Exhibit 99.1
Hub International Posts Strong First Quarter 2005
CHICAGO--(BUSINESS WIRE)--April 27, 2005--Hub International
Limited (NYSE:HBG)(TSX:HBG):
-- GAAP net earnings rise 71% on 53% revenue increase
-- Normalized net earnings increase 74%
-- Organic growth reaches 10%
Hub International Limited (NYSE:HBG)(TSX:HBG) today reported that
first quarter 2005 net earnings increased 71% to $16.5 million, or
$0.47 per diluted share, from $9.6 million, or $0.29 per diluted
share, a year earlier, while revenue increased 53% to $121.7 million
from $79.3 million. On a normalized basis, as described later in this
release, net earnings grew 74% to $0.52 per diluted share.
The North American insurance broker recorded 4% organic growth for
core commissions and 10% organic growth when contingent commissions
and other income are included. Organic growth is similar to
same-store-sales in the retail industry and includes results from
businesses only after they have been owned for 12 months. Foreign
exchange, gains due to the Canadian dollar's increased value against
the U.S. dollar, added approximately three percentage points to
organic growth in the first quarter 2005.
"We're off to a solid start in a very challenging environment,"
said Martin P. Hughes, chairman and chief executive officer. "Premium
rates continue to decline, accompanied by increased capacity and more
competition from smaller, regional brokers. At the same time, we are
beginning to see signs that customers are responding to lower rates by
restoring coverage that was bypassed during the harder rate
environment. Across North America, our people are working diligently
and effectively to meet the challenges of a market in transition."
Hughes said the current market environment is affecting wholesale
brokerage more than retail sales, because expanded capacity gives
smaller brokers more direct access to insurers. In periods of limited
capacity, smaller brokers rely more heavily on Hub's wholesale
operations to gain access to insurance markets.
"While a soft market adds more pressure on the wholesale front
than on retail business, we are working aggressively to reinforce our
sales culture in all areas of our company," Hughes said. "Our
management of the sales pipeline is providing increased benefits as we
address the current market environment and we are working to achieve
further progress as the year unfolds."
Acquisitions and Organic Growth Drive Revenue Gains
First quarter revenue growth included the impact of acquisitions
made in 2004, gains in contingent commission revenue, organic growth
and a stronger Canadian dollar. Total revenue increased 53%, including
10% organic growth. Core commissions increased 44% to $89.0 million
from $61.6 million, reflecting both acquisitions and 4% organic
growth. Contingent commissions and volume overrides--the majority of
which are received in the first quarter--grew 94% to $29.2 million
from $15.0 million, approximately $8.7 million of the increase coming
from acquisitions and the balance from organic growth. Other income
increased 31% to $3.6 million, including organic growth of 6%. Foreign
exchange added three percentage points to the company's organic
growth.
In the United States, which provided 72% of first quarter revenue,
total revenue increased 79% to $87.1 million, including the benefit of
acquisitions and 5% organic growth. Core commissions increased 70% to
$63.2 million, but previously disclosed declines at one regional hub
and weakness in wholesale brokerage resulted in a 1% decline in
organic growth. Contingent commissions and volume overrides increased
by 117% to $21.0 million, including $9.0 million of the increase from
acquisitions and the balance from organic growth, and other income
grew 43% to $3.0 million, including 9% organic growth.
Much of the growth in U.S. revenue resulted from the acquisitions
of Talbot on July 1, 2004 and Bush, Cotton & Scott on April 1, 2004
with estimated annualized revenue of $109.0 million as of their
respective acquisition dates. Hughes said the company has a strong
acquisition pipeline and anticipates continued growth through
acquisitions in 2005.
In Canada, which generated 28% of consolidated revenue in the
first quarter, total revenue increased 13% to $34.6 million, including
the impact of 18% organic growth. Core commission income increased 5%
to $25.8 million, including 10% organic growth, or 2% excluding the
impact of foreign exchange, while contingent commissions and volume
overrides grew 52% to $8.2 million, due to organic growth. The
stronger Canadian dollar added eight percentage points to organic
growth in the first quarter.
Cash compensation expense increased 57% in the first quarter to
$63.9 million, rising to 52% of revenue from 51% last year. Selling,
occupancy and administration expense grew 29% to $20.1 million, but
declined as a percentage of revenue to 16% from 20%, while
depreciation held steady at 2% of revenue in both periods. Interest
expense increased 45% to $2.4 million, due primarily to higher debt
levels, while intangible asset amortization grew 137% to $1.9 million,
mostly due to acquired businesses.
Non-cash stock based compensation increased to $9.0 million from
$1.6 million, predominantly due to an earnout to be paid to
approximately 70 employees of Talbot. The Talbot charge was $7.2
million, or $0.20 per diluted share, in the first quarter 2005, versus
zero in the same period of 2004 (the "Talbot Charge").
First quarter earnings included a $4.5 million ($2.9 million after
tax) gain resulting from early retirement of a $7.5 million loan from
an insurance company, along with a $2.4 million ($1.9 million after
tax) gain on the disposal of assets. As reported previously, the terms
of the insurance carrier loan included ongoing forgiveness of interest
and reduction of principal repayment due in February 2007, based on
both target premiums placed with the insurer and the loss ratio on
those premiums. Hub repaid $3.0 million and received forgiveness of
$4.5 million in principal during the first quarter, based on
performance over the past three years under the terms of the
agreement. The gain on disposal of assets resulted from the first
quarter sale of individual books of business in Canada. In the first
quarter 2004, the company wrote-off $2.6 million ($1.7 million after
tax) of intangibles as it prepared to re-brand its retail brokerages
under the Hub name.
Normalized Net Earnings Increase 74% to $0.52 Per Diluted Share
The impact of gains, write-offs, the Talbot Charge and foreign
exchange rate fluctuations can complicate comparisons from one quarter
to another. The following table provides added insight into normalized
net earnings for the first quarter of 2005 and 2004:
Normalized Net Earnings 2005 2004 2005 2004
- ----------------------------------------------------------------------
(000's) (000's) Per Per
diluted diluted
share share
- ----------------------------------------------------------------------
Net earnings reported under GAAP for
quarter ended March 31 $16,480 $9,623 $0.47 $0.29
- ----------------------------------------------------------------------
Impact of non-cash stock based
compensation (Talbot) $7,194 - $0.20 -
- ----------------------------------------------------------------------
Impact of gain on forgiveness of debt ($2,925) - ($0.08) -
- ----------------------------------------------------------------------
Impact of gain on disposition of
assets of certain brokerages ($1,913) - ($0.05) -
- ----------------------------------------------------------------------
Impact of foreign exchange ($668) ($865) ($0.02) ($0.02)
- ----------------------------------------------------------------------
Impact of write-off of trademarks - $1,656 - $0.05
- ----------------------------------------------------------------------
Normalized Net Earnings $18,168 $10,414 $0.52 $0.32
- ----------------------------------------------------------------------
Hub's pre-tax earnings increased 97% to $29.4 million, or $0.82
per diluted share, rising to 24% of revenue from 19% a year earlier.
The effective tax rate increased to 44% from 35%, due largely to the
non-deductible nature of the Talbot Charge. Excluding the Talbot
Charge, the tax rate held steady at approximately 35%.
The company closed the quarter with cash and cash equivalents of
$112.9 million, $14.7 million higher than at December 31, 2004, due
largely to profits from operations. Of that amount, approximately
$58.7 million was available for use in acquisitions. Hughes said the
company's acquisition pipeline remains strong.
Understanding the Talbot Charge
Hub discloses the impact of non-cash stock based compensation
related to Talbot in order to give investors increased insight into
Hub's results of operations and the effective cost of the Talbot
acquisition.
Both the $90 million cash paid to Safeco Corporation and the
future issuance of restricted and non-restricted Hub shares to
approximately 70 Talbot executives are components of the total
consideration paid to acquire Talbot. This total consideration is
within Hub's target range of paying 5-7 times EBITDA (earnings before
interest, taxes, depreciation and amortization) for acquired
brokerages.
The executives of Talbot were not shareholders prior to the sale,
and therefore non-cash stock based compensation they receive under
terms of the purchase agreement is recorded as compensation expense.
This compensation expense, which is not deductible for tax purposes,
will be charged to earnings through the first quarter of 2007 and will
affect earnings comparisons through 2007, making it difficult for
investors to analyze the company's results in comparison to prior
years and industry peers.
In the first quarter of 2005, Hub recorded $7.2 million of
non-cash stock based compensation for Talbot based on a total
estimated earnout liability of approximately $50 million. The amount
of non-cash stock based compensation may vary from quarter to quarter
based on the profitability of Talbot. Based on the current expected
earnout of approximately $50 million, the estimated charge to earnings
will be:
2004 $14.4 million (actual)
2005 $25.5 million
2006 $8.4 million
2007 $1.5 million
Conference Call and Webcast
Hub International will discuss its financial results and outlook
on a conference call scheduled for 9:30 a.m. (CT), 10:30 a.m. (ET)
today, April 27, 2005. This call is being webcast by Thompson/CCBN and
can be accessed at Hub International's Web site at
www.hubinternational.com. The webcast is also being distributed
through the Thomson StreetEvents Network to both institutional and
individual investors. Individual investors can listen to the call at
www.fulldisclosure.com, Thomson/CCBN's individual investor portal,
powered by StreetEvents. Institutional investors can access the call
via Thomson's password-protected event management site, StreetEvents
(www.streetevents.com).
Headquartered in Chicago, IL, Hub International Limited is a
leading North American insurance brokerage that has grown rapidly
since its formation in 1998 through mergers, acquisitions and organic
growth. Hub International provides a broad array of property and
casualty, life and health, employee benefits, investment and risk
management products and services through offices located in the United
States and Canada. Hub International's strategy is to expand its
market share in the highly fragmented U.S. insurance brokerage
industry by acquiring quality firms that focus on servicing the
middle-market. In addition, Hub plans to leverage its decentralized
approach, differentiate its service, and capitalize on its scale to
provide broader product offerings to its clients through multiple
distribution channels. Hub International currently has fourteen large
"hub" brokerages that have significant market presence in their
geographic regions or specialities in the United States and Canada.
Each hub provides insurance brokerage services and manages the various
other Hub International offices in its territory. The hub brokerages
are responsible for growth through sales, service and fold-in
acquisitions. The hub offices report to the corporate office which, in
addition to monitoring the activity of each hub, retains
responsibility for identifying and acquiring additional hub
brokerages, along with integration and coordination initiatives that
increase enterprise value.
This press release may contain forward-looking statements which
reflect our current views with respect to future events and financial
performance. These forward-looking statements relate, among other
things, to our plans and objectives for future operations and are
subject to uncertainties and other factors that could cause actual
results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to, risks associated
with implementing our business strategies, identifying and
consummating acquisitions, integrating acquired brokerages, attaining
greater market share, developing and implementing effective
information technology systems, recruiting and retaining qualified
employees, fluctuations in the premiums charged by insurance companies
with corresponding fluctuations in our premium-based revenue, any loss
of services of key executives, industry consolidation, increased
competition in the industry, fluctuations in the demand for insurance
products, exchange rates, resolution of regulatory issues, including
those related to compensation arrangements with insurance companies,
the actual costs of resolution of contingent liabilities and the
passage of new legislation subjecting our business to regulation in
jurisdictions where we operate. We caution readers not to place undue
reliance on these forward-looking statements, which speak only as of
the date of this press release. Additional information regarding these
risks and other factors that could cause Hub International's actual
results to differ materially from our expectations is contained in the
company's filings with the Securities and Exchange Commission and the
Canadian securities commissions. Except as otherwise required by
federal securities laws, Hub International undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
HUB INTERNATIONAL LIMITED
Consolidated Organic Growth
For the three months ended March 31, 2005
(in thousands of U.S. dollars, except percentages)
Net
Revenue Adjustments
------------------ Total For Organic
First quarter Total Growth (Acquisitions) Growth
2005 2004 Change ($) (%) And Disposals (%)
---------------------------------------------------------
Total
- -----
Commission
Income $88,969 $61,585 $27,384 44% $(25,259) 4%
Contingent
Commissions
and Volume
Overrides 29,160 15,037 14,123 94% (8,708) 36%
Other Income 3,568 2,727 841 31% (672) 6%
---------------------------------------------------------
Total $121,697 $79,349 $42,348 53% $(34,639) 10%
---------------------------------------------------------
USA
- ---
Commission
Income $63,153 $37,048 $26,105 70% $(26,387) -1%
Contingent
Commissions
and Volume
Overrides 20,957 9,643 11,314 117% (8,995) 24%
Other Income 3,014 2,112 902 43% (709) 9%
---------------------------------------------------------
Total $87,124 $48,803 $38,321 79% $(36,091) 5%
---------------------------------------------------------
Canada
- ------
Commission
Income $25,816 $24,537 $1,279 5% $1,128 10%
Contingent
Commissions
and Volume
Overrides 8,203 5,394 2,809 52% 287 57%
Other Income 554 615 (61) -10% 37 -4%
---------------------------------------------------------
Total $34,573 $30,546 $4,027 13% $1,452 18%
---------------------------------------------------------
HUB INTERNATIONAL LIMITED
Consolidated Statements of Earnings
For the three months ended March 31, 2005 and 2004
(in thousands of U.S. dollars, except per share amounts)
First quarter
2005 2004
------------------------
(Unaudited) (Unaudited)
Revenue
Commission income $88,969 $61,585
Contingent commissions and volume overrides 29,160 15,037
Other 3,568 2,727
------------------------
121,697 79,349
------------------------
Expenses
Cash compensation 63,853 40,637
Selling, occupancy and administration 20,053 15,553
Depreciation 2,081 1,587
Interest expense 2,403 1,660
Intangible asset amortization 1,859 781
Non-cash stock based compensation 8,998 1,614
Gain on forgiveness of debt (4,500) -
(Gain)/loss on disposal of subsidiaries,
property, equipment and other assets (2,412) 38
Loss on write-off of trademarks - 2,587
------------------------
92,335 64,457
------------------------
Net earnings before income taxes 29,362 14,892
------------------------
Provision for income tax expense (benefit)
Current 13,854 6,738
Future (972) (1,469)
------------------------
12,882 5,269
------------------------
Net earnings 16,480 9,623
Interest on subordinated convertible
debentures 475 475
Dividends in lieu on restricted share units 28 -
------------------------
Diluted net earnings $16,983 $10,098
------------------------
------------------------
Earnings per share
Basic $0.54 $0.32
Diluted $0.47 $0.29
Weighted average shares outstanding
- Basic (000's) 30,368 30,015
Weighted average shares outstanding
- Diluted (000's) 36,397 34,258
HUB INTERNATIONAL LIMITED
Consolidated Balance Sheets
As of March 31, 2005 and December 31, 2004
(in thousands of U.S. dollars)
2005 2004
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $112,892 $98,204
Trust cash 56,652 71,718
Accounts and other receivables 127,463 162,841
Income taxes receivable 6,967 6,208
Future income taxes 5,568 3,901
Prepaid expenses 5,065 5,835
------------ ------------
Total current assets 314,607 348,707
Goodwill 375,013 376,676
Other intangible assets 86,973 88,842
Property and equipment 26,630 27,907
Future income taxes 4,684 4,368
Other assets 8,970 11,035
------------ ------------
Total assets $816,877 $857,535
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $213,363 $271,843
Income taxes payable 11,428 2,273
Future income taxes 521 34
Current portion long-term debt and capital
leases 5,161 5,195
------------ ------------
Total current liabilities 230,473 279,345
Long-term debt and capital leases 137,885 146,602
Subordinated convertible debentures 35,000 35,000
Future income taxes 15,229 14,805
------------ ------------
Total liabilities 418,587 475,752
------------ ------------
Commitments and contingencies
Shareholders' equity
Share capital 260,418 259,617
Contributed surplus 14,214 12,681
Cumulative translation account 26,511 26,983
Retained earnings 97,147 82,502
------------ ------------
Total shareholders' equity 398,290 381,783
------------ ------------
Total liabilities and shareholders' equity $816,877 $857,535
------------ ------------
------------ ------------
HUB INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
For the three months ended March 31, 2005 and 2004
(in thousands of U.S. dollars)
First quarter
------------------------
2005 2004
------------------------
(Unaudited) (Unaudited)
Operating activities
Net earnings $16,480 $9,623
Items not affecting working capital:
Amortization and depreciation 3,940 2,368
(Gain)/loss on disposal of subsidiaries,
property, equipment and other assets (2,412) 38
Non-cash stock based compensation 8,998 1,614
Gain on forgiveness of debt (4,500) -
Loss on write-off of trademarks - 2,587
Future income taxes (972) (1,469)
Non-cash working capital items
Trust cash 15,066 10,633
Accounts and other receivables 33,113 50,021
Prepaid expenses 769 125
Accounts payable and accrued liabilities (65,817) (69,049)
Other assets 129 128
Income taxes 8,398 1,387
------------------------
Net cash flows from operating activities 13,192 8,006
------------------------
Investing activities
Property and equipment - purchases (936) (1,396)
Property and equipment - proceeds on sale 1 67
Purchase of subsidiaries, net of cash
received (18) (257)
Sale of subsidiaries 3,876 -
Other assets 4,399 560
------------------------
Net cash flows from (used for) investing
activities 7,322 (1,026)
------------------------
Financing activities
Long-term debt and capital leases -
repayments (4,263) (1,015)
Proceeds from sale of executive plan shares 504 -
Dividends paid (1,835) -
Share capital - issued for cash, net of
issue costs - 40
------------------------
Net cash flows used for financing activities (5,594) (975)
------------------------
Effect of exchange rate changes on cash and
cash equivalents (232) (753)
------------------------
Change in cash and cash equivalents 14,688 5,252
Cash and cash equivalents - Beginning of
period 98,204 82,052
------------------------
Cash and cash equivalents - End of period $112,892 $87,304
------------------------
------------------------
HUB INTERNATIONAL LIMITED
Non-cash stock based compensation
For the three months ended March 31, 2005 and 2004
(in thousands of U.S. dollars)
Our non-cash stock based compensation includes stock options and
restricted share units for senior employees as well as amortization of
$7.2 million, or $0.20 per diluted share, of non-cash stock based
compensation for the first quarter 2005 related to the estimated
earnout due to management of Talbot. In response to investor interest
in the true impact of these costs, we began recognizing the expense of
non-cash stock based compensation during 2003. Options vest evenly
over three years and expire in seven years from issuance. Shares
derived from the options are held in escrow for a period of five years
from the date the options are granted, subject to early releases in
certain circumstances. Restricted share units vest over periods
ranging from 46 months to 95 months. Our policy is to expense the fair
value of non-cash stock based compensation to employees over the
period in which entitlement to the compensation vests. The amount of
expense recognized in each year related to stock options will vary
with respect to exercise and forfeiture of options.
Non-cash stock based compensation for the three months ended March 31,
2005 and 2004 is comprised of the following:
2005 2004
----------------
Non-cash stock based
compensation:
Stock options
granted June 2002 $462 $491
Stock options
granted February
2003 100 102
Stock based
compensation
granted for 2003
bonuses 734 633
Restricted share
units 415 388
Restricted share
units - EMT 86 -
Other 7 -
----------------
1,804 1,614
Stock based
compensation
related to Talbot
acquisition 7,194 -
----------------
$8,998 $1,614
----------------
----------------
The Company estimates the non-cash stock based compensation expense
for 2005 through 2010 will be:
Year ended
December 31, 2005 2006 2007 2008 2009 2010
------------------------------------------------
Stock options granted
June 2002 $851 $- $- $- $- $-
Stock options granted
February 2003 366 - - - - -
Stock based
compensation granted
for 2003 bonuses 2,482 2,245 2,154 2,154 2,154 2,095
Stock based
compensation
regarding Talbot
acquisition 25,459 8,400 1,508 - - -
Restricted share units 1,661 1,654 1,618 1,618 347 130
Restricted share units
- EMT 861 1,033 1,033 1,033 404 -
Other 111 19 5 - - -
------------------------------------------------
$31,791 $13,351 $6,318 $4,805 $2,905 $2,225
------------------------------------------------
------------------------------------------------
In total, as of March 31, 2005, we had issued and outstanding
approximately 1.4 million stock options at a weighted average exercise
price of $15.35. Our closing share price on the New York Stock
Exchange was $19.30 on March 31, 2005.
CONTACT: Hub International Limited
Dennis Pauls, 312-279-4880
or
Michael Rosenbaum, 847-749-1010