Attached files
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| EX-99.1 - EXHIBIT 99.1 - TIPTREE INC. | a9302016erexhibit991.htm |
| 8-K - 8-K - TIPTREE INC. | a8k-er9302016.htm |
November 2016
Financial information for the three and nine months ended September 30, 2016
NASDAQ: TIPT
INVESTOR PRESENTATION - THIRD QUARTER - 2016
Exhibit 99.2
1
LIMITATIONS ON THE USE OF INFORMATION
This presentation has been prepared by Tiptree Financial Inc. and its consolidated subsidiaries (“Tiptree", "the Company" or "we”) solely for informational purposes, and not for the purpose of updating
any information or forecast with respect to Tiptree, its subsidiaries or any of its affiliates or any other purpose. Tiptree reports a non-controlling interest in TFP that is not owned by Tiptree and certain
other operating subsidiaries that are not wholly owned. Unless otherwise noted, all information is of Tiptree on a consolidated basis before non-controlling interest. This information is subject to change
without notice and should not be relied upon for any purpose. Neither Tiptree nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the
information contained herein and no such party shall have any liability for such information. In furnishing this information and making any oral statements, neither Tiptree, its subsidiaries nor any of its
affiliates undertakes any obligation to provide the recipient with access to any additional information or to update or correct such information. The information herein or in any oral statements (if any) are
prepared as of the date hereof or as of such earlier dates as presented herein; neither the delivery of this document nor any other oral statements regarding the affairs of Tiptree or its affiliates shall create
any implication that the information contained herein or the affairs of Tiptree, its subsidiaries or its affiliates have not changed since the date hereof or after the dates presented herein (as applicable); that
such information is correct as of any time subsequent to its date; or that such information is an indication regarding the performance of Tiptree or any of its affiliates since the time of Tiptree’s latest public
filings or disclosure. These materials and any related oral statements are not all-inclusive and shall not be construed as legal, tax, investment or any other advice. You should consult your own counsel,
accountant or business advisors. Tiptree files public reports with the Securities and Exchange Commission (“SEC”). The information contained herein should be read in conjunction with and is qualified by
Tiptree’s SEC filings. Performance information is historical and is not indicative of, nor does it guarantee future results. There can be no assurance that similar performance may be experienced in the future.
Certain market data and industry data used in this presentation were obtained from reports of governmental agencies and industry publications and surveys. Industry publications and third-party research,
surveys and reports generally indicate that their information has been obtained from sources believed to be reliable. We believe the data from third-party sources to be reliable based upon our management’s
knowledge of the industry, but have not independently verified such data and as such, make no guarantees as to its accuracy, completeness or timeliness.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" which involve risks, uncertainties and contingencies, many of which are beyond Tiptree Financial's control, which may cause actual results, performance,
or achievements to differ materially from anticipated results, performance, or achievements. All statements contained herein that are not clearly historical in nature are forward-looking, and the words
"anticipate," "believe," "estimate," "expect,“ “intend,” “may,” “might,” "plan," “project,” “should,” "target,“ “will,” or similar expressions are intended to identify forward-looking statements. Such forward-
looking statements include, but are not limited to, statements about Tiptree Financial's plans, objectives, expectations and intentions. The forward-looking statements are not guarantees of future performance
and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecast
in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to those
described in the section entitled “Risk Factors” in Tiptree’s Annual Report on Form 10-K, and as described in the Tiptree Financial’s other filings with the SEC. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as to the date of this release. The factors described therein are not necessarily all of the important factors that could cause actual results
or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could affect our forward-looking statements. Consequently,
our actual performance could be materially different from the results described or anticipated by our forward-looking statements. Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to update any forward-looking statements.
NOT AN OFFER OR A SOLICIATION
This document does not constitute an offer or invitation for the sale or purchase of securities or to engage in any other transaction with Tiptree Financial, its subsidiaries or its affiliates. The information in
this document is not targeted at the residents of any particular country or jurisdiction and is not intended for distribution to, or use by, any person in any jurisdiction or country where such distribution or
use would be contrary to local law or regulation.
NON-U.S. GAAP MEASURES
In this document, we sometimes use financial measures derived from consolidated financial data but not presented in our financial statements prepared in accordance with U.S. generally accepted
accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and
should not be considered an alternative to the GAAP measure. Management's reasons for using these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP
financial measures are posted in the Appendix. We use non-GAAP financial measures including, but not limited to, the following:
• EBITDA and Adjusted EBITDA on a consolidated basis and Segment EBITDA and Segment Adjusted EBITDA on a segment basis;
• As Adjusted Net revenues for our Fortegra subsidiary;
• Net operating income ("NOI") and NOI margin for our Care subsidiary; and
• Book value per share, as exchanged.
DISCLAIMERS
OVERVIEW & FINANCIAL RESULTS
Key Highlights
3
Revenue
$134.1 million
11.0% vs. prior year
Adjusted EBITDA
from continuing operations (1)
$20.1 million
3.1x vs. prior year
Book Value
per share, as exchanged (1)
$9.93
11.6% vs. 12/31/15
Net Income
from continuing operations
$7.8 million
vs. prior year loss of $6.4 million
EXECUTING ON OUR 2016 PRIORITIES
þ Specialty Insurance gross written premiums of $540m, up 8%, and net written premiums of
$152m for the nine months 2016, up 16% versus prior year
þ Strong contributions from senior housing real estate, credit and mortgages
• $15.7m of Care revenue in 3Q16, up 35% from prior year while expanding NOI margins
• Telos earned $4.6m of management fees in 3Q16, up $2.0m, year-to-date $10.0m
• Principal investments, including CLO and NPL investments, yielded $9.8m revenue for the
quarter, and $31.6m for the year
• 3Q16 mortgage originations of $566m, up 31% from 2Q16 - bringing the total year to $1.3B
þ In 3Q16, completed block purchase of 1.0m shares at a 37% discount to book
þ 2016 year-to-date, re-purchased 6.8m shares, or 16% of outstanding since year-end at an
average 30% discount to book
þ Returned an additional $4.1m of dividends year-to-date, bringing total to $48m cash returned to
shareholders in 2016
Business performance
Shareholder value creation
(1) For a reconciliation of Non-GAAP metrics Adjusted EBITDA and book
value per share as exchanged to GAAP financials, see the Appendix.
3Q16 Highlights
Investing in core businesses
þ Care continues to make investments, purchasing a property for $29.4m in August 2016 - aggregate
purchase price of Care's current portfolio is $317.5m
þ Invested additional $25m in Credit Opportunities fund, increased credit facility capacity to $150m
4
1Q16 2Q16 3Q16
Market Enterprise Value (2) $412.4 $368.5 $375.1
Annualized Adjusted EBITDA $61.3 $69.7 $80.5
Implied market EV multiple 6.7x 5.3x 4.7x
Book Enterprise Value (3) $558.6 $525.2 $520.2
Implied book EV multiple 9.1x 7.5x 6.5x
Book value per share
as exchanged
Adjusted EBITDA
from continuing operations
DRIVING REPEATABLE GROWTH
4Q15 1Q16 2Q16 3Q16
$8.90 $9.10
$9.68 $9.93
4Q15 1Q16 2Q16 3Q16
$8.4
$15.3 $17.4
$20.1
Tiptree enterprise value
• Year-over-year earnings and Adjusted EBITDA
growth in each segment
• Focused, re-investment in core businesses
• Generated earnings per share of $0.53 through
nine months 2016
• 2016 year-to-date, re-purchased 6.8m shares, or
16% of outstanding since year-end at an average
30% discount to book
(1)
(1) See the appendix for a reconciliation of book value per share as exchanged and Adjusted EBITDA
(2) Market Enterprise Value = share price on final day of each quarter multiplied by total Class A & B shares,
plus Secured Corporate Credit Agreements, plus preferred trust securities, plus NCI - other, less cash
(3) Book Enterprise Value = Total Stockholders Equity plus Secured Corporate Credit Agreements and
preferred trust securities, less cash
Operational drivers
(1)
(in millions, except per share information)
Total shares
outstanding
42.95 42.96 36.4037.31
5
3Q16 consolidated highlights
Income from continuing operations of
$7.8m for 3Q16, an increase of $14.2m over
prior year primarily driven by:
• Improved origination volumes and
margins in specialty finance
• Increased rental income at Care from
recent acquisitions and improving
margins on existing managed properties
• Better year-over-year performance of
the CLO subordinated notes
• Year-over-year increase in principal
investment income
Partially offset by:
• Declines in Fortegra net revenues driven
primarily by pressures in the mobile
protection product
• Increased corporate costs from further
investment in NPLs
Net income per Class A share increased over
prior year as a result improved, repeatable
earnings
Summary Consolidated Statements of Operations
FINANCIAL RESULTS
(unaudited, $ in thousands) Three Months EndedSeptember 30,
Nine Months Ended
September 30,
2016 2015 2016 2015
Total revenue $134,121 $120,868 $399,679 $310,959
Total expense 126,603 121,225 382,157 318,512
Net income (loss) attributable to consolidated CLOs 4,032 (3,202) 10,049 (3,446)
Income (loss) before taxes from continuing operations $11,550 $(3,559) $27,571 $(10,999)
Less: provision (benefit) for income taxes 3,712 2,829 5,298 962
Income (loss) from continuing operations $7,838 $(6,388) $22,273 $(11,961)
Discontinued operations, net — — — 23,348
Net income (loss) before non-controlling interests $7,838 $(6,388) $22,273 $11,387
Less: net income (loss) attributable to NCI - TFP 1,362 (1,661) 4,660 2,214
Less: net income (loss) attributable to NCI - Other 571 (174) 20 (257)
Net income (loss) available to Class A common stockholders $5,905 $(4,553) $17,593 $9,430
Earnings per Class A Share from continuing operations, diluted 0.19 (0.13) 0.53 (0.25)
Earnings per Class A Share from discontinued operations, diluted — — — 0.54
Earnings per Class A Share, diluted $ 0.19 $ (0.13) $ 0.53 $ 0.29
Per Share Metrics
6
30.5 35.0
2.9
6.3
3.9
7.2
3.0
5.0
(23.5)
(0.7)
$33.2
2016 SEGMENT PERFORMANCE
($ in millions)
Real Estate: 84.6%
Corporate & principal
Investments: F%
Specialty Finance: 117.2%
Insurance & Insurance
Services: 14.8%
Asset Management: 66.7%
$16.8
$52.9 Continuing Operations:
216% increase
Disc. Ops. (PFG)
$50.0
238.9 256.2
33.6
67.833.3
44.2
4.8
7.5
24.0
Real Estate: 32.7%
Corporate & Other: F%
Specialty Finance: 101.8%
Insurance & Insurance
Services: 7.2%
Asset Management: 56.3%
F% is favorable versus prior year; (U)% is unfavorable versus prior year; YTD is year-to-date
1) Adjusted EBITDA includes income from continuing and discontinuing operations - see appendix for reconciliation.
YTD'16YTD'15
$399.7
$311.0
Total Revenue: 28.5% increase
Revenue Pre-tax income
from continuing operations
Adjusted EBITDA(1)
The key drivers for improvement in operational performance include:
+ Insurance: growth driven by increases in written premiums, investment income & margin expansion as a result of disciplined cost control
+ Real estate: up as margins improved at existing properties and acquisitions increased overall revenues
+ Specialty Finance: improvement in mortgage volumes and margins as a result of strong market conditions and the acquisition of Reliance
in addition to continued growth in lending at Siena
+ Principal investments: increases driven by earnings on invested assets, partial recovery of fair value marks on CLO sub-notes and
earnings on Credit Opportunities Fund and NPLs
- Corporate: higher payroll, audit and consulting expenses driven by efforts to improve controls and reporting infrastructure
20.4
25.1
2.3
5.5
(8.8) (5.5)
3.0
5.0
(28.0)
(2.6)
$27.6
$(11.0)
Real Estate: 37.4%
Specialty Finance: 139.1%
Insurance & Insurance
Services: 23.0%
Asset Management: 66.7%
Corporate & principal
investments: F%
Continuing Operations:
$38.6m increase
YTD'16YTD'15 YTD'16YTD'15
Three and Nine Months Ended September 30, 2016
KEY PERFORMANCE HIGHLIGHTS
8
3Q16 highlights
Pre-tax income and Adjusted EBITDA down year-over-
year driven by:
• Reduction in Warranty net revenues as competitive pressures
remain for the mobile protection products
Partially offset by:
ü Investment income of $3.5m, up $2.3m from prior year
ü Specialty product net revenues of $2.3m, up 77.4% driven by
earned premiums and service fees
Year-to date highlights
Net written premiums increased over prior year by
$20.7m or 15.7%, driven by growth in all product lines
$35.0 million Adjusted EBITDA, up 14.8% year over year
with margin improvement of 360 bps
$225m investable assets as of 3Q16, up 16% over prior
year; we expect investment earnings to grow over time
3Q16 V% YTD'16 V%
Net Written Premiums $56.0 4.7 % $152.4 15.7%
Revenue $79.1 (10.1)% $256.2 7.2%
Pre-tax income $8.0 (20.8)% $25.1 23.0%
Net Revenue, as adjusted $28.3 (5.0)% $87.7 4.4%
Adjusted EBITDA $11.6 (12.1)% $35.0 14.8%
Combined ratio (2) 92.0% 420 bps 91.8% 110 bps
(1) See the appendix for a reconciliation of Non-GAAP measures Revenue as adjusted, Net Revenue as adjusted
and Adjusted EBITDA to GAAP financials.
(2) The combined ratio is a measure of underwriting performance and represents the relationship of net losses
and loss adjustment expense, commission expense, member benefit claims and payroll, depreciation and other
expenses to earned premiums, service and administrative fees, ceding commissions and other income.
Key financials (1)
Net Revenue
as adjusted(1)
INSURANCE & INSURANCE SERVICES
($ in millions)
Insurance products
Net Written
Premiums
YTD'16 YTD'15
90.2 87.5
35.0
31.6
27.1
12.6
$152.4
$131.7
YTD'16 YTD'15
47.0 44.7
17.7 24.3
7.3 4.1
15.7 10.9
$87.7 $84.0
Specialty products
Warranty
Credit protection
Investment and
other income
9
YTD'16 YTD'15
$5.5
$4.7
3Q16 highlights and outlookKey financials (1)
Revenues of $15.7m, up $4.1m or 35.3% year-over-year
with a pre-tax loss of $0.5m primarily driven by
depreciation on recently acquired properties
Adjusted EBITDA of $2.9m, up 123.1% driven by increased
NOI at existing properties and 2016 acquisitions
• NOI margin % improvement at managed properties driven by
occupancy, pricing increases and cost discipline
Expect to see continued EBITDA growth through:
ü Increases in NOI driven by further occupancy increases,
property improvements and expense management
ü New acquisitions
NOI by product
REAL ESTATE
($ in millions)
(1) For explanation of Adjusted EBITDA, NOI, NOI Margin % and reconciliation
to GAAP real estate segment pre-tax income, see the Appendix.
(2) Includes accumulated depreciation and in-place lease amortization.
Property Acquisition
Date
Purchase
Price
Type Number of
Facilities
Number
of Units
Greenfield I 09/2011 20.8 NNN 3 120
Calamar 02/2013 23.3 MP 2 202
Premier 08/2013 21.9 NNN 2 99
Heritage 11/2013 43.1 MP 2 271
Greenfield JV 10/2014 30.8 MP 3 360
Heritage Belle Reve 12/2014 9.4 MP 1 78
Royal 02/2015 29.1 MP 5 282
Greenfield II 03/2015 54.5 NNN 6 299
Heritage Birches 01/2016 39.2 MP 1 91
Royal Harmony 03/2016 16.0 MP 1 60
Heritage Birches 08/2016 29.4 MP 1 85
Total Portfolio $317.5 27 1,947
YTD'16 YTD'15
$37.9
$28.7
$10.3 $7.1
Managed
properties
Triple net
leases
Revenues Net Operating Income
NOI
margin %
27.1% 24.5%
(1)
3Q16 V% YTD'16 V%
Revenue $15.7 35.3% $44.2 32.7%
Pre-tax income $(0.5) 82.0% $(5.5) 37.4%
Adjusted EBITDA $2.9 123.1% $7.2 84.6%
Net Operating Income (NOI) $5.8 31.8% $15.8 35.0%
Segment assets $308.9 30.1% $308.9 30.1%
Accumulated depreciation(2) $34.6 66.3% $34.6 66.3%
10
3Q16 highlights
Significant year-over-year improvement in earnings
related to asset management fees and CLO investments
• Fee revenue up versus prior year primarily driven by
incentive fees leading to pre-tax earnings of $2.3m for the
quarter and $5.0m year-to-date
• CLO sub-note investments improved by $7.5m for the quarter,
and $14.9m for the nine months as distributions increased
primarily from T7 launch and unrealized losses are better given
the recovery in the credit markets
Recent developments and outlook
The Company is continuing to pursue growth
opportunities in the Asset Management sector
• In 2Q16, the Company launched Telos CLO 2016-7 and
purchased $26m of subordinated notes
• Additional $25m was invested in Credit Opportunities fund in
3Q16, with an increase in leverage capacity to $150m
• Leveraging performance to raise funds in other vehicles or
managed accounts
Key financials (1)
ASSET MANAGEMENT AND CLOs
$9.6 $8.2
$11.1 $11.8
$(8.0)
$(3.2)
$(10.8)
Distributions
from sub notes
Management fees
(reported in asset management segment)
Unrealized losses
from sub notes
YTD'15YTD'16
Total income attributable to CLOs (1)
Average sub note Investment,
at fair value
$72.4$42.1
(1) For comparative purposes, revenues as shown in the charts include fees, distributions and
realized/unrealized losses attributable to the consolidated CLOs. See appendix for reconciliation.
(2) AUM is estimated and unaudited. Consists of NOPCB for CLOs, excludes COF as it is not earning
third party fees as of 9/30/2016.
Total pre-tax income (loss)$1.2$17.4
Realized losses
from sub notes
3Q16 3Q15 YTD'16 YTD'15
Asset management fee revenue $4.6 $2.6 $10.0 $8.3
Asset management pre-tax income $2.3 $1.0 $5.0 $3.0
Income attributable to CLOs $8.0 $(1.4) $17.4 $1.2
Fee-earning AUM(2) ($ in billions) $1.9 $1.8 $1.9 $1.8
11
Revenue
Adjusted EBITDA
WELL POSITIONED FOR 2016 AND BEYOND
Looking ahead ...
Adjusted EBITDA is expected to benefit from:
• Continued revenue growth of Fortegra combined with disciplined expense
management driving positive improvements
• Growing rental income in our real estate portfolio through a combination of
stabilizing existing properties as well as investing in new acquisitions
• Continued performance in specialty finance as a result of investment in sales
personnel in the first half of 2016 and the general interest rate environment
• Growing investment income
• Re-deploying capital by exiting non-core or under-performing assets
Expect to benefit from re-investing our primary sources of liquidity including
Fortegra investments, Care & Telos cash distributions, cash payments on
principal investments, and capital from non-core assets
YTD'16 YTD'15
$399.7
$311.0
YTD'16 YTD'15
16.8
33.2
Highlights
ü Significant improvement in revenues, net earnings & Adjusted EBITDA from
continuing operations as we move toward more stable, repeatable earnings
ü $43.8m of share re-purchases in 2016 at an average 30% discount to book
ü Continue to re-invest in core businesses
(1)
(1) See the appendix for a reconciliation of Adjusted EBITDA to GAAP financials.
$50.0 $52.9
Discontinued
operations
Continuing
operations
APPENDIX
13
Management uses EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. The Company believes that consolidated EBITDA and Adjusted EBITDA on a consolidated basis and for each segment provide supplemental
information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service its debt and to facilitate comparison among companies. The
Company believes segment EBITDA and Adjusted EBITDA provides additional supplemental information to compare results among our segments. Beginning in 2016 the Company Adjusted EBITDA will also be used in determining
incentive compensation for the Company’s executive officers. These measures are not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for net income.
The Company’s presentation of these measures may differ from similarly titled non-GAAP financial measures used by other companies. The Company defines EBITDA as GAAP net income of the Company adjusted to add consolidated
interest expense, consolidated income taxes and consolidated depreciation and amortization expense as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-
specific debt incurred in the ordinary course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and
(v) any significant one-time expenses.
NON-GAAP FINANCIAL MEASURES - EBITDA AND ADJUSTED EBITDA
Reconciliation from the Company’s GAAP net income to Non-GAAP financial measures - EBITDA and Adjusted EBITDA
($ in thousands, unaudited) Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Net income (loss) available to Class A common stockholders $ 5,905 $ (4,553) $ 17,593 $ 9,430
Add: net (loss) income attributable to noncontrolling interests 1,933 (1,835) 4,680 1,957
Less: net income from discontinued operations — — — 23,348
Income (loss) from Continuing Operations of the Company $ 7,838 $ (6,388) $ 22,273 $ (11,961)
Consolidated interest expense 7,839 6,329 20,770 17,652
Consolidated income taxes 3,712 2,829 5,298 962
Consolidated depreciation and amortization expense 6,437 10,034 21,899 36,857
EBITDA from Continuing Operations $ 25,826 $ 12,804 $ 70,240 $ 43,510
Consolidated non-corporate and non-acquisition related interest expense(1) (4,989) (3,484) (13,223) (8,127)
Effects of Purchase Accounting (2) (957) (4,376) (4,446) (19,977)
Non-cash fair value adjustments (3) — — 1,416 —
Significant acquisition expenses (4) 248 — 631 1,349
Separation expenses (5) — — (1,736) —
Adjusted EBITDA from Continuing Operations of the Company $ 20,128 $ 4,944 $ 52,882 $ 16,755
Income from Discontinued Operations of the Company $ — $ — $ — $ 23,348
Consolidated interest expense — — $ — $ 5,226
Consolidated income taxes — — — 3,796
Consolidated depreciation and amortization expense — — — 862
EBITDA from Discontinued Operations $ — $ — $ — $ 33,232
Adjusted EBITDA from Discontinued Operations of the Company $ — $ — $ — $ 33,232
Adjusted EBITDA of the Company $ 20,128 $ 4,944 $ 52,882 $ 49,987
(1) The consolidated non-corporate and non-acquisition related interest expense is subtracted from EBITDA to arrive at Adjusted EBITDA. This includes interest expense associated with asset-specific
debt at subsidiaries in the insurance and insurance services, specialty finance, real estate and corporate and other segments.
(2) Following the purchase accounting adjustments, current period expenses associated with deferred costs were more favorably stated and current period income associated with deferred revenues
were less favorably stated. Thus, the purchase accounting effect related to Fortegra, increased EBITDA above what the historical basis of accounting would have generated. The impact of this
purchase accounting adjustments have been reversed to reflect an adjusted EBITDA without such purchase accounting effect.
(3) For Care, Adjusted EBITDA excludes the impact of the change of fair value of interest rate swaps hedging the debt at the property level to conform to our updated interest rate hedging policy.
(4) Acquisition related costs represent costs in connection with Care’s acquisition of properties which included taxes, legal costs and other expenses.
(5) Consists of payments pursuant to a separation agreement, dated as of November 10, 2015.
14
Management uses EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. The Company believes that consolidated EBITDA and Adjusted EBITDA on a consolidated basis and for each segment provide supplemental
information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service its debt and to facilitate comparison among companies. The
Company believes segment EBITDA and Adjusted EBITDA provides additional supplemental information to compare results among our segments. Beginning in 2016 the Company Adjusted EBITDA will also be used in determining
incentive compensation for the Company’s executive officers. These measures are not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for net income.
The Company’s presentation of these measures may differ from similarly titled non-GAAP financial measures used by other companies. The Company defines EBITDA as GAAP net income of the Company adjusted to add consolidated
interest expense, consolidated income taxes and consolidated depreciation and amortization expense as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-
specific debt incurred in the ordinary course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and
(v) any significant one-time expenses.
NON-GAAP FINANCIAL MEASURES - EBITDA AND ADJUSTED EBITDA
Segment EBITDA and Adjusted EBITDA - Three and Nine Months Ended September 30, 2016 and September 30, 2015
Three Months Ended September 30,
($ in thousands)
Insurance and
insurance services Specialty finance Real estate Asset management Corporate and other Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Pre-tax income/(loss) $ 8,025 $ 10,123 $ 4,181 $ 1,251 $ (473) $ (2,612) $ 2,303 $ 963 $ (2,486) $ (13,284) $ 11,550 $ (3,559)
Add back:
Interest expense 1,626 1,735 1,932 1,217 2,271 1,828 — — 2,010 1,549 7,839 6,329
Depreciation and amortization expenses 3,031 5,765 248 269 3,096 3,932 — — 62 68 6,437 10,034
Segment EBITDA $ 12,682 $ 17,623 $ 6,361 $ 2,737 $ 4,894 $ 3,148 $ 2,303 $ 963 $ (414) $ (11,667) $ 25,826 $ 12,804
EBITDA adjustments:
Asset-specific debt interest (140) (76) (1,882) (1,167) (2,271) (1,828) — — (696) (413) (4,989) (3,484)
Effects of purchase accounting (957) (4,376) — — — — — — — — (957) (4,376)
Significant acquisition expenses — — — — 248 — — — — — 248 —
Segment Adjusted EBITDA $ 11,585 $ 13,171 $ 4,479 $ 1,570 $ 2,871 $ 1,320 $ 2,303 $ 963 $ (1,110) $ (12,080) $ 20,128 $ 4,944
Nine Months Ended September 30,
($ in thousands)
Insurance and
insurance services Specialty finance Real estate Asset management Corporate and other Total
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Pre-tax income/(loss) $ 25,100 $ 20,449 $ 5,510 $ 2,254 $ (5,487) $ (8,762) $ 5,041 $ 3,049 $ (2,593) $ (27,989) $ 27,571 $ (10,999)
Add back:
Interest expense 4,312 5,249 4,352 2,562 6,220 4,968 — — 5,886 4,873 20,770 17,652
Depreciation and amortization expenses 10,413 24,977 664 515 10,636 11,265 — — 186 100 21,899 36,857
Segment EBITDA $ 39,825 $ 50,675 $ 10,526 $ 5,331 $ 11,369 $ 7,471 $ 5,041 $ 3,049 $ 3,479 $ (23,016) $ 70,240 $ 43,510
EBITDA adjustments:
Asset-specific debt interest (351) (219) (4,200) (2,444) (6,220) (4,968) — — (2,452) (496) (13,223) (8,127)
Effects of purchase accounting (4,446) (19,977) — — — — — — — — (4,446) (19,977)
Non-cash fair value adjustments — — — — 1,416 — — — — — 1,416 —
Significant acquisition expenses — — — — 631 1,349 — — — — 631 1,349
Separation expenses — — — — — — — — (1,736) — (1,736) —
Segment Adjusted EBITDA $ 35,028 $ 30,479 $ 6,326 $ 2,887 $ 7,196 $ 3,852 $ 5,041 $ 3,049 $ (709) $ (23,512) $ 52,882 $ 16,755
15
Fortegra presents As Adjusted Net revenues which is a Non-GAAP financial measure to provide investors with additional information to analyze its performance from period to period. Management also uses this measures to
assess performance and to allocate resources in managing its businesses. However, investors should not consider this Non-GAAP financial measures as a substitute for the financial information that Fortegra reports in accordance
with U.S. GAAP. This Non-GAAP financial measure reflects subjective determinations by Fortegra management, and may differ from similarly titled Non-GAAP financial measures presented by other companies. See the below table
for a reconciliation from GAAP Total revenues to As Adjusted Net revenues.
NON-GAAP FINANCIAL INFORMATION- INSURANCE & INSURANCE SERVICES
Three Months Ended September 30, 2016 Three Months Ended September 30, 2015
($ in thousands) GAAP Adjustments Non-GAAP As Adjusted GAAP Adjustments Non-GAAP As Adjusted
Revenues:
Earned premiums $ 47,609 $ — $ 47,609 $ 43,884 $ — $ 43,884
Service and administrative fees 25,842 1,134 (2) 26,976 29,565 4,131 (2) 33,696
Ceding commissions 1,397 69 (3) 1,466 11,515 821 (3) 12,336
Interest income (1) 3,543 — 3,543 1,294 — 1,294
Other Income 715 — 715 1,733 — 1,733
Total revenues 79,106 1,203 80,309 87,991 4,952 92,943
Less:
Commission expense 24,032 2,120 (4) 26,152 30,891 9,302 (4) 40,193
Member benefit claims 5,967 — 5,967 7,955 — 7,955
Net losses and loss adjustment expenses 19,914 — 19,914 14,948 — 14,948
Net revenues 29,193 (917) 28,276 34,197 (4,350) 29,847
Expenses:
Interest expense 1,626 — 1,626 1,735 — 1,735
Payroll and employee commissions 9,180 — 9,180 9,543 — 9,543
Depreciation and amortization expenses 3,031 (549) (5) 2,482 5,765 (3,097) (5) 2,668
Other expenses 7,331 40 (6) 7,371 7,031 355 (6) 7,386
Total operating expenses 21,168 (509) 20,659 24,074 (2,742) 21,332
Income before taxes from continuing operations 8,025 (408) 7,617 10,123 (1,608) 8,515
Insurance operating metrics: (7)
Retention ratio 33.9% 32.2% 38.0% 31.2%
Underwriting ratio 66.1% 67.8% 62.0% 68.8%
Expense ratio 25.9% 24.8% 25.8% 21.4%
Combined ratio 92.0% 92.6% 87.8% 90.2%
(1) Includes net realized and unrealized gains and (losses) on investments.
(2) Represents service fee revenues that would have been recognized had purchase accounting effects not been recorded. Deferred service fee liabilities at the acquisition date were reduced to reflect the purchase accounting fair value.
(3) Represents ceding commission revenues that would have been recognized had purchase accounting effects not been recorded. Deferred ceding commissions liabilities at the acquisition date were reduced to reflect the purchase accounting fair value.
(4) Represents additional commissions expense that would have been recorded without purchase accounting; the values of deferred commission assets were eliminated in purchase accounting.
(5) Represents the removal of net additional depreciation and amortization expense that would not have been recorded without purchase accounting; fixed assets and amortizing intangible assets were adjusted in purchase accounting based on fair value
analyses.
(6) Represents additional premium tax and other acquisition expenses that would have been recorded without purchase accounting; values of deferred acquisition costs were eliminated in purchase accounting.
(7) The combined ratio is a measure of underwriting performance and represents the relationship of net losses and loss adjustment expense, commission expense, member benefit claims and payroll, depreciation and other expenses to earned premiums,
service and administrative fees, ceding commissions and other income. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. The combined ratio is the sum of the
underwriting ratio and the expense ratio. The underwriting ratio represents the relationship of net losses and loss adjustment expense, commission expense, member benefit claims to earned premiums, service and administrative fees, ceding commissions
and other income. The expense ratio represents the relationship of payroll, depreciation and other expenses to earned premiums, service and administrative fees, ceding commissions and other income. Retention ratio is the relationship of net revenues less
interest income to total revenues less interest income.
16
Fortegra presents As Adjusted Net revenues which is a Non-GAAP financial measure to provide investors with additional information to analyze its performance from period to period. Management also uses this measures to
assess performance and to allocate resources in managing its businesses. However, investors should not consider this Non-GAAP financial measures as a substitute for the financial information that Fortegra reports in accordance
with U.S. GAAP. This Non-GAAP financial measure reflects subjective determinations by Fortegra management, and may differ from similarly titled Non-GAAP financial measures presented by other companies. See the below table
for a reconciliation from GAAP Total revenues to As Adjusted Net revenues.
NON-GAAP FINANCIAL INFORMATION- INSURANCE & INSURANCE SERVICES
Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015
($ in thousands) GAAP Adjustments Non-GAAP As Adjusted GAAP Adjustments Non-GAAP As Adjusted
Revenues:
Earned premiums $ 138,516 $ — $ 138,516 $ 120,944 $ — $ 120,944
Service and administrative fees 84,421 4,976 (2) 89,397 77,037 15,780 (2) 92,817
Ceding commissions 22,645 376 (3) 23,021 31,600 3,159 (3) 34,759
Interest income (1) 9,171 — 9,171 3,718 — 3,718
Other Income 1,455 — 1,455 5,592 — 5,592
Total revenues 256,208 5,352 261,560 238,891 18,939 257,830
Less:
Commission expense 91,906 9,494 (4) 101,400 71,346 38,352 (4) 109,698
Member benefit claims 17,334 — 17,334 23,774 — 23,774
Net losses and loss adjustment expenses 55,102 — 55,102 40,324 — 40,324
Net revenues 91,866 (4,142) 87,724 103,447 (19,413) 84,034
Expenses:
Interest expense 4,312 — 4,312 5,249 — 5,249
Payroll and employee commissions 28,065 — 28,065 29,626 — 29,626
Depreciation and amortization expenses 10,413 (2,977) (5) 7,436 24,977 (17,189) (5) 7,788
Other expenses 23,976 304 (6) 24,280 23,146 1,697 (6) 24,843
Total operating expenses 66,766 (2,673) 64,093 82,998 (15,492) 67,506
Income before taxes from continuing operations 25,100 (1,469) 23,631 20,449 (3,921) 16,528
Insurance operating metrics: (7)
Retention ratio 33.5% 31.1% 42.4% 31.6%
Underwriting ratio 66.5% 68.9% 57.6% 68.4%
Expense ratio 25.3% 23.7% 33.1% 24.5%
Combined ratio 91.8% 92.6% 90.7% 92.9%
(1) Includes net realized and unrealized gains and (losses) on investments.
(2) Represents service fee revenues that would have been recognized had purchase accounting effects not been recorded. Deferred service fee liabilities at the acquisition date were reduced to reflect the purchase accounting fair value.
(3) Represents ceding commission revenues that would have been recognized had purchase accounting effects not been recorded. Deferred ceding commissions liabilities at the acquisition date were reduced to reflect the purchase accounting fair value.
(4) Represents additional commissions expense that would have been recorded without purchase accounting; the values of deferred commission assets were eliminated in purchase accounting.
(5) Represents the removal of net additional depreciation and amortization expense that would not have been recorded without purchase accounting; fixed assets and amortizing intangible assets were adjusted in purchase accounting based on fair value
analyses.
(6) Represents additional premium tax and other acquisition expenses that would have been recorded without purchase accounting; values of deferred acquisition costs were eliminated in purchase accounting.
(7) The combined ratio is a measure of underwriting performance and represents the relationship of net losses and loss adjustment expense, commission expense, member benefit claims and payroll, depreciation and other expenses to earned premiums,
service and administrative fees, ceding commissions and other income. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. The combined ratio is the sum of the
underwriting ratio and the expense ratio. The underwriting ratio represents the relationship of net losses and loss adjustment expense, commission expense, member benefit claims to earned premiums, service and administrative fees, ceding commissions
and other income. The expense ratio represents the relationship of payroll, depreciation and other expenses to earned premiums, service and administrative fees, ceding commissions and other income. Retention ratio is the relationship of net revenues less
interest income to total revenues less interest income.
17
NON-GAAP FINANCIAL MEASURES - REAL ESTATE SEGMENT NOI
We evaluate performance of our real estate segment based on segment net operating income (“NOI”). We consider NOI as an important supplemental measure used to evaluate the operating performance of our real estate
segment because it allows investors, analysts and our management to assess our unlevered property-level operating results and to compare our operating results between periods and to the operating results of other real estate
companies on a consistent basis. We define NOI as total revenue less property operating expense. Property operating expenses and resident fees and services are not relevant to Care’s triple net lease operations since Care does
not manage the underlying operations and substantially all expenses are passed through to the tenant. Our calculation of NOI may differ from similarly titled non-GAAP financial measures used by other companies. NOI is not
a measure of financial performance or liquidity under GAAP and should not be considered a substitute for pre-tax income. The following tables present revenues and expenses, which include amounts attributable to non-
controlling interests, by property type in our real estate segment for the three and nine months ended September 30, 2016 and 2015, respectively.
Three Months Ended September 30,
2016
Three Months Ended September 30,
2015
Nine Months Ended September 30,
2016
Nine Months Ended September 30,
2015
($ in thousands)
NNN
Operations
Managed
Properties
Real Estate
Total
NNN
Operations
Managed
Properties
Real Estate
Total
NNN
Operations
Managed
Properties
Real Estate
Total
NNN
Operations
Managed
Properties
Real Estate
Total
Revenues:
Resident fees and services $ — $ 841 $ 841 $ — $ 678 $ 678 $ — $ 2,625 $ 2,625 $ — $ 1,663 $ 1,663
Rental revenue 1,844 12,685 14,529 1,844 9,344 11,188 5,533 35,231 40,764 4,662 27,062 31,724
Less: Property operating expenses — 9,599 9,599 — 7,489 7,489 — 27,600 27,600 — 21,674 21,674
Segment NOI $ 1,844 $ 3,927 $ 5,771 $ 1,844 $ 2,533 $ 4,377 $ 5,533 $ 10,256 $ 15,789 $ 4,662 $ 7,051 $ 11,713
Segment NOI Margin % 29.0% 25.3% 27.1% 24.5%
Other income $ 324 $ (307) $ 815 $ (54)
Less: Expenses:
Interest expense 2,271 1,828 6,220 4,968
Payroll and employee commissions 617 529 1,900 1,654
Depreciation and amortization 3,095 3,932 10,635 11,265
Other expenses 583 393 3,335 2,534
Pre-tax income (loss) $ (471) $ (2,612) $ (5,486) $ (8,762)
18
NON-GAAP FINANCIAL MEASURES - CLOs MANAGED BY THE COMPANY
The Company deconsolidated the results of Telos 1, Telos 2, Telos 3 and Telos 4 for the period that we did not own the subordinated notes for the three and nine months ended September 30, 2016 but not for the prior year
periods. The table below shows the results attributable to the CLOs both on a consolidated basis and an unconsolidated basis, which is a non-GAAP measure, for the three and nine months ended September 30, 2016. Management
believes is helpful to investors for year-over-year comparative purposes, given that Telos 2 and Telos 4 were deconsolidated in Q2 2015 when we sold our retained interests in each CLO
($ in thousands) Three Months Ended September 30,
2016 2015
Consolidated
Non
consolidated(1) Non-GAAP total Consolidated(2)
Non
consolidated(1) Non-GAAP total
Management fees paid by the CLOs to the
Company(3) $ 743 $ 3,815 $ 4,558 $ 652 $ 1,994 $ 2,646
Distributions from the subordinated notes held
by the Company 4,323 45 4,368 2,827 62 2,889
Realized and unrealized (losses) gains on
subordinated notes held by the Company (1,034) 108 (926) (6,681) (277) (6,958)
Net (loss) income attributable to the CLOs $ 4,032 $ 3,968 $ 8,000 $ (3,202) $ 1,779 $ (1,423)
Nine Months Ended September 30,
2016 2015
Consolidated
Non
consolidated(1) Non-GAAP total Consolidated(2)
Non
consolidated(1) Non-GAAP total
Management fees paid by the CLOs to the
Company(3) $ 2,169 $ 7,385 $ 9,554 $ 3,493 $ 4,726 $ 8,219
Distributions from the subordinated notes held
by the Company 10,930 128 11,058 11,644 201 11,845
Realized and unrealized (losses) gains on
subordinated notes held by the Company (3,050) (123) (3,173) (18,583) (246) (18,829)
Net (loss) income attributable to the CLOs $ 10,049 $ 7,390 $ 17,439 $ (3,446) $ 4,681 $ 1,235
(1) Represents amounts from Telos 1, Telos 2, Telos 3 and Telos 4, which have been deconsolidated for the period that we did not own the subordinated notes. See Note—(15) Assets and Liabilities of
Consolidated CLOs, in the accompanying consolidated financial statements, regarding the deconsolidation of certain of our CLOs.
(2) Includes losses of $3.3 million from Telos 2 and Telos 4 for the nine months ended September 30, 2015. Both were deconsolidated and sold in the second quarter of 2015.
(3) Management fees to Telos are shown net of any management fee participation by Telos to others.
19
BOOK VALUE PER SHARE, AS EXCHANGED
Management uses Book value per share, as exchanged, which is a non-GAAP financial measure. As exchanged assumes full exchange of the limited partners units of TFP (other than Tiptree itself) for
Tiptree Class A common stock. The Company believes that use of this financial measure on a consolidated basis provides supplemental information useful to investors as it is frequently used by the
financial community to analyze company growth on a relative per share basis.
Tiptree’s book value per share, as exchanged, was $9.93 as of September 30, 2016 compared with $8.90 as of December 31, 2015. Total stockholders’ equity, net of other non-controlling interests for
the Company was $361.4 million as of September 30, 2016, which comprised total stockholders’ equity of $381.3 million adjusted for $19.9 million attributable to non-controlling interest at certain
operating subsidiaries that are not wholly owned by the Company. Total stockholders’ equity, net of other non-controlling interests for the Company was $382.1 million as of December 31, 2015, which
comprised total stockholders’ equity of $397.7 million adjusted for $15.6 million attributable to non-controlling interest at subsidiaries that are not wholly owned by the Company, such as Siena, Luxury
and Care. Additionally, the Company’s book value per share is based upon Class A common shares outstanding, plus Class A common stock issuable upon exchange of partnership units of TFP which
is equal to the number of Class B outstanding shares. The total shares as of September 30, 2016 and December 31, 2015 were 36.4 million and 42.9 million, respectively.
(1) Excludes 6,596,000 shares of Class A common stock held by subsidiaries of the Company. See Note 24—Earnings per Share, in the Form 10-Q for September 30, 2016, for further discussion of potential dilution from warrants.
(in thousands, except per share data) September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015
Total stockholders’ equity $ 381,341 $ 380,465 $ 409,718 $ 397,694
Less non-controlling interest - other $ 19,939 $ 19,338 $ 18,624 $ 15,576
Total stockholders equity, net of non-controlling interests - other $ 361,402 $ 361,127 $ 391,094 $ 382,118
Total Class A shares outstanding (1) 28,351 29,258 34,915 34,900
Total Class B shares outstanding 8,049 8,049 8,049 8,049
Total shares outstanding 36,400 37,307 42,964 42,949
Book value per share, as exchanged $ 9.93 $ 9.68 $ 9.10 $ 8.90