UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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HUB INTERNATIONAL LIMITED
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(Name of Registrant as Specified In Its Charter)
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Hub International Announces First Quarter 2007 Results
First Quarter Revenue Increases 28% on 7.2% Organic Revenue Growth
CHICAGO--(BUSINESS WIRE)--May 1, 2007--Hub International Limited
(NYSE: HBG) (TSX: HBG) announced strong growth in revenue and net
earnings for the first quarter ended March 31, 2007.
First quarter 2007 revenue of $171.8 million represented a $37.7
million, or 28%, increase over first quarter 2006 revenue of $134.1
million. First quarter 2007 net earnings of $24.7 million represented
an $8.3 million, or 50%, increase over first quarter 2006 net earnings
of $16.5 million. First quarter 2007 diluted earnings per share of
$0.60 represented a $0.14, or 30%, increase over first quarter 2006
diluted earnings per share of $0.46.
Quarterly total revenue organic revenue growth was 7.2%. Organic
revenue growth calculations for the first quarter of 2007 exclude
guaranteed supplemental commission revenue recorded during the first
quarter of 2007 that historically would not have been recorded until
2008. Quarterly total organic revenue growth was 8.3% including
guaranteed supplemental commission revenue, or 8.7% excluding the
impact of foreign exchange. Organic revenue growth is a non-GAAP
measurement that describes internal revenue growth from current
operations owned at least one year.
Net earnings include a number of items that can distort
comparisons between periods. A reconciliation of these items to a
normalized net earnings amount is included in exhibits attached to
this press release. Considering these items, normalized first quarter
2007 net earnings of $26.0 million represented a $5.3 million, or 25%,
increase over normalized first quarter 2006 net earnings of $20.7
million. Normalized diluted earnings per share were $0.63 and $0.58,
respectively, for the first quarter 2007 and 2006.
First Quarter 2007 Performance Review
Quarterly total revenue growth of 28% included organic revenue
growth of 7.2%, despite most hubs operating in declining rate
environments. Commission income growth of 26% included organic
commission income growth of 5.3%. Contingent commission and volume
override revenue increased 32% including organic contingent commission
and volume override revenue growth of 11.5%. Excluding the impact of
foreign exchange, organic commission income growth was 5.7%.
For U.S.-based hubs, quarterly revenue of $130.8 million
represented a $35.0 million, or 37%, increase from first quarter 2006
revenue of $95.8 million. Organic commission income growth was 5.8%
and organic revenue growth was 8.5%. Including the effect of
guaranteed supplemental commission revenue earned during the first
quarter of 2007, organic revenue growth was 10.0%.
For Canadian-based hubs, quarterly revenue of $40.5 million
represented a $2.6 million, or 7%, increase from first quarter 2006
revenue of $37.8 million. Organic commission income growth was 3.9%
and organic revenue growth was 4.1%. Excluding the impact of foreign
exchange, organic commission income and organic revenue growth was
5.3% and 5.5%, respectively. Canadian-based hubs are not presently
affected by guaranteed supplemental commission arrangements.
Quarterly employee cash compensation of $85.4 million represented
a $17.0 million, or 25%, increase from first quarter 2006 employee
cash compensation of $68.4 million. As a percentage of quarterly
revenue, 2007 quarterly employee cash compensation improved 130 basis
points to 49.7% from 51.0% for the same period in 2006.
Quarterly selling, occupancy and administration expense of $27.6
million represented a $5.2 million, or 23%, increase from first
quarter 2006 selling, occupancy and administration expense of $22.4
million. First quarter 2007 selling, occupancy and administration
expense included approximately $2.6 million of transaction costs
related to the Arrangement Agreement pursuant to which the Company
would be acquired by funds advised by Apax Partners and Morgan Stanley
Principal Investments. As a percentage of quarterly revenue, 2007
quarterly selling, occupancy and administration expense improved 60
basis points to 16.1% from 16.7% for the same period in 2006.
On a combined basis, quarterly employee cash compensation and
selling, occupancy and administration expense improved 200 basis
points to 65.8% of revenue from 67.8% of revenue for the same period
in 2006.
Quarterly intangible asset amortization expense of $8.5 million
represented a $5.2 million, or 160%, increase over first quarter 2006
intangible asset amortization expense of $3.3 million. This increase
is primarily attributable to the impact of acquisitions and a
refinement in our amortization methodology for customer relationship
and non-competition covenants intangible assets accounted for as a
change in accounting estimate.
First Quarter Highlights
-- The Company continued its penetration into the southeastern
U.S. market by acquiring Hibernia Insurance Agency, an $18
million revenue brokerage located just outside of New Orleans.
The Company's acquisition of Hibernia provides it with a
strategic platform to expand its operations in the gulf coast
region.
-- The Company expanded its presence in the transportation
insurance market by acquiring Vermont-based Coburn Insurance
Agency, a $9 million revenue brokerage, as well as a smaller
insurance brokerage that specializes in the transportation
insurance market in the eastern U.S. The combined strength of
these operations, together with the Salt Lake City-based
Kaufman transportation insurance brokerage that was acquired
during 2006 (collectively operating as Hub International
Transportation Insurance Services) will provide increased
accessibility to insurance markets and will position Hub as
the provider of choice for transportation risks across the
U.S.
-- Quarterly earnings before interest, taxes, depreciation and
amortization (EBITDA, a non-GAAP measurement) margin of 34.2%
improved 200 basis points from 32.2% for the same period in
2006. EBITDA margin calculations exclude all Talbot earnout
compensation and all other non-cash share-based compensation.
-- Subsequent to March 31, 2007, on April 2, 2007 the Company
made the final Talbot earnout payment of $21.8 million in
cash. As of April 2, 2007, the Talbot earnout is complete.
Compensation expense of $2.0 million, which is not deductible
for tax purposes, was charged to earnings through the first
quarter of 2007 for the Talbot earnout and will affect
year-over-year earnings comparisons through 2008.
-- Cash and cash equivalents as of March 31, 2007 were $102.5
million, an increase of $3.3 million from December 31, 2006.
-- Quarterly capital expenditures of $1.9 million represented
1.1% of total revenue, a decrease from the 2.2% experienced
during the first quarter of 2006. Management expects full-year
2007 capital expenditures to be approximately 2% of total
revenue.
-- Effective tax rate, excluding the effects of the Talbot
earnout expense, was approximately 38% for the first quarter
of 2007.
-- Debt-to-capitalization ratio increased slightly to 19% as of
March 31, 2007 from 18% as of December 31, 2006. The Company
has $22.0 million outstanding and $63.4 million remaining
available under its revolving credit facilities as of March
31, 2007.
Conference Call and Webcast
Hub will discuss its financial results and outlook on a conference
call scheduled for Tuesday, May 1, 2007 at 10:30 a.m. (EDT), 9:30 a.m.
(CDT). The call is being webcast by Thompson/CCBN and can be accessed
at Hub'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.
Important Additional Information will be Filed with Securities
Regulators:
In connection with the proposed acquisition of Hub by Maple Tree
Acquisition Corp., Hub has filed a preliminary proxy statement and
will file a definitive proxy statement with the Securities and
Exchange Commission and Canadian securities regulators. Hub has also
filed a copy of the Arrangement Agreement regarding the proposed
acquisition with the Securities and Exchange Commission and Canadian
securities regulators. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO
READ THE DEFINITIVE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, BECAUSE
IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE ARRANGEMENT AND THE
PARTIES THERETO.
Investors and security holders may obtain a free copy of the
definitive proxy statement, when available, the Arrangement Agreement
and other documents filed by Hub at the Securities and Exchange
Commission's Web site at http://www.sec.gov and at the Canadian
securities regulators Web site at http://www.sedar.com. The definitive
proxy statement, when available, and such other documents may also be
obtained for free from Hub by directing such request to Investor
Relations, Hub International Limited, 55 East Jackson Boulevard,
Chicago, IL 60604, telephone: (877) 402-6601.
Hub and its directors, executive officers and other members of its
management and employees may be deemed to be participants in the
solicitation of proxies from Hub's shareholders in connection with the
proposed transaction. Information concerning the interests of Hub's
management who are participating in the solicitation, which may be
different than those of Hub shareholders generally, is set forth in
Hub's proxy statements and Annual Reports on Form 10-K, filed with the
Securities and Exchange Commission and Canadian securities regulators,
and in the definitive proxy statement relating to the acquisition when
it becomes available.
Forward Looking Statements:
This press release may contain "forward-looking statements" as
defined in Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that reflect our current expectations
regarding our future growth, results of operations, cash flows,
performance and business prospects, and opportunities, as well as
assumptions made by, and information currently available to, our
management. We have used words such as "anticipate," "believe,"
"expect," "intend," "plan," "project," "will continue," "will likely
result," and similar expressions to indicate forward-looking
statements. However, these words are not the exclusive means of
identifying these forward-looking statements. These statements are
based on information currently available to us and are subject to
various risks, uncertainties, and other factors that could cause our
actual growth, results of operations, financial condition, cash flows,
performance and business prospects, and opportunities to differ
materially from those expressed in, or implied by, these statements,
including, but not limited to: risks associated with implementing our
business strategies, identifying and consummating acquisitions,
successfully integrating acquired businesses, attaining greater market
share, resolution of regulatory issues and litigation, including those
related to compensation arrangements with insurance carriers, the
possibility that the receipt of contingent compensation from insurance
carriers could be prohibited, developing and implementing effective
information technology systems, recruiting and retaining qualified
employees, fluctuations in the demand for insurance products,
fluctuations in the premiums charged by insurance carriers, with
corresponding fluctuations in our premium-based revenue, fluctuations
in foreign currency exchange rates, any loss of services of key
executive officers, industry consolidation, increased competition in
the industry, the actual costs of resolution of contingent
liabilities, the passage of new federal, state or provincial
legislation subjecting our business to regulation in the jurisdictions
in which we operate, and those risks discussed in our Annual Report on
Form 10-K, particularly under the caption "Risk Factors," filed with
the Securities and Exchange Commission and the Canadian securities
commissions. These uncertainties and other factors also include, but
are not limited to, risks associated with the transaction, including
the occurrence of any event, change or other circumstances that could
give rise to the termination of the Arrangement Agreement, the
inability to complete the transaction due to the failure to obtain
shareholder approval or the failure to satisfy other conditions to
completion of the transaction, including the expiration of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
the failure to obtain the necessary debt financing arrangements set
forth in commitment letters received in connection with the
transaction, risks that the proposed transaction disrupts current
plans and operations and the potential difficulties in employee
retention as a result of the transaction. Many of the factors that
will determine the outcome of the subject matter of this press release
are beyond Hub's ability to control or predict. We caution readers not
to place undue reliance on these forward-looking statements, which
speak only as of the date of this press release. Except as otherwise
expressly required by federal securities laws, we undertake no
obligation to update or publicly announce the revision of any of the
forward-looking statements contained herein to reflect new
information, future events, developments or changed circumstances or
for any other reason.
HUB INTERNATIONAL LIMITED
Consolidated Organic Revenue Growth (unaudited)
For the three months ended March 31, 2007
(in thousands of U.S. dollars, except percentages)
Revenue for the Increase
Three Months Ended 2007 vs. Net Organic
March 31, 2006 Adjust- Growth
------------------- ---------- ments Exclud-
For ing
(Acqui- Foreign
sitions) Cur-
And Organic rency
Dispo- Growth Changes
2007 2006 (%) sitions (%) (%)
--------- --------- ---------- ----------------- -------
Hub
Consolidated
- -------------
Commission
Income $125,487 $99,932 26% $(20,223) 5.3% 5.7%
Contingent
Commission
and Volume
Override
income 41,158 31,168 32% (6,395) 11.5% 11.9%
Other Income 5,129 3,011 70% (1,308) 27.1% 27.5%
--------- --------- ---------
Total
revenue $171,774 $134,111 28% $(27,926) 7.2% 7.6%
========= ========= =========
U.S.
- -------------
Commission
Income $95,049 $71,241 33% $(19,577) 5.8% N/A
Contingent
Commissions
and Volume
Overrides
income 31,720 22,366 42% (5,926) 15.3% N/A
Other Income 4,028 2,189 84% (1,308) 24.5% N/A
--------- --------- ---------
Total
revenue $130,797 $95,796 37% $(26,811) 8.5% N/A
========= ========= =========
Canada
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Commission
Income $30,438 $28,691 6% $(646) 3.9% 5.3%
Contingent
Commissions
and Volume
Overrides
income 9,438 8,628 9% (469) 4.0% 5.2%
Other Income 579 489 18% - 18.3% 20.0%
--------- --------- ---------
Total
revenue $40,455 $37,808 7% $(1,115) 4.1% 5.5%
========= ========= =========
Head Office
- -------------
Total
revenue $522 $507
========= =========
Notes:
- We define organic revenue growth as the net increase in revenue as
the result of (1) new client accounts, (2) retention and expansion
of existing client accounts, and (3) the impact of changes in
insurance premium rates. Organic revenue growth excludes the net
increase in revenue attributable to net business acquisitions and
dispositions during the preceding 12-month period. Organic revenue
growth is a non-GAAP measure and should not be considered an
alternative to any measure of performance or liquidity promulgated
under U.S. GAAP. We believe that organic revenue growth is a
particularly meaningful indicator of our financial and operational
performance, the effectiveness of our sales initiatives, the long-
term sustainability of our profits, and the demand for our products
and services.
- Organic revenue growth calculations for the first quarter of 2007
exclude revenue recorded in connection with guaranteed supplemental
commission revenue recorded during the first quarter of 2007 that
would historically not have been recorded until 2008. Total
guaranteed supplemental commission revenue recorded during the first
quarter of 2007 was approximately $1.4 million and was included as a
component of "contingent commission and volume override" in our
consolidated statements of earnings. Had we included guaranteed
supplemental commission revenue in our organic revenue growth
calculation, our total consolidated organic revenue growth for the
first quarter of 2007 would have been 8.3%, or 8.7% excluding the
effects of the weakening of the Canadian dollar as compared to the
U.S. dollar, and our total U.S. segment organic revenue growth for
the first quarter of 2007 would have been 10.0%.
HUB INTERNATIONAL LIMITED
Consolidated Statements of Earnings Data (unaudited)
For the three months ended March 31, 2007 and 2006
(in thousands of U.S. dollars, except per share amounts)
For the Three Months ended March 31,
------------------------------------
% of % of
Total Total
2007 Revenue 2006 Revenue
----------------- ------------------
REVENUE:
Commission income $125,487 73% $99,932 75%
Contingent commission and volume
override 41,158 24% 31,168 23%
Other 5,129 3% 3,011 2%
--------- ---------
Total revenue 171,774 100% 134,111 100%
--------- ---------
EXPENSES:
Compensation (a) 88,981 52% 74,715 56%
Selling, occupancy, and
administration 27,610 16% 22,448 17%
Intangible asset amortization 8,504 5% 3,275 2%
Interest expense 2,779 2% 3,066 2%
Depreciation 2,644 2% 2,142 2%
Loss on disposal of
subsidiaries, property and
equipment, and other assets 91 0% 167 0%
--------- ---------
Total operating expenses 130,609 76% 105,813 79%
--------- ---------
NET EARNINGS BEFORE PROVISION FOR
INCOME TAXES 41,165 24% 28,298 21%
PROVISION FOR INCOME TAXES: 16,433 10% 11,832 9%
--------- ---------
NET EARNINGS 24,732 14% 16,466 12%
Dividends in lieu on restricted
share units 30 0% 29 0%
Interest on subordinated
convertible debentures - 0% 475 0%
--------- ---------
DILUTED NET EARNINGS $24,762 14% $16,970 13%
========= =========
EARNINGS PER SHARE - BASIC: $0.62 $0.52
========= =========
EARNINGS PER SHARE - DILUTED: $0.60 $0.46
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 39,642 31,756
========= =========
Diluted 41,166 36,981
========= =========
(a) COMPENSATION INCLUDES:
Employee cash compensation $85,432 50% $68,416 51%
Talbot earnout compensation 1,982 1% 4,664 3%
Other non-cash share-based
compensation 1,567 1% 1,635 1%
--------- ---------
$88,981 52% $74,715 56%
========= =========
HUB INTERNATIONAL LIMITED
Consolidated Balance Sheet Information (unaudited)
As of March 31, 2007 and December 31, 2006
(in thousands of U.S. dollars)
March 31, December 31,
2007 2006
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $102,486 $99,213
Trust cash 91,855 112,188
Accounts and other receivables, net 258,352 283,415
Deferred income tax assets 6,402 6,548
Prepaid expenses 7,332 8,212
-------------- -------------
Total current assets 466,427 509,576
GOODWILL 563,179 528,239
OTHER INTANGIBLE ASSETS, net 169,785 152,455
PROPERTY AND EQUIPMENT, net 30,762 30,682
OTHER ASSETS 6,268 9,437
-------------- -------------
TOTAL ASSETS $1,236,421 $1,230,389
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $357,481 $413,102
Income taxes payable 11,724 5,869
Current maturities of long-term debt and
capital leases 2,792 3,296
-------------- -------------
Total current liabilities 371,997 422,267
LONG-TERM DEBT AND CAPITAL LEASES 159,440 137,341
DEFERRED INCOME TAX LIABILITIES 17,144 13,285
-------------- -------------
TOTAL LIABILITIES 548,581 572,893
-------------- -------------
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Common shares 479,487 473,512
Additional paid-in capital 25,075 23,789
Accumulated other comprehensive income 20,959 19,754
Retained earnings 162,319 140,441
-------------- -------------
Total shareholders' equity 687,840 657,496
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,236,421 $1,230,389
============== =============
HUB INTERNATIONAL LIMITED
Consolidated Cash Flow Information (unaudited)
For the three months ended March 31, 2007 and 2006
(in thousands of U.S. dollars)
For the Three Months
ended March 31,
--------------------
2007 2006
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $24,732 $16,466
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization expense 11,148 5,417
Loss on disposal of subsidiaries, property
and equipment, and other assets 91 167
Total compensation for Talbot earnout 1,982 4,664
Other non-cash share-based compensation 1,567 1,635
Deferred income taxes (364) 155
Changes in operating assets and liabilities:
Trust cash 22,196 48,655
Accounts and other receivables, net 35,814 53,495
Prepaid expenses 945 742
Other assets 129 135
Accounts payable and accrued liabilities (75,576) (105,420)
Income taxes payable 6,124 7,994
---------- ---------
Net cash provided by operating activities: 28,788 34,105
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash received (45,248) (8,448)
Business dispositions 341 1,174
Purchase of property and equipment (1,902) (2,904)
Premium financing receipts 14,540 -
Premium financing disbursements (13,286) -
Other 176 276
---------- ---------
Net cash used in investing activities: (45,379) (9,902)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments of) bank debt (876) 75,000
Proceeds from the issuance of long-term debt 22,000 -
Payments of long-term debt and capital lease
obligations (607) (1,374)
Proceeds from exercise of stock options 1,504 704
Tax benefit associated with share-based awards 198 80
Dividends paid (2,789) (2,199)
---------- ---------
Net cash provided by financing activities: 19,430 72,211
---------- ---------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS: 434 (32)
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,273 96,382
CASH AND CASH EQUIVALENTS - beginning of period 99,213 70,118
---------- ---------
CASH AND CASH EQUIVALENTS - end of period $102,486 $166,500
========== =========
HUB INTERNATIONAL LIMITED
Compensation for Talbot Earnout and Other Non-Cash Share-Based
Compensation (unaudited)
For the three months ended March 31, 2007 and 2006
(in thousands of U.S. dollars)
Compensation expense recorded in connection with the Talbot earnout
includes both cash and non-cash share-based compensation. The Talbot
earnout agreement is, in substance, a performance-based contingent
compensation agreement, and, thus, the Company has recorded the
Talbot earnout payments as a charge to compensation expense over the
period in which the payments are earned. Compensation expense
incurred in connection with the Talbot earnout is not deductible for
income tax purposes. The final Talbot earnout payment of $21.8
million was made on April 2, 2007, in cash. Compensation expense
recorded in connection with the Talbot earnout for the three months
ended March 31, 2007 and 2006, was as follows:
For the Three Months
ended March 31,
---------------------
2007 2006
---------- ----------
Cash-based compensation expense $1,982 $1,938
Non-cash share-based compensation expense - 2,726
---------- ----------
Total Talbot earnout compensation $1,982 $4,664
========== ==========
Other non-cash share-based compensation expense, excluding the non-
cash share-based portion of the Talbot earnout, recognized during the
three months ended March 31, 2007 and 2006, was as follows:
For the Three Months
ended March 31,
---------------------
2007 2006
---------- ----------
RSUs $1,563 $1,635
Common shares issued in connection with
acquisitions 4 -
---------- ----------
Total other non-cash share-based compensation 1,567 1,635
Tax benefit 311 671
---------- ----------
Total other non-cash share-based compensation,
net of tax $1,256 $964
========== ==========
Based on share-based awards issued and outstanding as of March 31,
2007, the Company estimates future non-cash share-based compensation
expense to be approximately $19.1 million.
HUB INTERNATIONAL LIMITED
Reconciliation of GAAP Net Earnings and Diluted Net Earnings Per Share
to Normalized Net Earnings and Diluted Earnings Per Share (unaudited)
(in thousands of U.S. dollars, except per share amounts)
For the Three For the Three
Months ended Months ended
March 31, 2007 March 31, 2006
------------------- -------------------
Effect on Effect on
Diluted Diluted
Net Net
Effect on Earnings Effect on Earnings
Net Per Net Per
Earnings Share Earnings Share
--------- --------- --------- ---------
Net earnings reported under
GAAP $24,732 $0.60 $16,466 $0.46
Compensation expense for
Talbot earnout 1,982 0.05 4,664 0.13
Foreign exchange losses
(gains), net of tax 143 - (389) (0.01)
Guaranteed supplemental
commission income, net of
tax (829) (0.02) - -
--------- --------- --------- ---------
Normalized net earnings and
diluted earnings per share $26,028 $0.63 $20,741 $0.58
========= ========= ========= =========
CONTACT: Hub International Limited
MEDIA CONTACT:
W. Kirk James
Vice President, Secretary and
Chief Corporate Development Officer
Phone: 312.279.4881
Kirk.James@HubInternational.com
or
INVESTOR CONTACT:
John P. Graham
Vice President, Chief Financial Officer
Phone: 312.279.4840
E-mail: John.Graham@HubInternational.com