|
| | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Corporate securities | — |
| | 53,869 |
| | — |
| | 53,869 |
|
Total available for sale securities | 1,511 |
| | 162,535 |
| | 47 |
| | 164,093 |
|
| | | | | | | |
Loans, at fair value: |
| |
|
| |
|
| |
|
|
Corporate loans | — |
| | 33,427 |
| | 129,085 |
| | 162,512 |
|
Mortgage loans held for sale | — |
| | 114,461 |
| | — |
| | 114,461 |
|
Non-performing loans | — |
| | — |
| | 44,980 |
| | 44,980 |
|
Other loans receivable | — |
| | — |
| | 1,169 |
| | 1,169 |
|
Total loans, at fair value | — |
|
| 147,888 |
|
| 175,234 |
|
| 323,122 |
|
| | | | | | | |
Equity securities, trading, at fair value | 28,106 |
| | — |
| | — |
| | 28,106 |
|
| | | | | | | |
Other investments: | | | | | | | |
Derivative assets: | | | | | | | |
Interest rate swaps | — |
| | 1,284 |
| | — |
| | 1,284 |
|
Forward delivery contracts | — |
| | 49 |
| | — |
| | 49 |
|
Interest rate lock commitments | — |
| | — |
| | 6,537 |
| | 6,537 |
|
TBA mortgage backed securities | — |
| | 284 |
| | — |
| | 284 |
|
Credit derivatives | — |
| | 13,035 |
| | — |
| | 13,035 |
|
Total derivative assets | — |
| | 14,652 |
| | 6,537 |
| | 21,189 |
|
CLOs | — |
| | — |
| | 2,045 |
| | 2,045 |
|
Debentures | — |
| | 3,957 |
| | — |
| | 3,957 |
|
Total other investments | — |
| | 18,609 |
| | 8,582 |
| | 27,191 |
|
| | | | | | | |
Total financial instruments attributable to non-CLOs included in consolidated assets | 29,617 |
|
| 329,032 |
|
| 183,863 |
|
| 542,512 |
|
| | | | | | | |
Financial instruments included in assets of consolidated CLOs: | | | | | | | |
Loans, at fair value | — |
| | 132,623 |
| | 210,759 |
| | 343,382 |
|
Total financial instruments included in assets of consolidated CLOs | — |
| | 132,623 |
| | 210,759 |
| | 343,382 |
|
| | | | | | | |
Total | $ | 29,617 |
|
| $ | 461,655 |
|
| $ | 394,622 |
|
| $ | 885,894 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Derivative liabilities: | | | | | | | |
Interest rate swaps | $ | — |
| | $ | 426 |
| | $ | — |
| | $ | 426 |
|
TBA mortgage backed securities | — |
| | 283 |
| | — |
| | 283 |
|
Foreign currency forward contracts | — |
| | — |
| | — |
| | — |
|
Total derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 709 |
|
| — |
|
| 709 |
|
Contingent consideration payable | — |
| | — |
| | 52 |
| | 52 |
|
Preferred notes payable | — |
| | — |
| | 1,386 |
| | 1,386 |
|
Total financial instruments attributable to Non-CLOs included in consolidated liabilities | — |
|
| 709 |
|
| 1,438 |
| | 2,147 |
|
| | | | | | | |
Financial instruments included in liabilities of consolidated CLOs: | | | | | | | |
Notes payable of CLOs | — |
| | — |
| | 326,716 |
| | 326,716 |
|
Total financial instruments included in liabilities of consolidated CLOs | — |
| | — |
| | 326,716 |
| | 326,716 |
|
Total | $ | — |
|
| $ | 709 |
|
| $ | 328,154 |
|
| $ | 328,863 |
|
|
| | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
Assets: | | | | | | | |
Available for sale securities, at fair value: | | | | | | | |
Equity securities | $ | 736 |
| | $ | — |
| | $ | 48 |
| | $ | 784 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.
|
| | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| Quoted prices in active markets Level 1 | | Other significant observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Fair value |
U.S. Treasury securities and obligations of U.S. government authorities and agencies | — |
| | 26,799 |
| | — |
| | 26,799 |
|
Obligations of state and political subdivisions | — |
| | 56,934 |
| | — |
| | 56,934 |
|
Obligations of foreign governments | — |
| | 728 |
| | — |
| | 728 |
|
Certificates of deposit | 895 |
| | — |
| | — |
| | 895 |
|
Asset backed securities | — |
| | 1,460 |
| | — |
| | 1,460 |
|
Corporate bonds | — |
| | 58,571 |
| | — |
| | 58,571 |
|
Total available for sale securities, at fair value | 1,631 |
|
| 144,492 |
|
| 48 |
|
| 146,171 |
|
| | | | | | | |
Loans, at fair value: | | | | | | | |
Corporate loans | — |
| | 46,352 |
| | 129,206 |
| | 175,558 |
|
Mortgage loans held for sale | — |
| | 121,439 |
| | — |
| | 121,439 |
|
Non-performing loans | — |
| | — |
| | 74,923 |
| | 74,923 |
|
Other loans receivable | — |
| | — |
| | 1,169 |
| | 1,169 |
|
Total loans, at fair value | — |
|
| 167,791 |
|
| 205,298 |
|
| 373,089 |
|
| | | | | | | |
Equity securities, trading, at fair value | 48,612 |
| | — |
| | — |
| | 48,612 |
|
| | | | | | | |
Other investments: | | | | | | | |
Derivative assets: |
| | | | | | |
Interest rate swaps | — |
| | 1,388 |
| | — |
| | 1,388 |
|
Interest rate lock commitments | — |
| | — |
| | 4,872 |
| | 4,872 |
|
TBA mortgage backed securities | — |
| | 1,678 |
| | — |
| | 1,678 |
|
Credit derivatives | — |
| | 12,598 |
| | — |
| | 12,598 |
|
Total derivative assets | — |
| | 15,664 |
| | 4,872 |
| | 20,536 |
|
CLOs | — |
| | — |
| | 974 |
| | 974 |
|
Debentures | — |
| | 3,957 |
| | — |
| | 3,957 |
|
Total other investments | — |
| | 19,621 |
| | 5,846 |
| | 25,467 |
|
| | | | | | | |
Total financial instruments attributable to non-CLOs included in consolidated assets | 50,243 |
|
| 331,904 |
|
| 211,192 |
|
| 593,339 |
|
| | | | | | | |
Financial instruments included in assets of consolidated CLOs: | | | | | | | |
Loans, at fair value | — |
| | 342,370 |
| | 585,870 |
| | 928,240 |
|
Total financial instruments included in assets of consolidated CLOs | — |
|
| 342,370 |
|
| 585,870 |
|
| 928,240 |
|
Total | $ | 50,243 |
|
| $ | 674,274 |
|
| $ | 797,062 |
|
| $ | 1,521,579 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Derivative liabilities: | | | | | | | |
Interest rate swaps | $ | — |
| | $ | 1,042 |
| | $ | — |
| | $ | 1,042 |
|
Forward delivery contracts | — |
| | 84 |
| | — |
| | 84 |
|
TBA mortgage backed securities | — |
| | 269 |
| | — |
| | 269 |
|
Foreign currency forward contracts | — |
| | 3 |
| | — |
| | 3 |
|
Total derivative liabilities (included in other liabilities and accrued expenses) | — |
|
| 1,398 |
|
| — |
|
| 1,398 |
|
Contingent consideration payable | — |
| | — |
| | 1,852 |
| | 1,852 |
|
Preferred notes payable | — |
| | — |
| | 1,232 |
| | 1,232 |
|
Total financial instruments attributable to Non-CLOs included in consolidated liabilities | — |
|
| 1,398 |
|
| 3,084 |
|
| 4,482 |
|
| | | | | | | |
Financial instruments included in liabilities of consolidated CLOs: | | | | | | | |
Notes payable of CLOs | — |
| | — |
| | 912,034 |
| | 912,034 |
|
Total financial instruments included in liabilities of consolidated CLOs | — |
|
| — |
|
| 912,034 |
|
| 912,034 |
|
| | | | | | | |
Total | $ | — |
|
| $ | 1,398 |
|
| $ | 915,118 |
|
| $ | 916,516 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table representspresents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Balance at January 1, | $ | 61,565 | | | $ | 63,590 | |
Net realized and unrealized gains or losses included in: | | | |
Earnings | 955 | | | (3,205) | |
OCI | 75 | | | (33) | |
Origination of IRLCs | 10,092 | | | 11,262 | |
| | | |
Sales and repayments | — | | | (6) | |
Distributions | (764) | | | — | |
Conversions to mortgage loans held for sale | (10,639) | | | (11,016) | |
| | | |
| | | |
| | | |
Transfer out of Level 3 | — | | | (113) | |
| | | |
Balance at March 31, | $ | 61,284 | | | $ | 60,479 | |
| | | |
Changes in unrealized gains (losses) included in earnings related to assets still held at period end | $ | 955 | | | $ | (3,766) | |
Changes in unrealized gains (losses) included in OCI related to assets still held at period end | $ | 75 | | | $ | (33) | |
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 (3) |
| Non-CLO assets | | CLO assets | | Non-CLO assets | | CLO assets |
Balance at January 1, | $ | 211,192 |
| | $ | 585,870 |
| | $ | 239,944 |
| | $ | 520,892 |
|
Net realized gains (losses) | 7,279 |
| | (1,667 | ) | | 4,450 |
| | 402 |
|
Net unrealized gains (losses) | 2,800 |
| | 89 |
| | 5,482 |
| | 15,584 |
|
Origination of IRLC | 54,468 |
| | — |
| | 38,554 |
| | — |
|
Purchases | 41,458 |
| | 76,122 |
| | 101,161 |
| | 157,144 |
|
Sales (1) | (74,010 | ) | | (193,205 | ) | | (56,824 | ) | | (72,612 | ) |
Issuances | 590 |
| | 676 |
| | 1,716 |
| | 1,546 |
|
Transfer into Level 3 (2) | 9,286 |
| | 17,601 |
| | 23,184 |
| | 32,858 |
|
Transfer adjustments (out of) Level 3 (2) | (7,641 | ) | | (23,427 | ) | | (15,280 | ) | | (66,215 | ) |
Deconsolidation of CLO due to sale | 1,342 |
| | (251,300 | ) | | — |
| | — |
|
Conversion to real estate owned | (9,793 | ) | | — |
| | (10,288 | ) | | — |
|
Conversion to mortgage held for sale | (53,069 | ) | | — |
| | (36,378 | ) | | — |
|
Warehouse transfer to CLO | — |
| | — |
| | (104,098 | ) | | 104,098 |
|
Other | (39 | ) | | — |
| | — |
| | — |
|
Balance at September 30, | $ | 183,863 |
| | $ | 210,759 |
| | $ | 191,623 |
| | $ | 693,697 |
|
| | | | | | | |
Changes in unrealized gains (losses) included in earnings related to assets still held at period end | $ | 4,790 |
| | $ | (168 | ) | | $ | 4,023 |
| | $ | 11,325 |
|
| |
(1) | Included within the CLO assets amount are sales related to the liquidation of a consolidated CLO during the nine months ended September 30, 2017. |
| |
(2) | All transfers are deemed to occur at end of period. Transfers between Level 2 and 3 were a result of subjecting third-party pricing on both CLO and Non-CLO assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation. |
| |
(3) | Items within the Level 3 rollforward have been restated to reflect assets purchased during a period as purchases rather than transfers. The presentation of gross origination of IRLC’s and gross conversion to mortgage held for sale have also been restated to show the break out from net realized and unrealized gains and losses, conversion to real estate owned, and transfers out of Level 3 assets. These changes have no impact on the total amount of Level 3 assets. |
The following table represents additional information about liabilities that are measured atpresents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value on a recurring basis for which the Company has utilizedmeasurements of Level 3 assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of | | | | | | As of |
| March 31, 2024 | | December 31, 2023 | | Valuation technique | | Unobservable input(s) | | March 31, 2024 | | December 31, 2023 |
| | | | | |
| | | | | | | | | |
Assets | Fair value | | | | Range | | WA (1) | | Range | | WA (1) |
IRLCs | $ | 3,271 | | | $ | 3,818 | | | Internal model | | Pull through rate | | 45% | to | 95% | | 61% | | 45% | to | 95% | | 59% |
Mortgage servicing rights | 42,020 | | | 40,836 | | | External model | | Discount rate | | 10% | to | 15% | | 11% | | 10% | to | 13% | | 11% |
| Cost to service | | $65 | to | $3,000 | | $116 | | $65 | to | $3,000 | | $113 |
| Prepayment speed | | 3% | to | 83% | | 9% | | 3% | to | 82% | | 9% |
| | | | | | | | | | | |
Equity securities | 6,883 | | | 7,726 | | | Internal model | | Forecast EBITDAR | | $1,039,000 | to | $1,422,000 | | N/A | | $1,039,000 | to | $1,422,000 | | N/A |
Corporate loans | 9,094 | | | 9,167 | | | External model | | Bid marks | | $72 | to | $73 | | $72 | | $71 | to | $75 | | $73 |
Total | $ | 61,268 | | | $ | 61,547 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | |
Fortegra Additional Warrants (Warburg) | $ | 7,733 | | | $ | 3,522 | | | External Model | | Discount rate | | 3% | to | 5% | | 4.1% | | 3% | to | 5% | | 3.8% |
| | | Implied Equity Volatility | | 40% | to | 50% | | 45% | | 40% | to | 50% | | 45% |
Contingent consideration payable | 2,582 | | | 2,604 | | | Cash Flow model | | Forecast Cash EBITDA | | $2,500 | to | $4,000 | | N/A | | $2,500 | to | $4,000 | | N/A |
| | | Forecast Underwriting EBITDA | | $— | to | $2,000 | | N/A | | $— | to | $2,000 | | N/A |
Total | $ | 10,315 | | | $ | 6,126 | | | | | | | | | | | | | | | | | |
(1) Unobservable inputs to determinewere weighted by the relative fair value forof the following periods:instruments.
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| Non-CLO liabilities | | CLO liabilities | | Non-CLO liabilities | | CLO liabilities |
Balance at January 1, | $ | 3,084 |
| | $ | 912,034 |
| | $ | 2,498 |
| | $ | 683,827 |
|
Net unrealized (gains) losses | — |
| | (3,071 | ) | | (262 | ) | | 23,169 |
|
Issuances | — |
| | — |
| | — |
| | 222,303 |
|
Settlements (1) | (4,838 | ) | | (155,194 | ) | | (377 | ) | | — |
|
Dispositions | — |
| | (49,010 | ) | | — |
| | (1,317 | ) |
FV adjustment | 3,192 |
| | — |
| | — |
| | — |
|
Deconsolidation of CLO due to sale | — |
| | (378,043 | ) | | — |
| | — |
|
Balance at September 30, | $ | 1,438 |
| | $ | 326,716 |
| | $ | 1,859 |
| | $ | 927,982 |
|
| | | | | | | |
Changes in unrealized (gains) losses included in earnings related to liabilities still held at period end | $ | 154 |
| | $ | (6,119 | ) | | $ | (262 | ) | | $ | 23,169 |
|
| |
(1) | Included within the CLO liabilities amount are settlements related to the liquidation of a consolidated CLO during the nine months ended September 30, 2017. |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
The following is quantitative information about Level 3 significant unobservable inputs used in fair valuation.
|
| | | | | | | | | | | | | | | |
| Fair Value as of | | | | | | Actual or Range (Weighted average) |
Assets (1) | September 30, 2017 | | December 31, 2016 | | Valuation technique | | Unobservable input(s) | | September 30, 2017 | | December 31, 2016 |
Interest rate lock commitments | $ | 6,537 |
| | $ | 4,872 |
| | Internal model | | Pull through rate | | 45% - 95% | | 45% - 95% |
NPLs | 44,980 |
| | 74,923 |
| | Discounted cash flow | | See table below (2) | | See table below | | See table below |
Total | $ | 51,517 |
| | $ | 79,795 |
| | | | | | | | |
| |
(1) | Financial assets classified as Level 3 and fair valued using significant unobservable inputs classified as Level 3 have not been provided as these are not readily available to the Company (including servicing release premium for interest rate lock commitments and forward delivery contracts). |
| |
(2) | Significant changes in any of these inputs in isolation could result in a significant change to the fair value measurement. A decline in the discount rate in isolation would increase the fair value. A decrease in the housing pricing index in isolation would decrease the fair value. Individual loan characteristics, such as location and value of underlying collateral, affect the loan resolution timeline. An increase in the loan resolution timeline in isolation would decrease the fair value. A decrease in the value of underlying properties in isolation would decrease the fair value. |
The following table sets forth quantitative information about the significant unobservable inputs used to measure the fair value of our NPLs. For NPLs that are not making payments, discount rate, loan resolution time-line, value of underlying properties, holdings costs and liquidation costs are the primary inputs used to measure fair value. For NPLs that are making payments, note rate and secondary market transaction prices/UPB are the primary inputs used to measure fair value.
|
| | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
Unobservable inputs | | High | | Low | | Average(1) | | High | | Low | | Average(1) |
Discount rate | | 30.0% | | 16.0% | | 23.2% | | 30.0% | | 16.0% | | 22.9% |
Loan resolution time-line (Years) | | 2.59 | | 0.48 | | 1.26 | | 2.3 | | 0.5 | | 1.2 |
Value of underlying properties | | $2,400 | | $40 | | $307 | | $1,800 | | $32 | | $234 |
Holding costs | | 22.0% | | 5.5% | | 7.7% | | 24.1% | | 5.4% | | 8.3% |
Liquidation costs | | 20.8% | | 8.1% | | 9.4% | | 25.0% | | 8.5% | | 9.6% |
Note rate | | 6.0% | | 3.0% | | 5.2% | | 6.0% | | 3.0% | | 4.8% |
Secondary market transaction prices/UPB | | 88.5% | | 75.5% | | 85.2% | | 88.5% | | 75.5% | | 83.7% |
| |
(1) | Weighted based on value of underlying properties (excluding the value of underlying properties line item). |
|
| | | | | | | | | | | | | | | |
| Fair Value as of | | | | | | Actual or Range (Weighted average) |
Liabilities (1) | September 30, 2017 | | December 31, 2016 | | Valuation technique | | Unobservable input(s) | | September 30, 2017 | | December 31, 2016 |
Contingent consideration payable - Reliance (2) | $ | — |
| | $ | 1,800 |
| | Cash Flow model (3) | | Forecast EBITDA | | $1,000 - $8,000 | | $951 - $6,005 |
| | | Book value growth rate | | N/A | | 5.0% |
| | | Asset volatility | | N/A | | 1.4% - 23.7% |
Contingent consideration payable - Luxury | 52 |
| | 52 |
| | Cash Flow model | | Projected cash available for distribution | | $1,059 - $1,316 | | $1,059 - $1,316 |
Preferred notes payable | 1,386 |
| | 1,232 |
| | Cash Flow model | | Discount rate | | 12.0% | | 12.0% |
Total | $ | 1,438 |
|
| $ | 3,084 |
| | | | | | | | |
| |
(1) | Not included in this table are the debt obligations of consolidated CLOs, measured and leveled on the basis of the fair value of the (more observable) financial assets of the consolidated CLOs. See Note—(10) Assets and Liabilities of Consolidated CLOs. |
(2) Settled in Q3 2017 with Class A common shares. See Note—(17) Stockholders’ Equity.
(3) Monte Carlo simulation is run, as needed.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2024 | | As of December 31, 2023 |
| Level within fair value hierarchy | | Fair value | | Carrying value | | Level within fair value hierarchy | | Fair value | | Carrying value |
Assets: | | | | | | | | | | | |
Debentures | 2 | | $ | 28,462 | | | $ | 28,462 | | | 2 | | $ | 25,648 | | | $ | 25,648 | |
Notes receivable, net | 2 | | 137,089 | | | 137,089 | | | 2 | | 134,131 | | | 134,131 | |
Total assets | | | $ | 165,551 | | | $ | 165,551 | | | | | $ | 159,779 | | | $ | 159,779 | |
| | | | | | | | | | | |
Liabilities: | | | | | | | | | | | |
Debt | 3 | | $ | 409,837 | | | $ | 414,674 | | | 3 | | $ | 406,801 | | | $ | 411,488 | |
Total liabilities | | | $ | 409,837 | | | $ | 414,674 | | | | | $ | 406,801 | | | $ | 411,488 | |
|
| | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 | | As of December 31, 2016 |
| Level within fair value hierarchy | | Fair value | | Carrying value | | Level within fair value hierarchy | | Fair value | | Carrying value |
Assets: | | | | | | | | | | | |
Notes and accounts receivable, net | 2 | | $ | 19,310 |
| | $ | 19,310 |
| | 2 | | $ | 28,293 |
| | $ | 28,732 |
|
Total assets | | | $ | 19,310 |
| | $ | 19,310 |
| | | | $ | 28,293 |
| | $ | 28,732 |
|
| | | | | | | | | | | |
Liabilities: | | | | | | | | | | | |
Debt, net | 3 | | $ | 876,444 |
| | $ | 872,133 |
| | 3 | | $ | 798,806 |
| | $ | 799,828 |
|
Total liabilities | | | $ | 876,444 |
| | $ | 872,133 |
| | | | $ | 798,806 |
| | $ | 799,828 |
|
Debentures: Sinceinterest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts. See Note (5) Investments.
Notes and Accounts Receivable: Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized asunder Level 2 ofin the fair value hierarchy. See Note (6) Notes and Accounts Receivable, net.
Debt: The carrying value, which approximates fair value of floating rate debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes payable is determined based on contractual cash flows discounted at market rates for mortgage notes payable and either dealer quotes or contractual cash flows discounted at market rates for other notes payable.quotes. Categorized asunder Level 3 ofin the fair value hierarchy.
Additionally, the following financial assets and liabilities on the condensed consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value:
Loans Owned, at Amortized Cost: The fair value of loans owned, at amortized cost approximates its carrying value because the interest rates on the loans are based on a variable market interest rate. Categorized as Level 3 of the fair value hierarchy.
Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized asunder Level 1 ofin the fair value hierarchy.
Accounts and Premiums Receivable, net, retrospective commissions receivableRetrospective Commissions Receivable and other receivables: Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized asunder Level 2 ofin the fair value hierarchy. See Note—Note (6) Notes and Accounts Receivable, net.
Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short‑short term nature. Categorized asunder Level 2 ofin the fair value hierarchy.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
(13)(12) Liability for Unpaid Claims and Claim Adjustment Expenses
Roll forward of Claim Liability
The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short-durationshort duration contracts for the following periods:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
Policy liabilities and unpaid claims balance as of January 1, | $ | 844,848 | | | $ | 567,193 | |
Less: liabilities of policy-holder account balances, gross | (878) | | | (1,923) | |
Less: non-insurance warranty benefit claim liabilities | (2,103) | | | (140) | |
Gross liabilities for unpaid losses and loss adjustment expenses | 841,867 | | | 565,130 | |
Less: reinsurance recoverable on unpaid losses - short duration | (448,117) | | | (266,889) | |
Less: other lines, gross | (295) | | | (184) | |
Net balance as of January 1, short duration | 393,455 | | | 298,057 | |
| | | |
Incurred (short duration) related to: | | | |
Current year | 174,540 | | | 113,932 | |
Prior years | 773 | | | 328 | |
Total incurred | 175,313 | | | 114,260 | |
| | | |
Paid (short duration) related to: | | | |
Current year | 31,010 | | | 33,742 | |
Prior years | 70,133 | | | 42,855 | |
Total paid | 101,143 | | | 76,597 | |
| | | |
Net balance as of March 31, short duration | 467,625 | | | 335,720 | |
Plus: reinsurance recoverable on unpaid losses - short duration | 488,341 | | | 302,103 | |
Plus: other lines, gross | 171 | | | 180 | |
Gross liabilities for unpaid losses and loss adjustment expenses | 956,137 | | | 638,003 | |
Plus: liabilities of policy-holder account balances, gross | 600 | | | 1,686 | |
Plus: non-insurance warranty benefit claim liabilities | 5,682 | | | 119 | |
Policy liabilities and unpaid claims balance as of March 31, | $ | 962,419 | | | $ | 639,808 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Policy liabilities and unpaid claims balance as of January 1 | $ | 103,391 |
| | $ | 80,663 |
|
Less : liabilities of policy-holder accounts balances, gross | (17,417 | ) | | (19,037 | ) |
Less : non-insurance warranty benefit claim liabilities | (91 | ) | | (116 | ) |
Gross liabilities for unpaid losses and loss adjustment expenses | 85,883 |
| | 61,510 |
|
Less : reinsurance recoverable on unpaid losses - short duration | (63,112 | ) | | (42,341 | ) |
Less : other lines, gross | (208 | ) | | (163 | ) |
Net balance as of January 1, short duration | 22,563 |
| | 19,006 |
|
| | | |
Incurred (short duration) related to: | | | |
Current year | 78,174 |
| | 55,461 |
|
Prior years | 2,958 |
| | (1,987 | ) |
Total incurred | 81,132 |
| | 53,474 |
|
| | | |
Paid (short duration) related to: | | | |
Current year | 57,875 |
| | 34,822 |
|
Prior years | 20,600 |
| | 13,992 |
|
Total paid | 78,475 |
| | 48,814 |
|
| | | |
Net balance as of September 30, short duration | 25,220 |
| | 23,666 |
|
Plus : reinsurance recoverable on unpaid losses - short duration | 69,813 |
| | 60,236 |
|
Plus : other lines, gross | 193 |
| | 164 |
|
Gross liabilities for unpaid losses and loss adjustment expenses | 95,226 |
| | 84,066 |
|
Plus : liabilities of policy-holder accounts balances, gross | 15,652 |
| | 17,766 |
|
Plus : non-insurance warranty benefit claim liabilities | 50 |
| | 80 |
|
Policy liabilities and unpaid claims balance as of September 30, | $ | 110,928 |
| | $ | 101,912 |
|
The following schedule reconciles the total amount of losses incurred on short duration contracts per the table above to the amount of total losses incurred as presented in the condensed consolidated statementstatements of operations, excluding the amount for member benefit claims:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Short duration incurred | $ | 175,313 | | | $ | 114,260 | | | | | | | |
Other lines incurred | (105) | | | (3) | | | | | | | |
Unallocated loss adjustment expenses | 172 | | | 70 | | | | | | | |
Total losses incurred | $ | 175,380 | | | $ | 114,327 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total incurred | $ | 27,236 |
| | $ | 19,247 |
| | $ | 81,132 |
| | $ | 53,474 |
|
Other lines incurred | 81 |
| | 44 |
| | 78 |
| | 74 |
|
Unallocated loss adjustment expense | 441 |
| | 623 |
| | 1,343 |
| | 1,554 |
|
Total losses incurred | $ | 27,758 |
| | $ | 19,914 |
| | $ | 82,553 |
| | $ | 55,102 |
|
ForDuring the ninethree months ended September 30, 2017,March 31, 2024, the Company’s specialty insurance businessCompany experienced an increase inunfavorable prior year case development of $2,958. This included $1,772 in non-standard auto and $1,852 in warranty. This development was partially offset$773, primarily driven by favorablehigher-than-expected claims paid development in its credit lines of business. The warranty and creditour commercial lines of business, are primarily with a single partner.
During the three months ended March 31, 2023, the Company experienced unfavorable prior year development of $328, primarily as a result of higher-than-expected claim severity in retrospective commission arrangements that minimally impact the operating incomeour personal and commercial lines of the Company.business.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
Management considers the prior year development for each of these years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings.
The unfavorable prior year development of $773 in the three months ended March 31, 2024 represented 2.1% of our insurance business income before taxes of $36,811 and 0.2% of the opening net liability for losses and loss adjustment expenses of $393,455, as of January 1, 2024.
The unfavorable prior year development of $328 in the three months ended March 31, 2023 represented 1.7% of our insurance business income before taxes of $19,445, and 0.1% of the opening net liability for losses and loss adjustment expenses of $298,057, as of January 1, 2023.
Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represent the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
(13) Revenue from Contracts with Customers
The Company’s revenues from insurance and contractual and liability insurance operations are primarily accounted for under Financial Services-Insurance (ASC 944) that are not within the scope of Revenue for Contracts with Customers (ASC 606). The Company’s remaining revenues that are within the scope of ASC 606 are primarily comprised of revenues from contracts with customers for monthly membership dues for motor clubs, monthly administration fees for services provided for premiums, claims and reinsurance processing revenues, vehicle service contracts, vessel related revenue and revenues for household goods and appliances service contracts (collectively, remaining contracts).
The following table presents the disaggregated amounts of revenue from contracts with customers by product type for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| | | | | |
| 2024 | | 2023 | | | | | | |
Service and Administrative Fees: | | | | | | | | | |
Service contract revenue | $ | 80,823 | | | $ | 63,170 | | | | | | | |
Motor club revenue | 11,521 | | | 12,516 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other | 958 | | | 1,503 | | | | | | | |
Revenue from contracts with customers | $ | 93,302 | | | $ | 77,189 | | | | | | | |
Service and Administrative Fees
Service and administrative fees are generated from non-insurance programs including warranty service contracts, motor clubs and other services. Service and administrative fees are recognized consistent with the earnings recognition pattern of the underlying policies, debt cancellation contracts and motor club memberships being administered, using pro rata, Rule of 78’s, modified Rule of 78’s, or other methods as appropriate for the contract. Management selects the appropriate method based on available information, and periodically reviews the selections as additional information becomes available.
Management reviews the financial results under each significant contract on a monthly basis. Any losses that may occur due to a specific contract would be recognized in the period in which the loss is determined to be probable.
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material as of March 31, 2024.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(in thousands, except share data)
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
The following table presents the activity in the deferred assets and liabilities related to revenue from contracts with customers for the following period:
| | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2024 | | | | | | March 31, 2024 |
| Beginning balance | | Additions | | Amortization | | Ending balance |
Deferred acquisition costs | | | | | | | |
Service and Administrative Fees: | | | | | | | |
Service contract revenue | $ | 201,903 | | | $ | 30,489 | | | $ | 26,658 | | | $ | 205,734 | |
Motor club revenue | 16,636 | | | 7,928 | | | 8,972 | | | 15,592 | |
Total | $ | 218,539 | | | $ | 38,417 | | | $ | 35,630 | | | $ | 221,326 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred revenue | | | | | | | | | | |
Service and Administrative Fees: | | | | | | | | | | |
Service contract revenue | $ | 605,425 | | | | | | $ | 82,489 | | | $ | 80,823 | | | $ | 607,091 | |
Motor club revenue | 21,677 | | | | | | 10,135 | | | 11,521 | | | 20,291 | |
Other | — | | | | | | 942 | | | 942 | | | — | |
Total | $ | 627,102 | | | | | | $ | 93,566 | | | $ | 93,286 | | | $ | 627,382 | |
For the nine months ended September 30, 2016, the Company’s specialty insurance business experienced a decrease in prior year case development of $1,987. This decrease was due to the favorable development in credit lines of business. This development was partially offset by increased case development of $1,644 in non-standard autoperiods presented, no write-offs for unrecoverable deferred acquisition costs and $1,328 in warranty. The warranty and credit lines of business are primarily in retrospective commission arrangements that minimally impacts the operating income of the Company.deferred revenue were recognized.
(14) Other Assets and Other Liabilities and Accrued Expenses
Other Assets
The following table presents the components of other assets as reported in the condensed consolidated balance sheets:
| | | | | | | | | | | |
| As of |
| March 31, 2024 | | December 31, 2023 |
| |
| | | |
Accrued investment income | $ | 7,398 | | | $ | 6,269 | |
Loans eligible for repurchase | 33,385 | | | 32,183 | |
Mortgage servicing rights | 42,020 | | | 40,836 | |
Right of use assets - operating leases (1) | 29,980 | | | 31,469 | |
Income tax receivable | 901 | | | 1,275 | |
Furniture, fixtures and equipment, net | 29,083 | | | 29,624 | |
| | | |
Prepaid expenses | 14,111 | | | 12,985 | |
Other | 4,302 | | | 10,874 | |
Total other assets | $ | 161,180 | | | $ | 165,515 | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Due from brokers | $ | 1,505 |
| | $ | 2,027 |
|
Furniture, fixtures and equipment, net | 5,669 |
| | 5,936 |
|
Prepaid expenses | 9,441 |
| | 5,020 |
|
Accrued interest receivable | 3,154 |
| | 2,052 |
|
Management fee receivable | 4,375 |
| | 4,308 |
|
Other fee receivable | 5,159 |
| | 5,022 |
|
Income tax receivable | 4,140 |
| | 4,842 |
|
Other | 15,101 |
| | 8,679 |
|
Total other assets | $ | 48,544 |
|
| $ | 37,886 |
|
(1) See Note (20) Commitments and Contingencies for additional information.
The following table presents the depreciation expense related to furniture, fixtures and equipment for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Depreciation expense related to furniture, fixtures and equipment | $ | 1,577 | | | $ | 1,069 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Depreciation expense related to furniture, fixtures and equipment | $ | 656 |
| | $ | 667 |
| | $ | 1,883 |
| | $ | 1,978 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(15) (in thousands, except share data)
Other Liabilities and Accrued Expenses
The following table presents the components of other liabilities and accrued expenses as reported in the condensed consolidated balance sheets:
| | | | | | | | | | | |
| As of |
| March 31, 2024 | | December 31, 2023 |
| |
| | | |
Accounts payable and accrued expenses | $ | 81,435 | | | $ | 114,568 | |
Loans eligible for repurchase liability | 33,385 | | | 32,183 | |
Deferred tax liabilities, net | 150,846 | | | 139,845 | |
Operating lease liabilities (1) | 38,800 | | | 40,403 | |
| | | |
Commissions payable | 17,432 | | | 36,728 | |
| | | |
Derivative liabilities | 8,264 | | | 4,503 | |
Due to broker/trustee | 88 | | | 17,054 | |
Other | 21,517 | | | 18,460 | |
Total other liabilities and accrued expenses | $ | 351,767 | | | $ | 403,744 | |
(1) See Note (20) Commitments and Contingencies for additional information.
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Accounts payable and accrued expenses | $ | 46,544 |
| | $ | 67,837 |
|
Deferred tax liabilities, net | 30,789 |
| | 32,296 |
|
Due to brokers | 7,733 |
| | 8,457 |
|
Commissions payable | 11,007 |
| | 7,466 |
|
Accrued interest payable | 2,127 |
| | 1,729 |
|
Derivative liabilities, at fair value | 709 |
| | 1,398 |
|
Other liabilities | 16,949 |
| | 14,552 |
|
Total other liabilities and accrued expenses | $ | 115,858 |
| | $ | 133,735 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(16)(15) Other IncomeRevenue and Other Expenses
Other Revenue
The following table presents the components of other incomerevenue as reported in the condensed consolidated statement of operations, primarily comprisedoperations.
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Other investment income (1) | $ | 6,216 | | | $ | 4,770 | | | | | | | |
Financing interest income | 4,272 | | | 3,887 | | | | | | | |
Other (2) | 4,810 | | | 4,675 | | | | | | | |
Total other revenue | $ | 15,298 | | | $ | 13,332 | | | | | | | |
(1) See Note (5) Investments for the components of interest incomeOther investment income.
(2) Includes $4,378 and loan fee income$3,118 for the three months ended March 31, 2024 and 2023, respectively, related to both loans at fair value and loans at amortized costs, net in our specialty finance business, and management fees from our asset management business:Insurance.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Interest income | $ | 5,254 |
| | $ | 4,215 |
| | $ | 14,439 |
| | $ | 13,455 |
|
Loan fee income | 3,201 |
| | 3,915 |
| | 9,451 |
| | 9,296 |
|
Management fee income | 1,541 |
| | 3,839 |
| | 6,578 |
| | 7,497 |
|
Other | 1,383 |
| | 450 |
| | 3,352 |
| | 1,477 |
|
Total other income | $ | 11,379 |
| | $ | 12,419 |
| | $ | 33,820 |
| | $ | 31,725 |
|
Other Expenses
The following table presents the components of other expenses as reported in the condensed consolidated statement of operations:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
General and administrative | $ | 10,521 | | | $ | 9,059 | | | | | | | |
Professional fees | 9,078 | | | 7,759 | | | | | | | |
Premium taxes | 5,375 | | | 5,774 | | | | | | | |
Mortgage origination expenses | 3,160 | | | 3,192 | | | | | | | |
Rent and related | 3,916 | | | 4,070 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other | 8,816 | | | 2,957 | | | | | | | |
Total other expenses | $ | 40,866 | | | $ | 32,811 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Professional fees | $ | 4,506 |
| | $ | 5,283 |
| | $ | 13,980 |
| | $ | 17,581 |
|
Acquisition and transaction costs | 25 |
| | 248 |
| | 302 |
| | 631 |
|
General and administrative | 4,015 |
| | 3,178 |
| | 11,552 |
| | 10,788 |
|
Premium taxes | 2,810 |
| | 1,637 |
| | 8,840 |
| | 5,480 |
|
Mortgage origination expenses | 2,406 |
| | 2,308 |
| | 6,728 |
| | 5,944 |
|
Property operating expenses | 2,635 |
| | 1,854 |
| | 7,798 |
| | 5,439 |
|
Rent and related | 2,992 |
| | 3,091 |
| | 8,998 |
| | 9,189 |
|
Other | 3,775 |
| | 4,087 |
| | 15,182 |
| | 13,299 |
|
Total other expense | $ | 23,164 |
| | $ | 21,686 |
| | $ | 73,380 |
| | $ | 68,351 |
|
(17) Stockholders’ Equity
All shares of our Class A common stock have equal rights as to earnings, assets, dividends and voting. Shares of Class B common stock have the voting rights as the Class A common stock but no economic rights (including no right to receive dividends or other distributions upon liquidation, dissolution or otherwise). Distributions may be paid to holders of Class A common stock when duly authorized by our board of directors and declared out of legally available assets.
TFP owns a warrant to purchase 652,500 shares of Class A common stock at $11.33 per share which is immediately exercisable and expires on September 30, 2018. Such an exercise would be accounted for as treasury stock held at TFP and would have no impact on Tiptree’s financial statements.
On June 5, 2017, in settlement of an option, TFP delivered 1,510,920 shares of the Company’s Class A common stock to Tricadia for total consideration of approximately $8,100.
On June 21, 2017, a subsidiary of Tiptree purchased 1,000,000 shares of Class A common stock of Tiptree for aggregate consideration of $7,300. The shares acquired are accounted for as treasury shares and therefore are not outstanding for accounting or voting purposes.
On August 10, 2017, the Company settled a contingent consideration payable related to the acquisition of Reliance in 2015 with 756,046 shares of Class A common stock.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
(16) Stockholders' Equity
Stock Repurchases
The Board of Directors authorized the Company to make repurchases of up to $20,000 of shares of the Company’s outstanding common stock in the aggregate, at the discretion of the Company's Executive Committee. There were no shares repurchased during the three months ended March 31, 2024. As of March 31, 2024, the remaining repurchase authorization was $11,945.
Dividends
The Company declared cash dividends per share for the following periods presented below:
| | | | | | | | | | | | | |
| Dividends per share for the |
| Three Months Ended March 31, |
| 2024 | | 2023 | | |
First quarter | $ | 0.06 | | | $ | 0.05 | | | |
| | | | | |
| | | | | |
| | | | | |
Total cash dividends declared | $ | 0.06 | | | $ | 0.05 | | | |
Fortegra Non-Controlling Interests
On June 21, 2022, the Company closed the WP Transaction. On that date, Fortegra converted to a Delaware corporation and Warburg made a $200,000 investment in Fortegra in exchange for Fortegra Common Stock, Fortegra Preferred Stock, Fortegra Warrants and Fortegra Additional Warrants. Also, in connection with the closing of the WP Transaction, Tiptree was issued Fortegra Additional Warrants, and management’s interests in LOTS Intermediate were exchanged for interests in Fortegra.
On March 28, 2024, Tiptree and Warburg contributed $29,229 and $9,621, respectively, to Fortegra in exchange for Fortegra Common Stock. As of March 31, 2024, Fortegra was owned approximately 79.3% by Tiptree Holdings, 17.7% by Warburg and 3.0% by management and directors of Fortegra.
Fortegra Preferred Stock
The face amount of the Fortegra Preferred Stock is $80,000. Dividends are cumulative and accrue at a rate of 8% per annum, compounding quarterly. Any quarterly dividend may be paid in cash, at Fortegra’s option. For the three months ended March 31, 2024, cash dividends declared were $1,595.
Warburg has the option to convert, at any time, its shares of Fortegra Preferred Stock into shares of Fortegra Common Stock at an initial conversion premium of 33% to Warburg’s initial investment valuation (the “Fortegra Preferred Stock Conversion Price”). The Fortegra Preferred Stock Conversion Price is adjusted for any Fortegra Common Stock splits, dividends, extraordinary dividends and similar transactions. All of the Fortegra Preferred Stock will automatically convert into shares of Fortegra Common Stock at the Fortegra Preferred Stock Conversion Price upon the closing of a qualifying initial public offering, subject to a five year make-whole provision. Upon conversion, the Fortegra Preferred Stock would result in Warburg owning an additional 6.3% interest in Fortegra, for a total as converted ownership of 24.1% (including its ownership of Fortegra Common Stock).
Fortegra Warrants
The Fortegra Warrants have a seven-year term and an exercise premium of 33% to Warburg’s initial investment valuation (the “Fortegra Warrant Exercise Price”). The Fortegra Warrant Exercise Price will be reduced by any Fortegra Common Stock cash dividends made by Fortegra and adjusted for stock splits, common stock dividends, extraordinary dividends and similar transactions. The Fortegra Warrants, if exercised with cash, would result in Warburg owning an additional 3.7% interest in Fortegra.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(in thousands, except share data)
|
| | | | | | | |
| | | |
| Dividends per share for |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
First Quarter | $ | 0.030 |
| | $ | 0.025 |
|
Second Quarter | 0.030 |
| | 0.025 |
|
Third Quarter | 0.030 |
| | 0.025 |
|
Total cash dividends declared | $ | 0.090 |
| | $ | 0.075 |
|
Fortegra Additional Warrants
The Fortegra Additional Warrants issued to both Warburg and Tiptree have a seven-year term and an exercise price of $0.01 per share of Fortegra Common Stock. The Fortegra Additional Warrants issued to Warburg will be forfeited based on Warburg achieving an all-in return on its investment in excess of 23%, as measured primarily by Fortegra’s Common Stock price. The Fortegra Additional Warrants issued to Warburg are classified as liabilities, at fair value. The Fortegra Additional Warrants issued to Tiptree will vest based on Warburg achieving an all-in return on its investment in excess of 30%, as measured primarily by Fortegra’s Common Stock price. The number of shares of Fortegra Common Stock issuable to Warburg or Tiptree with respect to the Fortegra Additional Warrants is subject to adjustment for Fortegra Common Stock splits, stock or cash dividends and similar transactions. The Fortegra Additional Warrants are exercisable from the earlier of a transaction that results in Warburg having sold 50% of its Fortegra Common Stock or the fifth anniversary of the closing date. The maximum number of shares issued to Warburg or Tiptree, if exercised with cash, would be an additional 1.7% interest in Fortegra on an as converted basis (including its ownership of Fortegra Common and Preferred Stock).
The following table presents the components of non-controlling interests as reported in the condensed consolidated balance sheets:
| | | | | | | | | | | |
| As of |
| March 31, 2024 | | December 31, 2023 |
| |
| | | |
Fortegra preferred interests | $ | 77,679 | | | $ | 77,679 | |
Fortegra common interests | 96,224 | | | 82,020 | |
| | | |
Total non-controlling interests | $ | 173,903 | | | $ | 159,699 | |
Statutory Reporting and Insurance Company Subsidiaries Dividend Restrictions
The Company’s U.S. insurance subsidiaries prepare financial statements in accordance with Statutory Accounting Principles (SAP) prescribed or permitted by the insurance departments of their states of domicile. Prescribed SAP includes the Accounting Practices and Procedures Manual of the NAIC as well as state laws, regulations and administrative rules.
Statutory Capital and Surplus
The Company’s insurance company subsidiaries must maintain minimum amounts of statutory capital and surplus as required by regulatory authorities, including the NAIC; their capital and surplus levels exceeded respective minimum requirements as of March 31, 2024 and December 31, 2023. Under the NAIC Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The Company's U.S. domiciled insurance company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of March 31, 2024 and December 31, 2023.
The Company also has a foreign insurance subsidiary that is not subject to SAP. The statutory capital and surplus amounts and statutory net income presented above do not include the foreign insurance subsidiary in accordance with SAP.
Statutory Dividends
The Company’s U.S. domiciled insurance company subsidiaries may pay dividends to the Company, subject to statutory restrictions. Payments in excess of statutory restrictions (extraordinary dividends) to the Company are permitted only with prior approval of the insurance department of the applicable state of domicile. The Company eliminatedeliminates all dividends from its subsidiaries in the condensed consolidated financial statements. For
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(in thousands, except share data)
There were no dividends paid to the three and nine months ended September 30, 2017 and 2016, respectively, the Company’sCompany by its U.S. domiciled insurance company subsidiaries did not pay any ordinary or extraordinary dividends.
The following table presentsfor the combined statutory capitalthree months ended March 31, 2024 and surplus of the Company's insurance company subsidiaries, the required minimum statutory capital and surplus, as required by the laws of the states in which they are domiciled, and the2023. The combined amount available for ordinary dividends of the Company's U.S. domiciled insurance company subsidiaries for the following periods:
| | | | | | | | | | | | | |
| |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| As of | | |
| March 31, 2024 | | December 31, 2023 | | |
Amount available for ordinary dividends of the Company's insurance company subsidiaries | $ | 24,327 | | | $ | 24,327 | | | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Combined statutory capital and surplus of the Company's insurance company subsidiaries | $ | 108,666 |
| | $ | 100,920 |
|
| | | |
Required minimum statutory capital and surplus | $ | 19,200 |
| | $ | 17,200 |
|
| | | |
Amount available for ordinary dividends of the Company's insurance company subsidiaries | $ | 9,425 |
| | $ | 9,049 |
|
At September 30, 2017,March 31, 2024, the maximum amount of dividends that our regulatedU.S. domiciled insurance company subsidiaries could pay under applicable laws and regulations without regulatory approval was approximately $9,425.$24,327. The Company may seek regulatory approval to pay dividends in excess of this permitted amount, but there can be no assurance that the Company would receive regulatory approval if sought.
Under the National Association of Insurance Commissioners (NAIC) Risk-Based Capital Act of 1995, a company's Risk-Based Capital (RBC) is calculated by applying certain risk factors to various asset, claim and reserve items. If a company's adjusted surplus falls below calculated RBC thresholds, regulatory intervention or oversight is required. The Company's insurance company subsidiaries' RBC levels, as calculated in accordance with the NAIC’s RBC instructions, exceeded all RBC thresholds as of September 30, 2017.
The following table presents the net income of the Company’s statutory insurance companies for the following periods: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income of statutory insurance companies | $ | 391 |
| | $ | 4,199 |
| | $ | 6,745 |
| | $ | 10,326 |
|
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
(18)(17) Accumulated Other Comprehensive Income (Loss) (AOCI)
The following table presents the activity of AFS securities in accumulated other comprehensive income (loss) (AOCI),AOCI, net of tax, for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) on available for sale securities | | Foreign currency translation adjustment | | Total AOCI | | Amount attributable to non-controlling interests | | Total AOCI to Tiptree Inc. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2022 | $ | (43,043) | | | $ | (7,311) | | | $ | (50,354) | | | $ | 10,925 | | | $ | (39,429) | |
Other comprehensive income (losses) before reclassifications | 5,745 | | | 2,932 | | | 8,677 | | | (2,062) | | | 6,615 | |
Amounts reclassified from AOCI | (279) | | | — | | | (279) | | | — | | | (279) | |
| | | | | | | | | |
OCI | 5,466 | | | 2,932 | | | 8,398 | | | (2,062) | | | 6,336 | |
| | | | | | | | | |
Balance at March 31, 2023 | $ | (37,577) | | | $ | (4,379) | | | $ | (41,956) | | | $ | 8,863 | | | $ | (33,093) | |
| | | | | | | | | |
Balance at December 31, 2023 | $ | (32,145) | | | $ | (98) | | | $ | (32,243) | | | $ | 6,170 | | | $ | (26,073) | |
Other comprehensive income (losses) before reclassifications | (3,046) | | | 420 | | | (2,626) | | | 685 | | | (1,941) | |
Amounts reclassified from AOCI | 86 | | | — | | | 86 | | | — | | | 86 | |
OCI | (2,960) | | | 420 | | | (2,540) | | | 685 | | | (1,855) | |
| | | | | | | | | |
Balance at March 31, 2024 | $ | (35,105) | | | $ | 322 | | | $ | (34,783) | | | $ | 6,855 | | | $ | (27,928) | |
| | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Unrealized gains (losses) on | | | | Amount attributable to noncontrolling interests | | |
| Available for sale securities | | Interest rate swaps | | Total AOCI | | TFP | | Other | | Total AOCI to Tiptree Inc. |
Balance at December 31, 2015 | $ | (222 | ) | | $ | 111 |
| | $ | (111 | ) | | $ | — |
| | $ | — |
| | $ | (111 | ) |
Other comprehensive income (losses) before reclassifications | 2,448 |
| | (357 | ) | | 2,091 |
| | (237 | ) | | 29 |
| | 1,883 |
|
Amounts reclassified from AOCI | (715 | ) | | (26 | ) | | (741 | ) | | — |
| | — |
| | (741 | ) |
Period change | 1,733 |
| | (383 | ) | | 1,350 |
| | (237 | ) | | 29 |
| | 1,142 |
|
Balance at September 30, 2016 | $ | 1,511 |
| | $ | (272 | ) | | $ | 1,239 |
| | $ | (237 | ) | | $ | 29 |
| | $ | 1,031 |
|
| | | | | | | | | | | |
Balance at December 31, 2016 | $ | (700 | ) | | $ | 1,759 |
| | $ | 1,059 |
| | $ | (128 | ) | | $ | (376 | ) | | $ | 555 |
|
Other comprehensive income (losses) before reclassifications | 1,165 |
| | (296 | ) | | 869 |
| | (154 | ) | | 48 |
| | 763 |
|
Amounts reclassified from AOCI | (238 | ) | | 143 |
| | (95 | ) | | — |
| | — |
| | (95 | ) |
Period change | 927 |
| | (153 | ) | | 774 |
| | (154 | ) | | 48 |
| | 668 |
|
Balance at September 30, 2017 | $ | 227 |
| | $ | 1,606 |
| | $ | 1,833 |
| | $ | (282 | ) | | $ | (328 | ) | | $ | 1,223 |
|
The following table presents the reclassification adjustments out of AOCI included in net income and the impacted line items on the condensed consolidated statement of operations for the following periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | | Affected line item in condensed consolidated statements of operations |
Components of AOCI | | 2024 | | 2023 | | | | | | | |
Unrealized gains (losses) on available for sale securities | | $ | (116) | | | $ | 365 | | | | | | | | | Net realized and unrealized gains (losses) |
Related tax (expense) benefit | | 30 | | | (86) | | | | | | | | | Provision for income tax |
Net of tax | | $ | (86) | | | $ | 279 | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | Affected line item in Condensed Consolidated Statement of Operations |
Components of AOCI | 2017 | | 2016 | | 2017 | | 2016 |
Unrealized gains (losses) on available for sale securities | $ | 394 |
| | $ | 960 |
| | $ | 367 |
| | $ | 1,100 |
| Net realized and unrealized gains (losses) |
Related tax (expense) benefit | (138 | ) | | (336 | ) | | (129 | ) | | (385 | ) | Provision for income tax |
Net of tax | $ | 256 |
| | $ | 624 |
| | $ | 238 |
| | $ | 715 |
|
|
| | | | | | | | |
Unrealized gains (losses) on interest rate swaps | $ | 25 |
| | $ | (172 | ) | | $ | (212 | ) | | $ | 56 |
| Interest expense |
Related tax (expense) benefit | (8 | ) | | 54 |
| | 69 |
| | (30 | ) | Provision for income tax |
Net of tax | $ | 17 |
| | $ | (118 | ) | | $ | (143 | ) | | $ | 26 |
|
|
(19) Stock Based Compensation
Equity Plans
2007 Manager Equity Plan
The Care Investment Trust Inc. Manager Equity Plan (Manager Plan) was adopted in June 2007. On June 6, 2017, the 134,629 remaining shares of Class A common stock available for issuance under the Manager Plan was rolled into the 2017 Equity Plan and the Manager Plan was simultaneously terminated.
2013 Omnibus Incentive Plan
The Tiptree 2013 Omnibus Incentive Plan (2013 Equity Plan) was adopted on August 8, 2013. On June 6, 2017, the 7,359 remaining shares of Class A common stock available for issuance under the 2013 Equity Plan was rolled into the 2017 Equity Plan and the 2013 Equity Plan was simultaneously terminated.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
(18) Stock Based Compensation
2017 Omnibus Incentive Plan
The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of stock units, stock, and stock options up to a maximum of 6,100,000 shares of Class A common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on the 10th anniversary of its adoption.Plans
The table below summarizes changes to the issuances under the Company’s 2013 and 2017 Omnibus Incentive Equity Plan for the periods indicated:
|
| | |
2013 Equity Plan | Number of shares (1)
|
Available for issuance as of December 31, 2016 | 961,650 |
|
Shares granted | (954,291 | ) |
Shares rolled into 2017 Equity Plan | (7,359 | ) |
Available for issuance as of September 30, 2017 | — |
|
| |
2017 Equity Plan | Number of shares (1)
|
Available for issuance as of December 31, 2016 | — |
|
Available from 2017 Equity Plan | 6,100,000 |
|
Shares granted | (71,016 | ) |
Available for issuance as of September 30, 2017 | 6,028,984 |
|
(1) Excludes sharesindicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree Class A common stock.stock:
| | | | | |
2017 Equity Plan | Number of shares |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Available for issuance as of December 31, 2023 | 2,260,550 | |
RSU, stock and option awards granted | (83,379) | |
| |
| |
PRSU awards granted | (1,420,833) | |
| |
Available for issuance as of March 31, 2024 | 756,338 | |
Restricted Stock Units (RSUs)(RSUs) and Stock Awards
Generally, the Tiptree RSUs shall vest and become nonforfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.
The following table summarizes changes to the issuances of Class A common stock and RSUs under the 2017 Equity Plan for the periods indicated:
|
| | | | | | | |
| | Number of shares issuable | | Weighted average grant date fair value |
Unvested units as of December 31, 2016 | | 299,817 |
| | $ | 6.27 |
|
Granted (1) | | 454,680 |
| | 6.60 |
|
Vested | | (155,615 | ) | | 6.42 |
|
Unvested units as of September 30, 2017 | | 598,882 |
| | $ | 6.48 |
|
(1) Includes grants of 27,192 shares of Class A common stock to directors.
The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Included in vestedGenerally, the Tiptree RSUs vest and become non-forfeitable either (i) after the third anniversary, or (ii) with respect to one-third of Tiptree shares for 2017 are 16,716 shares surrendered to pay taxesgranted on behalfeach of the employees with shares vesting. During the nine months ended September 30, 2017, the Company granted 427,488 RSUs to employeesfirst, second and third year anniversaries of the Company. 142,175grant date. RSU awards are expensed using the straight-line method over the requisite service period. The RSUs include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. Stock awards issued as director compensation are deemed to be granted and immediately vested upon issuance.
The following table presents changes to the issuances of RSUs under the 2017 Omnibus Incentive Equity Plan for the periods indicated:
| | | | | | | | | | | |
| Number of shares issuable | | Weighted average grant date fair value |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Unvested units as of December 31, 2023 | 253,231 | | | $ | 14.25 | |
Granted | 83,379 | | | 17.81 | |
Vested | (36,489) | | | 13.91 | |
| | | |
Unvested units as of March 31, 2024 (1) | 300,121 | | | $ | 15.28 | |
(1)Includes 139,888, 81,873 and 78,360 shares vest ratably over a period of three years that began in February 2017 and the remaining 285,313 shares will cliff vest in February 2020.2025, 2026 and 2027, respectively.
SubsidiaryThe following tables present the detail of the granted and vested RSUs for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| Three Months Ended March 31, | | | Three Months Ended March 31, |
Granted | 2024 | | 2023 | | | | Vested | 2024 | | 2023 | | |
Directors | 5,019 | | | 8,314 | | | | | Directors | 5,019 | | | 8,314 | | | |
Employees | 78,360 | | | 81,874 | | | | | Employees | 31,470 | | | 329,650 | | | |
Total Granted | 83,379 | | | 90,188 | | | | | Total Vested | 36,489 | | | 337,964 | | | |
| | | | | | | Taxes | (11,395) | | | (43,322) | | | |
| | | | | | | | | | | | |
| | | | | | | Net Vested | 25,094 | | | 294,642 | | | |
Tiptree Senior Management Incentive PlansPlan
CertainOn August 4, 2021, a total of Tiptree’s subsidiaries3,500,000 Performance Restricted Stock Units (PRSUs) were awarded to members of the Company’s senior management. An additional 350,000 PRSUs were awarded on October 14, 2022. The PRSUs have established RSU programs under which they are authorized to issue RSUs or their equivalents, representing equity of such subsidiaries to certain of their employees. Such awards are accounted for as equity. These RSUsa 10-year term and are subject to performance-vesting criteria basedthe recipient’s continuous service and a market requirement. A portion of the PRSUs will generally vest upon the achievement of each of five Tiptree share price target milestones ranging from $15 to $60, adjusted for dividends paid, within five pre-established determination periods (subject to a catch-up vesting mechanism) occurring on the performancesecond, fourth, sixth, eighth and tenth anniversaries of the subsidiary (performance vesting RSUs) and time-vesting subject to continued employment (time vesting RSUs). Followinggrant date. In November 2021, the service period, such vested RSUs may be exchanged at fair market value, at the optionfirst tranche of the holder, forPRSUs vested, resulting in a net issuance of 215,583 shares of Tiptree Class A common stock under the 2017 Equity Plan.stock.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
On January 1, 2024, Tiptree granted 1,420,833 PRSUs to members of the Company’s senior management. The PRSUs will generally vest upon achievement of a $70 Tiptree share price target (adjusted for dividends paid) prior to the tenth anniversary of the date of grant, subject to the Grantee’s continued employment with Tiptree.
As of March 31, 2024, 5,037,500 PRSUs were unvested. The below table illustrates the aggregate number of PRSUs that will vest upon the achievement of each Tiptree share price target. Such price targets are adjusted down for cumulative dividends paid by the Company hassince grant (e.g., the option, but notnext share price target is $19.50 as adjusted for cumulative dividends paid to date).
| | | | | | | | |
Original Tiptree Share Price Target | | Number of PRSUs that Vest |
$20 | | 516,667 |
$30 | | 775,000 |
$45 | | 1,033,333 |
$60 | | 1,291,667 |
$70 | | 1,420,833 |
Upon vesting, the obligation to settle the exchange right inCompany will issue shares, or cash.
The following table summarizes changes to the issuances of subsidiary RSU’sif shares are not available under the subsidiary incentive plans for the periods indicated:
|
| | | | |
| | Grant date fair value of equity shares issuable |
Unvested balance as of December 31, 2016 | | $ | 8,089 |
|
Vested | | (2,436 | ) |
Grant value adjustment (1) | | (210 | ) |
Unvested balance as of September 30, 2017 (2) | | $ | 5,443 |
|
(1) Due to the approval of the 2017 Equity Plan, Tiptree changed the classification of the subsidiary RSU’s during the three months ended September 30, 2017 from liability to equity awards, becausethen the Company expects to settle these awardsmay in stock.
(2) The unvested balance translates to 1,093,139 shares of Class A common stock if converted as of September 30, 2017.
Stock Options
Option awards have been granted to the Executive Committee with an exercise priceits sole discretion instead deliver cash equal to the fair market value of our common stock on the date of grant; those option awards have a 10-year term and are subject the recipient’s continuous service, a market requirement, and generally vest over five years beginning on the 3rd anniversary of the grant date. Options granted during the year ended December 31, 2016 contained a market requirement that, at any time during the option term, the 20-day volume weighted average stock price must exceed the December 31, 2015 book value per share. Options granted in 2017 contained a market requirement that, at any time during the option term, the 20-day volume weighted average stock price plus the sum of actual cash dividends paid must exceed the December 31, 2016 as exchanged book value per share. The market requirement may be met any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not.
underlying shares. The fair value option grants areof the PRSUs was estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. HistoricalThe historical volatility was computed based on historical daily returns of the Company’s stock betweenprice simulated over the grant date and July 1, 2013, the dateperformance period using a lookback period of the business combination through which Tiptree became a public company.10 years. The valuation iswas done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grantreporting date. The current quarterly dividend rates in effect as of the reporting date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.
The following table presents the assumptions used to estimatemeasure the fair valuesvalue of the stock options granted forPRSUs as of the following period:respective grant date, or June 7, 2022, when the original tranches were converted to equity awards.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Valuation Input | | | | | | June 2022 | | October 2022 | | January 2024 | | | | |
| | | | | | | | | | | | | | | | | | | | |
Historical volatility | | | | | | | | | | 38.75% | | 39.23% | | 39.10% | | | | | | |
Risk-free rate | | | | | | | | | | 3.04% | | 3.95% | | 3.80% | | | | | | |
Dividend yield | | | | | | | | | | 1.45% | | 1.44% | | 1.05% | | | | | | |
Cost of equity | | | | | | | | | | 11.72% | | 14.19% | | 13.65% | | | | | | |
Expected term (years) | | | | | | | | | | 6.0 | | 5.9 | | 5.5 | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | |
| Valuation Input | | Nine Months Ended September 30, 2017 | | |
| | | Assumption | | Average |
| Historical volatility | | 47.20 | % | | N/A
| Risk-free rate | | 2.44 | % | | N/A
| Dividend yield | | 1.80 | % | | N/A
| Expected term (years) | | | | 6.5 |
Stock Option Awards
F-50Between 2016 and 2020, option awards were granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject to the recipient’s continuous service, a market requirement, and vest one third on each of the three, four, and five-year anniversaries of the grant date. As of March 31, 2024, the market requirement for all outstanding options has been achieved. There were no stock option awards granted from 2021 to March 31, 2024.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents the Company's stock option activity for the current period:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options outstanding | | Weighted average exercise price (in dollars per stock option) | | Weighted average grant date value (in dollars per stock option) | | Options exercisable |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2023 | 1,583,873 | | | $ | 6.51 | | | $ | 2.25 | | | 1,225,083 | |
| | | | | | | |
Balance, March 31, 2024 | 1,583,873 | | | $ | 6.51 | | | $ | 2.25 | | | 1,442,114 | |
| | | | | | | |
Weighted average remaining contractual term at March 31, 2024 (in years) | 4.0 | | | | | | |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(in thousands, except share data)
|
| | | | | | | | | | | | | |
| Options outstanding | | Weighted average exercise price (in dollars per stock option) | | Weighted average grant date value (in dollars per stock option) | | Options exercisable |
Balance, December 31, 2016 | 251,237 |
| | $ | 5.69 |
| | $ | 2.62 |
| | — |
|
Granted | 570,627 |
| | 6.65 |
| | 2.91 |
| | — |
|
Balance, September 30, 2017 | 821,864 |
| | $ | 6.36 |
| | $ | 2.82 |
| | — |
|
| | | | | | | |
Weighted average remaining contractual term at September 30, 2017 (in years) | 9.1 |
| | | | | | |
Subsidiary Equity Plans
Stock-based Compensation ExpenseCertain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity unless otherwise noted. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). The Company has the option, but not the obligation to settle the exchange right in cash.
Fortegra Equity Incentive Plan
Fortegra adopted the 2022 Equity Incentive Plan (“Fortegra Plan”) on June 21, 2022, and further amended on January 18, 2024, which permits the grant of RSUs, stock based awards and options up to 11.0% of Fortegra Common Stock (assuming conversion of the Fortegra Preferred Stock), of which the substantial majority is expected to be delivered in options. As of March 31, 2024, time vesting RSUs and time and performance vesting options representing approximately 4.7% of Fortegra Common Stock (assuming conversion of the Fortegra Preferred Stock) have been granted and remain unvested. The general purpose of the Fortegra Plan is to attract, motivate and retain selected employees of Fortegra, to provide them with incentives and rewards for performance and to better align their interests with those of Fortegra’s stockholders. Unless otherwise extended, the Fortegra Plan terminates automatically on June 21, 2032. The awards under the Fortegra Plan are not exchangeable for Tiptree common stock.
In May 2023 and November 2023, Fortegra granted management options with a strike price equal to the per share price on the date of the WP Transaction, delivered in equal portions of time and performance vested grants equal to approximately 4.5% of Fortegra Common Stock (assuming cash exercise, after conversion of the Fortegra Preferred Stock and excluding forfeitures). The time vested options vest in equal parts over five years. The performance vested options vest based on specific internal rate of return targets determined at the time of a change of control of Fortegra or sale by Warburg of more than 50% of its Fortegra securities (on an as converted basis) acquired in 2022. These time and performance options must be exercised in the calendar year they vest and shall be deemed automatically exercised if not otherwise done so by December 31 of the calendar year in which they vest. The fair value option grants were estimated on the date of grant using a Black-Scholes Merton option pricing formula embedded within a Monte Carlo model used to simulate the future value of Fortegra Common Stock, which assumes the market requirement is achieved. Key assumptions used in the model were a historical volatility of 45.0%, a risk free rate of 3.7%, no dividend yield and an expected term of 4.2 years.
In May 2023 and March 2024, Fortegra granted time vesting RSUs equal to approximately 0.2% of Fortegra Common Stock (assuming conversion of the Fortegra Preferred Stock). The RSUs include a retirement provision and are amortized over the lesser of the service condition or expected retirement date.
In May 2023 and November 2023, Fortegra granted performance based restricted stock units (Fortegra PRSUs) that vest based on the achievement of specified gross written premium volume targets and underwriting ratios for selected specialty insurance lines written in 2024. Upon vesting, the Fortegra PRSUs entitle recipients to participate in an aggregate pool of between $5,000 and $20,000 payable in shares of Fortegra. The Fortegra PRSUs are accounted for as liability awards and were unvested as of March 31, 2024.
The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated:
| | | | | |
| Grant date fair value of equity shares issuable |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Unvested balance as of December 31, 2023 | $ | 20,609 | |
Granted | 1,200 | |
Vested | (1,081) | |
| |
Performance assumption adjustment | (49) | |
Unvested balance as of March 31, 2024 | $ | 20,679 | |
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(in thousands, except share data)
Stock Based Compensation Expense
The following table presents total time-based and performance-based stock-basedstock based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations: | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Employee compensation and benefits | $ | 3,776 | | | $ | 2,214 | | | | | | | |
Director compensation | 69 | | | 106 | | | | | | | |
Income tax benefit | (808) | | | (487) | | | | | | | |
Net stock based compensation expense | $ | 3,037 | | | $ | 1,833 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Employee compensation and benefits | $ | 1,135 |
| | $ | 633 |
| | $ | 4,275 |
| | $ | 1,597 |
|
Professional fees (1) | — |
| | 35 |
| | — |
| | 99 |
|
Income tax benefit | (401 | ) | | (236 | ) | | (1,509 | ) | | (599 | ) |
Net stock-based compensation expense | $ | 734 |
| | $ | 432 |
| | $ | 2,766 |
| | $ | 1,097 |
|
| |
(1) | Professional fees consist of the value of restricted stock units and options granted to persons providing services to the Company. |
Additional information on total non-vested stock-basedstock based compensation is as follows:
| | | | | | | | | | | | | | | | | |
| As of March 31, 2024 |
| Subsidiary Stock options | | Restricted stock awards and RSUs | | Performance Restricted Stock Units |
Unrecognized compensation cost related to non-vested awards (1) | $ | 16,963 | | | $ | 3,059 | | | $ | 16,911 | |
Weighted - average recognition period (in years) | 2.1 | | 0.8 | | 1.5 |
(1) Includes unrecognized compensation cost of $16,963 related to stock options, $1,772 related to RSUs, and $513 related to PRSUs at The Fortegra Group.
(19) Income Taxes
|
| | | | | | | |
| As of |
| September 30, 2017 |
| Stock options | | Restricted stock awards and RSUs |
Unrecognized compensation cost related to non-vested awards | $ | 1,798 |
| | $ | 9,176 |
|
Weighted - average recognition period (in years) | 3.1 |
| | 1.8 |
|
The following table presents the Company’s provision (benefit) for income taxes reflected as a component of income (loss):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Total income tax expense (benefit) | $ | 13,818 | | | $ | 5,022 | | | | | |
| | | | | | | | | | | |
Effective tax rate (ETR) | 46.5 | % | (1) | | 61.5 | % | (1) | | | | | | |
(20) Related Party Transactions
On June 30, 2012, TAMCO, TFP and Tricadia Holdings LP (Tricadia) entered into(1)Higher than the Transition Services Agreement (TSA) in connection with the internalizationU.S. federal statutory income tax rate of the management of Tiptree which was assigned21% primarily due to the Companyimpact of outside basis deferred taxes on Tiptree’s investment in connection withFortegra and other discrete items.
Tiptree owns less than 80% of Fortegra and is required to record deferred taxes on the Contribution Transactions. Pursuantoutside basis on its investment in Fortegra. This deferred tax liability represents the tax that would be due, before consideration of loss carryforwards, if Tiptree were to sell all of its Fortegra stock at its carrying value on Tiptree’s balance sheet.
For the TSA, Tricadia providesthree months ended March 31, 2024, the deferred tax liability relating to Fortegra increased by $3,930, of which $535 of benefit was recorded in OCI, and $4,465 expense was recorded as a provision for income taxes. For the three months ended March 31, 2023, the deferred tax liability decreased by $4,144, of which $1,808 expense was recorded in OCI, and $2,336 expense was recorded as a provision for income taxes. Excluding the impact of these deferred taxes, the effective tax rates for the three months ended March 31, 2024 and 2023 were 31.5% and 32.9%, respectively.
The Organization for Economic Cooperation and Development (“OECD”) has introduced a framework to implement a global minimum corporate tax rate of 15%, commonly referred to as Pillar Two. Many aspects of Pillar Two are effective beginning calendar year 2024 and other aspects will be effective beginning in calendar year 2025. While it is uncertain whether the U.S. will adopt Pillar Two, certain countries in which the Company withoperates have adopted legislation and other countries are in the servicesprocess of its Executive Chairman and office space and in 2016, information technology services. Paymentsintroducing legislation to Tricadia for the services of our Executive Chairman are included in employee compensation and benefits.
TFP and Back Office Services Group, Inc. (BOSG) entered into an administrative services agreementimplement Pillar Two. While we do not expect Pillar Two to have a material impact on June 12, 2007 (Administrative Services Agreement), which was assigned to Tiptree on July 1, 2013 in connection with the Contribution Transactions, under which BOSG provided certain back office, administrative and accounting services to the Company, our analysis is ongoing as the OECD releases additional guidance and its subsidiaries. BOSG is an affiliate of Mariner Investment Group (Mariner). As of June 30, 2016, the Company has concluded that Mariner no longer meets the definition of a related party. This agreement was terminated on December 31, 2016.countries implement additional legislation.
Payments under the TSA and Administrative Services Agreement in the three and nine months ended September 30, 2017 and 2016 were not material.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017March 31, 2024
(in thousands, except share data)
(21) Income Taxes
The following table represents the income tax expense (benefit):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Income tax expense (benefit) | $ | (2,052 | ) | | $ | 3,712 | | | $ | (2,761 | ) | | $ | 5,298 | |
| | | | | | | | | | | |
Effective tax rate (ETR) | 37.8 | % | (1) | | 32.3 | % | (1) | | 27.3 | % | (2) | | 19.2 | % | (3) |
(1) Bears a customary relationship to the federal statutory income tax rate.
(2) Lower than the federal statutory income tax rate, primarily due a change in fair value of a contingent consideration liability, an increase in a valuation allowance on net operating losses, and various other discrete items. The ETR for the nine months ended September 30, 2017 excluding the effect of discrete items was 28.1%, which is lower than the federal statutory income tax rate, primarily due to a state tax benefit and the effect of non-controlling interests at certain subsidiaries.
(3) Lower than the federal statutory income tax rate primarily due to $4,044 of discrete tax benefits for the period, primarily related to the tax restructuring that resulted in a consolidated corporate tax group effective January 1, 2016.
(22)(20) Commitments and Contingencies
Contractual Obligations
The table below summarizes the Company’s contractual obligations by period that payments are due:
|
| | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Less than one year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Operating lease obligations (1) | $ | 4,946 |
| | $ | 14,070 |
| | $ | 7,981 |
| | $ | 11,972 |
| | $ | 38,969 |
|
Total | $ | 4,946 |
| | $ | 14,070 |
| | $ | 7,981 |
| | $ | 11,972 |
| | $ | 38,969 |
|
| |
(1) | Minimum rental obligations for Tiptree, Care, Siena, Luxury, Reliance and Fortegra office leases. |
The following table presents rent expense for the Company’s office leases recorded in other expenses on the condensed consolidated statements of operations:operations for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Rent expense for office leases | $ | 1,990 | | | $ | 2,069 | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Rent expense for office leases | $ | 1,745 |
| �� | $ | 1,630 |
| | $ | 5,230 |
| | $ | 4,820 |
|
In August 2017, TiptreeThe Company entered into a lease forsublease of its former corporate office space. The termsspace in December 2022. As a result of the sublease, future lease are $2,322 per annum for five years starting on the one year anniversary of the commencement date. Upon the six year anniversary of the commencement date, the lease escalates to $2,520 per annum for five years. The expected commencement date ispayments will be offset by $1,842 annually from July 1, 2018.2023 through August 2029.
In addition, Tiptree’s subsidiary Siena issues standby letters of credit for credit enhancements that are required by its borrower’s respective businesses. As of September 30, 2017, there was $400 outstanding relating to these letters of credit.
Litigation
The Company is a defendant in Mullins v. Southern Financial Life Insurance Co., which wasa class action filed in February 2006, in the Pike County Circuit Court in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or termKentucky on behalf of Kentucky consumers that purchased certain credit life and disability insurance coverage under certain disability and life credit insurance policies.between 1997-2007. The action alleges violations of the Kentucky Consumer Protection Act (“KCPA”) and certain insurance statutes, as well as common law fraud and seeksbreach of contract and the covenant of good faith and fair dealing. The plaintiffs seek compensatory and punitive damages, attorneyattorneys’ fees and interest. To
Two classes were certified in June 2010: Subclass A includes class members who suffered a disability during the coverage period but allegedly received less than full disability benefits; Subclass B includes all class members whose loan termination date extended beyond the termination date of the credit disability coverage period.
In a series of orders issued in October 2022 on competing motions for partial summary judgment, the court has not awarded sanctionsfound in connection with Plaintiffs’ April 2012favor of the plaintiffs as to the Subclass A breach of contract claim (the Subclass A Order) and, as to Subclass B, found that the Company was unjustly enriched to the extent the premium it collected exceeded the proportion of the premium for which the Company provided benefits coverage (the Subclass B Order). The court found in favor of the Company as to the plaintiffs’ claims for common law fraud and violation of Kentucky’s insurance statutes and ordered the plaintiffs’ Motion for Sanctions. Sanctions for Spoliation of Evidence held in abeyance. The Company has appealed the Subclass A Order and Subclass B Order and all interlocutory orders made final by entry of the Subclass A Order and Subclass B Order.
In January 2015,
TIPTREE INC. AND SUBSIDIARIES
NotesDecember 2022, the court dismissed the plaintiffs’ KCPA claims as to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
both Subclass A Order and Subclass B Order. The court also dismissed the plaintiffs’ breach of covenant of good faith and fair dealing claim as to Subclass B Order but declined to dismiss such claim as to Subclass A Order pending resolution of the Company’s appeal. The trial, court issued an Order denying Fortegra’s motion to decertifypreviously scheduled for December 2023, has been remanded while the class, which was upheldmatter is on appeal. Following a February 2017 hearing, the court denied Fortegra’s Motion for Summary Judgment as to certain disability insurance policies but has not yet ruled on such motion with respect to the life insurance policies at issue. In June, a new Special Master was appointed. No trial or hearings are currently scheduled.
The Company considers such litigation customary in the insurance industry. In management's opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of the Company. It should be noted that large punitive damage awards, bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot estimate a range of loss that is reasonably possible.
The Company and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’sthe Company’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, the Company does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on the Company’s financial position.
(23)(21) Earnings Per Share
The Company calculates basic net income per Class Ashare of common sharestock (common share) based on the weighted average number of Class A common shares outstanding, (inclusive ofwhich includes vested restricted share units). The unvested restricted share unitscorporate RSUs. Unvested corporate RSUs have thea non-forfeitable right to participate in dividends declared and paid on the Company’s common stock on an as vested basis and are
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(in thousands, except share data)
therefore considered a participating security. The Company calculates basic earnings per share using the “two-class” method and for the three and nine months ended September 30, 2017 and September 30, 2016,under which the income available to common stockholders wasis allocated to the unvested restricted stock units.corporate RSUs.
Diluted net income per Class Aattributable to common shares for the periodstockholders includes the effect of potential equity of subsidiaries as well as potential Class A common stock, ifunvested subsidiaries’ RSUs, when dilutive. For the three months and nine months ended September 30, 2017, theThe assumed exercise of all potentially dilutive instruments were anti-dilutive and, therefore, were notis included in the diluted net income per Class A common share calculation.calculation, if dilutive.
TIPTREE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017
(in thousands, except share data)
The following table presents a reconciliation of basic and diluted net income per common share for the following periods:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Net income (loss) | $ | 15,881 | | | $ | 3,151 | | | | | | | |
Less: | | | | | | | | | |
Net income (loss) attributable to non-controlling interests | 6,831 | | | 4,213 | | | | | | | |
Net income allocated to participating securities | 73 | | | — | | | | | | | |
Net income (loss) attributable to Tiptree Inc. common shares - basic | 8,977 | | | (1,062) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Effect of Dilutive Securities: | | | | | | | | | |
Securities of subsidiaries | (618) | | | — | | | | | | | |
| | | | | | | | | |
Net income (loss) attributable to Tiptree Inc. common shares - diluted | $ | 8,359 | | | $ | (1,062) | | | | | | | |
Weighted average number of shares of common stock outstanding - basic | 36,769,810 | | | 36,522,946 | | | | | | | |
Weighted average number of incremental shares of common stock issuable from exchangeable interests and contingent considerations | 1,009,602 | | | — | | | | | | | |
Weighted average number of shares of common stock outstanding - diluted | 37,779,412 | | | 36,522,946 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Basic net income (loss) attributable to common shares | $ | 0.24 | | | $ | (0.03) | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Diluted net income (loss) attributable to common shares | $ | 0.22 | | | $ | (0.03) | | | | | | | |
(22) Related Party Transactions
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) | $ | (3,378 | ) | | $ | 7,838 |
| | $ | (7,360 | ) | | $ | 22,273 |
|
Less: | | | | | | | |
Net income (loss) attributable to non-controlling interests | (264 | ) | | 1,933 |
| | (903 | ) | | 4,680 |
|
Net income allocated to participating securities | — |
| | 60 |
| | — |
| | 148 |
|
Net income (loss) attributable to Tiptree Inc. Class A common shares - basic | $ | (3,114 | ) | | $ | 5,845 |
| | $ | (6,457 | ) | | $ | 17,445 |
|
Effect of Dilutive Securities: | | | | | | | |
Securities of subsidiaries | — |
| | (50 | ) | | — |
| | (148 | ) |
Adjustments to income relating to exchangeable interests, net of tax | — |
| | 1,362 |
| | — |
| | — |
|
Net income (loss) attributable to Tiptree Inc. Class A common shares - diluted | $ | (3,114 | ) | | $ | 7,157 |
| | $ | (6,457 | ) | | $ | 17,297 |
|
| | | | | | | |
Weighted average number of shares of Tiptree Inc. Class A common stock outstanding - basic | 29,455,462 |
| | 29,143,470 |
| | 28,908,195 |
| | 32,845,124 |
|
Weighted average number of incremental shares of Tiptree Inc. Class A common stock issuable from exchangeable interests and contingent considerations | — |
| | 8,087,180 |
| | — |
| | 67,392 |
|
Weighted average number of shares of Tiptree Inc. Class A common stock outstanding - diluted | 29,455,462 |
| | 37,230,650 |
| | 28,908,195 |
| | 32,912,516 |
|
| | | | | | | |
Basic: | | | | | | | |
Net income (loss) attributable to Tiptree Inc. Class A common shares | $ | (0.11 | ) | | $ | 0.20 |
| | $ | (0.22 | ) | | $ | 0.53 |
|
| | | | | | | |
Diluted: | | | | | | | |
Net income (loss) attributable to Tiptree Inc. Class A common shares | $ | (0.11 | ) | | $ | 0.19 |
| | $ | (0.22 | ) | | $ | 0.53 |
|
Tiptree Advisors is a related party of the Company because Tiptree Advisors is deemed to be controlled by Michael Barnes, the Company’s Executive Chairman. The Company is invested in funds managed by Tiptree Advisors (the Tiptree Advisors Funds) and Tiptree Advisors manages investment portfolio accounts of Fortegra and certain of its subsidiaries under an investment advisory agreement (the IAA). With respect to the Tiptree Advisors Funds and the IAA, the Company incurred $1,421 and $1,102 of management and incentive fees for the three months ended March 31, 2024 and 2023, respectively. (24)
Beginning on January 1, 2024, Tiptree’s percentage of profits interest in Tiptree Advisors was 40.8%. As of January 1, 2025, Tiptree’s percentage interest will increase to 51.0%.
Pursuant to the Transition Services Agreement, Tiptree and Tiptree Advisors have mutually agreed to provide certain services to one another. Payments under the Transition Services Agreement in the three months ended March 31, 2024 and 2023 were not material.
Pursuant to a Partner Emeritus Agreement, Tiptree agreed to provide Mr. Inayatullah, a greater than 5% stockholder of the Company, support services and reimburse Mr. Inayatullah for a portion of benefit expenses in exchange for advice and other consulting services as requested by the Company’s Executive Committee. Transactions related to the Partner Emeritus Agreement in the three months ended March 31, 2024 and 2023 were not material.
(23) Subsequent Events
On November 2, 2017,April 30, 2024, the Company’s board of directors declared a quarterly cash dividend of $0.03$0.06 per share to Class A stockholdersholders of common stock with a record date of NovemberMay 20, 2017,2024, and a payment date of November 27, 2017.
On October 16, 2017, Fortegra completed a private placement offering of $125,000 of 8.50% Fixed Rate Resetting Junior Subordinated Notes due 2057 (the “Notes”). Substantially all of the net proceeds from the Notes were used to repay Fortegra’s existing credit facility, which was terminated thereafter. The Notes, which are issued under an indenture, are the unsecured obligations of Fortegra and rank in right of payment and upon liquidation, junior to all of Fortegra’s current and future senior indebtedness. The Notes are not obligations of or guaranteed by any of Fortegra’s subsidiaries or any other Tiptree entities. So long as no event of default has occurred and is continuing, Fortegra may defer all or part of the interest payments on the Notes on one or more occasions for up to five consecutive years per deferral period. The indenture governing the Notes contains customary affirmative and negative covenants and events of default.
May 28, 2024.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial ConditionsCondition and Results of Operations is presented in this section as follows:
Overview
•Overview
•Results of Operations
•Non-GAAP Measures and Reconciliations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates
Off-Balance Sheet Arrangements
OVERVIEW
Tiptree allocates capital to select small and middle market companies with the mission of building long-term value. Established in 2007, we have a significant track record investing in the insurance sector and across a variety of other industries, including mortgage, specialty finance and shipping. Our largest operating subsidiary, Fortegra, is a holding company focused on enhancing shareholder value by generating consistent and growing earnings at our operating companies. Our strategy employs a differentiated model, where we combine aleading provider of specialty insurance underwriting platform withproducts and related services. We also generate earnings from a diverse group of select investments that we refer to as Tiptree Capital, which includes our broader asset managementMortgage segment and capital allocation capabilities, which we believe distinguishes us from many other, insurance companies. When considering capital allocation decisions, we take a diversified approach, looking across sectors, geographies and asset classes, all with a longer-term horizon for ournon-insurance businesses and investments.assets. We evaluate our performance primarily by the comparison of our shareholder’sstockholders’ long-term total return on capital, as measured by Adjusted EBITDA and growth in book value per sharestock price plus dividends paid.paid, in addition to Adjusted Net Income.
We currently have four reporting segments: specialtyOur first quarter 2024 highlights include:
Overall:
•Tiptree reported net income of $9.1 million for the three months ended March 31, 2024, compared to a net loss of $1.1 million in the prior year period, driven by growth in insurance asset management, senior living, and specialty finance. Corporate and other primarily contains corporate expenses not allocatedoperations, partially offset by the increase in tax expense related to the operating businesses. See Note—(4) Operating Segment Data,tax deconsolidation of Fortegra from $2.3 million in 2023 to $4.5 million in 2024. Return on average equity was 8.6%, compared to (1.1)% in 2023.
•Adjusted net income of $20.5 million increased from $12.6 million in 2023, driven by growth in insurance operations. Adjusted return on average equity was 19.5%, as compared to 12.6% in 2023.
Insurance:
•Gross written premiums and premium equivalents were $663.4 million for the three months ended March 31, 2024, an increase of $42.3 million, or 6.8%, from the prior year period as a result of growth in specialty E&S and admitted insurance lines in the notesU.S. and Europe.
•Net written premiums were $318.2 million for the three months ended March 31, 2024, an increase of 13.2%, consistent with growth in gross written premiums, and as a result of increased retention on Fortegra’s whole account quota share reinsurance arrangement from 30% to 40%, effective April 1, 2023.
•Total revenues were $478.8 million, an increase of $110.3 million, or 29.9%, from 2023, driven by premium growth in specialty E&S and admitted insurance lines in the accompanying condensed consolidated financial statementsU.S. and Europe, along with growth in net investment income.
•Combined ratio of 90.3%, driven by consistent underwriting performance and the scalability of Fortegra’s operating platform.
•Income before taxes of $36.8 million as compared to $19.4 million in 2023. Return on average equity was 22.3% in 2024 as compared to 16.7% in 2023. The increases were driven by growth in underwriting and fee revenues and increased net investment income.
•Adjusted net income (before NCI) was $34.1 million, an increase of $11.2 million, or 48.8%, from 2023. Adjusted return on average equity was 28.3%, as compared to 26.1% in 2023.
•Fortegra’s total stockholders’ equity was $513.7 million as of March 31, 2024, compared to $452.6 million as of December 31, 2023, with the increase driven by net income during the current year period, the aggregate capital contribution from Tiptree and Warburg of $38.9 million, partially offset by an increase in the accumulated other comprehensive loss position.
Tiptree Capital:
•Mortgage income before taxes was $0.8 million for detailed information regarding our segments. Since different factors affect the financial conditionthree months ended March 31, 2024, as compared to loss of $2.6 million in 2023, with the increase driven by higher origination volumes and results of operation of each segment,positive fair value adjustments on the following discussion is presented on both a consolidated and segment basis.mortgage servicing portfolio.
Key Trends:
Our results of operations are affected by a variety of factors including, but not limited to, general economic conditions and GDP growth, market liquidity and volatility, consumer confidence, U.S. demographics, employment and wage growth, business confidence and investment, inflation, interest rates and spreads, the impact of the regulatory environment, and the other factors set forth in Part I, Item 1A. “Risk Factors” of1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2023. Generally, our businesses are positively affected by a healthy U.S. consumer, stable to gradually rising interest rates, stable markets and business conditions, and the aging U.S. population.global growth and trade flows. Conversely, rising unemployment, volatile markets, rapidly rising interest rates, inflation, changing regulatory requirements and slowing business conditions can have a material adverse effect on our results of operations or financial condition.
Our specialty insuranceInsurance results primarily depend on the appropriateness of our pricing, underwriting, risk retention and the accuracy of our methodology for the establishment of reserves, for future policyholder benefits and claims, thereinsurance arrangements, returns on and values of invested assets, and our ability to estimate policy and contract renewals and run-off. Factors affecting these items, including conditions in financial markets, the global economy and the markets in which we operate, fluctuations in exchange rates, interest rates and inflation, including the current period of inflationary pressures, may have a material adverse effect on our results of operations or financial condition. Fortegra designs, markets and underwrites specialty property and casualty insurance products for select target markets or niches. The business has historically generated significant fee-based revenues by incorporating value-add coverages and services. Underwriting risk is mitigated through a combination of reinsurance and sliding scale commission structures with agents, distribution partners and/or third-party reinsurers. To mitigate counterparty risk, Fortegra ensures its reinsurance receivables are placed with highly rated and appropriately capitalized counterparties or with our distribution partners’ captive insurance vehicles which are collateralized with highly liquid investments, cash or letters of credit. While ourFortegra’s insurance operations have historically maintained a high percentage of fees to total revenue and a relatively stable combined ratio, which support steady earnings, our initiatives to change ourthe business mix along with these economic factors could generate different results than the business has historically experienced. In particular, rising inflation can have an impact on replacement costs associated with claims from our customers to the extent we have historically seen.are unable to pass the higher costs of claims through higher premiums. In our senior living operations, occupancy levels and operational costs could impact margins. While the aging demographicsaddition, fluctuations of the U.S. population generally favor seniors housing indollar relative to other currencies, including the long term, in the short term, imbalances in the supplyBritish pound and demand for available units could dampen occupancy levels and competition for qualified employees could increase payroll costs. In our asset management segment, improving business conditions and growing corporate loan demand, especially from small to medium sized businesses has generally supported growth in AUM. Slowing economic growth and/or economic uncertainty could reduce businessEuro, would have an impact on book value between periods.
Fortegra’s investment and loan demand, slowing the growth in AUM and associated fees. Risk retention rules mandated by Dodd-Frank has also impacted our formation of new CLOs, while pressure to reduce management fees in more recent CLOs has slowed management fee growth.
Our profitability is affected by net investment income and realized and unrealized gains and losses. Our invested assets are held principally inportfolio includes fixed maturity securities, equity securities, loans, CLOs, credit investment funds, and senior living related assets.equity securities. Many of ourthose investments are held at fair value. In recent periods, the U.S. fixed income markets experienced a significant rise in interest rates. Rising interest rates have and could continue to impact the value of Fortegra’s fixed maturity securities, with any unrealized losses recorded in equity, and if realized, could impact our results of operations. Offsetting the impact of a rising interest rate environment, new investments in fixed rate instruments from both maturities and portfolio growth have and could continue to result in higher net interest income on investments. The weighted average duration of our fixed income available for sale securities is less than three years. While our asset and liability mix is relatively matched, should we need to liquidate any of these investments before maturity to pay claims, any realized losses could materially negatively impact our results of operations. Changes in fair value of this latter categoryfor loans, credit investment funds, and equity securities in Fortegra’s investment portfolio are reported quarterly as unrealized gains or losses in revenues and can be impacted by changes in interest rates, credit risk, currency risk, or market risk, including specific company or industry factors. Credit risk can impactIn addition, our financial results in a number of ways, including the performance of our corporate loans, mortgage loans, holdings in CLO subordinated notes and other investments. When credit markets are performing well, loans held in our CLOs and credit fund investments may prepay, subjecting those investments to reinvestment risk. In deteriorating credit environments, default risk can impact the performance of our investments, as well as flowing through income as unrealized losses. Disruption in the credit markets can also impact our ability to raise third party funds to invest and grow our asset management fees. Our equity holdings are relatively concentrated. General equity market trends, along with company and industry specific factors, can impact the fair value of our holdings andwhich can result in unrealized gains and losses affecting our results.
Our business is also impactedRising 10-year treasury yields, and the tapering of the Federal Reserve’s purchases of mortgage-backed securities, has resulted in various ways by changessubstantial increases in mortgage interest rates. In additionLow mortgage interest rates driven by the Federal Reserve intervention in mortgage markets, and rising home prices in certain markets, provided tailwinds to the impact interestmortgage markets in 2020 and 2021, which benefited our mortgage operations and margins. The substantial rise in rates can have onresulted in a sharp reversal of those trends, with volumes and margins declining significantly. Only partially offsetting the declines in mortgage originations is an increase in the fair value of our mortgage servicing portfolio as rising rates slow prepayment speeds, with a resulting increase in servicing income. Continued rising or elevated mortgage rates could have a materially negative impact on our mortgage operations, and is likely to be only partially mitigated by the assets,improvement in mortgage servicing revenues. A sustained period of negative profitability in the mortgage industry could also impact the availability of funding sources for our mortgage business.
Rising interest rates can also impact the volumecost of floating interest rate debt obligations, while declining rates can decrease the cost of debt. Our secured revolving and revenues in our specialty finance business. In addition, most of our subsidiaries use debtterm credit agreements, preferred trust securities and asset based revolving financing to fund their business activities, much of which isare all floating rate debt, and the majorityobligations. A continuation of whichrising rates could have LIBOR floors, LIBOR floors can result in a reduction in net interest margins in a declining interest rate environment, if earningsmaterial impact on our assets do not have similar floors or are based on different benchmarks than LIBOR, such as treasury rates or the prime rate. Certaincosts of our subsidiaries have also entered into interestfloating rate swap agreements to fix all or a portion of their interest rate exposure which are currently designated as hedging relationships for accounting purposes.debt.
All interim financial information included in the Management’s Discussion and Analysis of Financial Conditions and Results of Operations are unaudited.
RESULTS OF OPERATIONS
The following is a summary of our condensed consolidated financial results for the three and nine months ended September 30, 2017March 31, 2024 and 2016. Management2023. In addition to GAAP results, management uses the Non-GAAP measures Adjusted EBITDA,net income, Adjusted return on a consolidated and segment basis,average equity and book value per share as exchanged, as measurements of operating performance which are non-GAAP measures.performance. Management believes the use of Adjusted EBITDA providesthese measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze
financial performance and comparison among companies.
Adjusted Net Income and Adjusted Return on Average Equity. Adjusted net incomeis defined as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting. The calculation of adjusted net income excludes net realized and unrealized gains (losses) that relate to investments or assets rather than business operations. Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. Management uses Adjusted net income and adjusted return on average equity as part of its capital allocation process and to assess comparative returns on invested capital. We believe adjusted net income provides additional clarity on the results of the Company’s underlying business operations as a whole for the periods presented by excluding distortions created by the unpredictability and volatility of realized and unrealized gains (losses). We also believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and to analyze a company’s ability to service its debt and to facilitatefor comparison among companies.
Adjusted EBITDA is also used in determining incentive compensation for the Company’s executive officers. Adjusted EBITDA isnet income and adjusted return on average equity are not a measurementmeasurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. Book value per share, as exchanged assumes full exchangeSee “Non-GAAP Reconciliations” for a reconciliation of the limited partners unitsthese measures to their GAAP equivalents.
Selected Key Metrics
| | | | | | | | | | | | | | | | | |
($ in thousands, except per share information) | | | Three Months Ended March 31, |
GAAP: | | | | | 2024 | | 2023 | | |
Total revenues | | | | | $ | 498,221 | | | $ | 381,625 | | | |
Net income (loss) attributable to common stockholders | | | | | $ | 9,050 | | | $ | (1,062) | | | |
Diluted earnings per share | | | | | $ | 0.22 | | | $ | (0.03) | | | |
Cash dividends paid per common share | | | | | $ | 0.06 | | | $ | 0.05 | | | |
Return on average equity | | | | | 8.6 | % | | (1.1) | % | | |
| | | | | | | | | |
Non-GAAP: (1) | | | | | | | | | |
Adjusted net income | | | | | $ | 20,533 | | | $ | 12,559 | | | |
Adjusted return on average equity | | | | | 19.5 | % | | 12.6 | % | | |
| | | | | | | | | |
Book value per share | | | | | $ | 11.55 | | | $ | 10.91 | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of TFP for Tiptree Class A common stock. Management believes the use of thisnon-GAAP financial measure 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.measures.
Summary Consolidated Statements of Operations
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
GAAP: | 2017 | | 2016 | | 2017 | | 2016 |
Total revenues | $ | 164,519 |
| | $ | 132,160 |
| | $ | 486,297 |
| | $ | 395,059 |
|
Net income before non-controlling interests | (3,378 | ) | | 7,838 |
| | (7,360 | ) | | 22,273 |
|
Net income attributable to Tiptree Inc. Class A common stockholders | (3,114 | ) | | 5,905 |
| | (6,457 | ) | | 17,593 |
|
Diluted earnings per share | (0.11 | ) | | 0.19 |
| | (0.22 | ) | | 0.53 |
|
Cash dividends paid per common share | 0.03 |
| | 0.025 |
| | 0.09 |
| | 0.075 |
|
| | | | | | | |
Non-GAAP: (1) | | | | | | | |
Adjusted EBITDA | $ | 4,776 |
|
| $ | 20,128 |
| | $ | 23,333 |
| | $ | 52,882 |
|
Book Value per share, as exchanged | 9.67 |
| | 9.93 |
| | 9.67 |
| | 9.93 |
|
| |
(1) | For further information relating to the Company’s Adjusted EBITDA and book value per share, as exchanged, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.” |
Consolidated Results of Operations
Revenues
For the three months ended September 30, 2017, the Company reportedMarch 31, 2024, revenues of $164.5were $498.2 million, an increase of $32.4which increased $116.6 million, or 24.5%30.6%, fromcompared to the three months ended September 30, 2016. For the nine months ended September 30, 2017, revenues were $486.3 million, an increase of $91.2 million, or 23.1%, from the nine months ended September 30, 2016.prior year period. The primary drivers of the increase in revenues for the three and nine months werechange was primarily driven by growth in earned premiums, and net, investment income in our specialty insurance segment, increases in rental income attributable to acquisitions of seniors housing properties and improved specialty finance originations margins, partially offset by reduced service and administrative fees, ceding commissions,investment gains, and higher mortgage revenues compared to the prior year period.
The table below provides a break down between net realized and unrealized gains and losses as compared to prior period gains, infrom Invesque and other securities which impacted our specialty insurance segment investment portfolio.
Net Income before non-controlling interests
For the three months ended September 30, 2017, the Company incurred a net loss of $3.4 million compared to net income of $7.8 million in the 2016 period. The primary drivers of the decline were the unrealized losses in our specialty insurance investment portfolio in the three months ended September 30, 2017 compared to unrealized gains in the 2016 period, run-off in our older vintage CLOs
resulting in reduced management fees, and reduced CLO distributions as the Company reduced its investments over the last twelve months.
For the nine months ended September 30, 2017, the Company incurred a net loss of $7.4 million compared to net income of $22.3 million in the 2016 period, a decrease of $29.6 million. The decline was primarily a result of the unrealized losses in our specialty insurance investment portfolio in the nine months ended September 30, 2017, compared to unrealized gains in the prior period, combined with increased stock-based compensation expense in the specialty insurance segment and an increase in the fair value of the contingent earn-out liability associated with our Reliance acquisition. These drivers were partially offset by reduced losses in our senior living and improved operatingconsolidated results in our specialty finance segments, excluding the impact of the Reliance earn-out. Additionally, the tax provision has increased year-over-year as a result of a $4.0 million tax benefit in the three months ended March 31, 2016 which was driven by the tax reorganization effective January 1, 2016. A discussion of the changes in revenues, expenses and net income is presented below and in more detail in our segment analysis.
The following table highlights certain non-cash, key drivers impacting our results for the three and nine months ended September 30, 2017 and 2016. We believe highlighting these significant, non-cash items provides useful additional information to investors. As we mentioned above, our investments are focused on a longer term investment horizon. In addition, our equity securities holdings are relatively concentrated, andpre-tax basis. Many investments are carried at fair value and marked to market through the current reporting period.unrealized gains and losses. As a result, we expect our earnings relatingrelated to these securitiesinvestments to be relatively volatile between periods in contrast to our fixedperiods. Fixed income securities which are primarily marked to market through AOCI which is more consistent with the treatment used by other insurance companies. In order for investors to be able to compare the returns of both types of investments,in stockholders’ equity and to the portfolio performance of other insurance companies, wedo not impact net realized and unrealized gains and losses until they are highlighting the impact attributable to thesold.
| | | | | | | | | | | | | | | | | |
($ in thousands) | | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 | | |
| | | | | | | | | |
Net realized and unrealized gains (losses) - Invesque | | | | | $ | (3,536) | | | $ | (1,698) | | | |
Net realized and unrealized gains (losses)(1) | | | | | $ | 9,656 | | | $ | (4,675) | | | |
(1) Excludes Invesque, Maritime transportation and Mortgage realized and unrealized gains and realized gains (losses) on equity securities in the table below.losses.
We have also highlighted the impact of stock based compensation on the two periods below. Since a significant portion of our stock based compensation is performance based, and vests over multiple years, we believe that providing this information separately to investors allows them to evaluate the alignment of non-cash compensation to management, both at the holding company and at certain of our subsidiaries, with our overall performance trends.
In connection with our acquisition of Reliance, a portion of the purchase price was contingent on Reliance’s performance in the three years post acquisition, payable in Tiptree stock to the sellers. That contingent purchase price is carried as a liability on our balance sheet and is re-valued in each period. Increases or decreases in each period flow through the income statement, and are not deductible for tax purposes. Given Reliance’s performance over the latest performance measurement period, the contingent earn-out liability has increased, with the incremental value treated as an added expense in our financial statements for the nine months ended September 30, 2017.
Lastly, depreciation and amortization has increased, primarily as a result of additional acquisitions at Care, partially offset by the reduction in VOBA at Fortegra. Because we carry our real estate assets at original cost, and our strategy at Care is to purchase properties that require actions to improve their performance, we believe that highlighting the impact depreciation and amortization have on Tiptree’s overall results period over period, and on the carrying value of our real estate assets, is useful additional information for investors.
Key Non-Cash Drivers of Pre-tax Income and Adjusted EBITDA
|
| | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | Variance | | 2017 | | 2016 | | Variance |
Unrealized & realized gains (losses) on equity securities | | $ | (11,125 | ) | | $ | 1,365 |
| | $ | (12,490 | ) | | $ | (21,183 | ) | | $ | 10,787 |
| | $ | (31,970 | ) |
Stock-based compensation | | (1,135 | ) | | (633 | ) | | (502 | ) | | (4,275 | ) | | (1,597 | ) | | (2,678 | ) |
Reliance contingent earn-out liability (1) | | 422 |
| | — |
| | 422 |
| | (3,039 | ) | | — |
| | (3,039 | ) |
Depreciation and amortization (1) | | (7,775 | ) | | (6,437 | ) | | (1,338 | ) | | (23,781 | ) | | (21,899 | ) | | (1,882 | ) |
| |
(1) | Added back to Adjusted EBITDA. For a reconciliation of Adjusted EBITDA to GAAP financials, see “—Non-GAAP Reconciliations.” |
Net Income (Loss) AvailableAttributable to Class A Common Stockholderscommon stockholders
For the three months ended September 30, 2017,March 31, 2024, the net loss availableincome attributable to Class A common stockholders was $3.1$9.1 million, compared to a decreasenet loss of $9.0$1.1 million from the prior year period. For the nine months ended September 30, 2017, net income available to Class A common stockholders was $6.5 million, a decrease of $24.1 million fromin the prior year period. The key drivers ofincrease was driven by growth in Fortegra’s underwriting and fee
income, improved mortgage operations and investment gains on securities in the Company’s investment holdings, partially offset by increased investment losses on Invesque in the current year period.
Adjusted net income available to Class A common stockholders were the same factors which impacted the& Adjusted return on average equity - Non-GAAP
Adjusted net income before non-controlling interests.
Adjusted EBITDA
Total Adjusted EBITDA for the three months ended September 30, 2017March 31, 2024 was $4.8$20.5 million, an increase of $8.0 million, or 63.5%, from the three months ended March 31, 2023, driven by growth in our insurance operations. For the three months ended March 31, 2024, adjusted return on average equity was 19.5%, as compared to $20.1 million12.6% for the 2016 period, a decrease of $15.3 million, or 76.0%. Total Adjusted EBITDA for the ninethree months ended September 30, 2017 was $23.3 million compared to $52.9 million for the 2016 period, a decrease of $29.5 million, or 55.8%. The key drivers of the change in Adjusted EBITDA were the same as those which impacted our net income, excludingMarch 31, 2023, driven by the increase in the Reliance earn-out and the year-over-year change in the tax provision. See “— Non-GAAP Reconciliations” for a reconciliation to GAAPadjusted net income.
Book Value per share - Non-GAAP
Total stockholders’ equity was $598.6 million as exchangedof March 31, 2024 compared to $541.6 million as of March 31, 2023, with the increase driven by comprehensive income over the trailing four quarters, partially offset by net changes in non-controlling interests and preferred dividends paid at Fortegra. In the three months ended March 31, 2024, Tiptree returned $2.2 million to stockholders through dividends paid.
As exchanged bookBook value per share for the period ended September 30, 2017March 31, 2024 was $9.67, down$11.55, an increase from $9.93book value per share of $10.91 as of September 30, 2016. The key drivers of the year-over-year impact were increases from trailing twelve month diluted earningsMarch 31, 2023, driven by comprehensive income per share, and re-purchases of 1.0 million shares at an average 28% discount to book value. Those increases were more thanpartially offset by cumulative dividends paid of $0.115, officer$0.21 per share, net changes in non-controlling interests and director compensation share issuances over the last twelve months and the exercise of the Tricadia Option in June 2017 resulting in 1.5 million shares being issuedpreferred dividends paid at $5.36 per share. Given the strike price of the option, the impact was a $0.19 reduction to book value per share.Fortegra.
Results by Segment
Effective December 31, 2016,We classify our business into two reportable segments, Insurance and Mortgage, with the remainder of our operations aggregated into Tiptree realigned the principal investments formerly reported in theCapital - Other. Corporate activities include holding company interest expense, corporate employee compensation and benefits, and other segment into their new reportable segments to align withexpenses, including public company expenses.
The following tables present the Company’s operating strategy. The table below reflects the creditcomponents of Revenue, Income (loss) before taxes and equity investments contributed to our insurance subsidiary in the specialty insurance segment and the CLO subordinated notes and related warehouseAdjusted net income in the asset management segment for the three and nine months ended September 30, 2017 and 2016.following periods:
| | | | | | | | | | | | | | | | | | | |
($ in thousands) | | | Three Months Ended March 31, | | |
| | | | | 2024 | | 2023 | | | | |
Revenues: | | | | | | | | | | | |
Insurance | | | | | $ | 478,756 | | | $ | 368,444 | | | | | |
Mortgage | | | | | 15,891 | | | 11,561 | | | | | |
Tiptree Capital - other | | | | | 3,574 | | | 1,620 | | | | | |
Corporate | | | | | — | | | — | | | | | |
Total revenues | | | | | $ | 498,221 | | | $ | 381,625 | | | | | |
| | | | | | | | | | | |
Income (loss) before taxes: | | | | | | | | | | | |
Insurance | | | | | $ | 36,811 | | | $ | 19,445 | | | | | |
Mortgage | | | | | 753 | | | (2,565) | | | | | |
Tiptree Capital - other | | | | | 2,993 | | | 1,442 | | | | | |
Corporate | | | | | $ | (10,858) | | | $ | (10,149) | | | | | |
Total income (loss) before taxes | | | | | $ | 29,699 | | | $ | 8,173 | | | | | |
| | | | | | | | | | | |
Non-GAAP - Adjusted net income: (1) | | | | | | | | | | | |
Insurance | | | | | $ | 27,057 | | | $ | 18,214 | | | | | |
Mortgage | | | | | (309) | | | (853) | | | | | |
Tiptree Capital - other | | | | | 653 | | | 1,413 | | | | | |
Corporate | | | | | (6,868) | | | (6,215) | | | | | |
Total adjusted net income | | | | | $ | 20,533 | | | $ | 12,559 | | | | | |
Pre-tax Income by Segment(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Specialty insurance | $ | (2,345 | ) | | $ | 10,659 |
| | $ | 1,724 |
| | $ | 35,627 |
|
Asset management | 2,973 |
| | 6,475 |
| | 13,083 |
| | 14,672 |
|
Senior living | (1,535 | ) | | (473 | ) | | (5,359 | ) | | (5,487 | ) |
Specialty finance | 2,595 |
| | 4,181 |
| | 2,629 |
| | 5,510 |
|
Corporate and other | (7,118 | ) | | (9,292 | ) | | (22,198 | ) | | (22,751 | ) |
Pre-tax income | $ | (5,430 | ) | | $ | 11,550 |
| | $ | (10,121 | ) | | $ | 27,571 |
|
Adjusted EBITDA by Segment - Non-GAAP (1)
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Specialty insurance | $ | 2,318 |
| | $ | 14,220 |
| | $ | 15,566 |
| | $ | 45,556 |
|
Asset management | 2,973 |
| | 6,475 |
| | 13,083 |
| | 14,672 |
|
Senior living | 2,859 |
| | 2,869 |
| | 8,293 |
| | 7,194 |
|
Specialty finance | 2,382 |
| | 4,479 |
| | 6,288 |
| | 6,327 |
|
Corporate and other | (5,756 | ) | | (7,915 | ) | | (19,897 | ) | | (20,867 | ) |
Adjusted EBITDA | $ | 4,776 |
| | $ | 20,128 |
| | $ | 23,333 |
| | $ | 52,882 |
|
| |
(1)
| For further information relating to the Company’s Adjusted EBITDA, including a reconciliation of the Company’s segments’ Adjusted EBITDA to GAAP pre-tax income, see “—Non-GAAP Reconciliations.” |
Specialty Insurance
Our principal operating subsidiary, Fortegra, is a specialty insurance company that offers asset protection products throughunderwriter and service provider, which focuses on niche commerciallines and personal lines of insurance. We also offer administration and fronting services for our self-insured clients who own captive producer owned reinsurance companies (“PORCs”).
Our specialty insurance business generates income from insurance underwriting operations and an investment portfolio. Insurance underwriting operations revenues are primarily generated from net premiums, service and administrative fees and ceding commissions. We measure insurance underwriting operations performance by as adjusted underwriting margin, combined ratio and Adjusted
EBITDA. The investment portfolio income consists of investment income, gains and losses and is measured by net portfolio income which is the equivalent of Adjusted EBITDA.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net earned premiums | $ | 96,073 |
| | $ | 47,609 |
| | $ | 272,781 |
| | $ | 138,516 |
|
Service and administrative fees | 24,018 |
| | 25,842 |
| | 70,861 |
| | 84,421 |
|
Ceding commissions | 2,513 |
| | 1,397 |
| | 6,801 |
| | 22,645 |
|
Net investment income | 3,840 |
| | 3,307 |
| | 12,032 |
| | 8,409 |
|
Net realized and unrealized gains (losses) | (8,554 | ) | | 3,745 |
| | (13,618 | ) | | 12,767 |
|
Other income | 824 |
| | 730 |
| | 2,874 |
| | 1,985 |
|
Total revenues | $ | 118,714 |
| | $ | 82,630 |
| | $ | 351,731 |
| | $ | 268,743 |
|
Expenses: | | | | | | | |
Policy and contract benefits | 31,570 |
| | 25,881 |
| | 94,364 |
| | 72,436 |
|
Commission expense | 63,066 |
| | 24,032 |
| | 176,405 |
| | 91,906 |
|
Employee compensation and benefits | 10,073 |
| | 9,180 |
| | 30,800 |
| | 28,065 |
|
Interest expense | 3,499 |
| | 2,322 |
| | 10,534 |
| | 6,018 |
|
Depreciation and amortization expenses | 3,134 |
| | 3,032 |
| | 9,625 |
| | 10,414 |
|
Other expenses | 9,717 |
| | 7,524 |
| | 28,279 |
| | 24,277 |
|
Total expenses | $ | 121,059 |
| | $ | 71,971 |
| | $ | 350,007 |
| | $ | 233,116 |
|
Pre-tax income (loss) | $ | (2,345 | ) | | $ | 10,659 |
| | $ | 1,724 |
| | $ | 35,627 |
|
Results
Our specialty insurance segment is currently expanding product lines in an effort to increase the duration of our products and increase investable assets. As part of this process, the business is investing in products and people to grow warranty and program products, while maintaining a leading position in the credit protection space. That, combined with the earnings performance of the investment portfolio, are key drivers in comparing 2017 versus 2016 results.fee-oriented services. The combination of unearned premiums and deferred revenue on the balance sheet are key indicators of volume growth and contract duration extension which over the trailing twelve months has increased by 12.7% from $469.3 million as of September 30, 2016 to $529.0 million as of September 30, 2017.
In the fourth quarter of 2016, our captive reinsurance subsidiary replaced a third party as reinsurer of certain credit protection products, thus avoiding reinsurance costs and gaining additional investment flexibility. This transaction was consistent with our strategy to grow underwriting and investment profits at our specialty insurance subsidiaries. underwriting, service contract products, and related service solutions delivered through a vertically integrated business model creates a blend of traditional underwriting revenues, investment income and unregulated fee revenues. The business is an agent-driven model, distributing products through independent insurance agents, consumer finance companies, online retailers, auto dealers, and regional big box retailers to deliver products that complement the consumer transaction.
As a result, several income statement line items increased for the threeof March 31, 2024, Fortegra was owned approximately 79.3% by Tiptree, 17.7% by Warburg and nine months ended September 30, 2017 when compared to prior periods including earned premiums, commission expense3.0% by management and policy and contract benefits, partially offset by the decline in ceding commissions.
The applicationdirectors of push-down accountingFortegra, before giving effect to the acquisitionexercise of Fortegra resulted in purchase price accounting adjustments (Valueoutstanding warrants and the conversion of Business Acquired or “VOBA”) whereby deferred serviceoutstanding preferred stock. The following tables and administrative fees and costs associated with deferred commission expense on acquired contracts were recognized differently from those related to newly originated contracts. Fordiscussion present the nine months ended September 30, 2017 and 2016, the VOBA impacts on pre-tax income were modest at $1.0 million and $1.5 million, respectively. Where significant to the period over period comparisons of revenue and expense, VOBA impacts are discussed separately below.
ForInsurance segment results, including non-controlling interests, for the three months ended September 30, 2017,March 31, 2024 and 2023.
Components of our Results of Operations
Revenues
Earned Premiums, net represents the specialtyearned portion of gross written and assumed premiums, less the earned portion that is ceded to third-party reinsurers under reinsurance agreements. Fortegra’s insurance segment incurredpolicies generally have a pre-tax lossterm of $2.3 million, a decrease of $13.0 millionsix months to seven years depending on the underlying product and premiums are earned pro rata over the prior year operating results. The primary driversterm of the declinepolicy. At the end of each reporting period, premiums written but not earned are classified as unearned premiums and are earned in results were associatedsubsequent periods over the remaining term of the policy.
Service and Administrative Fees represent the earned portion of gross written premiums and premium equivalents, which is generated from non-insurance products including warranty service contracts, motor club contracts and other services offered as part of Fortegra’s vertically integrated product offerings. Such fees are typically positively correlated with transaction volume and are recognized as revenue when realized and earned. At the end of each reporting period, gross written premiums and premium equivalents written for service contracts not earned are classified as deferred revenue, which are earned in subsequent periods over the remaining term of the policy.
Ceding Commissions and Other Revenue consists of commissions earned on policies written on behalf of third-party insurance companies with no exposure to the insured risk and certain fees earned in conjunction with underwriting policies. Other revenue also includes the interest income earned on the premium finance product offering.
Net Investment Income represents earned investment income on our portfolio of invested assets. Our invested assets are primarily comprised of fixed maturity securities, and may also include cash and cash equivalents and equity securities. The principal factors that influence net investment income are the size of our investment portfolio, the yield on that portfolio and expense due to external investment managers. The insurance investment portfolio includes investments held in statutory insurance companies and in unregulated entities. The portfolios held in statutory insurance companies are subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage.
Net Realized and Unrealized Gains (Losses) on investments are a period-over-period reductionfunction of the difference between the amount received by us on the sale of a security and the security’s cost-basis, as well as any “other-than-temporary” impairments and allowances for credit losses which are recognized in netearnings. In addition, equity securities and certain other investments are carried at fair value with unrealized gains and losses included in this line. Fortegra’s investment strategy is designed to achieve attractive risk-adjusted returns across select asset classes, sectors and geographies while maintaining adequate liquidity to meet claims payment obligations. As such, volatility from realized and unrealized gains and losses of $12.3 million, increases in interest expense of $1.2 million primarily associated with asset-based interest expense in the investment portfolio, partially offset by increases inmay impact period-over-period performance. Unrealized gains and losses on equity securities and loans held at fair value impact current period net investment income, of $0.5 million. From insurance operations, underwriting margins were up $3.1 million compared to prior year partially offset by increases in employee payroll and compensation of $0.9 million and increases in other expenses of $2.2 million related to premium tax related to the growth in written premiums.
Pre-tax income was $1.7 million for the nine months ended September 30, 2017, a decrease of $33.9 million, or 95.2%, over the prior year operating results. The primary drivers of the decline in results were associated with our investment portfolio including period-over-period reductions in net realized andwhile unrealized gains and losses of $26.4 million, increases in interest expense of $4.5 million primarily associated with asset-based interest expense in the investment portfolio, partially offset by increases in net investmenton AFS securities impact AOCI.
income of $3.6 million. Insurance operations results were down versus prior year driven primarily by increases in stock-based compensation expense of $2.7 million and increased other expenses of $4.0 million primarily related to premium tax, which was partially offset by increased underwriting margin of $2.4 million.
Revenues
Revenues are generated by the sale of the following insurance products: credit protection, warranty, programs, services and other. Credit protection products include credit life, credit disability, credit property, involuntary unemployment, and accidental death and dismemberment. Warranty products include mobile device protection, furniture and appliance service contracts and auto service contracts. Programs are primarily personal and commercial lines and other property-casualty products. Earned premiums associated with these products are recognized over the life of these contracts. Services and other revenues principally represent investment income, unrealized and realized gains and losses, fees for insurance sales and business process outsourcing services, and interest for premium financing, and also include the impact to fee income, ceding commissions, and commissions expense from the purchase accounting effect of VOBA related to the insurance contracts.
Total revenues were $118.7 million for the three months ended September 30, 2017, up $36.1 million, or 43.7%, over the prior year period. The increase was primarily driven by an increase in earned premiums of $48.5 million, or 101.8%, which were partially offset by decreases in service and administrative fees of $1.8 million, or 7.1%, and ceding commissions of $1.1 million. For the nine months ended September 30, 2017, total revenues were $351.7 million, up $83.0 million, or 30.9%, over the prior year period. The increase was primarily driven by an increase in earned premiums of $134.3 million, or 96.9%, and other income of $0.9 million, which were partially offset by decreases in service and administrative fees of $13.6 million, or 16.1%, and ceding commissions of $15.8 million. For both periods, the increase in earned premiums was driven by growth in our credit protection and warranty products with the primary driver being our captive reinsurance subsidiary replacing a third party as reinsurer of certain credit protection products. Ceding commissions declines are consistent with this strategy to retain a higher portion of written business which results in less revenues from experience refunds. Service and administrative fees are lower year-over-year primarily from a reduction in fee-related revenues on our mobile protection and roadside assistance products.
The revenues on the investment portfolio, including net investment income and realized and unrealized gains, were a loss of $4.7 million for the three months ended September 30, 2017 compared to income of $7.1 million in the 2016 period, a decrease of $11.8 million. For the nine months ended September 30, 2017, revenues on the investment portfolio, including net investment income and realized and unrealized gains, were a loss of $1.6 million compared to $21.2 million of income in the 2016 period, a decrease of $22.8 million. See “—Specialty Insurance Investment Portfolio” for further discussion of the investment results.
Expenses
Total expenses include policyNet Losses and contract benefits, commissions expense and operating expenses. For the three months ended September 30, 2017, total expenses were $121.1 million compared to $72.0 million in the 2016 period. For the nine months ended September 30, 2017, total expenses were $350.0 million compared to $233.1 million in the 2016 period. The primary drivers of the increase were policy and contract benefits and commission expense as net written premiums increased over the 2016 period.
There are two types of expenses for claims payments under insurance and warranty service contracts which are included in policy and contract benefits: member benefit claims and net losses and loss adjustment expenses. Member benefit claims represent the costs of services and replacement devices incurred in car club and warranty protection service contracts. Net losses and loss adjustment expensesLoss Adjustment Expenses represent actual insurance claims paid, changes in unpaid claim reserves, net of amounts ceded and the costs of administering claims for credit life and other insurance lines, such as non-standard auto.lines. Incurred claims are impacted by loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is based on the average size of claims. Factors affecting loss frequency and loss severity include the volume of underwritten contracts, changes in claims reporting patterns, claims settlement patterns, judicial decisions, economic conditions, morbidity patterns and the attitudes of claimants towards settlements. Forsettlements, and original pricing of the three months ended September 30, 2017, policyproduct for purposes of the loss ratio in relation to loss emergence over time. Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods.
Member Benefit Claims represent the costs of services and replacement devices incurred in warranty and motor club service contracts. Member benefit claims represent claims paid on behalf of contract benefits were $31.6 million, up $5.7 million fromholders directly to third-party providers for roadside assistance and for the prior year. For the nine months ended September 30, 2017, policy andrepair or replacement of covered products. Claims can also be paid directly to contract benefits were $94.4 million, up $21.9 million from the prior year primarilyholders as a resultreimbursement payment, provided supporting documentation of increased retentionloss is submitted to the Company. Claims are recognized as expense when incurred.
Commission Expenses reflect commissions paid to retail agents, third party administrators and managing general underwriters, net of ceding commissions received on business ceded under certain reinsurance contracts. Commission expenses are deferred and amortized to expense in our credit protection and program products.
proportion to the premium earned over the policy life. Commission expense is incurred on most product lines, thelines. The majority of whichcommissions are retrospective commissions paid to agents, distributors and retailers selling ourthe Company’s products, including credit insurance policies, warranty service contracts and motor club memberships, mobile device protection and warranty service contracts. Credit insurance commissionmemberships. When claims increase, in most cases distribution partners bear the risk through a reduction in their retrospective commissions. Commission rates are, in many cases, set by state regulators, such as in credit and collateral protection programs and are also impacted by market conditions and the retention levels. Total commission expense for three months ended September 30, 2017 was $63.1 million compared to $24.0 million in 2016. Total commission expense for nine months ended September 30, 2017 was $176.4 million compared to $91.9 million in 2016. The primary driverslevels of distribution partners.
Operating and Other Expenses represent the increase were the commission expense associated with the higher retention rate on our credit protection products along with VOBA purchase accounting impacts.
Operatinggeneral and administrative expenses are composed of insurance operations including employee compensation and benefits interest expense, depreciation and amortization expenses and other expenses. For the three months ended September 30, 2017, operating expenses, were $26.4 million compared to $22.1 million in the 2016 period. For the nine months ended September 30, 2017, operating expenses were $79.2 million compared to $68.8 million in the 2016 period. The increases for the threeincluding, technology costs, office rent, and nine months were drivenprofessional services fees, such as legal, accounting and actuarial services.
Interest Expense consists primarily by increased stock-based compensation, increased premium taxes as written premiums grow, and increasedof interest expense on corporate revolving debt, notes, preferred trust securities due June 15, 2037 (Preferred Trust Securities) and asset based borrowings within the insurance investment portfolio. For the nine months ended September 30, 2017 total employee compensationdebt for premium finance and benefits were $30.8 million, up $2.7 million from 2016warranty service contract financing, which is non-recourse to Fortegra.
Depreciation Expense is primarily as a result of increased stock based compensation expense. Interest expense of $10.5 million in nine months ended September 30, 2017 increased by $4.5 million versus the prior year,associated with furniture, fixtures and equipment. Amortization Expense is primarily from increased asset based borrowings on certain investments within the investment portfolio. Other expenses for the nine months ended September 30, 2017 were $28.3 million, up $4.0 million from 2016 primarily as a result of increased premium taxes as written and earned premiums grew. Depreciation and amortization expense was lower year-over-year as a result of the decline in VOBAassociated with purchase accounting impactamortization including values associated with acquired customer relationships, trade names and internally developed software and technology.
Key Performance Metrics
We discuss certain key performance metrics, described below, which provide useful information about our business and the operational factors underlying its financial performance.
Gross written premiums and premium equivalents represent total gross written premiums from the amortization of the fair value attributed to the insurance policies and warranty service contracts acquired, which was $0.2 millionissued, as well as premium finance volumes during a reporting period. They represent the volume of insurance policies written or assumed and warranty service contracts issued during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. Gross written premiums is a volume measure commonly used in the nine months ended September 30, 2017 versus $3.0 million forinsurance industry to compare sales performance by period. Premium equivalents are used to compare sales performance of warranty service and administrative contract volumes to gross written premiums. Similar to how management considers gross written premiums to be a relevant measure of volume, regardless of the prior year period. This was partially offset by amortizationimpact of other intangibles including customer relationships and trade names.
Insurance Operating Ratios
Wereinsurance on net earned premiums, management considers premium equivalents to be a relevant measure of contract volume, regardless of whether the Company retains the full obligation. Investors also use the combined ratio as an insurance operating metricthese measures to compare sales growth among comparable companies, while management uses these measures to evaluate ourthe relative performance of various sales channels.
Combined Ratio, Loss Ratio, Acquisition Ratio, Underwriting Ratio and Operating Expense Ratio
Combined ratio is an operating measure, which equals the sum of the underwriting performance, both overallratio and relativethe operating expense ratio. Loss ratio is the ratio of the GAAP line items net losses and loss adjustment expenses and member benefit claims to peers. Expressed as a percentage, it representsearned premiums, net, service and administrative fees (excluding ceding fees), and other revenue (excluding cash and cash equivalent interest income). Acquisition ratio is the relationshipratio of policy and contract benefits,the GAAP line items commission expense (net(less ceding fees and ceding commissions) to earned premiums, net, service and administrative fees (excluding ceding fees), and other revenue (excluding cash and cash equivalent interest income). Underwriting ratio is the combination of ceding commissions),the loss ratio and the acquisition ratio. Operating expense ratio is the ratio of the GAAP line items employee compensation and benefits and other expenses to net earned premiums, net, service and administrative fees (excluding ceding fees) and other income.revenue (excluding cash and cash equivalent interest income).
A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss. These ratios are commonly used in the insurance industry as a measure of underwriting profitability, excluding earnings on the insurance portfolio. Investors commonly use these measures to compare underwriting performance among companies separate from the performance of the investment portfolio. Management uses these measures to compare the profitability of various products we underwrite as well as profitability among our various agents and sales channels.
Return on average equity is expressed as the ratio of net income to average stockholders’ equity during the period. Management uses this ratio as a measure of the on-going performance of the totality of the Company’s operations.
Non-GAAP Financial Measures
Underwriting and Fee Revenues and Underwriting and Fee Margin - In order to evaluatebetter explain to investors the underwriting performance of the Company’s programs and the respective retentions between the Company and its agents and reinsurance partners, we use the non-GAAP metrics – underwriting and fee revenues and underwriting and fee margin. We generally manage our abilityexposure to profitably underwrite the risks we assume over time and manage our operating costs. A combined ratio less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. Since VOBA purchase accounting adjustments impact revenues and expenses related to acquired contracts differently from newly originated, we also show the combined ratio on an as adjusted basis, eliminating the accounting effects of VOBA. Management believes showing an as adjusted combined ratio provides useful information to investors to compare period-over-period operating results. Following is a summary of these performance metrics for the three and nine months ended September 30, 2017 and 2016.
Operating Ratios
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Insurance operating ratios: | 2017 | | 2016 | | 2017 | | 2016 |
Combined ratio | 92.6 | % |
| 87.9 | % | | 93.2 | % | | 86.3 | % |
As adjusted Combined ratio - Non-GAAP (1) | 92.8 | % |
| 89.4 | % | | 93.6 | % |
| 88.5 | % |
(1) For further information relating to the Company’s as adjusted combined ratio, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”
The as adjusted combined ratios were 92.8% and 93.6% for the three and nine months ended September 30, 2017, compared to 89.4% and 88.5% for the corresponding prior year periods. The increases across both the three and nine months were driven primarily by the higher retention impacting underwriting margins and higher premium tax, combined with the increased stock based compensation mentioned above. These factors caused the combined ratio to deteriorate modestly in the nine month period.
Key Operating Metrics and Non-GAAP Operating Results
Adjusted EBITDA
Adjusted EBITDA was $2.3 millionand$15.6 million for the three and nine months ended September 30, 2017, compared to $14.2 million and $45.6 million for the comparable prior year periods. Net portfolio income from the investment portfolio was a loss of $6.4 million and $6.7 million for the three and nine months ended September 30, 2017, compared to income of $6.4 million and $19.5 million in the respective prior year periods. Adjusted EBITDA from insurance underwriting operations was $8.7 million and $22.3 million for the three and nine months ended September 30, 2017 compared to $7.9 million and $26.1 million for the respective prior year periods. The increase for the three months and decrease for the nine months were driven by the same factors discussed above under “Results.” See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Gross & Net Written Premiums
Gross written premiums represents total premiums from insurance policies and warranty service contracts that we write during a reporting period based on the effective date of the individual policy. Net written premiums are gross written premiums less that portion of premiums that we cede to third party reinsurers or the PORCs under reinsurance agreements. The amount ceded to each reinsurer
is based on the contractual formula contained in the individual reinsurance agreements. Net earned premiums are the earned portion of our net written premiums. We earn insurance premiums on a pro-rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums, which are earned in subsequent periods over the remaining term of the policy.
Product Underwriting Margin - Non-GAAP
The following tables present product specific revenue and expenses within the specialty insurance segment for the three and nine months ended September 30, 2017 and 2016. As mentioned above, we generally limit the underwriting risk we assume through the use ofunderwrite using both reinsurance (e.g., quota share and excess of loss) and retrospectivesliding scale commission agreements with our partnersagents (e.g., commissions paid adjustare adjusted based on the actual underlying losses incurred), which manage and mitigatemitigates our risk. Period-over-period comparisons of revenues are often impacted by the PORCs and distribution partners choice as to whether to retain risk, specifically with respect to the relationship between service and administration expenses and ceding commissions, both components of revenue, and the offsetting policy and contract benefits and commissions paid to our partners and reinsurers. Generally, when losses are incurred, the risk which is retained by our partnersagents and reinsurers is reflected in a reduction in commissions paid. In order
Underwriting and fee revenues represents earned premiums, net, service and administrative fees (excluding ceding fees) and other income (excluding cash and cash equivalent interest income). We reconcile underwriting and fee revenues as total revenues excluding net investment income, net realized gains (losses) and net unrealized gains (losses), ceding fees, ceding commissions and cash and cash equivalent interest income as reported in other income.
Underwriting and fee margin represents income before taxes excluding net investment income, net realized gains (losses), net unrealized gains (losses), cash and cash equivalent interest income, employee compensation and benefits, other expenses, interest expense and depreciation and amortization. We deliver our products and services on a vertically integrated basis to better explain to investorsour agents. As such, underwriting and fee margin exclude general and administrative expenses, interest income, depreciation and amortization and other corporate expenses, including income taxes, as these corporate expenses support our vertically integrated delivery model and are not specifically supporting any individual business line.
Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the net financialafter-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting.
Adjusted return on average equity represents adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the risk retainedperiod.
See “—Non-GAAP Reconciliations” for a reconciliation of underwriting and fee revenues, underwriting and fee margin, adjusted net income and adjusted return on average equity to their GAAP equivalents.
Results of Operations - Three Months Ended March 31, 2024 compared to 2023
| | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, |
| 2024 | | 2023 | | Change | | % Change |
Revenues: | | | | | | | |
Earned premiums, net | $ | 347,310 | | | $ | 265,330 | | | $ | 81,980 | | | 30.9 | % |
Service and administrative fees | 110,487 | | | 92,032 | | | 18,455 | | | 20.1 | % |
Ceding commissions | 2,744 | | | 3,645 | | | (901) | | | (24.7) | % |
Net investment income | 6,758 | | | 5,109 | | | 1,649 | | | 32.3 | % |
Net realized and unrealized gains (losses) | 2,819 | | | (4,607) | | | 7,426 | | | (161.2) | % |
Other revenue | 8,638 | | | 6,935 | | | 1,703 | | | 24.6 | % |
Total revenues | $ | 478,756 | | | $ | 368,444 | | | $ | 110,312 | | | 29.9 | % |
Expenses: | | | | | | | |
Net losses and loss adjustment expenses | $ | 175,380 | | | $ | 114,327 | | | $ | 61,053 | | | 53.4 | % |
Member benefit claims | 32,284 | | | 27,348 | | | 4,936 | | | 18.0 | % |
Commission expense | 156,948 | | | 146,450 | | | 10,498 | | | 7.2 | % |
Employee compensation and benefits | 31,450 | | | 24,613 | | | 6,837 | | | 27.8 | % |
Interest expense | 7,639 | | | 6,081 | | | 1,558 | | | 25.6 | % |
Depreciation and amortization | 5,083 | | | 4,811 | | | 272 | | | 5.7 | % |
Other expenses | 33,161 | | | 25,369 | | | 7,792 | | | 30.7 | % |
Total expenses | $ | 441,945 | | | $ | 348,999 | | | $ | 92,946 | | | 26.6 | % |
Income (loss) before taxes (1) | $ | 36,811 | | | $ | 19,445 | | | $ | 17,366 | | | 89.3 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Key Performance Metrics: | | | | | | | |
Gross written premiums and premium equivalents | $ | 663,417 | | | $ | 621,158 | | | $ | 42,259 | | | 6.8 | % |
Net written premiums | $ | 318,151 | | | $ | 281,146 | | | $ | 37,005 | | | 13.2 | % |
Loss ratio | 46.3 | % | | 40.5 | % | | | | |
Acquisition ratio | 31.2 | % | | 37.4 | % | | | | |
Underwriting ratio | 77.5 | % | | 77.9 | % | | | | |
Operating expense ratio | 12.8 | % | | 13.7 | % | | | | |
Combined ratio | 90.3 | % | | 91.6 | % | | | | |
Return on average equity | 22.3 | % | | 16.7 | % | | | | |
Non-GAAP Financial Measures (2): | | | | | | | |
Adjusted net income (before NCI) | $ | 34,133 | | | $ | 22,939 | | | $ | 11,194 | | | 48.8 | % |
Adjusted return on average equity | 28.3 | % | | 26.1 | % | | | | |
(1) Net income was $26.9 million for the three months ended March 31, 2024 compared to $14.7 million for the three months ended March 31, 2023.
(2) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Revenues - Three Months Ended March 31, 2024 compared to 2023
For the three months ended March 31, 2024, total revenues increased 29.9%, to $478.8 million, as compared to $368.4 million for the three months ended March 31, 2023. Earned premiums, net of $347.3 million increased $82.0 million, or 30.9%, driven by growth in specialty E&S and admitted insurance lines. Earned premiums assumed from other insurance companies were $141.3 million, or 40.7% of the total, compared to $110.0 million, or 41.4% of the total, in the prior year period. As it expands to new geographies and expands product offerings, the Company of the insurance contractsworks to obtain necessary licenses and intends to write this business directly upon obtaining necessary licenses. The Company views direct written and the impactassumed business as having similar characteristics. Service and administrative fees of $110.5 million increased by 20.1% driven primarily by growth in vehicle service contract revenues. Ceding commissions of $2.7 million decreased by $0.9 million, or 24.7%. Other revenues increased by $1.7 million, or 24.6%, driven by growth in premium finance product offerings and interest income on profitability, we use the Non-GAAP metric - As Adjusted Underwriting Margin. cash and cash equivalents.
For the same reasonsthree months ended March 31, 2024, 25.5% of revenues were derived from fees that we adjust our combined ratio for the effects of purchase accounting, VOBA impacts can also mask the actual relationship between revenues earned and the offsetting reductions in commissions paid, and thus the period-over-period net financial impact of the risk retained by the Company. As such, we believe that presenting underwriting margin provides useful information to investors and aligns more closely to how management measureswere not solely dependent upon the underwriting performance of Fortegra’s insurance products, resulting in more diversified earnings. For the business.three months ended March 31, 2024, 80.3% of fee-based revenues were generated in non-regulated service companies, with the remainder in regulated insurance companies.
For the three months ended March 31, 2024, net investment income was $6.8 million as compared to $5.1 million in the prior year period, primarily driven by growth in investments and the increase in yields. Net realized and unrealized gains were $2.8 million, an improvement of $7.4 million, as compared to net realized and unrealized losses of $4.6 million in the prior year period, primarily driven by the change in fair value of certain equity and other investments carried at fair value. Unrealized losses on AFS securities impacting OCI for the three months ended March 31, 2024 were $4.8 million, driven by the increase in yields (yields and bonds prices are inversely related) and corresponding impact to the fair value of investments.
Expenses - Three Months Ended March 31, 2024 compared to 2023
For the three months ended March 31, 2024, net losses and loss adjustment expenses were $175.4 million, member benefit claims were $32.3 million and commission expense was $156.9 million, as compared to $114.3 million, $27.3 million, and $146.5 million, respectively, for the three months ended March 31, 2023. The increase in net losses and loss adjustment expenses of $61.1 million, or 53.4%, was driven by growth in U.S. and European insurance lines and the shift in business mix toward commercial lines, which tend to have higher loss ratios and lower commission and expense ratios. In addition, the Company experienced unfavorable prior year development of $0.8 million for the three months ended March 31, 2024, driven by higher-than-expected claim severity in our commercial lines of business, primarily driven by one partner. The increase in member benefit claims of $4.9 million, or 18.0%, was driven by growth in vehicle service contracts and the impacts of inflation on replacement costs and labor rates. Commission expenses increased by $10.5 million, or 7.2%, generally in line with the growth in earned premiums, net and service and administrative fees, partially offset by the impact of sliding scale commissions as losses increased.
For the three months ended March 31, 2024, employee compensation and benefits were $31.5 million and other expenses were $33.2 million, as compared to $24.6 million and $25.4 million, respectively, for the three months ended March 31, 2023. Employee compensation and benefits increased by $6.8 million, or 27.8%, driven by investments in human capital associated with growth in E&S, admitted and warranty lines. Other expenses increased by $7.8 million, or 30.7%, driven by a change in fair value of the Fortegra Additional Warrant liability of $4.2 million, and $3.2 million of expenses related to legal and other expenses associated with preparation of the registration statement for the withdrawn Fortegra initial public offering in February 2024.
For the three months ended March 31, 2024, interest expense was $7.6 million as compared to $6.1 million for the three months ended March 31, 2023. The increase in interest expense of $1.6 million, or 25.6%, was primarily driven by the rise in short-term interest rates and increased borrowings on Fortegra’s corporate revolver and asset based debt for premium finance lines.
For the three months ended March 31, 2024, depreciation and amortization expense was $5.1 million, including $4.0 million of intangible amortization related to purchase accounting associated with acquisitions at Fortegra from 2019 to 2023, as compared to $4.8 million, including $3.9 million of intangible amortization from purchase accounting in 2023.
Gross Written Premiums and Premium MetricsEquivalents
The below table shows gross written premiums and As Adjusted Underwriting Margin - Non-GAAPpremium equivalents by business mix for the three months ended March 31, 2024 and 2023:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | Credit Protection |
| Warranty |
| Programs |
| Services and Other |
| Insurance Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Gross written premiums | $ | 149,115 |
| $ | 132,111 |
|
| $ | 25,530 |
| $ | 16,618 |
|
| $ | 34,512 |
| $ | 32,674 |
|
| $ | 11 |
| $ | 8 |
|
| $ | 209,168 |
| $ | 181,411 |
|
Net written premiums | 96,375 |
| 30,987 |
|
| 17,217 |
| 13,142 |
|
| 5,418 |
| 11,884 |
|
| — |
| — |
|
| 119,010 |
| 56,013 |
|
| | | | | | | | | | | | | | |
As Adjusted Revenues: | | | | | | | | | | | | | | |
Net earned premiums | $ | 78,951 |
| $ | 29,173 |
| | $ | 10,900 |
| $ | 9,139 |
| | $ | 6,222 |
| $ | 9,297 |
| | $ | — |
| $ | — |
| | $ | 96,073 |
| $ | 47,609 |
|
Service and administrative fees | 10,434 |
| 10,865 |
| | 9,409 |
| 11,788 |
| | 2,721 |
| 2,504 |
| | 1,690 |
| 1,819 |
| | 24,254 |
| 26,976 |
|
Ceding commissions | 2,523 |
| 1,465 |
| | — |
| 1 |
| | — |
| — |
| | — |
| — |
| | 2,523 |
| 1,466 |
|
Other income | 135 |
| 71 |
| | — |
| (22 | ) | | — |
| 5 |
| | 689 |
| 676 |
| | 824 |
| 730 |
|
Less product specific expenses: | | | | | | | | | | | | | | |
Policy and contract benefits | 14,420 |
| 7,918 |
| | 11,694 |
| 10,099 |
| | 5,456 |
| 7,900 |
| | — |
| (36 | ) | | 31,570 |
| 25,881 |
|
Commission expense | 59,949 |
| 18,386 |
| | 2,287 |
| 5,979 |
| | 1,178 |
| 1,611 |
| | 190 |
| 176 |
| | 63,604 |
| 26,152 |
|
As Adjusted underwriting margin (1) | $ | 17,674 |
| $ | 15,270 |
| | $ | 6,328 |
| $ | 4,828 |
| | $ | 2,309 |
| $ | 2,295 |
| | $ | 2,189 |
| $ | 2,355 |
| | $ | 28,500 |
| $ | 24,748 |
|
| | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, |
| 2024 | | 2023 | | |
Property and short-tail | $ | 149,193 | | | $ | 105,172 | | | |
Contractual liability | 83,209 | | 95,611 | | |
General liability | 72,470 | | 79,449 | | |
Alternative risks | 76,668 | | 78,614 | | |
Professional liability | 68,168 | | 58,874 | | |
Europe | 41,708 | | 29,572 | | |
Commercial lines | $ | 491,416 | | | $ | 447,292 | | | |
Personal lines | $ | 78,435 | | | $ | 84,543 | | | |
Insurance | $ | 569,851 | | | $ | 531,835 | | | |
Auto and consumer goods warranty | 81,968 | | 77,769 | | |
Other services | 11,598 | | 11,554 | | |
Services | $ | 93,566 | | | $ | 89,323 | | | |
Total (1,2) | $ | 663,417 | | | $ | 621,158 | | | |
(1) The total gross written premiums and premium equivalents of $663.4 million and $621.2 million for the three months ended March 31, 2024 and 2023, respectively, were comprised of gross written premiums of $457.1 million and $424.9 million, plus assumed premiums of $112.7 million and $106.9 million, plus gross service and administrative fee additions of $93.6 million and $89.3 million, respectively. See Note (7) Reinsurance Recoverable and Prepaid Reinsurance Premiums and Note (13) Revenue from Contracts with Customers Revenue from Contracts with Customers within the respective periods for more information.
(2) The premium equivalents metric excludes amounts received from failure to perform vehicle service contracts held in off-balance sheet trusts and premium finance volumes as it was determined to be unlikely these amounts will be recognized as revenue. The first quarter 2023 has been been conformed resulting in a reduction of premium equivalents of $129.2 million. This change only impacted the premium equivalents metric and did not impact the Company’s condensed consolidated financial statements.
Total gross written premiums and premium equivalents for the three months ended March 31, 2024 were $663.4 million, representing an increase of $42.3 million, or 6.8%. The increase was driven by a combination of factors including expanding Fortegra’s distribution partner network, growing specialty admitted and E&S insurance lines, and increasing penetration in the vehicle service contract sector.
For the three months ended March 31, 2024, Insurance increased by $38.0 million, or 7.1%, driven by growth in specialty commercial lines, including E&S and admitted business. For the three months ended March 31, 2024, Services increased by $4.2 million, or 4.8%, driven by growth in vehicle service contracts.
The growth in gross written premiums and premium equivalents, combined with higher retention in select products as of March 31, 2024, has resulted in an increase of $263.3 million, or 12.7%, in unearned premiums and deferred revenue on the condensed consolidated balance sheets as compared to March 31, 2023. As of March 31, 2024, unearned premiums and deferred revenues were $2.3 billion, as compared to $2.1 billion as of March 31, 2023.
Net written premiums
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | |
Property and short-tail | $ | 108,436 | | | $ | 73,902 | | | | | |
Contractual liability | 21,765 | | 19,258 | | | | |
General liability | 28,460 | | 34,324 | | | | |
Alternative risks | 56,488 | | 55,831 | | | | |
Professional liability | 22,305 | | 23,739 | | | | |
Europe | 41,708 | | 29,572 | | | | |
Commercial lines | $ | 279,162 | | | $ | 236,626 | | | | | |
Personal lines | $ | 38,989 | | | $ | 44,520 | | | | | |
Insurance | $ | 318,151 | | | $ | 281,146 | | | | | |
Net written premiums for the three months ended September 30, 2017March 31, 2024 were $209.2$318.2 million, representing an increase of $27.8$37.0 million, or 15.3%13.2%, consistent with growth in gross written premiums, and as a result of increased retention on Fortegra’s whole account quota share reinsurance arrangement from 30% to 40%, effective April 1, 2023. For the three months ended March 31, 2024, Net written premiums from commercial lines increased by $42.5 million, or 18.0%, driven by growth in specialty E&S and admitted business. For the three months ended March 31, 2024, net written premiums from personal lines decreased by $5.5 million, or 12.4%, driven by declines in personal credit insurance lines. Net written premiums from
property and short-tail lines represented $108.4 million, or 34.1%, of the total net written premiums for the three months ended March 31, 2024 compared to $73.9 million, or 26.3%, for the prior year period. Property and short-tail net written premiums were diversified by geographic location, exposure and risk type with substantial reinsurance protection. As of March 31, 2024, the net loss to the Company in a 1-in-250 year catastrophe event represented approximately 2.8% of Fortegra’s stockholders’ equity. This reported loss includes the impact of incurred losses based on the estimated frequency and severity of potential events, reinstatements premiums, reinsurance recoveries and taxes.
Combined Ratio
The combined ratio was 90.3% for the three months ended March 31, 2024, compared to 91.6% for the prior year period, reflecting the consistent underwriting performance and scalability of the Company’s operating platform. The underwriting ratio was 77.5%, a decrease of 0.4% from the prior year period, which consists of a loss ratio of 46.3%, compared to 40.5% in the prior year period, and an acquisition ratio of 31.2%, compared to 37.4% in the prior year period. The amount ofincrease in loss ratio was driven by changes in business retainedmix, which was 56.9%more than offset by the decline in acquisition ratio. The operating expense ratio decreased 0.9% percentage points to 12.8%, up from 30.9%as compared to 13.7% in the prior year period as the Company retained more risk in 2017 than 2016. Total net premiums written were $119.0 million, up $63.0 million over prior year, or 112.5%. Credit protection net premiums writtenperiod.
Underwriting and Fee Revenues and Margin - Non-GAAP
The below tables show underwriting and fee revenues and underwriting and fee margin by business mix for the three months ended September 30, 2017 were $96.4 million, higher than the prior year period by $65.4 million. The increaseMarch 31, 2024 and 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | |
($ in thousands) | 2024 | | 2023 | | | |
| Insurance | | Services | | Total | | Insurance | | Services | | Total | | | | | | |
Underwriting and Fee Revenues (1) | $ | 350,192 | | | $ | 97,891 | | | $ | 448,083 | | | $ | 269,131 | | | $ | 81,084 | | | $ | 350,215 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net losses and loss adjustment expenses | 175,380 | | | — | | | 175,380 | | | 114,327 | | | — | | | 114,327 | | | | | | | |
Member benefit claims | — | | | 32,284 | | | 32,284 | | | — | | | 27,348 | | | 27,348 | | | | | | | |
Commission expense (2) | 105,370 | | | 34,215 | | | 139,585 | | | 102,999 | | | 27,944 | | | 130,943 | | | | | | | |
Underwriting and Fee Margin (1) | $ | 69,442 | | | $ | 31,392 | | | $ | 100,834 | | | $ | 51,805 | | | $ | 25,792 | | | $ | 77,597 | | | | | | | |
| | | | | | | | | | | | | | | | | |
Loss ratio | 50.1 | % | | 33.0 | % | | 46.3 | % | | 42.5 | % | | 33.7 | % | | 40.5 | % | | | | | | |
Acquisition ratio | 30.1 | % | | 35.0 | % | | 31.2 | % | | 38.3 | % | | 34.5 | % | | 37.4 | % | | | | | | |
Underwriting ratio | 80.2 | % | | 68.0 | % | | 77.5 | % | | 80.8 | % | | 68.2 | % | | 77.9 | % | | | | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
(2) Commission expense in retentionthis table is presented net of ceding fees and net written premiums was consistent with the Company’s strategy and was largely driven by our captive reinsurer retaining credit protection products as discussed above. Warranty product net written premiums were $17.2 million, up $4.1ceding commissions of $14.6 million and program products$2.7 million, respectively, as of the three months ended March 31, 2024, and $11.9 million and $3.6 million, respectively, as of the three months ended March 31, 2023.
Underwriting and fee revenues were $5.4$448.1 million down $6.5 million from prior year period, primarily driven by the run-off of certain non-standard auto programs.
As adjusted underwriting margin for the three months ended September 30, 2017March 31, 2024 as compared to $350.2 million for the three months ended March 31, 2023. Total underwriting and fee revenues increased $97.9 million, or 27.9%, driven by growth in all business lines. The increase in Insurance was $28.5$81.1 million, up from $24.7or 30.1%, driven by growth in specialty E&S and admitted insurance lines. The increase in Services was $16.8 million, or 20.7%, driven by growth in 2016. Credit protectionvehicle service contracts and premium finance offerings, in addition to the acquisition of Premia.
Underwriting and fee margin was $100.8 million for the three months ended March 31, 2024 as compared to $77.6 million for the three months ended March 31, 2023. Total underwriting and fee margin increased $23.2 million, or 29.9%, driven by growth in Insurance and Services. Insurance grew by $17.6 million, or 34.0%, driven by revenue growth in admitted and E&S lines. Services increased by $2.4$5.6 million, primarily from increased product retention over 2016. Warranty increased by $1.5 millionor 21.7%, driven by increased policies written for furniture, appliancesgrowth in vehicle service contracts and auto products. The amount of warranty product ceded year-over-year increased as we enter new products and continue to build our underwriting performance and relationships with distributors. Programs written premiums declined as we continue to run-off non-core specialty programs that did not meet underwriting performance standards. We believe there are additional opportunities to expand our warranty and programs insurance business model to other niche products and markets.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | Credit Protection |
| Warranty |
| Programs |
| Services and Other |
| Insurance Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Gross written premiums | 371,123 |
| 364,842 |
|
| 83,075 |
| 44,078 |
|
| 106,348 |
| 131,306 |
|
| 23 |
| 21 |
|
| 560,569 |
| 540,247 |
|
Net written premiums | 238,658 |
| 90,212 |
|
| 44,641 |
| 35,045 |
|
| 19,025 |
| 27,120 |
|
| — |
| — |
|
| 302,324 |
| 152,377 |
|
| | | | | | | | | | | | | | |
As Adjusted Revenues: | | | | | | | | | | | | | | |
Net earned premiums | $ | 221,080 |
| $ | 88,192 |
|
| $ | 31,525 |
| $ | 27,394 |
|
| $ | 20,176 |
| $ | 22,930 |
|
| $ | — |
| $ | — |
|
| $ | 272,781 |
| $ | 138,516 |
|
Service and administrative fees | 31,204 |
| 33,975 |
|
| 27,330 |
| 41,093 |
|
| 8,108 |
| 8,577 |
|
| 4,961 |
| 5,752 |
|
| 71,603 |
| 89,397 |
|
Ceding commissions | 6,847 |
| 23,018 |
|
| — |
| 2 |
|
| — |
| — |
|
| — |
| 1 |
|
| 6,847 |
| 23,021 |
|
Other income | 338 |
| 199 |
|
| — |
| 64 |
|
| — |
| 5 |
|
| 2,536 |
| 1,717 |
|
| 2,874 |
| 1,985 |
|
Less product specific expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy and contract benefits | 44,226 |
| 21,727 |
|
| 32,406 |
| 30,529 |
|
| 17,548 |
| 20,172 |
|
| 184 |
| 8 |
|
| 94,364 |
| 72,436 |
|
Commission expense | 165,990 |
| 76,707 |
|
| 7,919 |
| 20,280 |
|
| 3,747 |
| 4,036 |
|
| 641 |
| 377 |
|
| 178,297 |
| 101,400 |
|
As Adjusted underwriting margin (1) | $ | 49,253 |
| $ | 46,950 |
|
| $ | 18,530 |
| $ | 17,744 |
|
| $ | 6,989 |
| $ | 7,304 |
|
| $ | 6,672 |
| $ | 7,085 |
|
| $ | 81,444 |
| $ | 79,083 |
|
(1) For further information relatingpremium finance offerings, in addition to the Company’s adjusted underwriting margin, including a reconciliation to GAAP financials, see “—Non-GAAP Reconciliations.”acquisition of Premia.
Total gross written premiumsReturn on Average Equity
Return on average equity was 22.3% for the ninethree months ended September 30, 2017 were $560.6 million, which represented an increase of $20.3 million, or 3.8%, fromMarch 31, 2024, as compared to 16.7% for the prior year period. The amount of business retained was 53.9%, up from 28.2% in the prior year period. Total net premiums written for the nine months ended September 30, 2017 were $302.3 million, up $149.9 million, or 98.4%. Credit protection net premiums written for the nine months ended September 30, 2017 were $238.7 million, higher than the prior year period by $148.4 million. For the nine months ended September 30, 2017, warranty product net written premiums were $44.6 million, up $9.6 million from 2016 and program products were $19.0 million, down $8.1 million from the 2016 period. The factors that drove the variances were the same for the three and nine months.
As adjusted underwriting margin for the nine months ended September 30, 2017 was $81.4 million, up from $79.1 million in 2016. Credit protection as adjusted underwriting margin was $49.3 million, an increase from 2016 results by $2.3 million, or 4.9%. As adjusted underwriting margin for warranty products was $18.5 million for 2017, up $0.8 million, or 4.4%, from 2016. The effects experienced in previous periods from our mobile protection products has slowed, and was more than offset by growth in furniture, appliances, and auto warranty business. Programs as adjusted underwriting margin for 2017 was $7.0 million, down 4.3% from 2016, as certain non-standard auto programs were exited over the last year. We believe our warranty service contracts and light commercial programs provide opportunity for growth through expanded product offerings, new clients and geographic expansion. Services and other contributed $6.7 million in 2017, down $0.4 million from 2016 as certain business processing services are in run-off.
Policy and contract benefits, which include net losses, loss adjustments and member benefit claims, were $94.4 million for the nine months ended September 30, 2017, up $21.9 million period-over-period. The increase in net losses overincome and annualized return on average equity was driven by revenue growth and improvement of the prior year period was a function of growthcombined ratio, in earned premiums, including the contract assumptions mentioned above, partially offset by lower claimsaddition to improvements in mobile devices consistent with the decline in written premiums.
Commission expense, excluding the impacts of VOBA, was $178.3 million for the nine months ended September 30, 2017, up $76.9 million, driven primarily by the increase in retention of credit insurance products, partially offset by declines in commissions related to the mobile protectionnet investment income and other warranty products.
Specialty Insurance Investment Portfolio
The investment portfolio consists of assets contributed by Tiptree, cash generated from operations, and from written premiums. The investment portfolio of our regulated insurance companies, captive reinsurance company and warranty business are subject to different regulatory considerations, including with respect to types of assets, concentration limits, affiliate transactions and the use of leverage. Our investment strategy is designed to achieve attractive risk-adjusted returns over the entire investment horizon across select asset classes, sectors and geographies while maintaining adequate liquidity to meet our claims payment obligations. As such, volatility fromnet realized and unrealized gains and losses may impact period-over-period performance.losses.
In managing our investment portfolio we analyze net investmentsAdjusted Net Income and net portfolio income, which are non-GAAP measures. Our presentation of net investments equals total investments plus cash and cash equivalents minus asset based financing related to certain investments. Our presentation of net portfolio income equals net investment income plus realized and unrealized gains and losses and minus interest expense associated with asset based financing of investments. Net investments and net portfolio income are used to calculate average annualized yield, which is one of the measures management uses to analyze the profitability of our investment portfolio. Management believes this informationAdjusted Return on a cumulative basis is useful since it allows investors to evaluate the performance of our investment portfolio based on the capital at risk and on a non-consolidated basis. Our calculation of net investments and netAverage Equity - Non-GAAP
portfolio income may differ from similarly titled non-GAAP financial measures used by other companies. Net investments and net portfolio income are not measures of financial performance or liquidity under GAAP and should not be considered a substitute for total investments or net investment income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP total investments and investment income.
Specialty Insurance Investment Portfolio - Non-GAAP
|
| | | | | | | | | | | | | | | |
($ in thousands) | | | As of September 30, |
| | | | | 2017 |
| 2016 |
Cash and cash equivalents (1) | | | |
| $ | 60,199 |
|
| $ | 4,402 |
|
Available for sale securities, at fair value | | | |
| 164,093 |
|
| 137,195 |
|
Equity securities, trading, at fair value | | | |
| 28,106 |
|
| 44,670 |
|
Loans, at fair value (2) | | | |
| 84,493 |
|
| 101,383 |
|
Real estate, net | | | |
| 23,106 |
|
| 10,233 |
|
Other investments | | | |
| 3,956 |
|
| 4,012 |
|
Net investments | | | |
| $ | 363,953 |
|
| $ | 301,895 |
|
| | | | | | | |
(1) Cash and cash equivalents, plus restricted cash, net of due from/due to brokers on consolidated loan funds, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials. |
(2) Loans, at fair value, net of asset based debt, see “—Non-GAAP Reconciliations”, for a reconciliation to GAAP financials.
|
|
Specialty Insurance Net Investment Portfolio Income - Non-GAAP |
|
|
|
|
|
|
|
|
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 |
| 2016 | | 2017 |
| 2016 |
Net investment income | $ | 3,840 |
|
| $ | 3,307 |
|
| $ | 12,032 |
| | $ | 8,409 |
|
Realized gains (losses) | 1,462 |
|
| 1,056 |
|
| 6,425 |
|
| 4,187 |
|
Unrealized gains (losses) | (10,016 | ) |
| 2,689 |
|
| (20,042 | ) |
| 8,580 |
|
Interest expense | (1,678 | ) |
| (697 | ) |
| (5,143 | ) |
| (1,708 | ) |
Net portfolio income | $ | (6,392 | ) |
| $ | 6,355 |
|
| $ | (6,728 | ) |
| $ | 19,468 |
|
Average Annualized Yield % (1) | (7.2 | )% |
| 8.3 | % |
| (3.7 | )% |
| 8.5 | % |
(1) Average Annualized Yield % represents the ratio of annualized net investment income, realized and unrealized gains (losses) less investment portfolio interest expense to the average of the prior two quarters total investments less investment portfolio debt plus cash, but does not reflect the cumulative return on the portfolio.
Net investments of $364.0 million have grown 20.6% from September 30, 2016 through a combination of internal growth, increased retention of premiums written, and assets contributed by the Company to further capitalize Fortegra.
Our net investment income includes interest, dividends and rental income, net of investment expenses, on our invested assets. We report net realized gains and losses on our investments separately from our net investment income. Net realized gains occur when we sell our investment securities for more than their costs or amortized costs, as applicable. Net realized losses occur when we sell our investment securities for less than their costs or amortized costs, as applicable, or we write down the investment securities as a result of other-than-temporary impairment. We report net unrealized gains (losses) on securities classified as available-for-sale separately within accumulated other comprehensive income on our balance sheet. For loans, at fair value, and equity securities classified as trading securities, we report unrealized gains (losses) within net realized gains (losses) on investment on the condensed consolidated statement of income. The treatment of loans at fair value, primarily related to our credit asset investments and non-performing loans, and equity securities, is currently different from most other insurance companies.
For the three months ended September 30, 2017, theMarch 31, 2024, adjusted net investment portfolio loss was $6.4income and adjusted return on average equity were $34.1 million and 28.3%, respectively, as compared to $6.4$22.9 million and 26.1%, respectively, for the three months ended March 31, 2023.
Tiptree Capital
Tiptree Capital consists of incomeour Mortgage segment, which includes the operating results of Reliance, our mortgage business, and Tiptree Capital - Other, which consists of our other non-insurance operating businesses and investments. As of March 31, 2024, Tiptree Capital - Other includes our Invesque shares and other investments.
Mortgage
Through our Mortgage operating subsidiary, Reliance, we originate, sell, securitize and service one-to-four-family, residential mortgage loans, comprised of conforming mortgage loans, Federal Housing Administration (“FHA”), Veterans Administration (“VA”), United States Department of Agriculture (“USDA”), and to a lesser extent, non-agency jumbo prime.
We are an approved seller/servicer for Fannie Mae and Freddie Mac. We are also an approved issuer and servicer for Ginnie Mae. We originate residential mortgage loans through our retail distribution channel (directly to consumers) in 39 states and the District of Columbia as of March 31, 2024.
Components of our Results of Operations
Revenues
Net Realized and Unrealized Gains (Losses) include gains on sale of mortgage loans and the fair value adjustment in mortgage servicing rights. Gains on the sale of mortgage loans represent the difference between the selling price and carrying value of loans sold and are recognized upon settlement. Such gains also include the changes in fair value of loans held for sale and loan-related hedges and derivatives. We transfer the risk of loss or default to the loan purchaser, however, in some cases we are required to indemnify purchasers for losses related to non-compliance with borrowers’ creditworthiness and collateral requirements. Because of this, we recognize gains on sale net of required indemnification and premium recapture reserves. The fair value adjustment on mortgage servicing rights represents fair value adjustments considering estimated prepayments and other factors associated with changes in interest rates, plus actual run-off in the comparable 2016 period. servicing portfolio. We report these adjustments separate from servicing income and servicing expense.
Other Revenue includes loan origination fees, interest income, and mortgage servicing income. Loan origination fees are earned as mortgage loans are funded. Servicing fees are earned over the life of the loan. Interest income includes interest earned on loans held for sale and interest income on bank balances and short-term investments.
Expenses
Employee Compensation and Benefits includes salaries, commissions, benefits, bonuses, other incentive compensation and related taxes for employees. Commissions expense for sales staff generally varies with loan origination volumes.
Interest Expense represents borrowing costs under warehouse and other credit facilities used primarily to fund loan originations. Amortization of deferred financing costs, including commitment fees, is included in interest expense.
Depreciation is mainly associated with furniture, fixtures and equipment. Amortization is primarily associated with a trade name and internally developed software.
Other Expenses include loan origination expenses, namely, leads, appraisals, credit reporting and licensing fees, general and administrative expenses, including office rent, insurance, legal, consulting and payroll processing expenses, and servicing expense.
The decline was driven by $10.0 millionfollowing tables present the Mortgage segment results for the following periods:
Results of unrealized losses in the 2017 periodOperations
| | | | | | | | | | | | | | | | | |
($ in thousands) | | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 | | |
Revenues: | | | | | | | | | |
Net realized and unrealized gains (losses) | | | | | $ | 10,664 | | | $ | 7,107 | | | |
Other revenue | | | | | 5,227 | | | 4,454 | | | |
Total revenues | | | | | $ | 15,891 | | | $ | 11,561 | | | |
Expenses: | | | | | | | | | |
Employee compensation and benefits | | | | | $ | 9,239 | | | $ | 8,220 | | | |
Interest expense | | | | | 651 | | | 384 | | | |
Depreciation and amortization | | | | | 125 | | | 172 | | | |
Other expenses | | | | | 5,123 | | | 5,350 | | | |
Total expenses | | | | | $ | 15,138 | | | $ | 14,126 | | | |
Income (loss) before taxes | | | | | $ | 753 | | | $ | (2,565) | | | |
| | | | | | | | | |
Key Performance Metrics: | | | | | | | | | |
Origination volumes | | | | | $ | 210,402 | | | $ | 202,835 | | | |
Gain on sale margins | | | | | 5.0 | % | | 4.8 | % | | |
Return on average equity | | | | | 4.5 | % | | (14.5) | % | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Non-GAAP Financial Measures (1): | | | | | | | | | |
Adjusted net income (1) | | | | | $ | (309) | | | $ | (853) | | | |
Adjusted return on average equity (1) | | | | | (2.4) | % | | (6.3) | % | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Revenues - 2024 compared to $2.7 million of unrealized gains in the 2016 period of which $11.1 million of unrealized losses were attributable to fair market valuations on publicly traded equity positions. This decline was partially offset by increases in net investment income of $0.5 million as the loans, equities and real estate continue to yield positive interest, dividend and rental income, along with increases in realized gains of $0.4 million primarily from gains on sales of our non-performing residential loans.2023
For the nine months ended September 30, 2017, the net investment portfolio loss was $6.7 million compared to $19.5 million of income in the comparable 2016 period. The average annualized yield for the nine months declined from 8.5% in 2016 to (3.7)% in 2017 as a result of year to date unrealized losses of $20.0 million compared to unrealized gains of $8.6 million in 2016. For the nine month period, fair market valuation on equities resulted in $21.2 million of unrealized losses. In addition, interest expense increased by $3.4 million as a result of increased borrowings on credit asset investments and non-performing loans. Those factors were partially offset by increases in net investment income of $3.6 million, as interest and dividend payments improved year-over-year, and realized
gains improved by $2.2 million, from gains on sales of our non-performing residential loans.
Asset Management
The Company’s asset management segment earns revenues from CLOs under management, including management fees, distributions and realized and unrealized gains on the Company’s holdings of CLO subordinated notes. Also included in the segment are the management fees, investment earnings and costs associated with our legacy tax-exempt securities business, CLO warehouse facilities and our credit hedging strategies. As of September 30, 2017, total fee earning AUM was $1.6 billion, which was down from $1.9 billion as of September 30, 2016 as the run-off in our older CLOs have not been replaced with new AUM. Total investment in CLO subordinated notes and management fee participation rights, at fair market value, as of September 30, 2017 was $20.2 million, down from $52.4 million as of September 30, 2016. In January 2017, the Company sold its investment in Telos 5 for consideration of $15.9 million which resulted in deconsolidation for the 2017 period. In August 2017, the Company liquidated Telos 7 for $21.9 million which resulted in deconsolidation of the assets and liabilities. Many of the Telos 7 assets were sold to a refinanced Telos 3. For risk retention purposes, we purchased a vertical tranche of Telos 3 in the insurance investment portfolio.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net realized and unrealized gains (losses) | $ | (349 | ) | | $ | 695 |
| | $ | 839 |
| | $ | 226 |
|
Management fee income | 1,541 |
| | 3,839 |
| | 6,578 |
| | 7,497 |
|
Other income | 256 |
| | 212 |
| | 822 |
| | 3,031 |
|
Total revenue | $ | 1,448 |
| | $ | 4,746 |
| | $ | 8,239 |
| | $ | 10,754 |
|
| | | | | | | |
Expenses: | | | | | | | |
Employee compensation and benefits | 889 |
| | 2,267 |
| | 3,953 |
| | 4,861 |
|
Interest expense | 5 |
| | — |
| | 7 |
| | 746 |
|
Other expenses | 164 |
| | 36 |
| | 589 |
| | 524 |
|
Total expenses | $ | 1,058 |
| | $ | 2,303 |
| | $ | 4,549 |
| | $ | 6,131 |
|
Net income attributable to consolidated CLOs | 2,583 |
| | 4,032 |
| | 9,393 |
| | 10,049 |
|
Pre-tax income (loss) | $ | 2,973 |
| | $ | 6,475 |
| | $ | 13,083 |
| | $ | 14,672 |
|
Results
For the three months ended September 30, 2017, pre-tax income was $3.0March 31, 2024, $210.4 million down from $6.5of loans were funded, compared to $202.8 million infor the prior year period, an increase of $7.6 million, or 3.7%, driven by the normalized mortgage interest rates compared to the prior year period. This decline was driven by reduced income from consolidated CLOs, primarily related to reductions in distributions on the subordinated notes as a result of sales and liquidation, and reduced management and incentive fees from our older vintage CLOs. This was partially offset by favorable realized gains on the liquidation of Telos 7 (which is embedded in the net income attributable to consolidated CLOs) and reduced incentive compensation expense.
Pre-tax income was $13.1 million for the nine months ended September 30, 2017 compared to $14.7 million for the 2016 period, a decrease of $1.6 million primarily driven by declining management fees on older vintage CLOs and reduced subordinated note distributions as our investments declined. Expenses for the 2017 period were $4.5 million compared to $6.1 million for the 2016 period, primarily driven by decreases in interest expense associated with the Telos 7 warehouse and decreases in employee incentive compensation as management and incentive fees decreased period-over-period. Net income attributable to consolidated CLOs was down $0.7 million primarily due to reductions in subordinated note distributions, partially offset by favorable fair value marks on our CLO subordinated notes in the 2017 period as compared to the 2016 period.
Operating Results - Non-GAAP
As Adjusted Revenues
Asset management as adjusted revenues include revenues from CLOs, legacy tax-exempt securities business, CLO warehouse facilities and our credit hedging strategies. The Company earns revenues from CLOs under management, whether consolidated or deconsolidated, which include fees earned for managing the CLOs, distributions received from the Company’s holdings of subordinated notes issued by the CLOs and realized and unrealized gains and losses from the Company’s holdings of subordinated notes. The revenue associated with the management fees and distributions earned and gains and losses on the subordinated notes attributable to the consolidated CLOs are reported as “net income (loss) attributable to the consolidated CLOs” in the Company’s financial statements.
The table below shows the Company’s share of the results attributable to the CLOs which were consolidated, on a deconsolidated basis. This presentation is a non-GAAP measure. Management believes this information is helpful for period-over-period comparative purposes as certain of our CLOs were consolidated for only some of the periods presented below. In addition, the Non-GAAP presentation allows investors the ability to calculate management fees as a percent of AUM, a common measure used by investors to evaluate asset managers, and which is one of the performance measures upon which management is compensated. While consolidation versus deconsolidation impacts the presentation of revenues, it does not impact expenses or pre-tax income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP revenues.
As Adjusted Revenues (1)
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
As Adjusted Revenues: | | | | | | | |
Management fees | $ | 1,852 |
|
| $ | 4,582 |
| | $ | 7,616 |
| | $ | 9,666 |
|
Distributions | 2,168 |
|
| 4,368 |
| | 6,560 |
| | 11,058 |
|
Realized and unrealized gains (losses) | 11 |
|
| (339 | ) | | 3,443 |
| | (2,824 | ) |
Other income | — |
|
| 167 |
| | 13 |
| | 2,903 |
|
Total as adjusted revenues | $ | 4,031 |
|
| $ | 8,778 |
| | $ | 17,632 |
| | $ | 20,803 |
|
| |
(1)
| For further information relating to the Asset Management as adjusted revenues, including a reconciliation to GAAP revenues, see “Non-GAAP Reconciliations”. |
Fee earning AUM has declined as older CLO vintages run-off, which has resulted in reduced base management fees. Incentive fees have decreased as performance fees within the Telos 1 and 2 CLOs run-off. Our investments in subordinated notes of the CLOs have also declined, which resulted in lower distributions period-over-period. Realized and unrealized gains were favorable as a result of the gainGain on sale of Telos 5 and Telos 7, and unrealized markmargins increased to market gains on our remaining CLO subordinated notes and other investments5.0% for year to date 2017 as compared to an unrealized loss in the 2016 period. Other income includes legacy tax-exempt securities, CLO warehouse facilities and our credit hedging strategies which declined year-over-year as those products were in place in the 2016 period and not in the 2017 period.
For the three months ended September 30, 2017, as adjusted revenues were $4.0 million compared to $8.8 million for the same period in 2016. The decrease was driven primarily by reductions in base management and incentive fees of $2.7 million, and lower distributions of $2.2 million and other income of $0.2 million, partially offset by improved realized and unrealized gains on CLO subordinated notes and other investments of $0.4 million.
For the nine months ended September 30, 2017, as adjusted revenues were $17.6 million compared to $20.8 million for the same period in 2016. The decrease was driven primarily by reductions in base management and incentive fees of $2.1 million, and lower distributions of $4.5 million and other income of $2.9 million, partially offset by favorable realized and unrealized gains on CLO subordinated notes and other investments of $6.3 million.
Adjusted EBITDA
Adjusted EBITDA was $3.0 millionand$13.1 million for the three and nine months ended September 30, 2017, respectively, compared to $6.5 million and $14.7 million for the comparable prior year periods. The decrease for both the quarter and for the year to date was driven by the same factors discussed above under “Results.” See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.
Senior Living
We operate our senior living segment through Care which is focused on investing in seniors housing properties including senior apartments, independent living, assisted living, memory care and to a lesser extent, skilled nursing facilities. As of September 30, 2017, Care’s portfolio consists of 40 properties across 10 states primarily in the Mid-Atlantic and Southern United States comprised of 22 Triple Net Lease (“NNN”) Properties and 18 Managed Properties. Additionally, Care manages one property within our specialty insurance investment portfolio on behalf of Fortegra.
In Triple Net Lease Properties, we own between 90-100% of the real estate and enter into a long term lease with an operator who is typically responsible for bearing operating costs, including maintenance, utilities, taxes, insurance, repairs and capital improvements. The operations of the Triple Net Lease Properties are not consolidated since we do not manage or own the underlying operations. For Triple Net Lease Properties’ operations, we recognize primarily rental income from the lease since substantially all expenses are passed through to the tenant. In Managed Properties, we generally own between 65-90% of both the real estate and the operations with affiliates of the management company owning the remainder. We therefore consolidate all of the assets, liabilities,
income and expense of the Managed Properties operations in segment reporting. For the three and nine months ended September 30, 2017 and 2016, operating results include amounts attributable to non-controlling interests related to our Managed Properties.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net realized and unrealized gains (losses) | $ | — |
| | $ | 51 |
| | $ | — |
| | $ | — |
|
Rental and related revenue | 19,170 |
| | 15,371 |
| | 54,819 |
| | 43,389 |
|
Other income | 413 |
| | 273 |
| | 1,108 |
| | 815 |
|
Total revenue | $ | 19,583 |
| | $ | 15,695 |
| | $ | 55,927 |
| | $ | 44,204 |
|
| | | | | | | |
Expenses: | | | | | | | |
Employee compensation and benefits | 7,723 |
| | 6,270 |
| | 22,499 |
| | 17,661 |
|
Interest expense | 3,609 |
| | 2,271 |
| | 9,309 |
| | 6,220 |
|
Depreciation and amortization expenses | 4,369 |
| | 3,094 |
| | 13,350 |
| | 10,634 |
|
Other expenses | 5,417 |
| | 4,533 |
| | 16,128 |
| | 15,176 |
|
Total expenses | $ | 21,118 |
| | $ | 16,168 |
| | $ | 61,286 |
| | $ | 49,691 |
|
Pre-tax income (loss) | $ | (1,535 | ) | | $ | (473 | ) | | $ | (5,359 | ) | | $ | (5,487 | ) |
Results
In 2017, twelve properties were acquired (two Managed Properties and ten Triple Net Lease Properties) for an aggregate purchase price of $80.7 million, bringing our total purchase price of the 40 properties to $407.6 million, excluding transaction costs. Ten of those properties were acquired in the second quarter of 2017. For the three months ended September 30, 2017, our senior living segment incurred a pre-tax loss of $1.5 million compared with a pre-tax loss of $0.5 million for the same period in 2016. For the nine months ended September 30, 2017, we incurred a pre-tax loss of $5.4 million compared with a pre-tax loss of $5.5 million for the same period in 2016. The properties acquired in the last twelve months have generated higher rental and related revenue year-over-year, however the higher revenues have been offset by additional expenses as a consequence of the acquisition of these properties. For the three months ended September 30, 2017, the additional operating costs, interest expense, and depreciation and amortization outpaced the incremental revenues from the acquired properties. For the nine months ended September 30, 2017, the primary driver of the lower loss compared to 2016 was an unrealized expense of $1.4 million related to interest rate swaps in the first quarter of 2016.
Revenues
Revenues were $19.6 million for the three months ended September 30, 2017, compared with $15.7 million for the 2016 period, an increase of $3.9 million, or 24.8%. The increase in rental and related revenue was primarily due to the fourteen properties acquired over the last twelve months (three Managed Properties, eleven Triple Net Leases). For the nine months ended September 30, 2017, revenues were $55.9 million compared with $44.2 million for the 2016 period, an increase of $11.7 million, or 26.5%. The increase in rental and related revenue was primarily due to the facilities acquired since the first quarter of 2016, including twelve properties acquired in 2017 and four properties acquired in 2016. The three and nine month revenues increases as a result of acquisitions were partially offset by declining rental and related income resulting from reduced occupancy levels in 2016 at properties undergoing renovations and capital upgrades. These upgrades were completed in the first quarter of 2017, but occupancy and rental income has not yet recovered to stabilized levels.
Expenses
Expenses are comprised of interest expenses on borrowings, payroll expenses (including employees of the managers at each of Care’s Managed Properties), professional fees, depreciation and amortization of properties and leases acquired and other expenses.
Expenses for the three months ended September 30, 2017 were $21.1 million, compared with $16.2 million for 2016, an increase of $5.0 million, or 30.6%. The primary increases period-over-period primarily related to acquired properties and include property operating expenses of $2.1 million (including employee compensation and benefits and other expenses at the managed properties), interest expense of $1.3 million, depreciation and amortization expenses of $1.3 million, and payroll and other costs of $0.2 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the three Managed Properties acquired in the last twelve months.
Expenses for the nine months ended September 30, 2017 were $61.3 million, compared with $49.7 million for 2016, an increase of $11.6 million, or 23.3%. The primary increases period-over-period include property operating expenses of $7.0 million (including employee compensation and benefits and other expenses at the managed properties), interest expense of $3.1 million and depreciation and amortization expenses of $2.7 million. The increase in property operating expenses was primarily attributable to consolidation of the expenses of the two Managed Properties acquired in the first quarter of 2016 and the three Managed Properties acquired in the last fifteen months.
The Company is party to interest rate swaps in order to hedge interest rate exposure associated with its real estate holdings. These instruments swap fixed to floating rate cash streams in order to maintain the economics on the mortgage debt. As a result of movements in interest rates in the three months ended March 31, 2016, an unrealized loss was recorded in other expenses for $1.4 million for swaps that had not been previously designated as hedging relationships, which is an offsetting factor in the year-over-year increase in other expenses.
Operating Results - Non-GAAP
Segment NOI
In addition to Adjusted EBITDA, we also evaluate performance of our senior living segment based on net operating income (“NOI”), which is a non-GAAP measure. NOI is a common non-GAAP measure in the real estate industry used to evaluate property level operations. We consider NOI an important supplemental measure to evaluate the operating performance of our senior living segment because it allows investors, analysts and our management to assess our unlevered property-level operating results and to compare our operating results between periods and to the operating results of other senior living companies on a consistent basis. Agreements with our operators are structured such that they are incentivized to grow NOI, and it is a significant component in determining the compensation paid to Care’s management team. We define NOI as rental and related revenue less property operating expense. Property operating expenses and resident fees and services are not relevant to Triple Net Lease Properties since we do not manage the underlying operations and substantially all expenses are passed through to the tenant. Our calculation of NOI may differ2024, up approximately 20 basis points from similarly titled non-GAAP financial measures used by other companies. NOI is not a measure of financial performance or liquidity under GAAP and should not be considered a substitute for pre-tax income.
Product NOI - Non-GAAP (1)
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Triple Net Leases | $ | 3,371 |
| | $ | 1,844 |
| | $ | 8,218 |
| | $ | 5,533 |
|
Managed Properties | 4,071 |
| | 3,927 |
| | 12,024 |
| | 10,256 |
|
Segment NOI | $ | 7,442 |
| | $ | 5,771 |
| | $ | 20,242 |
| | $ | 15,789 |
|
| | | | | | | |
Managed Property NOI Margin % (2) | 25.8 | % | | 29.0 | % | | 25.8 | % | | 27.1 | % |
| |
(1)
| For further information relating to the Senior Living NOI, including a reconciliation to GAAP pre-tax income, see “—Non-GAAP Reconciliations.” |
| |
(2) | NOI Margin % is the relationship between Managed Property segment NOI and Rental and related revenue. |
NOI was $7.4 million4.8% for the three months ended September 30, 2017,March 31, 2023.
Net realized and unrealized gains for the three months ended March 31, 2024 were $10.7 million, compared with $5.8to $7.1 million in the prior year period, an increase of $1.7$3.6 million or 29.0%50%. ForThe primary driver of increased gain on sale revenues was the nineincrease in volumes and positive fair value adjustment in mortgage servicing rights of $1.2 million in 2024 compared to a negative fair value adjustment of $1.4 million in the prior year period.
Other revenue for the three months ended September 30, 2017, NOIMarch 31, 2024 was $20.2$5.2 million, compared with $15.8to $4.5 million in the prior year period, an increase of $4.5$0.8 million, or 28.2%17%. The primary driversAs of improvement in NOI in both periodsMarch 31, 2024, the mortgage servicing asset was $42.0 million, an increase in rental revenue from newly acquired properties partially offset by the associated increase in property operating expenses. Several$40.8 million as of our recent acquisitions included properties that the Company and its operating partners are enhancing through renovation projects and other capital upgrades in an effort to grow revenue and to allow them to operate more efficiently. As indicated in the table above, NOI margins on Managed Properties declined from 29.0% to 25.8% for the three months year-over-year and 27.1% to 25.8% for the nine months year-over-year. This decline was a result of dampened revenues as occupancy declined during these periods of renovation and capital upgrades, with the resulting ramp up of leasing revenues post-upgrade not yet completed. As the more recently acquired facilities ramp up and stabilize, we expect our results to reflect additional NOI margin improvements.December 31, 2023.
Adjusted EBITDA
Adjusted EBITDA was $2.9 million and $8.3 million for the three and nine months ended September 30, 2017, respectively,Expenses - 2024 compared to $2.9 million and $7.2 million in the three and nine months ended September 30, 2016, driven primarily by increases in NOI partially offset by increased interest expense on new acquisitions. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.2023
Specialty Finance
The specialty finance segment is comprised of our mortgage origination business, including, Reliance, which is 100% owned by us and Reliance management, and Luxury, which is 67.5% owned by us, and the lending operations of Siena, a commercial asset-based finance company, which is 62% owned by us.
Operating Results
|
| | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | | |
Net realized and unrealized gains (losses) | | $ | 16,700 |
| | $ | 21,682 |
| | $ | 48,029 |
| | $ | 49,499 |
|
Other income | | 8,276 |
| | 7,331 |
| | 22,296 |
| | 18,291 |
|
Total revenue | | $ | 24,976 |
| | $ | 29,013 |
| | $ | 70,325 |
| | $ | 67,790 |
|
| | | | | | | | |
Expenses: | | | | | | | | |
Employee compensation and benefits | | 14,631 |
| | 16,865 |
| | 42,434 |
| | 41,801 |
|
Interest expense | | 1,949 |
| | 1,932 |
| | 4,743 |
| | 4,352 |
|
Depreciation and amortization expenses | | 209 |
| | 248 |
| | 620 |
| | 665 |
|
Other expenses | | 5,592 |
| | 5,787 |
| | 19,899 |
| | 15,462 |
|
Total expenses | | $ | 22,381 |
| | $ | 24,832 |
| | $ | 67,696 |
| | $ | 62,280 |
|
Pre-tax income (loss) | | $ | 2,595 |
| | $ | 4,181 |
| | $ | 2,629 |
| | $ | 5,510 |
|
Results
For the three months ended September 30, 2017, the specialty finance segment contributed pre-tax income of $2.6 million compared with pre-tax income of $4.2 million for the comparable 2016 period. For the nine months ended September 30, 2017, pre-tax income was $2.6 million compared with $5.5 million for the comparable 2016 period. Expenses decreased by $2.5 million for the three months ended September 30, 2017 as result of lower mortgage production volumes which impactedMarch 31, 2024, employee compensation and benefits. In the nine months ended September 30, 2017, expenses increased by $5.4benefits were $9.2 million, driven primarily by the $3.0 million increase in fair value of the contingent earn-out liability in connection with our acquisition of Reliance, which in turn was driven by their improved performance. In addition, since the contingent earn-out is payable in Tiptree stock, its fair value increases as Tiptree’s stock price improves. This was partially offset by improved underlying performance driven by increased net revenue margins on mortgage originations volume and higher earning assets in the commercial lending businesses.
Revenues
Revenues are comprised of gain on sale of mortgages originated and soldcompared to investors, gains and losses on the mortgage pipeline of interest rate lock commitments and mortgage loans held for sale and their associated hedges, and net interest income and fees associated with our commercial asset-based lending products and the mortgage origination business.
Revenues decreased from $29.0 million in three months ended September 30, 2016 to $25.0 million in the comparable 2017 period. Mortgage origination volume declined 23.8% from $565.8 million for the three months ended September 30, 2016 to $431.2 million for three months ended September 30, 2017, which was partially offset by 31.2 basis points improvement in net revenue margins year-over-year. Commercial lending grew with average earning assets of $138.7 million in the three months ended September 30, 2017, compared with $90.6 million in the three months ended September 30, 2016, an increase of 53.1%.
Revenues increased from $67.8 million in nine months ended September 30, 2016 to $70.3 million in the 2017 period, primarily driven by higher margins on relatively stable mortgage volume and increased commercial lending originations volume. Mortgage origination volume declined 10.9% from $1.3 billion for the nine months ended September 30, 2016 to $1.2 billion for nine months ended September 30, 2017 which was more than offset by 53.1 basis points improvement in net revenue margins year-over-year. This was primarily a result of the change in product mix towards higher margin government and agency products. In addition, commercial asset-based lending grew with average earning assets of $117.1 million in the nine months ended September 30, 2017, compared with $72.8$8.2 million in the prior year period, an increase of 60.9%. $1.0 million or 12%, driven primarily by higher commissions on increased origination volumes.
For the three months ended March 31, 2024, interest expense was at $0.7 million, compared to $0.4 million in prior year period, with the increase driven by higher interest rates.
For the three months ended March 31, 2024, other expenses were $5.1 million, compared to $5.4 million in the prior year period, a decrease of $0.2 million with the decrease driven by a reduction of mortgage operational expenses, including marketing costs.
Income (loss) before taxes - 2024 compared to 2023
The improvementincome before taxes for the three months ended March 31, 2024 was $0.8 million, compared to loss before taxes of $2.6 million in commercial asset-based lendingthe prior year period. The increase was driven by increased loan originationshigher volumes and higher utilization ratesmortgage servicing fees attributable to the larger servicing portfolio.
Tiptree Capital - Other
The following tables present a summary of facilities by borrowers which increasedTiptree Capital - Other results for the following periods:
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
($ in thousands) | Total revenue | | Income (loss) before taxes |
| 2024 | | 2023 | | | | 2024 | | 2023 | | |
Senior living (Invesque) | $ | (2,925) | | | $ | (1,405) | | | | | $ | (2,925) | | | $ | (1,405) | | | |
Maritime transportation (1) | 566 | | | 360 | | | | | (15) | | | 190 | | | |
Other | 5,933 | | | 2,665 | | | | | 5,933 | | | 2,657 | | | |
Total | $ | 3,574 | | | $ | 1,620 | | | | | $ | 2,993 | | | $ | 1,442 | | | |
| | | | | | | | | | | |
| |
| | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(1) Includes $0.6 million and $0.2 million of expenses related to our Maritime transportation operations for the three months ended March 31, 2024 and 2023, respectively.
Revenues
Tiptree Capital - Other earns revenues from the following sources: net interest income, realized and loan fees, reportedunrealized gains and losses on the Company’s investment holdings (including Invesque); and charter revenues from vessels within the Company’s maritime transportation operations. Subsequent to the sale of our dry bulk and tanker vessels, operations include two smaller vessels and other ancillary assets.
Revenues for the three months ended March 31, 2024 were $3.6 million compared to $1.6 million for 2023 with the increase primarily driven by investments gains on securities in other income.
Expenses
Lower revenues werethe Company’s investment holdings, partially offset by lower expenses, whichincreased investment losses on Invesque in the three months ended March 31, 2024, compared to the prior year period.
Income (loss) before taxes
The income before taxes from Tiptree Capital - Other for the three months ended March 31, 2024 was $3.0 million, compared to the income before taxes of $1.4 million in the prior year period. The increase was driven by the same factors that impacted revenues.
Adjusted net income - Non-GAAP(1)
| | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
| | | | | | | | | |
Maritime transportation | (15) | | | 169 | | | | | | | |
Other | 668 | | | 1,244 | | | | | | | |
Total | $ | 653 | | | $ | 1,413 | | | | | | | |
| | | | | | | | | |
(1) See “—Non-GAAP Reconciliations” for a discussion of non-GAAP financial measures.
Adjusted net income decreased from $24.8to $0.7 million for the three months ended September 30, 2016March 31, 2024 compared to $22.4 million for three months ended September 30, 2017. Higher revenues in the nine months ended September 30, 2017 were offset by higher expenses which increased from $62.3 million for the nine months ended September 30, 2016 to $67.7$1.4 million in the comparable period in 2017. Expenses are composed of payroll and employee commissions, interest expense, professional fees, fair value changes to the contingent earn-out liability in connection with our acquisition of Reliance and other expenses. In addition to the Reliance earn-out increase, expenses were higher in the nine month 2017 period from higher payroll and employee commissions as underlying business performance improved.
Operating Results - Non GAAP
Adjusted EBITDA
Adjusted EBITDA was $2.4 millionand$6.3 million for the three and nine months ended September 30, 2017, respectively, compared to $4.5 million and $6.3 million for the comparable prior year periods.2023. The decrease in the three month period was driven by lower interest income on cash and cash equivalents and U.S. Treasury securities recorded in other income.
Corporate
The following table presents a summary of corporate results for the same factors discussed above under “Results”, combined with the add-backfollowing periods:
Results of the change in fair value for earn-out liability at Reliance in each respective period. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.Operations
| | | | | | | | | | | | | | | | | | | |
($ in thousands) | | | Three Months Ended March 31, | | |
| | | | | 2024 | | 2023 | | | | |
Employee compensation and benefits | | | | | $ | 1,796 | | | $ | 1,955 | | | | | |
Employee incentive compensation expense | | | | | 6,594 | | | 5,834 | | | | | |
| | | | | | | | | | | |
Depreciation and amortization | | | | | 360 | | | 251 | | | | | |
Other expenses | | | | | 2,108 | | | 2,109 | | | | | |
Total expenses | | | | | $ | 10,858 | | | $ | 10,149 | | | | | |
Corporate and Other
Corporate and other incorporates revenues from non-core legacy principal investments and expenses including interest expense oninclude expenses of the holding company credit facility andfor employee compensation and benefits, and other expenses.
Operating Results
|
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Net realized and unrealized gains (losses) | $ | (271 | ) | | $ | 42 |
| | $ | (67 | ) | | $ | 3,462 |
|
Other income | 69 |
| | 34 |
| | 142 |
| | 106 |
|
Total revenue | $ | (202 | ) | | $ | 76 |
| | $ | 75 |
| | $ | 3,568 |
|
| | | | |
| |
|
Expenses: | | | | |
| |
|
Employee compensation and benefits | 3,280 |
| | 4,185 |
| | 9,751 |
| | 9,787 |
|
Interest expense | 1,299 |
| | 1,314 |
| | 3,851 |
| | 3,434 |
|
Depreciation and amortization expenses | 63 |
| | 63 |
| | 186 |
| | 186 |
|
Other expenses | 2,274 |
| | 3,806 |
| | 8,485 |
| | 12,912 |
|
Total expenses | $ | 6,916 |
| | $ | 9,368 |
| | $ | 22,273 |
| | $ | 26,319 |
|
Pre-tax income (loss) | $ | (7,118 | ) | | $ | (9,292 | ) | | $ | (22,198 | ) | | $ | (22,751 | ) |
Results
For the three months ended September 30, 2017, the Company recorded a loss of $7.1 million compared with a loss of $9.3 million for the 2016 period, an increase in pre-tax income of $2.2 million. For the nine months ended September 30, 2017, the Company recorded a loss of $22.2 million compared with a loss of $22.8 million for the 2016 period, a lower pre-tax loss of $0.6 million. The key drivers of year-over-year improvement in the nine month period were decreases in total corporate expenses of $4.0 million primarily related to reduced professional fees, partially offset by $3.5 million of reduced revenues in the 2016 period from realized gains on the sale of certain legacy principal investments which did not repeat in 2017.
Expenses include holding company interest expense, employee compensation and benefits,public company and other expenses. Corporate employee compensation and benefits expense includes the expense of management, legal and accounting staff. Other expenses primarily consisted of audit and professional fees, insurance, office rent and other related expenses.
Employee compensation and benefits, including incentive compensation expense, were $3.3$8.4 million for the three months ended March 31, 2024, compared to $7.8 million for the prior year period, driven by an increase in accrued bonus expense. Of the incentive compensation expense in the three months ended September 30, 2017,March 31, 2024, $3.1 million was stock-based compensation expense, compared to $4.2 million for the 2016 period. For the nine months ended September 30, 2017, employee compensation and benefits were $9.8 million compared to $9.8$2.3 million in 2023. As of March 31, 2024 and 2023, the nine months ended September 30, 2016, as corporate staff increased from our efforts to improve our reportingCompany had no outstanding borrowings at the holding company and controls infrastructure, which was offset by lower accrued incentive compensation.
Interest expense was $1.3 million in the three months ended September 30, 2017, compared to $1.3 million in the 2016 period. Interest expense was $3.9 million in the nine months ended September 30, 2017, compared to $3.4 million in the nine months ended September 30, 2016. The increase intherefore incurred no interest expense for the nine months was related to increased borrowings on the Fortress credit facility year-over-year.
periods. Other expenses were $2.3of $2.1 million inremained consistent with the three months ended September 30, 2017 as compared to $3.8 million in the 2016 period. For the nine months ended September 30, 2017, other expenses were $8.5 million as compared to $12.9 million in 2016. The year-over-year decrease of $4.4 million in the nine months was driven by reduced audit fee accruals and external consulting spend as a result of our improved reporting and controls infrastructure. Included within the year-to-date 2017 results were approximately $1.0 million of expenses primarily related to the delayed filing of the first quarter Form 10-Q.
Operating Results - Non-GAAP
Adjusted EBITDA
Adjusted EBITDA was a loss of $5.8 million and $19.9 million for the three and nine months ended September 30, 2017, respectively, compared to a loss of $7.9 million and $20.9 million in the comparable prior year periods. The improvement in Adjusted EBITDA for the three and nine month periods were driven by the same factors that impacted pre-tax income. See “—Non-GAAP Reconciliations” for a reconciliation to GAAP pre-tax income.period.
Provision for income taxesIncome Taxes
The total income tax benefitexpense of $2.8$13.8 million and expense of $5.3$5.0 million for the ninethree months ended September 30, 2017March 31, 2024 and 2016,2023, respectively, is reflected as a component of net income. Below is a table that breaks downincome (loss). For the components ofthree months ended March 31, 2024 and 2023, the Company’s effective tax rate (“ETR”).was equal to 46.5% and 61.5%, respectively, with both significantly higher than the U.S. statutory income tax rate of 21.0%, primarily due to the impact of outside basis deferred taxes on Tiptree’s investment in Fortegra.
Tiptree owns less than 80% of Fortegra and is required to record deferred taxes on the outside basis on its investment in Fortegra. This deferred tax liability represents the tax that would be due, before consideration of loss carryforwards, if Tiptree were to sell all of its Fortegra stock at its carrying value on Tiptree’s balance sheet.
As of March 31, 2024, the deferred tax liability relating to Fortegra was $65.6 million, which was an increase of $3.9 million from the year ended December 31, 2023, of which $0.5 million benefit was recorded in OCI, and $4.5 million expense was recorded as a provision for income taxes. As of March 31, 2023, the deferred tax liability relating to Fortegra was $44.1 million, which was an increase of $4.1 million from the year ended December 31, 2022, of which $1.8 million was recorded in OCI and $2.3 million was recorded as a provision for income taxes. Excluding the impact of these deferred taxes, the effective tax rates for the three months ended March 31, 2024 and 2023 were 31.5% and 32.9%, respectively.
Balance Sheet Information
Tiptree’s total assets were $5,189.9 million as of March 31, 2024, compared to $5,139.3 million as of December 31, 2023. The $50.6 million increase in assets is primarily attributable to the growth in the Insurance segment.
Total stockholders’ equity was $598.6 million as of March 31, 2024, compared to $576.6 million as of December 31, 2023, with the increase primarily driven by comprehensive income for the three months ended March 31, 2024. As of March 31, 2024, there were 36,781,281 shares of common stock outstanding as compared to 36,756,187 shares as of December 31, 2023, with the increase driven by the vesting of share-based incentive compensation.
On March 28, 2024, Tiptree and Warburg contributed $29.2 million and $9.6 million, respectively, to Fortegra in exchange for common shares of Fortegra. As of March 31, 2024, Fortegra was owned approximately 79.3% by Tiptree Holdings, 17.7% by Warburg and 3.0% by management and directors of Fortegra.
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
Impact of state tax and permanent items | 3.8 |
| | (2.2 | ) | | 4.0 |
| | (0.9 | ) |
Impact of non-controlling interests | (0.7 | ) | | (1.2 | ) | | 2.9 |
| | (0.6 | ) |
Impact of restructuring | — |
| | — |
| | — |
| | (14.7 | ) |
Impact of Reliance contingent liability valuation | 4.5 |
| | — |
| | (10.5 | ) | | — |
|
Impact of other discrete | (4.8 | ) | | 0.7 |
| | (4.1 | ) | | 0.4 |
|
ETR | 37.8 | % | | 32.3 | % | | 27.3 | % | | 19.2 | % |
The following table is a summary of certain balance sheet information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2024 |
($ in thousands) | | | Tiptree Capital | | | | |
| Insurance | | Mortgage | | Other | | Corporate | | Total |
Total assets | 4,930,405 | | | $ | 164,794 | | | $ | 70,697 | | | $ | 24,043 | | | $ | 5,189,939 | |
| | | | | | | | | |
Corporate debt | $ | 289,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 289,000 | |
Asset based debt | 69,218 | | | 56,456 | | | — | | | — | | | 125,674 | |
| | | | | | | | | |
Tiptree Inc. stockholders’ equity (1) | $ | 339,798 | | | $ | 52,885 | | | $ | 69,980 | | | $ | (37,928) | | | $ | 424,735 | |
Non-controlling interests: | | | | | | | | | |
Fortegra preferred interests | 77,679 | | | — | | | — | | | — | | | 77,679 | |
Common interests | 96,224 | | | — | | | — | | | — | | | 96,224 | |
Total stockholders’ equity | $ | 513,701 | | | $ | 52,885 | | | $ | 69,980 | | | $ | (37,928) | | | $ | 598,638 | |
(1) Included in Corporate equity is the deferred tax liability on the outside basis on Tiptree’s investment in Fortegra of $65.6 million as of March 31, 2024.
NON-GAAP MEASURES AND RECONCILIATIONS
Non-GAAP Reconciliations
In addition to GAAP results, management uses the non-GAAP financial measures underwriting and fee revenues and underwriting and fee margin in order to better explain to investors the underwriting performance and the respective retentions between the Company and its agents and reinsurance partners. We also use the non-GAAP financial measures adjusted net income and adjusted return on average equity as measures of operating performance and as part of our resource and capital allocation process, to assess comparative returns on invested capital. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and to compare relative performance among comparable companies. Adjusted net income, adjusted return on average equity, underwriting and fee revenues and underwriting and fee margin are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for earned premiums, net income or any other measure derived in accordance with GAAP.
Underwriting and Fee Revenues and Underwriting and Fee Margin — Non-GAAP (Insurance only)
Underwriting and Fee Revenues — Non-GAAP — We define underwriting and fee revenues as earned premiums, net, service and administrative fees (excluding ceding fees) and other income (excluding cash and cash equivalent interest income). We reconcile underwriting and fee revenues as total revenues excluding net investment income, net realized gains (losses) and net unrealized gains (losses), ceding fees, ceding commissions and cash and cash equivalent interest income as reported in other income. Underwriting and fee revenues represents revenues generated by our underwriting and fee-based operations and allows us to evaluate our underwriting performance without regard to investment income. We use this metric as we believe it gives our management and other users of our financial information useful insight into our underlying business performance. Underwriting and fee revenues should not be viewed as a substitute for total revenues calculated in accordance with GAAP, and other companies may define underwriting and fee revenues differently.
| | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, | | |
| 2024 | | 2023 | | | | | | |
Total revenues | $ | 478,756 | | | $ | 368,444 | | | | | | | |
Less: Net investment income | (6,758) | | | (5,109) | | | | | | | |
Less: Net realized and unrealized gains (losses) | (2,819) | | | 4,607 | | | | | | | |
Less: Ceding fees (1) | (14,619) | | | (11,862) | | | | | | | |
Less: Ceding commissions | (2,744) | | | (3,645) | | | | | | | |
Less: Cash and cash equivalent interest income (2) | (3,733) | | | (2,220) | | | | | | | |
Underwriting and fee revenues (3) | $ | 448,083 | | | $ | 350,215 | | | | | | | |
(1) Ceding fees were included in service and administrative fees on the statement of operations.
(2) Cash and cash equivalent interest income was included in other revenue on the statement of operations.
(3) Underwriting and fee revenues exclude ceding fees, ceding commissions and cash and cash equivalent interest income from other revenue. The three months ended March 31, 2023 has been conformed to this presentation resulting in a reduction of underwriting and fee revenues of $17.7 million. This change only impacted the underwriting and fee revenues metric and did not impact the Company’s condensed consolidated financial statements.
Underwriting and Fee Margin — Non-GAAP — We define underwriting and fee margin as income before taxes, excluding net investment income, net realized gains (losses), net unrealized gains (losses), cash and cash equivalent interest income, employee compensation and benefits, other expenses, interest expense and depreciation and amortization. Underwriting and fee margin represents the underwriting performance of our underwriting and fee-based programs. As such, underwriting and fee margin excludes general administrative expenses, interest expense, depreciation and amortization and other corporate expenses as those expenses support the vertically integrated business model and not any individual component of our business mix. We use this metric as we believe it gives our management and other users of our financial information useful insight into the specific performance of our underlying underwriting and fee programs. Underwriting and fee income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define underwriting and fee margin differently.
| | | | | | | | | | | | | | | | | |
($ in thousands) | | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 | | |
Income (loss) before income taxes | | | | | $ | 36,811 | | | $ | 19,445 | | | |
Less: Net investment income | | | | | (6,758) | | | (5,109) | | | |
Less: Net realized and unrealized gains (losses) | | | | | (2,819) | | | 4,607 | | | |
Less: Cash and cash equivalent interest income (1) | | | | | (3,733) | | | (2,220) | | | |
Plus: Depreciation and amortization | | | | | 5,083 | | | 4,811 | | | |
Plus: Interest expense | | | | | 7,639 | | | 6,081 | | | |
Plus: Employee compensation and benefits | | | | | 31,450 | | | 24,613 | | | |
Plus: Other expenses | | | | | 33,161 | | | 25,369 | | | |
Underwriting and fee margin (2) | | | | | $ | 100,834 | | | $ | 77,597 | | | |
(1) Cash and cash equivalent interest income was included in other revenue on the statement of operations.
(2) Underwriting and fee margin exclude cash and cash equivalent interest income. The three months ended March 31, 2023 has been conformed to this presentation resulting in a reduction of underwriting and fee margin of $2.2 million. This change only impacted the underwriting and fee margin metric and did not impact the Company’s condensed consolidated financial statements.
Adjusted Net Income — Non-GAAP
We define adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting, all of which is reduced for non-controlling interests. The calculation of adjusted net income excludes net realized and unrealized gains (losses) that relate to investments or assets rather than business operations. Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently. Adjusted net income (before NCI) is presented before the impacts of non-controlling interests.
We present adjustments for amortization associated with acquired intangible assets. The intangible assets were recorded as part of purchase accounting in connection with Tiptree’s acquisition of Fortegra Financial in 2014, and additional services businesses from 2019 to 2023. The intangible assets acquired contribute to overall revenue generation, and the respective purchase accounting adjustments will continue to occur in future periods until such intangible assets are fully amortized in accordance with the respective amortization periods required by GAAP.
Adjusted Return on Average Equity — Non-GAAP
We define adjusted return on average equity as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See “—Adjusted Net Income—Non-GAAP” above. Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance with GAAP, and other companies may define adjusted return on average equity differently.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | | |
($ in thousands) | | | Tiptree Capital | | | | | | | |
| Insurance | | Mortgage | | Other | | Corporate | | Total | | | |
Income (loss) before taxes | $ | 36,811 | | | $ | 753 | | | $ | 2,993 | | | $ | (10,858) | | | $ | 29,699 | | | | |
Less: Income tax (benefit) expense | (9,922) | | | (163) | | | (692) | | | (3,041) | | | (13,818) | | | | |
Less: Net realized and unrealized gains (losses) (1) | (2,819) | | | (1,160) | | | (2,141) | | | — | | | (6,120) | | | | |
Plus: Intangibles amortization (2) | 3,971 | | | — | | | — | | | — | | | 3,971 | | | | |
Plus: Stock-based compensation expense | 782 | | | — | | | — | | | 3,053 | | | 3,835 | | | | |
Plus: Non-recurring expenses (3) | 3,170 | | | — | | | — | | | — | | | 3,170 | | | | |
Plus: Non-cash fair value adjustments (4) | 4,211 | | | — | | | — | | | — | | | 4,211 | | | | |
Plus: Impact of tax deconsolidation of Fortegra (5) | — | | | — | | | — | | | 4,465 | | | 4,465 | | | | |
Less: Tax on adjustments (6) | (2,071) | | | 261 | | | 493 | | | (487) | | | (1,804) | | | | |
Adjusted net income (before NCI) | $ | 34,133 | | | $ | (309) | | | $ | 653 | | | $ | (6,868) | | | $ | 27,609 | | | | |
Less: Impact of non-controlling interests | (7,076) | | | — | | | — | | | — | | | (7,076) | | | | |
Adjusted net income | $ | 27,057 | | | $ | (309) | | | $ | 653 | | | $ | (6,868) | | | $ | 20,533 | | | | |
| | | | | | | | | | | | |
Adjusted net income (before NCI) | $ | 34,133 | | | $ | (309) | | | $ | 653 | | | $ | (6,868) | | | $ | 27,609 | | | | |
Average stockholders’ equity | $ | 483,158 | | | $ | 52,591 | | | $ | 97,899 | | | $ | (46,047) | | | $ | 587,601 | | | | |
Adjusted return on average equity (7) | 28.3 | % | | (2.4) | % | | 2.7 | % | | NM% | | 18.8 | % | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Three Months Ended March 31, 2023 |
($ in thousands) | | | Tiptree Capital | | | | |
| Insurance | | Mortgage | | Other | | Corporate | | Total |
Income (loss) before taxes | $ | 19,445 | | | $ | (2,565) | | | $ | 1,442 | | | $ | (10,149) | | | $ | 8,173 | |
Less: Income tax (benefit) expense | (4,747) | | | 613 | | | (263) | | | (625) | | | (5,022) | |
Less: Net realized and unrealized gains (losses) (1) | 4,607 | | | 1,443 | | | 323 | | | — | | | 6,373 | |
Plus: Intangibles amortization (2) | 3,894 | | | — | | | — | | | — | | | 3,894 | |
Plus: Stock-based compensation expense | 33 | | | — | | | — | | | 2,282 | | | 2,315 | |
Plus: Non-recurring expenses (3) | 2,125 | | | — | | | — | | | — | | | 2,125 | |
Plus: Non-cash fair value adjustments (4) | (118) | | | — | | | — | | | — | | | (118) | |
Plus: Impact of tax deconsolidation of Fortegra (5) | — | | | — | | | — | | | 2,314 | | | 2,314 | |
Less: Tax on adjustments (6) | (2,300) | | | (344) | | | (89) | | | (37) | | | (2,770) | |
Adjusted net income (before NCI) | $ | 22,939 | | | $ | (853) | | | $ | 1,413 | | | $ | (6,215) | | | $ | 17,284 | |
Less: Impact of non-controlling interests | (4,725) | | | — | | | — | | | — | | | (4,725) | |
Adjusted net income | $ | 18,214 | | | $ | (853) | | | $ | 1,413 | | | $ | (6,215) | | | $ | 12,559 | |
| | | | | | | | | |
Adjusted net income (before NCI) | $ | 22,939 | | | $ | (853) | | | $ | 1,413 | | | $ | (6,215) | | | $ | 17,284 | |
Average stockholders’ equity | $ | 351,953 | | | $ | 53,768 | | | $ | 114,219 | | | $ | 17,626 | | | $ | 537,566 | |
Adjusted return on average equity (7) | 26.1 | % | | (6.3) | % | | 4.9 | % | | NM% | | 12.9 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(1) Net realized and unrealized gains (losses) added back in Adjusted net income excludes net realized and unrealized gains (losses) from the mortgage segment and unrealized gains (losses) on mortgage servicing rights.
(2) Specifically associated with acquisition purchase accounting. See Note (8) Goodwill and Intangible Assets, net.
(3)For the three months ended September 30, 2017,March 31, 2024 and 2023, included in other expenses were expenses related to legal and other expenses associated with preparation of the Company’s ETR was equal to 37.8%, which does bear a customary relationship toregistration statement for the federal statutory income tax rate.withdrawn Fortegra initial public offering in 2024 and acquisitions of services businesses in 2023, respectively.
(4) For the three months ended September 30, 2016, the Company’s ETR was equal to 32.3%, which does bear a customary relationship to the federal statutory income tax rate.
For the nine months ended September 30, 2017, the Company’s ETR was equal to 27.3% which is lower than the federal statutory income tax rate, primarily dueMarch 31, 2024 and 2023, non-cash fair-value adjustments represent a change in fair value of a contingent consideration liability,the Fortegra Additional Warrant liability.
(5) For the three months ended March 31, 2024 and 2023, included in the adjustment is an increase in a valuation allowanceadd-back of $4.5 million and $2.3 million, respectively, related to deferred tax expense from the WP Transaction.
(6) Tax on net operating losses,adjustments represents the tax applied to the total non-GAAP adjustments and various otherincludes adjustments for non-recurring or discrete items. The ETRtax impacts.
(7) Total Adjusted return on average equity after non-controlling interests was 19.5% and 12.6% for the ninethree months ended September 30, 2017 excluding the effectMarch 31, 2024 and 2023, respectively, based on $20.5 million and $12.6 million of discrete items was 28.1%, which is lower than the federal statutory income tax rate, primarily due to a state tax benefit and the effect of non-controlling interests at certain subsidiaries. For the nine months ended September 30, 2016, the Company’s ETR was equal to approximately 19.2%, which is lower than the federal statutory income tax rate primarily due to the impact of tax restructuring to create the consolidated group.
Balance Sheet Information - as of September 30, 2017 compared to the year ended December 31, 2016
Tiptree’s total assets were $2.4 billion as of September 30, 2017, compared to $2.9 billion as of December 31, 2016. The $441.2 million decrease in assets is primarily attributable to decreases in assets of consolidated CLOs, due to the deconsolidation of two CLOs during the nine months ended September 30, 2017 as a result of selling the subordinated notes. Additionally, loans at fair value and equity securities decreased, partially offset by increases in real estate from acquisitions in our senior living segment, notes and accounts receivable and reinsurance receivable in our specialty insurance segment. In addition, the combination of unearned premiums and deferred revenues increased as a result of growth in written premiums and extending contract durations in the insurance business.
Total stockholders’ equity of Tiptree was $292.0 million as of September 30, 2017 compared to $293.4 million as of December 31, 2016, primarily driven by the losses in the period, partially offset by the net increase in equity outstanding as a result of the Tricadia
Option, net of the share re-purchase. As of September 30, 2017 there were 29,793,481 shares of Tiptree Class A common stock outstanding, net of Treasury shares held at a subsidiary, as compared to 28,387,616 as of December 31, 2016, presented on the same basis.
NON-GAAP RECONCILIATIONS
EBITDA and Adjusted EBITDA
The Company defines EBITDA as GAAP net income over $420.8 million and $399.0 million of the Company adjusted to add consolidated interest expense, consolidated income taxes and consolidated depreciation and amortization expense as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and (v) any significant one-time expenses.average Tiptree Inc. stockholders’ equity. |
| | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
| 2017 |
| 2016 |
Net income (loss) available to Class A common stockholders | $ | (3,114 | ) |
| $ | 5,905 |
|
| $ | (6,457 | ) |
| $ | 17,593 |
|
Add: net (loss) income attributable to noncontrolling interests | (264 | ) |
| 1,933 |
|
| (903 | ) |
| 4,680 |
|
Income (loss) | $ | (3,378 | ) |
| $ | 7,838 |
|
| $ | (7,360 | ) |
| $ | 22,273 |
|
Consolidated interest expense | 10,361 |
|
| 7,839 |
|
| 28,444 |
|
| 20,770 |
|
Consolidated income taxes | (2,052 | ) |
| 3,712 |
|
| (2,761 | ) |
| 5,298 |
|
Consolidated depreciation and amortization expense | 7,775 |
|
| 6,437 |
|
| 23,781 |
|
| 21,899 |
|
EBITDA | $ | 12,706 |
|
| $ | 25,826 |
|
| $ | 42,104 |
|
| $ | 70,240 |
|
Consolidated non-corporate and non-acquisition related interest expense(1) | (7,340 | ) |
| (4,989 | ) |
| (19,510 | ) |
| (13,223 | ) |
Effects of Purchase Accounting (2) | (306 | ) |
| (957 | ) |
| (1,205 | ) |
| (4,446 | ) |
Non-cash fair value adjustments (3) | (309 | ) |
| — |
|
| 3,378 |
|
| 1,416 |
|
Significant acquisition expenses (4) | 25 |
|
| 248 |
|
| 302 |
|
| 631 |
|
Separation expense adjustments (5) | — |
|
| — |
|
| (1,736 | ) |
| (1,736 | ) |
Adjusted EBITDA of the Company | $ | 4,776 |
|
| $ | 20,128 |
|
| $ | 23,333 |
|
| $ | 52,882 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| (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 specialty insurance, asset management, senior living and specialty finance 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. The impact for the three months ended September 30, 2017 and 2016 was an effective increase to pre-tax earnings of $307 thousand and $408 thousand, respectively. | | | | | |
| (3) | For our senior living segment, Adjusted EBITDA excludes the impact of the change of fair value of interest rate swaps hedging the debt at the property level. For Reliance, within our specialty finance segment, Adjusted EBITDA excludes the impact of changes in contingent earn-outs. For our specialty insurance segment, depreciation and amortization on senior living real estate that is within net investment income is added back to Adjusted EBITDA. | | | | | | | |
| (4) | Acquisition costs include legal, taxes, banker fees and other costs associated with senior living acquisitions in 2017 and 2016. | | | | | | | |
| (5) | Consists of payments pursuant to a separation agreement, dated as of November 10, 2015. | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Segment EBITDA and Adjusted EBITDA
The tables below present EBITDA and Adjusted EBITDA by our four reporting segments specialty insurance, asset management, senior living and specialty finance. Corporate and other contains corporate expenses no allocated to the operating business.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | Specialty insurance | Asset management | Senior living | Specialty finance | Corporate and other | Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Pre-tax income/(loss) | $ | (2,345 | ) | $ | 10,659 |
|
| $ | 2,973 |
| $ | 6,475 |
|
| $ | (1,535 | ) | $ | (473 | ) |
| $ | 2,595 |
| $ | 4,181 |
|
| $ | (7,118 | ) | $ | (9,292 | ) |
| $ | (5,430 | ) | $ | 11,550 |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense | 3,499 |
| 2,322 |
|
| 5 |
| — |
|
| 3,609 |
| 2,271 |
|
| 1,949 |
| 1,932 |
|
| 1,299 |
| 1,314 |
|
| 10,361 |
| 7,839 |
|
Depreciation and amortization expenses | 3,134 |
| 3,032 |
|
| — |
| — |
|
| 4,369 |
| 3,094 |
|
| 209 |
| 248 |
|
| 63 |
| 63 |
|
| 7,775 |
| 6,437 |
|
Segment EBITDA | $ | 4,288 |
| $ | 16,013 |
|
| $ | 2,978 |
| $ | 6,475 |
|
| $ | 6,443 |
| $ | 4,892 |
|
| $ | 4,753 |
| $ | 6,361 |
|
| $ | (5,756 | ) | $ | (7,915 | ) |
| $ | 12,706 |
| $ | 25,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific debt interest | (1,777 | ) | (836 | ) |
| (5 | ) | — |
|
| (3,609 | ) | (2,271 | ) |
| (1,949 | ) | (1,882 | ) |
| — |
| — |
|
| (7,340 | ) | (4,989 | ) |
Effects of purchase accounting | (306 | ) | (957 | ) |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (306 | ) | (957 | ) |
Non-cash fair value adjustments | 113 |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (422 | ) | — |
|
| — |
| — |
|
| (309 | ) | — |
|
Significant acquisition expenses | — |
| — |
|
| — |
| — |
|
| 25 |
| 248 |
|
| — |
| — |
|
| — |
| — |
|
| 25 |
| 248 |
|
Separation expenses | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
Segment Adjusted EBITDA | $ | 2,318 |
| $ | 14,220 |
|
| $ | 2,973 |
| $ | 6,475 |
|
| $ | 2,859 |
| $ | 2,869 |
|
| $ | 2,382 |
| $ | 4,479 |
|
| $ | (5,756 | ) | $ | (7,915 | ) |
| $ | 4,776 |
| $ | 20,128 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | Specialty insurance |
| Asset management |
| Senior living |
| Specialty finance |
| Corporate and other |
| Total |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
| 2017 | 2016 |
Pre-tax income/(loss) | $ | 1,724 |
| $ | 35,627 |
|
| $ | 13,083 |
| $ | 14,672 |
|
| $ | (5,359 | ) | $ | (5,487 | ) |
| $ | 2,629 |
| $ | 5,510 |
|
| $ | (22,198 | ) | $ | (22,751 | ) |
| $ | (10,121 | ) | $ | 27,571 |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense | 10,534 |
| 6,018 |
|
| 7 |
| 746 |
|
| 9,309 |
| 6,220 |
|
| 4,743 |
| 4,352 |
|
| 3,851 |
| 3,434 |
|
| 28,444 |
| 20,770 |
|
Depreciation and amortization expenses | 9,625 |
| 10,414 |
|
| — |
| — |
|
| 13,350 |
| 10,634 |
|
| 620 |
| 665 |
|
| 186 |
| 186 |
|
| 23,781 |
| 21,899 |
|
Segment EBITDA | $ | 21,883 |
| $ | 52,059 |
| | $ | 13,090 |
| $ | 15,418 |
| | $ | 17,300 |
| $ | 11,367 |
| | $ | 7,992 |
| $ | 10,527 |
| | $ | (18,161 | ) | $ | (19,131 | ) | | $ | 42,104 |
| $ | 70,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-specific debt interest | (5,451 | ) | (2,057 | ) |
| (7 | ) | (746 | ) |
| (9,309 | ) | (6,220 | ) |
| (4,743 | ) | (4,200 | ) |
| — |
| — |
|
| (19,510 | ) | (13,223 | ) |
Effects of purchase accounting | (1,205 | ) | (4,446 | ) |
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,205 | ) | (4,446 | ) |
Non-cash fair value adjustments | 339 |
| — |
|
| — |
| — |
|
| — |
| 1,416 |
|
| 3,039 |
| — |
|
| — |
| — |
|
| 3,378 |
| 1,416 |
|
Significant acquisition expenses | — |
| — |
|
| — |
| — |
|
| 302 |
| 631 |
|
| — |
| — |
|
| — |
| — |
|
| 302 |
| 631 |
|
Separation expenses | — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| — |
| — |
|
| (1,736 | ) | (1,736 | ) |
| (1,736 | ) | (1,736 | ) |
Segment Adjusted EBITDA | $ | 15,566 |
| $ | 45,556 |
|
| $ | 13,083 |
| $ | 14,672 |
|
| $ | 8,293 |
| $ | 7,194 |
|
| $ | 6,288 |
| $ | 6,327 |
|
| $ | (19,897 | ) | $ | (20,867 | ) |
| $ | 23,333 |
| $ | 52,882 |
|
Book Value per share as exchanged - Non-GAAP
Book value per share, as exchanged assumes full exchange of the limited partners units of TFP for Tiptree Class A common stock. Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders’ equity and total shares outstanding, net of treasury shares, as of September 30, 2017 and September 30, 2016.shares.
|
| | | | | | | |
($ in thousands, except per share information) | Nine Months Ended September 30, |
| 2017 | | 2016 |
Total stockholders’ equity | $ | 391,138 |
| | $ | 381,341 |
|
Less non-controlling interest - other | 25,081 |
| | 19,939 |
|
Total stockholders’ equity, net of non-controlling interests - other | $ | 366,057 |
| | $ | 361,402 |
|
Total Class A shares outstanding (1) | 29,793 |
| | 28,351 |
|
Total Class B shares outstanding | 8,049 |
| | 8,049 |
|
Total shares outstanding | 37,842 |
| | 36,400 |
|
Book value per share, as exchanged | $ | 9.67 |
| | $ | 9.93 |
|
(1) As of September 30, 2017, excludes 5,209,523 shares of Class A common stock held by a consolidated subsidiary of the Company. See Note 23—Earnings per Share, for further discussion of potential dilution from warrantsSpecialty Insurance - As Adjusted Underwriting Margin - Non-GAAP
Underwriting margin is a measure of the underwriting profitability of our specialty insurance segment. It represents net earned premiums, service and administrative fees, ceding commissions and other income less policy and contract benefits and commission expense. We use the combined ratio as an insurance operating metric to evaluate our underwriting performance, both overall and relative to peers. Expressed as a percentage, it represents the relationship of policy and contract benefits, commission expense (net of ceding commissions), employee compensation and benefits, and other expenses to net earned premiums, service and administrative fees, and other income. The following table provides a reconciliation between as adjusted underwriting margin and pre-tax income for the following periods:
| | | | | | | | | | | | | |
| |
| | | | | |
($ in thousands, except per share information) | As of March 31, |
| 2024 | | 2023 | | |
Total stockholders’ equity | $ | 598,638 | | | $ | 541,557 | | | |
Less: Non-controlling interests | 173,903 | | | 140,910 | | | |
Total stockholders’ equity, net of non-controlling interests | $ | 424,735 | | | $ | 400,647 | | | |
| | | | | |
Total common shares outstanding | 36,781 | | | 36,735 | | | |
| | | | | |
Book value per share | $ | 11.55 | | | $ | 10.91 | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net earned premiums | $ | 96,073 |
|
| $ | 47,609 |
|
| $ | — |
|
| $ | — |
|
| $ | 96,073 |
|
| $ | 47,609 |
|
Service and administrative fees | 24,018 |
|
| 25,842 |
|
| 236 |
|
| 1,134 |
|
| 24,254 |
|
| 26,976 |
|
Ceding commissions | 2,513 |
|
| 1,397 |
|
| 10 |
|
| 69 |
|
| 2,523 |
|
| 1,466 |
|
Other income | 824 |
|
| 730 |
|
| — |
|
| — |
|
| 824 |
|
| 730 |
|
Less underwriting expenses: |
|
|
|
|
|
|
|
|
|
|
|
Policy and contract benefits | 31,570 |
|
| 25,881 |
|
| — |
|
| — |
|
| 31,570 |
|
| 25,881 |
|
Commission expense | 63,066 |
|
| 24,032 |
|
| 538 |
|
| 2,120 |
|
| 63,604 |
|
| 26,152 |
|
Underwriting Margin - Non-GAAP | $ | 28,792 |
|
| $ | 25,665 |
|
| $ | (292 | ) |
| $ | (917 | ) |
| $ | 28,500 |
|
| $ | 24,748 |
|
Less operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits | 10,073 |
|
| 9,180 |
|
| — |
|
| — |
|
| 10,073 |
|
| 9,180 |
|
Other expenses | 9,717 |
|
| 7,524 |
|
| 31 |
|
| 40 |
|
| 9,748 |
|
| 7,564 |
|
Combined Ratio | 92.6 | % |
| 87.9 | % |
| — | % |
| — | % |
| 92.8 | % |
| 89.4 | % |
Plus investment revenues: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income | 3,840 |
|
| 3,307 |
|
| — |
|
| — |
|
| 3,840 |
|
| 3,307 |
|
Net realized and unrealized gains | (8,554 | ) |
| 3,745 |
|
| — |
|
| — |
|
| (8,554 | ) |
| 3,745 |
|
Less other expenses: |
|
|
|
|
|
|
|
|
|
|
|
Interest expense | 3,499 |
|
| 2,322 |
|
| — |
|
| — |
|
| 3,499 |
|
| 2,322 |
|
Depreciation and amortization expenses | 3,134 |
|
| 3,032 |
|
| (16 | ) |
| (549 | ) |
| 3,118 |
|
| 2,483 |
|
Pre-tax income (loss) | $ | (2,345 | ) |
| $ | 10,659 |
|
| $ | (307 | ) |
| $ | (408 | ) |
| $ | (2,652 | ) |
| $ | 10,251 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net earned premiums | $ | 272,781 |
| | $ | 138,516 |
|
| $ | — |
|
| $ | — |
|
| $ | 272,781 |
|
| $ | 138,516 |
|
Service and administrative fees | 70,861 |
| | 84,421 |
|
| 742 |
|
| 4,976 |
|
| 71,603 |
|
| 89,397 |
|
Ceding commissions | 6,801 |
| | 22,645 |
|
| 46 |
|
| 376 |
|
| 6,847 |
|
| 23,021 |
|
Other income | 2,874 |
| | 1,985 |
|
| — |
|
| — |
|
| 2,874 |
|
| 1,985 |
|
Less underwriting expenses: | | |
|
|
|
|
|
|
|
|
|
Policy and contract benefits | 94,364 |
| | 72,436 |
|
| — |
|
| — |
|
| 94,364 |
|
| 72,436 |
|
Commission expense | 176,405 |
| | 91,906 |
|
| 1,892 |
|
| 9,494 |
|
| 178,297 |
|
| 101,400 |
|
Underwriting Margin - Non-GAAP | $ | 82,548 |
| | $ | 83,225 |
|
| $ | (1,104 | ) |
| $ | (4,142 | ) |
| $ | 81,444 |
|
| $ | 79,083 |
|
Less operating expenses: |
| |
|
|
|
|
|
|
|
|
|
Employee compensation and benefits | 30,800 |
| | 28,065 |
|
| — |
|
| — |
|
| 30,800 |
|
| 28,065 |
|
Other expenses | 28,279 |
| | 24,277 |
|
| 120 |
|
| 304 |
|
| 28,399 |
|
| 24,581 |
|
Combined Ratio | 93.2 | % | | 86.3 | % |
| — |
|
| — |
|
| 93.6 | % |
| 88.5 | % |
Plus investment revenues: |
| |
|
|
|
|
|
|
|
|
|
Net investment income | 12,032 |
| | 8,409 |
|
| — |
|
| — |
|
| 12,032 |
|
| 8,409 |
|
Net realized and unrealized gains | (13,618 | ) | | 12,767 |
|
| — |
|
| — |
|
| (13,618 | ) |
| 12,767 |
|
Less other expenses: |
| |
|
|
|
|
|
|
|
|
|
Interest expense | 10,534 |
| | 6,018 |
|
| — |
|
| — |
|
| 10,534 |
|
| 6,018 |
|
Depreciation and amortization expenses | 9,625 |
| | 10,414 |
|
| (182 | ) |
| (2,977 | ) |
| 9,443 |
|
| 7,437 |
|
Pre-tax income (loss) | $ | 1,724 |
| | $ | 35,627 |
|
| $ | (1,042 | ) |
| $ | (1,469 | ) |
| $ | 682 |
|
| $ | 34,158 |
|
Specialty Insurance Investment Portfolio - Non-GAAP
The following table provides a reconciliation between segment total investments and net investments for the following periods:
|
| | | | | | | |
($ in thousands) | As of September 30, |
| 2017 |
| 2016 |
Total Investments | $ | 426,753 |
|
| $ | 398,505 |
|
Investment portfolio debt (1) | (122,999 | ) |
| (101,012 | ) |
Cash and cash equivalents | 62,790 |
|
| 16,555 |
|
Restricted cash (2) | 3,637 |
|
| 6,683 |
|
Receivable due from brokers (3) | 1,505 |
|
| — |
|
Liability due to brokers (3) | (7,733 | ) |
| (18,836 | ) |
Net investments - Non-GAAP | $ | 363,953 |
|
| $ | 301,895 |
|
(1) Consists of asset-based financing on loans, at fair value including certain credit investments and NPLs, net of deferred financing costs, see Note 11 - Debt, net for further details.
(2) Restricted cash available to invest within certain credit investment funds which are consolidated under GAAP.
(3) Receivable due from and Liability due to brokers for unsettled trades within certain credit investment funds which are consolidated under GAAP.
Senior Living Product NOI - Non-GAAP
The following table provides a reconciliation between segment NOI and pre-tax income (loss) for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total | | NNN Operations | | Managed Properties | | Senior Living Total |
Rental and related revenue | $ | 3,371 |
|
| $ | 15,799 |
|
| $ | 19,170 |
| | $ | 1,844 |
|
| $ | 13,526 |
|
| $ | 15,370 |
| | $ | 8,218 |
| | $ | 46,600 |
| | $ | 54,818 |
| | $ | 5,533 |
| | $ | 37,856 |
| | $ | 43,389 |
|
Less: Property operating expenses | — |
|
| 11,728 |
|
| 11,728 |
| | — |
|
| 9,599 |
|
| 9,599 |
| | — |
| | 34,576 |
| | 34,576 |
| | — |
| | 27,600 |
| | 27,600 |
|
Segment NOI | $ | 3,371 |
|
| $ | 4,071 |
|
| $ | 7,442 |
| | $ | 1,844 |
|
| $ | 3,927 |
|
| $ | 5,771 |
| | $ | 8,218 |
| | $ | 12,024 |
| | $ | 20,242 |
| | $ | 5,533 |
| | $ | 10,256 |
| | $ | 15,789 |
|
Segment NOI Margin % (1) | | | 25.8 | % | | | | | | 29.0 | % | | | | | | 25.8 | % | | | | | | 27.1 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other income | | | | | $ | 414 |
| | | | | | $ | 324 |
| | | | | | $ | 1,109 |
| | | | | | $ | 815 |
|
Less: Expenses | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | | | 3,609 |
| | | | | | 2,271 |
| | | | | | 9,309 |
| | | | | | 6,220 |
|
Payroll and employee commissions | | | | | 790 |
| | | | | | 617 |
| | | | | | 2,323 |
| | | | | | 1,900 |
|
Depreciation and amortization | | | | | 4,369 |
| | | | | | 3,095 |
| | | | | | 13,350 |
| | | | | | 10,635 |
|
Other expenses | | | | | 623 |
| | | | | | 583 |
| | | | | | 1,728 |
| | | | | | 3,335 |
|
Pre-tax income (loss) | | | | | $ | (1,535 | ) | | | | | | $ | (471 | ) | | | | | | $ | (5,359 | ) | | | | | | $ | (5,486 | ) |
(1) NOI Margin % is the relationship between segment NOI and rental and related revenue.
Asset Management As Adjusted Revenues
The following table provides a reconciliation between asset management segment revenues and non-GAAP, as adjusted revenues for the following periods:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 | | 2016 |
| 2017 | | 2016 |
| 2017 | | 2016 |
Management fee income | $ | 1,541 |
|
| $ | 3,839 |
|
| $ | 311 |
|
| $ | 743 |
|
| $ | 1,852 |
|
| $ | 4,582 |
|
Distributions | — |
|
| — |
|
| 2,168 |
|
| 4,368 |
|
| 2,168 |
|
| 4,368 |
|
Net realized and unrealized gains (losses) | (349 | ) |
| 695 |
|
| 360 |
|
| (1,034 | ) |
| 11 |
|
| (339 | ) |
Other income | 256 |
|
| 212 |
|
| (256 | ) |
| (45 | ) |
| — |
|
| 167 |
|
Total revenues | $ | 1,448 |
|
| $ | 4,746 |
|
| $ | 2,583 |
|
| $ | 4,032 |
|
| $ | 4,031 |
|
| $ | 8,778 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
($ in thousands) | GAAP |
| Non-GAAP adjustments |
| Non-GAAP - As Adjusted |
Revenues: | 2017 | | 2016 |
| 2017 | | 2016 |
| 2017 | | 2016 |
Management fee income | $ | 6,578 |
|
| $ | 7,497 |
|
| $ | 1,038 |
|
| $ | 2,169 |
|
| $ | 7,616 |
|
| $ | 9,666 |
|
Distributions | — |
|
| — |
|
| 6,560 |
|
| 11,058 |
|
| 6,560 |
|
| 11,058 |
|
Net realized and unrealized gains (losses) | 839 |
|
| 226 |
|
| 2,604 |
|
| (3,050 | ) |
| 3,443 |
|
| (2,824 | ) |
Other income | 822 |
|
| 3,031 |
|
| (809 | ) |
| (128 | ) |
| 13 |
|
| 2,903 |
|
Total revenues | $ | 8,239 |
|
| $ | 10,754 |
|
| $ | 9,393 |
|
| $ | 10,049 |
|
| $ | 17,632 |
|
| $ | 20,803 |
|
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are our holdings of unrestricted cash, cash equivalents and other liquid investments and distributions from operating subsidiaries, including subordinated notes of CLOs, income from our investment portfolio and sales of assets and investments. We intend to use our cash resources to continue to fund our operations and grow our businesses. We may seek additional sources of cash to fund acquisitions or investments. These additional sources of cash may take the form of debt or equity and may be at the parent, subsidiary or asset level. We are a holding company and our liquidity needs are primarily for interest payments on the Fortress credit facility, compensation, professional fees, office rent and insurance costs.
Our subsidiaries’ ability to generate sufficient net income and cash flows to make cash distributions will be subject to numerous business and other factors, including restrictions contained in agreements for the strategic investment by Warburg in Fortegra, our subsidiaries’ financing agreements, regulatory restrictions, availability of sufficient funds at such subsidiaries, general economic and business conditions, tax considerations, strategic plans, financial results and other factors such as target capital ratios and ratio levels anticipated by rating agencies to maintain or improve current ratings. We expect our cash and cash equivalents and distributions from operating subsidiaries, and our subsidiaries’ access to financing, and sales of investments to be adequate to fund our operations for at least the next 12 months.months, as well as the long term.
As of September 30, 2017, we hadMarch 31, 2024, cash and cash equivalents, excluding restricted cash, of $111.8were $474.6 million, compared to $63.0$468.7 million at December 31, 2016,2023, an increase of $48.7$5.8 million, primarily driven by an decrease in investments.
Our insurance business uses borrowings to fund long-term growth and for operational working capital purposes. As of March 31, 2024 and December 31, 2023, a total of $129.0 million and $130.0 million, respectively, was outstanding under the revolving line of credit in our insurance business. The maximum borrowing capacity under the agreements as of March 31, 2024 and 2023 was $200.0 million.
Our approach to debt is generally to use non-recourse (other than customary carveouts, including fraud and environmental liability), asset specific debt where possible that is amortized by cash flows from the underlyingmortgage business or assets financed. Our mortgage businesses relyrelies on short term uncommitted sources of financing as a part of their normal course of operations. To date, we have been able to obtain and renew uncommitted warehouse credit facilities. If we were not able to obtain financing, then we may need to draw on other sources of liquidity to fund our mortgage business. See Note—(11)Note (10) Debt, net in the notes to our condensed consolidated financial statements for additional information regarding our insurance and mortgage warehouse borrowings.
For purposes of determining enterprise valueWe believe that cash flow from operations will provide sufficient capital to continue to grow the business and Adjusted EBITDA, we consider secured corporate credit agreements and preferred trust securities, which we refer to as corporate debt, as corporate financing and associatedfund interest expense is added back. The below table outlines this amount by debt outstanding and interest expense by segment.
Corporate Debt
|
| | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Debt outstanding as of September 30, | | Interest expense for the three months ended September 30, | | Interest expense for the nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Specialty insurance | | $ | 145,000 |
| | $ | 145,850 |
| | $ | 1,721 |
| | $ | 1,516 |
| | $ | 5,082 |
| | $ | 3,961 |
|
Corporate and other | | 57,000 |
| | 59,000 |
| | 1,258 |
| | 1,209 |
| | 3,810 |
| | 3,329 |
|
Total | | $ | 202,000 |
| | $ | 204,850 |
| | $ | 2,979 |
| | $ | 2,725 |
| | $ | 8,892 |
| | $ | 7,290 |
|
Our intermediate holding company has a credit facility with Fortress to provide working capital. Loans under the Fortress credit agreement bear interest at LIBOR (with a minimum LIBOR rate of 1.25%), plus a margin of 6.50% per annum. We are required to make quarterly principal payments of $0.5 million, subject to adjustment based on the Net Leverage Ratio (as definedoutstanding debt, capital expenditures and other general corporate needs over the next several years. As we continue to expand our business, including by any acquisitions we may make, we may, in the Fortress credit agreement) at the end of each fiscal quarter. The outstanding debt under the Fortress credit agreement was $57.0 million as of September 30, 2017 compared to $58.5 million as of December 31, 2016. All remaining principal, and any unpaid interest, under the Fortress credit agreement is payable on maturity at September 18, 2018. We intend to extend or refinance the Fortress credit agreement but we may not be able to do so on terms satisfactory to us. If we are unable to extend or refinance, we expect to use available cash, asset sales and/or distributions from our operating subsidiaries to make the required payments.future, require additional working capital for increased costs.
On October 16, 2017, Fortegra completed an offering of $125 million Junior Subordinated Notes due 2057. Substantially all of the net proceeds from the Notes were used to repay Fortegra’s existing credit facility, which was terminated. We believe these funds will reposition Fortegra’s balance sheet, strengthen the Company’s positioning with industry rating agencies, and generate a source of long term capital. See Note—(11) Debt, net for additional information of our debt and that of our subsidiaries.
Consolidated Comparison of Cash Flows
Summary Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2017 and September 30, 2016 | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, |
| 2024 | | 2023 | | |
Cash and cash equivalents provided by (used in): | | | | | |
Operating activities | $ | 62,704 | | | $ | 43,046 | | | |
Investing activities | 40,469 | | | (247,523) | | | |
Financing activities | 7,977 | | | 78,302 | | | |
Effect of exchange rate changes on cash | (754) | | | 1,258 | | | |
|
| | | | | | | |
($ in thousands) | Nine Months Ended September 30, |
| 2017 | | 2016 |
Net cash (used in) provided by: | | | |
Operating activities | | | |
Operating activities - (excluding VIEs) | $ | 27,214 |
|
| $ | (27,156 | ) |
Operating activities - VIEs | (2,684 | ) | | (3,505 | ) |
Total cash provided by (used in) operating activities | 24,530 |
| | (30,661 | ) |
| | | |
Investing activities | | | |
Investing activities - (excluding VIEs) | (38,266 | ) |
| (157,745 | ) |
Investing activities - VIEs | 224,107 |
| | (96,834 | ) |
Total cash provided by (used in) investing activities | 185,841 |
| | (254,579 | ) |
| | | |
Financing activities | | | |
Financing activities - (excluding VIEs) | 61,763 |
|
| 61,108 |
|
Financing activities - VIEs | (223,393 | ) | | 220,727 |
|
Total cash provided by (used in) financing activities | (161,630 | ) | | 281,835 |
|
| | | |
Net increase (decrease) in cash | $ | 48,741 |
| | $ | (3,405 | ) |
Nine Months Ended September 30, 2017 | | | | | | | | | | | | | |
($ in thousands) | Three Months Ended March 31, |
| 2024 | | 2023 | | |
Change in cash, cash equivalents and restricted cash | $ | 110,396 | | | $ | (124,917) | | | |
Operating Activities
Cash provided by operating activities (excluding VIEs) was $27.2$62.7 million for the ninethree months ended September 30, 2017. TheMarch 31, 2024. In 2024, the primary sources of cash from operating activities included mortgage sales outpacing originationsgrowth in our specialty finance segment and,insurance premiums written resulting in increases in unearned premiums, reinsurance payable and policy liabilities in our specialty insurance segment. The primary uses of cash from operating activities including increases in reinsurance receivables, notes and account receivable and decreases in accrued expenses in our specialty insurance segment.
Cash used in operating activities - VIEs was $2.7 million for the nine months ended September 30, 2017.
Investing Activities
Cash used in investing activities (excluding VIEs) was $38.3 million for the nine months ended September 30, 2017. The primary uses of cash from investing activitiesunpaid claims which were investments in senior living real estate properties in our senior living business. The primary sources of cash from investing activities were proceeds from sales and maturities of investments exceeding purchases of investments, specifically the sale of NPLs and corporate loans.
Cash providedpartially offset by investing activities - VIEs was $224.1 million for the nine months ended September 30, 2017. The primary drivers of the cash from investing activities - VIEs were sales of investments and loan prepayments in Telos 7.
Financing Activities
Cash provided by financing activities (excluding VIEs) was $61.8 million for the nine months ended September 30, 2017. The primary sources of cash from financing activities were new borrowings in our senior living segment to fund our investments in real estate, new borrowings exceeding principal paydowns on debt facilities in our specialty finance segments, and origination of new borrowings in our specialty insurance segment.
Cash used in financing activities - VIEs was $223.4 million for the nine months ended September 30, 2017 driven primarily by principal payments on debt in Telos 7.
Nine Months Ended September 30, 2016
Operating Activities
Cash used in operating activities (excluding VIEs) was $27.2 million for the nine months ended September 30, 2016. The primary uses of cash from operating activities included increases in notes and accounts receivable and decreasesother liabilities and accrued expenses and a decrease in deferred revenue and reinsurance payables in our specialty insurance business. Theunearned premiums.
Cash provided by operating activities was $43.0 million for the three months ended March 31, 2023. In 2023, the primary sources of cash from operating activities included mortgage sales outpacing originations andgrowth in insurance written premiums resulting in increases in unearned premiums, and policy liabilities and unpaid claims, deferred revenues and reinsurance payables, which were partially offset by increases in our specialty insurance business.deferred acquisition costs, reinsurance recoverable and prepaid reinsurance premiums.
Investing Activities
Cash used in operatingprovided by investing activities - VIEs was $3.5$40.5 million for the ninethree months ended September 30, 2016. TheMarch 31, 2024. In 2024, the primary usessource of cash was proceeds from operating activities - VIEs were due to the increases in accrued interest receivable on loans.sale of investments outpacing purchases.
Investing Activities
Cash used in investing activities (excluding VIEs) was $157.7$247.5 million for the ninethree months ended September 30, 2016. TheMarch 31, 2023. In 2023, the primary uses of cash were the purchases of investments outpacing the proceeds from investing activities includedthe sale of investments, in NPLs and other investments, investments in real estate properties in our senior living business and increase in loans in our specialty finance business.as well as the acquisition of Premia.
Cash used in investing activities - VIEs was $96.8 million for the nine months ended September 30, 2016. The primary driver of the cash used in investing activities - VIEs was the purchase of loans in Telos 7 during the ramp up period as it converted from a warehouse to a CLO during the second quarter of 2016.
Financing Activities
Cash used in financing activities (excluding VIEs) was $61.1 million for the nine months ended September 30, 2016. The primary drivers of the cash used included paydown of the Telos 7 warehouse debt and repurchases of common stock. The sources of cash were from borrowings in our senior living business to fund its investments in real estate, borrowings in our specialty finance business to fund loan growth, increase in debt in our specialty insurance business for working capital, and an increase in borrowings in our specialty insurance business to grow our corporate loan portfolio and fund additional investments in NPLs.
Cash provided by financing activities - VIEs was $220.7$8.0 million for the ninethree months ended September 30, 2016 drivenMarch 31, 2024. In 2024, the cash provided was primarily proceeds from corporate borrowings at Fortegra and mortgage warehouse facilities, which exceeded repayments, and a non-controlling interest contribution to Fortegra, partially offset by the senior notes issued uponpayment of common and preferred dividends.
Cash provided by financing activities was $78.3 million for the conversionthree months ended March 31, 2023. In 2023, the cash provided was primarily proceeds from corporate borrowings and mortgage warehouse facilities, which exceeded repayments, partially offset by non-controlling interests distributions and the payment of Telos 7 from a warehouse to a CLO.dividends.
Contractual ObligationsCRITICAL ACCOUNTING POLICIES AND ESTIMATES
The table below summarizes Tiptree’s consolidated contractual obligations by period for payments that are due as of September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
($ in thousands) | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | | Total |
Notes payable CLOs (1) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 334,900 |
| | $ | 334,900 |
|
Credit agreement/Revolving line of credit | 101,173 |
| | 178,164 |
| | 247,247 |
| | — |
| | 526,584 |
|
Mortgage notes payable and related interest (2) | 18,073 |
| | 125,181 |
| | 118,774 |
| | 97,513 |
| | 359,541 |
|
Trust Preferred Securities | — |
| | — |
| | — |
| | 35,000 |
| | 35,000 |
|
Operating lease obligations (3) | 4,946 |
| | 14,070 |
| | 7,981 |
| | 11,972 |
| | 38,969 |
|
Total | $ | 124,192 |
| | $ | 317,415 |
| | $ | 374,002 |
| | $ | 479,385 |
| | $ | 1,294,994 |
|
| |
(1) | Non-recourse CLO notes payable principal is payable at stated maturity, 2027 for Telos 6. |
| |
(2) | See Note —(11) Debt, net, in the accompanying consolidated financial statements for additional information. |
| |
(3) | Minimum rental obligation for Tiptree, Care, MFCA, Siena, Reliance, Luxury and Fortegra office leases. The total rent expense for the Company for the nine months ended September 30, 2017 and 2016 was $5.2 million and $4.8 million, respectively. |
Critical Accounting Policies and Estimates
The preparation of our financial statements in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ materially from those estimates. There have been no material changes to the critical accounting policies and estimates as discussed in Part II, Item 7A in our 2016 Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2023.
Recently Adopted and Issued Accounting Standards
For a discussion of recently adopted and issued accounting standards, see the section “Recent Accounting Standards” in Note—Note (2) Summary of Significant Accounting Policies of the notes to the accompanying condensed consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
In the normal course of business, we enter into various off-balance sheet arrangements including entering into derivative financial instruments and hedging transactions, operating leases and sponsoring and owning interests in consolidated and non-consolidated variable interest entities.
Further disclosure on our off-balance sheet arrangements as of September 30, 2017 is presented in the “Notes to Consolidated Financial Statements” in “Part I. Item 1. Financial Statements (Unaudited)” of this filing as follows:
Note —(9) Derivative Financial Instruments and Hedging
Note —(10) Assets and Liabilities of Consolidated CLOs
Note —(22) Commitments and Contingencies
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2023 described our Quantitative and Qualitative Disclosures About Market Risk. There were no material changes to the assumptions or risks during the ninethree months ended September 30, 2017.March 31, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that material information is recorded, processed, summarized and reported accurately and on a timely basis. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Tiptree’s Fortegra subsidiary is a defendantOur legal proceedings are discussed under the heading “Litigation” in Mullins v. Southern Financial Life Insurance Co., which was filed in February 2006,Note (20) Commitments and Contingencies in the Pike Circuit Court, in the Commonwealth of Kentucky. A class was certified in June 2010. At issue is the duration or term of coverage under certain disability and life credit insurance policies. The action alleges violations of the Consumer Protection Act and certain insurance statutes, as well as common law fraud and seeks compensatory and punitive damages, attorney fees and interest. To date, the court has not awarded sanctions in connection with Plaintiffs’ April 2012 Motion for Sanctions. In January 2015, the trial court issued an Order denying Fortegra’s motion to decertify the class, which was upheld on appeal. Following a February 2017 hearing, the court denied Fortegra’s Motion for Summary Judgment as to certain disability insurance policies but has not yet ruled on such motion with respectNotes to the life insurance policies at issue. In June 2017, a new Special Master was appointed. No trial or hearings are currently scheduled.condensed consolidated financial statements in this report.
In management’s opinion, based on information available at this time, the ultimate resolution of such litigation, which it is vigorously defending, should not be materially adverse to the financial position of Tiptree. It should be noted that large punitive damage awards,
bearing little relation to actual damages sustained by plaintiffs, have been awarded in certain states against other companies in the credit insurance business. At this time, the Company cannot reasonably estimate a range of loss.
Tiptree and its subsidiaries are parties to other legal proceedings in the ordinary course of business. Although Tiptree’s legal and financial liability with respect to such proceedings cannot be estimated with certainty, Tiptree does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on Tiptree’s financial position or results of operations.
Item 1A. Risk Factors
For information regarding factors that could affect our Company, results of operations and financial condition, see the risk factors discussed under Part I, Item 1A of the Company’sin our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2023. There have been no material changechanges in those risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Share repurchase activity for three months ended March 31, 2024 was as follows:
| | | | | | | | | | | | | | | | | |
Period | Purchaser | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value ($ in thousands of Shares That May Yet Be Purchased Under the Plans or Programs(1) |
January 1, 2024 to January 31, 2024 | Tiptree Inc. | — | | $ | — | | — | | |
February 1, 2024 to February 29, 2024 | Tiptree Inc. | — | | $ | — | | — | | |
March 1, 2024 to March 31, 2024 | Tiptree Inc. | — | | $ | — | | — | | |
| Total | — | | $ | — | | — | | $ | 11,945 | |
(1)On August 10, 2017,November 2, 2020, the Board of Directors of Tiptree issued 756,046 sharesauthorized Tiptree’s Executive Committee to repurchase up to $20 million of Class Aits outstanding common stock as additional earn-out consideration pursuantin the aggregate from time to the Securities Purchase Agreement, dated as of November 24, 2014, among Tiptree and certain of its subsidiaries and the former equity holders of Reliance First Capital, LLC.time.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules | | | | | |
| |
The following documents are filed as a part of this Form 10-Q: | |
| |
Financial Statements (Unaudited): | |
Condensed Consolidated Balance Sheets as of September 30, 2017March 31, 2024 and December 31, 20162023 | |
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 | |
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017March 31, 2024 and 20162023 | |
Condensed Consolidated StatementStatements of Changes in Stockholders’ Equity for the periodperiods ended September 30, 2017March 31, 2024 and 20162023 | |
Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2024 and 20162023 | |
| |
| |
Exhibits: | |
The Exhibits listed in the Index of Exhibits, which appears immediately following the signature page, is incorporated herein by reference and is filed as part of this Form 10-Q. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Tiptree Inc. has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| | | | | | | | | | | | | | |
| | | Tiptree Inc. |
| | | | |
Date: | May 1, 2024 | | Tiptree Inc. |
| | | |
Date: | November 6, 2017 | | By:/s/ Michael Barnes |
| | | Michael Barnes |
| | | Executive Chairman |
| | | |
Date: | November 6, 2017May 1, 2024 | | By:/s/ Jonathan Ilany |
| | | Jonathan Ilany |
| | | Chief Executive Officer |
| | | |
Date: | May 1, 2024 | | By:/s/ Scott McKinney |
| Date: | November 6, 2017 | By:/s/ Sandra BellScott McKinney |
| | | Sandra Bell |
| | | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT INDEX
|
| | | | |
Exhibit No. | Description |
31.1 | |
31.2 | |
31.3 | |
32.1 | |
32.2 | |
32.3 | |
| |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema Document* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* |
104 | |
* | Attached as Exhibit 101 to this Quarterly Report onCover page from Tiptree’s Form 10-Q arefor the following materials,quarter ended March 31, 2024 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets for September 30, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) the Condensed Consolidated Statements of ChangesiXBRL (included in Stockholders’ Equity for the period ended September 30, 2017, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 and (vi) the Notes to the Condensed Consolidated Financial Statements. Exhibit 101). |
* Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, (ii) the Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2024 and 2023, (iv) the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2024 and 2023, (v) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 and (vi) the Notes to the Condensed Consolidated Financial Statements.
** Denotes a management contract or compensatory plan, contract or arrangement.