreased 10.0% to $4.0 million for the second quarter of 2013 compared to $4.4 million for the prior-year period. EBITDA for the BPO segment was $1.2 million for the second quarter of 2013, compared to $1.1 million for the prior-year period. EBITDA margin for the BPO segment was 30.0% for the second quarter of 2013, compared to 24.0% for the prior-year period. The higher margin resulted from decreases in operating expenses.

Brokerage
Net revenues for the Brokerage segment increased 5.1% to $10.3 million for the second quarter of 2013 compared to $9.8 million for the prior-year period. Net revenues at eReinsure and Bliss and Glennon increased $0.4 million and $0.2 million, respectively, which were partially offset by a decline in collateral recovery revenues of $0.1 million. EBITDA for the Brokerage segment was $2.8 million for the second quarter of 2013, compared to $2.6 million for the prior-year period. EBITDA margin for the Brokerage segment increased to 26.9% for the second quarter of 2013, compared to 26.2% for the prior-year period.

Balance Sheet
Total investments and cash and cash equivalents increased to $147.9 million at June 30, 2013 compared to $133.3 million at December 31, 2012. Unearned premiums were $233.4 million at June 30, 2013 compared to $235.9 million at December 31, 2012. Total debt outstanding at June 30, 2013 decreased to $122.5 million compared to $124.4 million at December 31, 2012. Stockholder's equity increased to $150.3 million at June 30, 2013 from $145.7 million at December 31, 2012.

Conference Call Information
Fortegra's executive management will host a conference call to discuss its second quarter 2013 results on Tuesday, August 13, 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 August 13, 2013 at 11:30 a.m. ET and ending on August 20, 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 418651.

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.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's brands include 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 common 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 is net income increased (on a tax-effected basis) by transaction costs associated with acquisitions, stock-based compensation and restructuring expenses. Non-GAAP earnings per common share - basic and diluted share as presented in this Earnings Release adjust for the impact of the Non-GAAP adjustments to net income, net of tax, on a per common 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. 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 common 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 common 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 common 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 common 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 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.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 Six Months Ended
    June 30, 2013   June 30, 2012   June 30, 2013   June 30, 2012
                 
Revenues:                        
  Service and administrative fees   $ 46,926   $ 21,786   $ 85,784   $ 44,297
  Brokerage commissions and fees     9,891     9,364     19,622     18,884
  Ceding commission     6,957     7,210     14,120     14,274
  Net investment income     752     732     1,661     1,475
  Net realized investment gains     1,280     13     1,287     10
  Net earned premium     33,681     31,905     66,823     63,877
  Other income     259     48     350     120
  Gain on sale of subsidiary     402     -     402     -
Total revenues     100,148     71,058     190,049     142,937
  Net losses and loss adjustment expenses     10,604     9,576     21,139     20,842
  Member benefit claims     11,114     1,098     20,092     2,401
  Commissions     41,611     31,282     76,973     63,270
Net Revenues     36,819     29,102     71,845     56,424
                         
Expenses:                        
  Personnel costs     14,594     12,367     30,440     23,759
  Other operating expenses     10,481     6,937     20,286     13,676
  Depreciation and amortization     1,367     975     2,685     1,713
  Amortization of intangibles     1,780     1,166     3,728     2,648
  Interest expense     1,544     1,590     2,988     3,242
Total expenses     29,766     23,035     60,127     45,038
Income before income taxes and non-controlling interests     7,053     6,067     11,718     11,386
  Income taxes     2,426     2,108     3,780     3,995
Income before non-controlling interests     4,627     3,959     7,938     7,391
  Less: net income attributable to non-controlling interests     185     15     1,003     33
Net income   $ 4,442   $ 3,944   $ 6,935   $ 7,358
                         
Earnings per share:                        
    Basic   $ 0.23   $ 0.20   $ 0.35   $ 0.37
    Diluted   $ 0.22   $ 0.19   $ 0.34   $ 0.36
Weighted average common shares outstanding:                        
    Basic     19,540,610     19,705,276     19,548,632     19,792,763
    Diluted     20,523,090     20,632,233     20,583,951     20,686,812
                         
   
FORTEGRA FINANCIAL CORPORATION  
CONSOLIDATED BALANCE SHEETS (Unaudited)  
(All Amounts in Thousands Except Share and Per Share Amounts)  
   
    At  
    June 30, 2013     December 31, 2012  
Assets:                
Investments:                
  Fixed maturity securities available-for-sale, at fair value   $ 124,368     $ 110,641  
  Equity securities available-for-sale, at fair value     6,952       6,220  
  Short-term investments     971       1,222  
    Total investments     132,291       118,083  
Cash and cash equivalents     15,590       15,209  
Restricted cash     29,232       31,142  
Accrued investment income     1,280       1,235  
Notes receivable, net     4,887       11,290  
Accounts and premiums receivable, net     37,115       27,302  
Other receivables     32,848       13,393  
Reinsurance receivables     200,254       203,988  
Deferred acquisition costs     65,679       59,320  
Property and equipment, net     17,153       17,946  
Goodwill     127,660       127,660  
Other intangible assets, net     66,937       70,290  
Income taxes receivable     -       2,919  
Other assets     8,192       7,667  
      Total assets   $ 739,118     $ 707,444  
                 
Liabilities:                
Unpaid claims   $ 31,724     $ 33,007  
Unearned premiums     233,412       235,900  
Policyholder account balances     24,840       26,023  
Accrued expenses, accounts payable and other liabilities     81,099       58,660  
Income taxes payable     218       -  
Deferred revenue     67,770       55,043  
Note payable     87,500       89,438  
Preferred trust securities     35,000       35,000  
Deferred income taxes, net     27,269       28,658  
    Total liabilities     588,832       561,729  
                 
Stockholders' Equity:                
Preferred stock     -       -  
Common stock     209       207  
Treasury stock, at cost     (8,008 )     (6,651 )
Additional paid-in capital     98,517       97,641  
Accumulated other comprehensive loss, net of tax     (2,854 )     (631 )
Retained earnings     56,752       49,817  
    Stockholders' equity before non-controlling interests     144,616       140,383  
Non-controlling interests     5,670       5,332  
    Total stockholders' equity     150,286       145,715  
      Total liabilities and stockholders' equity   $ 739,118     $ 707,444  
                 
 
FORTEGRA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME- Segments (Unaudited)
(All Amounts in Thousands)
 
    For the Three Months Ended   For the Six Months Ended
    June 30, 2013   June 30, 2012   June 30, 2013     June 30, 2012
Segment Net Revenue                          
  Payment Protection (1)   $ 22,570   $ 14,911   $ 43,207     $ 28,005
  BPO     3,969     4,409     8,183       8,614
  Brokerage     10,280     9,782     20,455       19,805
    Segment net revenues     36,819     29,102     71,845       56,424
                           
Operating Expenses                          
  Payment Protection     14,778     8,729     29,670       16,642
  BPO     2,780     3,351     6,336       6,484
  Brokerage     7,517     7,224     14,720       14,309
    Total operating expenses     25,075     19,304     50,726       37,435
                           
EBITDA                          
  Payment Protection     7,792     6,182     13,537       11,363
  BPO     1,189     1,058     1,847       2,130
  Brokerage     2,763     2,558     5,735       5,496
    Total EBITDA     11,744     9,798     21,119       18,989
                           
Depreciation and amortization                          
  Payment Protection     1,634     865     3,409       1,714
  BPO     833     498     1,667       1,001
  Brokerage     680     778     1,337       1,646
    Total depreciation and amortization     3,147     2,141     6,413       4,361
                           
Interest Expense                          
  Payment Protection     1,065     971     2,022       1,983
  BPO     175     259     352       526
  Brokerage     304     360     614       733
    Total interest expense     1,544     1,590     2,988       3,242
                           
Income (loss) before income taxes and non-controlling interests                          
  Payment Protection     5,093     4,346     8,106       7,666
  BPO     181     301     (172 )     603
  Brokerage     1,779     1,420     3,784       3,117
Total income before income taxes and non-controlling interests     7,053     6,067     11,718       11,386
  Income taxes     2,426     2,108     3,780       3,995
  Less: net income attributable to non-controlling interests     185     15     1,003       33
Net income   $ 4,442   $ 3,944   $ 6,935     $ 7,358
                           
(1)- Includes the $402 gain on sale of subsidiary for the three and six months ended June 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 Six Months Ended  
    June 30, 2013     June 30, 2012     June 30, 2013     June 30, 2012  
                                 
Net income   $ 4,442     $ 3,944     $ 6,935     $ 7,358  
  Depreciation and amortization     1,367       975       2,685       1,713  
  Amortization of intangibles     1,780       1,166       3,728       2,648  
  Interest expense     1,544       1,590       2,988       3,242  
  Income taxes     2,426       2,108       3,780       3,995  
  Net income attributable to non-controlling interests     185       15       1,003       33  
EBITDA     11,744       9,798       21,119       18,989  
    Transaction costs (a)     55       37       141       134  
    Stock-based compensation expense     328       190       632       369  
    Restructuring expenses     80       -       1,234       -  
    Gain on sale of subsidiary     (402 )     -       (402 )     -  
    Legal     243       -       243       -  
Adjusted EBITDA   $ 12,048     $ 10,025     $ 22,967     $ 19,492  
                                 
EBITDA Margin     31.9 %     33.7 %     29.4 %     33.7 %
Adjusted EBITDA Margin     32.7 %     34.4 %     32.0 %     34.5 %
                                 
(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 Ended   For the Six Months Ended
    June 30, 2013     June 30, 2012   June 30, 2013     June 30, 2012
                             
Net income   $ 4,442     $ 3,944   $ 6,935     $ 7,358
  Non-GAAP Adjustments, net of tax                            
    Transaction costs associated with acquisitions (1)     55       37     141       134
    Stock-based compensation     213       124     410       239
    Restructuring expenses     52       -     799       -
    Gain on sale of subsidiary     (261 )     -     (261 )     -
    Legal     158       -     158       -
  Total Non-GAAP adjustments, net of tax     217       161     1,247       373
Net income - Non-GAAP basis   $ 4,659     $ 4,105   $ 8,182     $ 7,731
                             
GAAP Earnings per share - basic   $ 0.23     $ 0.20   $ 0.35     $ 0.37
  Non-GAAP adjustments, net of tax     0.01       0.01     0.06       0.02
Non-GAAP Earnings per common share - basic   $ 0.24     $ 0.21   $ 0.41     $ 0.39
                             
GAAP Earnings per share - diluted   $ 0.22     $ 0.19   $ 0.34     $ 0.36
  Non-GAAP adjustments, net of tax     0.01       0.01     0.06       0.02
Non-GAAP Earnings per common share - diluted   $ 0.23     $ 0.20   $ 0.40     $ 0.38
                             
Weighted average common shares outstanding:                            
    Basic     19,540,610       19,705,276     19,548,632       19,792,763
    Diluted     20,523,090       20,632,233     20,583,951       20,686,812
                             
(1) Adjustments not tax effected.
                             

Contact Information