SOURCE: Fortegra Financial Corporation

Fortegra Financial Corporation

August 13, 2012 16:15 ET

Fortegra Financial Corporation Second Quarter 2012 Net Income Increases $2.5 Million (+162%); Revenues Increase 8.9%; Operating Expenses Decrease 6.9%

JACKSONVILLE, FL--(Marketwire - Aug 13, 2012) - Fortegra Financial Corporation (NYSE: FRF), an insurance services company providing distribution and administration services and insurance-related products, today reported results for the second quarter ended June 30, 2012. 

  • Total revenues climbed 8.9% compared to prior-year

  • Direct and assumed written premiums increased 17.0% year-over-year to $92.7 million

  • Operating expenses declined 6.9%

  • Second quarter net income was $4.0 million ($0.19 per diluted share)

  • Second quarter Adjusted EBITDA was $10.1 million ($0.49 per diluted share) with Adjusted EBITDA margin of 34.7%

  • The Company repurchased 164,817 shares for a total cost of $1.3 million

"I am pleased to report another positive quarter for Fortegra as we increased net revenues and maintained operating expense discipline," said Richard S. Kahlbaugh, Chairman, President and Chief Executive Officer of Fortegra. "The cross-selling and direct marketing initiatives for our products and services are off to a great start and momentum is building. Since March when the program kicked off, we have closed 39 cross-selling opportunities with recently acquired PBG playing a key role. Our "Plus 1" campaign has identified more than 155 leads for the Company and we are very excited by the potential for partnering internally. We also had a series of key new business wins in Brokerage and Payment Protection which demonstrate the appeal of our products and the brands that support them. Last, we increased our access to capital while simultaneously lowering our cost of capital with our new debt facility. I firmly believe the Company is well positioned to execute on our strategy."

Second Quarter Results
Total revenues increased 8.9% to $58.7 million for the second quarter of 2012, compared to $53.9 million for the second quarter of 2011. Net revenues (total revenues less net losses and loss adjustment and commissions expenses) increased 7.0% to $29.2 million for the second quarter of 2012, compared to $27.3 million for the prior-year period. Operating expenses were $19.3 million, 6.9% below the prior-year quarter.

Net income for the second quarter 2012 was $4.0 million, or $0.19 per diluted share, compared to $1.5 million, or $0.07 per diluted share, for the quarter ended June 30, 2011. During the quarter, improved operating expenses were offset in part by higher personnel costs attributable primarily to the Pacific Benefits Group acquisition.

Adjusted EBITDA for the second quarter of 2012 was $10.1 million, compared to $7.8 million for the second quarter of 2011. Adjusted EBITDA margin for the second quarter of 2012 improved to 34.7%, compared to 28.8% for the prior-year period.

Segment Results
Payment Protection
For the three months ended June 30, 2012, net revenues for the Payment Protection segment were $15.0 million, compared to $13.8 million for the prior-year period. EBITDA for the Payment Protection segment was $6.3 million for the second quarter of 2012, compared to $5.1 million for the prior-year period. EBITDA margin for the Payment Protection segment reached 41.8% for the second quarter of 2012, compared to 37.1% for the prior-year period. 

Business Process Outsourcing (BPO)
Net revenues for the BPO segment increased to $4.4 million for the second quarter of 2012, compared to $3.7 million for the second quarter of 2011, primarily attributable to the PBG acquisition. EBITDA for the BPO segment was $1.1 million for the second quarter of 2012, compared to $0.9 million for the prior-year period. EBITDA margin for the BPO segment improved to 24.0% for the second quarter of 2012, compared to 23.4% for the prior-year period.

Brokerage
Net revenues for the Brokerage segment remained flat at $9.8 million for the second quarter of 2012. However, EBITDA for the Brokerage segment improved to $2.6 million for the second quarter of 2012, compared to $2.3 million one year ago. EBITDA margin for the Brokerage segment improved to 26.2% for the second quarter of 2012, compared to 23.5% for the prior-year period.

Corporate
While no income or expense was recorded in the Corporate segment for the second quarter 2012, in the second quarter 2011 the Corporate segment experienced $1.7 million in expenses attributable to a combination of professional fees, transaction costs and costs associated with the corporate relocation.

Balance Sheet
Total invested assets and cash and cash equivalents amounted to $123.0 million as of June 30, 2012 compared to $127.1 million as of December 31, 2011. Unearned premiums were $229.0 million as of June 30, 2012 compared to $227.9 million as of December 31, 2011. Total debt outstanding at June 30, 2012 was $107.0 million compared to $108.0 million as of December 31, 2011. Stockholder's equity increased to $133.2 million as of June 30, 2012 compared to $127.6 million as of December 31, 2011.

In November 2011, the Company's Board of Directors approved a share repurchase program for up to $10 million. During the second quarter of 2012, the Company repurchased 164,817 shares at a total cost of $1.3 million. Since inception and through July 31, 2012, the Company repurchased 954,781 shares for a total cost of $6.3 million. Approximately $3.7 million remains available in the repurchase program. 

Conference Call Information
Fortegra's executive management will host a conference call to discuss its second quarter 2012 results tomorrow, Tuesday, August 14, 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 August 14th at 11:30 a.m. Eastern Time and ending on August 21st  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 passcode for the replay is 397734.

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. It sells services and products directly to businesses rather than directly to consumers. Fortegra's brands include: Life of the South, Consecta, Bliss & Glennon (B&G), eReinsure (eRe), Motor Clubs, 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.

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, as used in this Earnings Release, means "Consolidated Adjusted EBITDA" as defined under our revolving credit facility in effect June 30, 2012, 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 of Adjusted EBITDA in this Earnings Release 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 Earnings Release.

In addition to the financial covenant requirements under our revolving credit facility, management uses EBITDA and Adjusted EBITDA as measures of operating performance for planning purposes, including the preparation of budgets and projections, the determination of bonus compensation for our executive officers and the analysis of the allocation of resources and to evaluate the effectiveness of business strategies. Further, 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 to arrive at 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. 

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 Ended   For the Six Months Ended  
    June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011  
Revenues:                          
  Service and administrative fees   $ 9,394   $ 8,800   $ 18,734   $ 17,916  
  Brokerage commissions and fees     9,364     9,208     18,884     17,075  
  Ceding commission     7,210     6,243     14,274     14,401  
  Net investment income     732     894     1,475     1,835  
  Net realized gains on the sale of investments     13     1,132     10     1,227  
  Net earned premium     31,905     27,536     63,877     55,973  
  Other income     48     38     120     120  
    Total revenues     58,666     53,851     117,374     108,547  
                             
  Net losses and loss adjustment expenses     9,576     9,251     20,842     18,624  
  Commissions     19,892     17,323     39,931     35,840  
    Net revenues     29,198     27,277     56,601     54,083  
                           
Expenses:                          
  Personnel costs     12,246     11,298     23,518     22,079  
  Other operating expenses     6,868     9,295     13,548     16,452  
  Stock based compensation expenses     190     133     369     401  
  Depreciation     975     814     1,713     1,397  
  Amortization of intangibles     1,166     1,378     2,648     2,430  
  Interest expense     1,590     1,925     3,242     3,956  
    Total expenses     23,035     24,843     45,038     46,715  
                           
Income before income taxes and non-controlling interest     6,163     2,434     11,563     7,368  
  Income taxes     2,146     907     4,065     2,588  
Income before non-controlling interest     4,017     1,527     7,498     4,780  
  Less: net income (loss) attributable to non-controlling interest     15     2     33     (172 )
Net income   $ 4,002   $ 1,525   $ 7,465   $ 4,952  
                           
Earnings per share:                          
  Basic   $ 0.20   $ 0.07   $ 0.38   $ 0.24  
  Diluted   $ 0.19   $ 0.07   $ 0.36   $ 0.23  
Weighted average common shares outstanding:                          
  Basic     19,705,276     20,510,254     19,792,763     20,487,549  
  Diluted     20,632,233     21,592,418     20,686,812     21,625,817  
   
   
FORTEGRA FINANCIAL CORPORATION  
CONSOLIDATED BALANCE SHEETS (Unaudited)  
(All Amounts in Thousands)  
                   
    June 30,
2012
    March 31,
2012
    December 31, 2011  
Assets:                        
Investments:                        
  Fixed maturity securities available-for-sale at fair value (amortized cost of $85,738 at June 30, 2012 and $92,311 at December 31, 2011)   $ 88,021     $ 92,843     $ 93,509  
  Equity securities available-for-sale at fair value (cost of $5,498 at June 30, 2012 and $1,203 at December 31, 2011)     5,653       3,793       1,219  
  Short-term investments     970       970       1,070  
    Total investments     94,644       97,606       95,798  
Cash and cash equivalents     28,350       18,676       31,339  
Restricted cash     23,659       18,959       14,180  
Accrued investment income     985       927       929  
Notes receivable, net     3,783       3,802       3,603  
Accounts and premiums receivable, net     27,384       31,184       20,172  
Other receivables     14,505       16,798       9,103  
Reinsurance receivables     191,671       186,421       194,740  
Deferred acquisition costs     55,983       52,517       55,467  
Property and equipment, net     17,592       16,405       15,343  
Goodwill     103,645       103,477       103,477  
Other intangibles, net     51,930       52,928       54,410  
Other assets     6,575       5,709       5,943  
    Total assets   $ 620,706     $ 605,409     $ 604,504  
                         
Liabilities:                        
Unpaid claims   $ 31,618     $ 32,497     $ 32,583  
Unearned premiums     228,991       221,059       227,929  
Policyholder account balances     26,942       27,565       28,040  
Accrued expenses, accounts payable, income taxes payable and other liabilities     49,482       42,483       35,581  
Deferred revenue     18,386       17,617       20,781  
Note payable     72,000       74,700       73,000  
Preferred trust securities     35,000       35,000       35,000  
Deferred income taxes, net     25,083       24,207       24,006  
    Total liabilities   $ 487,502     $ 475,128     $ 476,920  
                         
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; 20,650,671 and 20,561,328 shares issued at June 30, 2012 and December 31, 2011, respectively, including shares in treasury     207       206       206  
Treasury stock, at cost; 876,709 shares and 516,132 shares at June 30, 2012 and December 31, 2011, respectively     (5,468 )     (4,122 )     (2,728 )
Additional paid-in capital     96,785       96,378       96,199  
Accumulated other comprehensive loss, net of tax     (1,480 )     (1,324 )     (1,754 )
Retained earnings     42,615       38,613       35,150  
    Stockholders' equity before non-controlling interest     132,659       129,751       127,073  
Non-controlling interest     545       530       511  
    Total stockholders' equity     133,204       130,281       127,584  
      Total liabilities and stockholders' equity   $ 620,706     $ 605,409     $ 604,504  
   
   
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, 2012   June 30, 2011     June 30, 2012   June 30, 2011  
Segment Net Revenue                            
  Payment Protection   $ 15,007   $ 13,750     $ 28,182   $ 28,101  
  BPO     4,409     3,691       8,614     7,255  
  Brokerage     9,782     9,836       19,805     18,727  
    Segment Net Revenues     29,198     27,277       56,601     54,083  
                             
Operating Expenses                            
  Payment Protection     8,729     8,644       16,642     17,412  
  BPO     3,351     2,828       6,484     5,447  
  Brokerage     7,224     7,527       14,309     14,346  
  Corporate     -     1,727       -     1,727  
    Total Operating Expenses     19,304     20,726       37,435     38,932  
                             
EBITDA                            
  Payment Protection     6,278     5,106       11,540     10,689  
  BPO     1,058     863       2,130     1,808  
  Brokerage     2,558     2,309       5,496     4,381  
  Corporate     -     (1,727 )     -     (1,727 )
    Total EBITDA     9,894     6,551       19,166     15,151  
                             
Depreciation and Amortization                            
  Payment Protection     865     1,324       1,714     2,277  
  BPO     498     277       1,001     517  
  Brokerage     778     591       1,646     1,033  
  Corporate     -     -       -     -  
    Total Depreciation and Amortization     2,141     2,192       4,361     3,827  
                             
Interest Expense                            
  Payment Protection     971     1,043       1,983     2,569  
  BPO     259     99       526     162  
  Brokerage     360     783       733     1,225  
  Corporate     -     -       -     -  
    Total Interest Expense     1,590     1,925       3,242     3,956  
                             
Income Before Income Taxes and Non-controlling Interest                            
  Payment Protection     4,442     2,739       7,843     5,843  
  BPO     301     487       603     1,129  
  Brokerage     1,420     935       3,117     2,123  
  Corporate     -     (1,727 )     -     (1,727 )
Total Income Before Income Taxes and Non-controlling Interest     6,163     2,434       11,563     7,368  
  Income Taxes     2,146     907       4,065     2,588  
  Less: Net Income (Loss) Attributable to Non-controlling Interest     15     2       33     (172 )
Net Income   $ 4,002   $ 1,525     $ 7,465   $ 4,952  
   
   
FORTEGRA FINANCIAL CORPORATION  
RECONCILIATION OF ADJUSTED EBITDA INFORMATION (Unaudited)  
(All Amounts in Thousands)  
                         
    For the Three Months Ended     For the Six Months Ended  
    June 30, 2012     June 30, 2011     June 30, 2012     June 30, 2011  
Net Income   $ 4,002     $ 1,525     $ 7,465     $ 4,952  
  Depreciation     975       814       1,713       1,397  
  Amortization of intangibles     1,166       1,378       2,648       2,430  
  Interest expense     1,590       1,925       3,242       3,956  
  Income taxes     2,146       907       4,065       2,588  
  Net income (loss) attributable to non-controlling interest     15       2       33       (172 )
EBITDA     9,894       6,551       19,166       15,151  
  Transaction costs (a)     37       612       134       793  
  Stock based compensation expenses     190       133       369       401  
  Corporate governance study     -       248       -       248  
  Relocation expenses     -       207       -       207  
  Statutory audits     -       98       -       98  
Adjusted EBITDA   $ 10,121     $ 7,849     $ 19,669     $ 16,898  
                                 
EBITDA Margin     33.9 %     24.0 %     33.9 %     28.0 %
Adjusted EBITDA Margin     34.7 %     28.8 %     34.8 %     31.2 %
                                 
(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)
         
    For the Three Months Ended   For the Six Months Ended
    June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011
Net income   $ 4,002   $ 1,525   $ 7,465   $ 4,952
  Non-GAAP Adjustments, net of tax                 -     -
    Transaction costs associated with acquisitions (1)     37     612     134     793
    Stock based compensation expenses     124     83     239     260
    Corporate governance study     -     156     -     156
    Relocation expenses     -     130     -     130
    Statutory audits     -     62     -     62
    Retirement of debt (1)     -     14     -     560
  Total Non-GAAP adjustments, net of tax     161     1,057     373     1,961
Net income - Non-GAAP basis   $ 4,163   $ 2,582   $ 7,838   $ 6,913
                         
GAAP Earnings per share - basic   $ 0.20   $ 0.07   $ 0.38   $ 0.24
  Non-GAAP adjustments, net of tax     0.01     0.05     0.02     0.10
Non-GAAP Earnings per common share - basic   $ 0.21   $ 0.12   $ 0.40   $ 0.34
                         
GAAP Earnings per share - diluted   $ 0.19   $ 0.07   $ 0.36   $ 0.23
  Non-GAAP adjustments, net of tax     0.01     0.05     0.02     0.09
Non-GAAP Earnings per common share - diluted   $ 0.20   $ 0.12   $ 0.38   $ 0.32
                         
Weighted average common shares outstanding:                        
  Basic     19,705,276     20,510,254     19,792,763     20,487,549
  Diluted     20,632,233     21,592,418     20,686,812     21,625,817
                         
(1) Adjustments not tax affected                        
                         

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