Exhibit 99.1
Hub International Reports First Quarter Results;
Revenue Increases 12% to $134.1 Million;
Adjusted Net Earnings Grow 17% to $20.9 Million
CHICAGO--(BUSINESS WIRE)--April 27, 2006--Hub International
Limited (NYSE:HBG) (TSX:HBG) reported today that revenue growth, core
expense discipline and higher-than-anticipated contingent income led
to strong earnings for the first quarter 2006.
"We are off to a solid start in 2006, with measurable progress on
all fronts," said Martin P. Hughes, chairman and chief executive
officer. "Revenue is up, net earnings are stronger, acquisitions are
being integrated smoothly and costs are under control. Our strategies
for long-term growth are gaining momentum."
Revenue for the period ended March 31, 2006 rose 12% to $134.1
million from $119.2 million, including both the impact of acquisitions
and 3% organic (internal) growth. A stronger Canadian dollar added
approximately two percentage points to the organic growth rate.
Organic growth, similar to the same-store-sales calculation employed
by retailers, measures revenue changes at operations owned at least a
year. Hughes noted that average premium rates continue to be lower
than in the prior year.
Core commissions rise 15% to $99.9 million
Core commissions, which exclude contingent commissions and other
income, increased 15% to $99.9 million from $86.9 million. Contingent
commissions rose 7% to $31.2 million from $29.2 million. Of the $2.0
million increase in contingent commissions, approximately $0.7 million
represents payments that were received in the second quarter 2005.
Contingent commissions represented 23% of first quarter revenue in
2006, down from 24% in the first quarter 2005.
U.S. revenue increased 13% to $96.0 million from $84.6 million,
including 1% organic growth. Core commissions rose 17% to $71.2
million from $61.1 million, while contingent commissions increased 8%
to $22.5 million from $21.0 million. In Canada, revenue increased 10%
to $38.0 million from $34.6 million, including organic growth of 9%. A
stronger Canadian dollar added six percentage points to the revenue
growth in Canada. Core Canadian commissions grew 11% to $28.7 million
from $25.8 million, while contingent commissions grew 5% to $8.6
million from $8.2 million.
Compensation and overhead expense decline 117 basis points
Expense control contributed to stronger net earnings on both a
GAAP and on an adjusted basis (as set out below), Hughes noted. Cash
compensation expense increased 9% to $68.4 million from $62.5 million
in the year-earlier quarter, while declining to 51% of revenue from
52% in 2005. Selling, occupancy and administration expense rose 14% to
$22.4 million from $19.6 million, rising to 17% of revenue from 16% a
year ago. Combined, these two major cost categories fell 117 basis
points as a percentage of revenue from the first quarter 2005. Hub's
stated goal is to reduce these two expense items by a combined 50-150
basis points per year, as a percentage of revenue. Total compensation,
including the Talbot earnout (explained below) and other non-cash
stock based items, rose 4% to $74.7 million from $71.5 million, but
declined to 56% of revenue from 60% a year earlier.
Interest expense increased 28% to $3.0 million from $2.4 million,
while intangible amortization expense rose 79% to $3.3 million from
$1.8 million. The increase in interest expense reflected higher
interest rates while the higher amortization expense relates to
acquisition activity in 2005. As a percentage of income, both expenses
held steady at about 2% of revenue.
Hub's effective tax rate decreased to 41.8% from 43.9% in the
first quarter of 2005, due primarily to a decrease in compensation
expense related to the Talbot earnout which is not deductible for tax
purposes. Excluding the Talbot earnout, the effective tax rate rose
slightly to 36.0% in the first quarter 2006 from 35.1% a year earlier.
Adjusted earnings increase 17%
Results described are net of tax 2006 2005 2006 2005
- ----------------------------------------------------------------------
(000's) (000's) Per Per
diluted diluted
share share
- ----------------------------------------------------------------------
Net earnings reported under
Canadian and U.S. GAAP for
quarter ended March 31 $16,466 $16,480 $0.46 $0.47
- ----------------------------------------------------------------------
Impact of compensation for Talbot
earnout $4,664 $7,194 $0.13 $0.20
- ----------------------------------------------------------------------
Impact of foreign exchange $(389) ($668) $(0.01) ($0.02)
- ----------------------------------------------------------------------
Impact of gain on forgiveness of
debt $--- ($2,925) $--- ($0.08)
- ----------------------------------------------------------------------
Impact of gain on disposal of
assets of certain brokerages $(133) $(1,913) $--- $(0.05)
- ----------------------------------------------------------------------
Impact of discontinued operations $279 $(373) $0.01 $(0.01)
- ----------------------------------------------------------------------
Net Earnings Adjusted for Above
Items $20,887 $17,795 $0.59 $0.51
- ----------------------------------------------------------------------
Reported net earnings from continuing operations increased 4% to
$16.7 million in the first quarter 2006 compared to 2005, while
earnings per diluted share from continuing operations increased 2% to
$0.47. However, adjusting for the impact of the items in the table
above, adjusted earnings increased 17% to $20.9 million in the first
quarter 2006 from $17.8 million in the first quarter 2005. Adjusted
net earnings per share as set out above increased 16% to $0.59 per
share from $0.51 per share a year ago. The weighted average number of
fully diluted shares outstanding increased slightly to 37.0 million in
the first quarter 2006 from 36.4 million a year ago.
Convertible debenture conversion considered
Hub reported cash and cash equivalents of $166.5 million at March
31, 2006, up 137% from $70.1 million at December 31, 2005. The higher
cash level included $80.0 million utilized to complete the acquisition
of three brokerages from Citizens Financial Group, which closed April
1, 2006. Excluding cash for this acquisition, cash and cash
equivalents were up 23% to $86.5 million.
Net debt declined 23% to $81.1 million at March 31, 2006 from
$105.2 million a year earlier. Net debt includes $35.0 million of 8.5%
subordinated convertible debentures, due June 28, 2007, to certain
subsidiaries of Fairfax Financial Holdings Limited. Hub can require
conversion of these debentures into Hub common shares after June 28,
2006, at a conversion price of CDN$17.00 per share, if Hub's weighted
average closing price per share on the Toronto Stock Exchange is at
least CDN$19.00 over a period of 20 consecutive trading days. If
converted, Fairfax would have owned approximately 30% of Hub's
outstanding shares at March 31, 2006. Hughes noted that the potential
number of converted shares is already included in Hub's diluted share
count. A final decision will be made by the company as the conversion
date approaches. In the meantime, the company continues to include the
debentures in long-term debt.
Trends and outlook
Looking out to the remainder of the year, Hughes commented, "We
expect continued declines in premium levels in the second half of
2006, however that should not preclude our ability to grow
organically."
Acquisition activity continues to be robust, as well. During 2005,
Hub acquired 15 brokerages with aggregate annualized revenue of
approximately $45.9 million. In the first quarter of 2006, Hub
acquired five brokerages with aggregate annualized revenue of $5.1
million.
"We are pleased with the integration of our recently acquired
businesses," Hughes said. "We are also enthused about the
collaborative marketing activities anticipated with the April 2006
acquisition of three brokerages from Citizens Financial Group, which
had aggregate revenue of approximately $45 million in 2005. We are
working with CFG to provide expanded insurance brokerage services to
more of their client base."
The Talbot Charge
Hub discloses the impact of compensation related to the Talbot
acquisition in order to give investors increased insight into Hub's
results of operations and the effective cost of the Talbot
acquisition.
Total consideration paid to acquire Talbot includes both $90
million cash paid to Safeco Corporation and the issuance of Hub
shares, or comparable amounts of cash, to approximately 70 Talbot
executives. The total consideration is within Hub's target range of
paying 5-7 times EBITDA (earnings before interest, taxes, depreciation
and amortization, a non-GAAP measure) for acquired brokerages.
As the executives participating in this earnout were not
shareholders of Talbot prior to the sale, the earnout compensation
they receive under the 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.
Hub has the option to pay the executives with cash or shares. The
first Talbot earnout payment in the amount of $16.4 million was paid
in cash on September 1, 2005. The second payment of $19.0 million was
paid in March 2006 in common shares. Management expects the final
payment to be made in common shares. However, the choice of cash,
shares or a combination thereof will depend on circumstances at the
time of payment.
In the first quarter of 2006, Hub recorded $4.7 million of
compensation expense for Talbot, based on a total estimated earnout
liability of approximately $55 million. The amount of this
compensation may vary from quarter to quarter, reflecting
profitability of Talbot. It is anticipated that the total charge to
earnings for the Talbot earnout, including payments made to date, will
be as follows:
2004 $14.4 million (actual)
2005 $28.7 million (actual)
2006 $9.9 million (estimate)
2007 $1.8 million (estimate)
Conference Call and Webcast
Hub International will discuss its financial results and outlook
on a conference call scheduled for 8:30 a.m. (CT), 9:30 a.m. (ET)
today, April 27, 2006. 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 also 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 provides a broad array
of property and casualty, reinsurance, life and health, employee
benefits, investment and risk management products and services through
offices located in the United States and Canada.
This press release may contain forward-looking statements that
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 (unaudited)
For the three months ended March 31, 2006
(in thousands of U.S. dollars, except percentages)
Net
Revenue Adjustments
------------------ Total For Organic
First quarter Total Growth (Acquisitions) Growth
2006 2005 Change ($) (%) And Disposals (%)
----------------------------------------------------------
Total
- -----
Commission
Income $99,892 $86,914 $12,978 15% $(10,407) 3%
Contingent
Commissions
and Volume
Overrides 31,169 29,160 2,009 7% (983) 4%
Other Income 3,007 3,107 (100) -3% 266 5%
----------------------------------------------------------
Total $134,068 $119,181 $14,887 12% $(11,124) 3%
----------------------------------------------------------
USA
- ---
Commission
Income $71,201 $61,098 $10,103 17% $(10,034) -%
Contingent
Commissions
and Volume
Overrides 22,533 20,957 1,576 8% (983) 3%
Other Income 2,291 2,553 (262) -10% 268 -%
----------------------------------------------------------
Total $96,025 $84,608 $11,417 13% $(10,749) 1%
----------------------------------------------------------
Canada
- -------
Commission
Income $28,691 $25,816 $2,875 11% $(373) 10%
Contingent
Commissions
and Volume
Overrides 8,636 8,203 433 5% - 5%
Other Income 716 554 162 29% (2) 29%
----------------------------------------------------------
Total $38,043 $34,573 $3,470 10% $(375) 9%
----------------------------------------------------------
Notes: 1. Organic growth is a non-GAAP measure.
2. Total and Canadian organic growth rates above include
the impact of changes in foreign currency.
HUB INTERNATIONAL LIMITED
Consolidated Statements of Earnings Data (unaudited)
For the three months ended March 31, 2006 and 2005
(in thousands of U.S. dollars, except per share amounts)
First quarter
2006 2005
------------------------
Revenue
Commission income $99,892 $86,914
Contingent commissions and volume overrides 31,169 29,160
Other 3,007 3,107
------------------------
134,068 119,181
------------------------
Expenses
Compensation (includes Talbot earnout
compensation of $4,664 and $7,194,
respectively, and other non-cash stock
based compensation of $1,635 and $1,804,
respectively) 74,666 71,466
Selling, occupancy and administration 22,398 19,615
Depreciation 2,142 2,064
Interest expense 3,043 2,382
Intangible asset amortization 3,276 1,833
Gain on disposal of subsidiaries, property,
equipment and other assets (221) (2,412)
Gain on forgiveness of debt - (4,500)
------------------------
105,304 90,448
------------------------
Net earnings from continuing operations
before income taxes 28,764 28,733
------------------------
Provision for income tax expense (benefit)
Current 11,758 13,604
Future 261 (978)
------------------------
12,019 12,626
------------------------
Net earnings from continuing operations 16,745 16,107
Net earnings (loss) from discontinued
operations (279) 373
------------------------
Net earnings 16,466 16,480
------------------------
Interest on subordinated convertible
debentures 475 475
Dividends in lieu on restricted share units 29 28
------------------------
Diluted net earnings $16,970 $16,983
------------------------
------------------------
Basic earnings (loss) per share
Continuing operations $0.53 $0.53
Discontinued operations (0.01) 0.01
------------------------
Total operations $0.52 $0.54
------------------------
Diluted earnings (loss) per share
Continuing operations $0.47 $0.46
Discontinued operations $(0.01) $0.01
------------------------
Total operations $0.46 $0.47
------------------------
Weighted average shares outstanding
- Basic (000's) 31,756 30,368
Weighted average shares outstanding
- Diluted (000's) 36,981 36,382
HUB INTERNATIONAL LIMITED
Consolidated Balance Sheet Information (unaudited)
As of March 31, 2006 and December 31, 2005
(in thousands of U.S. dollars)
2006 2005
----------- -----------
Assets
Current assets:
Cash and cash equivalents $166,500 $70,118
Trust cash 64,668 113,349
Accounts and other receivables 175,652 230,654
Income taxes receivable 3,895 6,001
Future income taxes 4,516 4,971
Prepaid expenses 5,643 6,436
----------- -----------
Total current assets 420,874 431,529
Goodwill 425,528 421,158
Other intangible assets 103,899 105,007
Property and equipment 28,737 28,160
Future income taxes 4,739 4,528
Other assets 10,013 10,971
----------- -----------
Total assets $993,790 $1,001,353
----------- -----------
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities:
Bank Debt $75,000 $-
Accounts payable and accrued liabilities 261,299 384,174
Income taxes payable 9,046 4,344
Future income taxes 353 359
Current portion long-term debt and capital
leases 6,451 4,910
----------- -----------
Total current liabilities 352,149 393,787
Long-term debt and capital leases 131,158 135,363
Subordinated convertible debentures 35,000 35,000
Future income taxes 17,922 17,277
----------- -----------
Total liabilities 536,229 581,427
----------- -----------
Commitments and contingencies
Shareholders' equity
Share capital 291,914 270,199
Contributed surplus 18,675 16,989
Cumulative translation account 31,860 31,893
Retained earnings 115,112 100,845
----------- -----------
Total shareholders' equity 457,561 419,926
----------- -----------
Total liabilities and shareholders' equity $993,790 $1,001,353
----------- -----------
----------- -----------
HUB INTERNATIONAL LIMITED
Consolidated Statements of Cash Flow Information (unaudited)
For the three months ended March 31, 2006 and 2005
(in thousands of U.S. dollars)
First quarter
------------------------
2006 2005
------------------------
Operating activities
Net earnings $16,466 $16,480
Items not affecting cash:
Amortization and depreciation 5,418 3,940
Gain on disposal of subsidiaries, property,
equipment and other assets 167 (2,412)
Compensation for Talbot earnout 4,664 7,194
Other non-cash stock based compensation 1,635 1,804
Gain on forgiveness of debt - (4,500)
Future income taxes 155 (972)
Non-cash working capital items
Trust cash 48,655 15,066
Accounts and other receivables 53,495 33,113
Prepaid expenses 741 769
Accounts payable and accrued liabilities (105,420) (65,817)
Other assets 135 129
Income taxes 7,994 8,398
------------------------
Net cash flows from operating activities 34,105 13,192
------------------------
Investing activities
Property and equipment - purchases (2,904) (936)
Property and equipment - proceeds on sale - 1
Purchase of subsidiaries, net of cash
received (8,448) (18)
Sale of subsidiaries 1,174 3,876
Other assets 276 4,399
------------------------
Net cash flows from (used for) investing
activities (9,902) 7,322
------------------------
Financing activities
Bank debt 75,000 -
Long-term debt and capital leases -
repayments (1,374) (4,263)
Proceeds from exercise of stock options 704 504
Dividends paid (2,199) (1,835)
Windfall tax benefit 80 -
------------------------
Net cash flows from (used for) financing
activities 72,211 (5,594)
------------------------
Effect of exchange rate changes on cash and
cash equivalents (32) (232)
------------------------
Change in cash and cash equivalents 96,382 14,688
Cash and cash equivalents - Beginning of
period 70,118 98,204
------------------------
Cash and cash equivalents - End of period $166,500 $112,892
------------------------
------------------------
HUB INTERNATIONAL LIMITED
Compensation for the Talbot Earnout and Other
Non-cash stock based compensation
For the three months ended March 31, 2006 and 2005
(in thousands of U.S. dollars)
Non-cash stock based compensation, including both compensation for
the Talbot acquisition and other non-cash stock based compensation,
of $6,299 and $8,998 for the three months ended March 31, 2006 and
2005, respectively, was expensed with offsetting credits to
contributed surplus, and accounts payable and accrued liabilities.
The Company recognized the fair value of non-cash stock based
compensation as an expense over the period in which entitlement
to the compensation vests.
Compensation for the Talbot earnout includes both cash and
non-cash stock based compensation and is detailed below.
Other non-cash stock based compensation for the three months
ended March 31, 2006 and 2005 is comprised of the following:
2006 2005
------------------------
Other non-cash stock based compensation:
Stock options granted June 2002 $- $462
Stock options granted February 2003 - 100
Restricted share units (RSUs) granted for
2003 bonuses 852 734
Other RSUs 783 501
Common shares for acquisitions - 7
------------------------
Total other non-cash stock based
compensation $1,635 $1,804
------------------------
Compensation for the Talbot earnout is
comprised of the following:
2006 2005
------------------------
Cash compensation $- $3,317
Non-cash stock based compensation 4,664 3,877
------------------------
Total compensation for the Talbot earnout $4,664 $7,194
------------------------
------------------------
The Company estimates other non-cash stock based
compensation expense for 2006 through 2011 will be:
Year ended
December 31, 2006 2007 2008 2009 2010 2011
- ------------- ------------------------------------------------
RSUs granted for 2003
bonuses $2,218 $1,991 $1,991 $1,991 $1,936 $-
Other RSUs 4,174 4,150 3,986 1,706 998 140
Common shares for
acquisitions 19 5 - - - -
------------------------------------------------
Total other non-cash
stock based
compensation $6,411 $6,146 $5,977 $3,697 $2,934 $140
------------------------------------------------
------------------------------------------------
The Company estimates the compensation for the Talbot
earnout for 2006 through 2011 will be:
Year ended
December 31, 2006 2007 2008 2009 2010 2011
- ------------- ------------------------------------------------
Cash compensation $- $- $- $- $- $-
Non-cash stock based
compensation 9,940 1,759 - - - -
------------------------------------------------
Total compensation for
the Talbot earnout $9,940 $1,759 $- $- $- $-
------------------------------------------------
------------------------------------------------
In total, as of March 31, 2006, we had issued and outstanding
approximately 1.1 million stock options at a weighted average
exercise price of $15.40. Our closing share price on the
New York Stock Exchange was $28.08 on March 31, 2006.
CONTACT: Hub International Limited
W. Kirk James (Media), 312-279-4881
email: Kirk.james@hubinternational.com
or
Heather Schneider (Media), 312-279-4683
email: Heather.schneider@hubinternational.com
or
Rosenbaum Advisors, Inc.
Michael Rosenbaum (Investors), 847-749-1010
fax: 847-577-6767
website: http://www.rosenbaumadvisors.com
email: michael@rosenbaumadvisors.com