Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - TIPTREE INC. | ex9916302017er.htm |
| 8-K - 8-K - TIPTREE INC. | a8ker6302017.htm |
August 2017
Financial information for six months ended June 30, 2017
NASDAQ: TIPT
INVESTOR PRESENTATION - SECOND QUARTER - 2017
Exhibit 99.2
1
LIMITATIONS ON THE USE OF INFORMATION
This presentation has been prepared by Tiptree Inc. and its consolidated subsidiaries (“Tiptree", "the Company" or "we”) solely for informational purposes, and not for the
purpose of updating any information or forecast with respect to Tiptree, its subsidiaries or any of its affiliates or any other purpose. Tiptree reports a non-controlling interest in
TFP that is not owned by Tiptree and certain other operating subsidiaries that are not wholly owned. Unless otherwise noted, all information is of Tiptree on a consolidated basis
before non-controlling interest. Neither Tiptree nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the
information contained herein and no such party shall have any liability for such information. These materials and any related oral statements are not all-inclusive and shall not
be construed as legal, tax, investment or any other advice. You should consult your own counsel, accountant or business advisors. Performance information is historical and is
not indicative of, nor does it guarantee future results. There can be no assurance that similar performance may be experienced in the future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" which involve risks, uncertainties and contingencies, many of which are beyond Tiptree's control, which may cause actual
results, performance, or achievements to differ materially from anticipated results, performance, or achievements. All statements contained herein that are not clearly historical
in nature are forward-looking, and the words "anticipate," "believe," "estimate," "expect,“ “intend,” “may,” “might,” "plan," “project,” “should,” "target,“ “will,” or similar
expressions are intended to identify forward-looking statements. Such forward-looking statements include, but are not limited to, statements about Tiptree's plans, objectives,
expectations and intentions. The forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which
are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecast in the forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to those described in the section
entitled “Risk Factors” in Tiptree’s Annual Report on Form 10-K, and as described in the Tiptree’s other filings with the SEC. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as to the date of this release. The factors described therein are not necessarily all of the important factors that could
cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could
affect our forward-looking statements. Consequently, our actual performance could be materially different from the results described or anticipated by our forward-looking
statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by the federal securities laws, we undertake
no obligation to update any forward-looking statements.
MARKET AND INDUSTRY DATA
Certain market data and industry data used in this presentation were obtained from reports of governmental agencies and industry publications and surveys. We believe the
data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data and as such, make no
guarantees as to its accuracy, completeness or timeliness.
NOT AN OFFER OR A SOLICIATION
This document does not constitute an offer or invitation for the sale or purchase of securities or to engage in any other transaction with Tiptree, its subsidiaries or its affiliates.
The information in this document is not targeted at the residents of any particular country or jurisdiction and is not intended for distribution to, or use by, any person in any
jurisdiction or country where such distribution or use would be contrary to local law or regulation.
NON-GAAP MEASURES
In this document, we sometimes use financial measures derived from consolidated financial data but not presented in our financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP). Certain of these data are considered “non-GAAP financial measures” under the SEC rules. These non-GAAP financial measures
supplement our GAAP disclosures and should not be considered an alternative to the GAAP measure. Management's reasons for using these non-GAAP financial measures and
the reconciliations to their most directly comparable GAAP financial measures are posted in the Appendix.
DISCLAIMERS
OVERVIEW & FINANCIAL RESULTS
Key Highlights
3
$9.68
$0.32
$0.17
$(0.19) $(0.11)
$9.87
Revenue
$157.9 million
19.5% vs. prior year
Adjusted EBITDA (1)
$6.8 million
vs. prior year of $17.4 million
Book Value
per share, as exchanged (1)
$9.87
2.0% vs. 6/30/16
Net loss
$5.3 million
vs. prior year income of $7.0 million
2Q'17 PERFORMANCE SUMMARY
þ Net loss for the quarter primarily driven by unrealized losses on equities in the Insurance
investments portfolio
þ Specialty Insurance continued to change the product mix to achieve a balance between growing
near-term earned premiums and increasing investable assets
• Gross written premiums of $186.0m, up 5.5%, driven by growth in warranty products
• Net written premiums of $97.0m, up from $49.0m driven by the assumption of a portion of
our ceded reinsurance in late 2016
þ Asset Management operations contributed $4.5m of pre-tax income, down $1.0m from prior
year as we reduced our investments in CLO subordinated notes
þ Senior Living operations acquired ten properties in 2Q'17 for $56.0m, bringing total aggregate
portfolio to $407.6m
Business highlights
(1) For a reconciliation of Non-GAAP metrics Adjusted EBITDA and book
value per share as exchanged to GAAP financials, see the Appendix.
Financial Results
þ Mortgage originations remained strong while
contributing Adjusted EBITDA of $2.8m, up 10.2%
þ Returned $9.5m to shareholders through
dividends and share buy-backs
Book value per share (1)
as exchanged
2Q'16
BVPS(1)
Diluted
EPS (ttm)
2Q'17
BVPS(1)
Share
Buybacks
Tricadia
Option
Dividends
4
$16.0
$2.9 $1.6
$(2.2)
$(3.5)
$(4.4)
$(15.1) $(4.7)
$32.8
$5.9 $1.6
$(2.2)
$(4.4)
$(15.1)
$18.6
Adjusted EBITDA (1)
(in millions, except per share information)
Financial metrics
FINANCIAL RESULTS
(1) See the appendix for a reconciliation of book value per share as exchanged and Adjusted EBITDA
2Q'17 2Q'16 1H'17 1H'16
Total Revenues $157.9 $132.2 $321.8 $262.9
Pre-tax income (loss) (7.2) 11.0 (4.7) 16.0
Net income (loss) before NCI (5.3) 7.0 (4.0) 14.4
Diluted EPS (0.15) 0.17 (0.12) 0.33
Adjusted EBITDA (1) 6.8 17.4 18.6 32.8
BVPS, as exchanged (1) 9.87 9.68
Pre-tax income
1H'16 Operations 1H'17Insurance
investments
(ex. equity
unrealized)
Stock-based
comp
Unrealized
equity losses
in '17 vs '16
Gains
• Continued improvement in underlying operations across
segments
• Increases in Reliance earn-out and stock based compensation
driven by improved underlying performance
• Unrealized equity losses year-to-date 2017 combined with
equity gains in year-to-date 2016 contribute to period-over
period decline in pre-tax income and Adjusted EBITDA
Highlights
Reliance
earn-out
Realized
equity gain
in'16
1H'16 Operations 1H'17Insurance
investments
(ex. equity
unrealized)
Stock-based
comp
Unrealized
equity losses
in '17 vs '16
gains
Reliance
earn-out
Realized
equity gain
in'16
1H'16 1H'17
Unrealized
gain (loss) $5.0 $(10.1)
Six Months Ended June 30, 2017
KEY PERFORMANCE HIGHLIGHTS
6
18.2
13.6
$13.3
13.1
$31.3
(0.3)
Key financials (1)
Pre-tax income and Adjusted EBITDA from Insurance
operations down year-over-year driven by:
• As adjusted underwriting margin of $53.0m, down
$1.3m driven by mobile protection products
• Increases in stock-based comp expenses of $1.7m,
including a $1.0m expense relating to prior year
• Increases of $1.5m in other expenses (incl. premium
taxes) as we grow warranty and programs products
Investment portfolio pre-tax loss of $0.3m, down $13.4m
year-over-year primarily from declines in equity positions
Continuing to expand product offerings in effort to grow
written premiums and extend the duration of our products
• $495.4m of unearned premiums and deferred revenue,
representing 7% year-over-year growth
• Net written premiums grew by $87m, driven by
increased retention in credit and warranty products
2Q'16 2Q'17 1H'16 1H'17
Gross Written Premiums $176.3 $186.0 $358.8 $351.4
Pre-tax income $12.8 $(0.7) $25.0 $4.1
Adjusted EBITDA $16.1 $3.9 $31.3 $13.2
Net portfolio income $6.8 $(4.1) $13.1 $(0.3)
Combined ratio, as adjusted 87.7% 92.8% 88.1% 94.0%
Unearned premiums &
Deferred revenue $462.6 $495.4
(1) See the appendix for a reconciliation of Non-GAAP measures underwriting margin as adjusted,
combined ratio as adjusted and Adjusted EBITDA, Net portfolio income to GAAP financials.
Underwriting Margin
as adjusted (1)
SPECIALTY INSURANCE
($ in millions)
Insurance products
Net Written
Premiums
1H'16 1H'17
59.2
142.321.9
27.4
15.2
$96.3
13.6
$183.3
1H'16 1H'17
31.7 31.6
12.9 12.2
5.0 4.7
4.7
$54.3
4.5
$53.0
Programs
Warranty
Credit
protection
Services/other
Adjusted
EBITDA(1)
Investment
portfolio
income
Insurance
operations
1H'171H'16
1
2
3
Year-to-date highlights & outlook
7
Investments (1)
SPECIALTY INSURANCE - INVESTMENT PORTFOLIO
($ in millions)
Interest expense
Realized gains (losses)
Net Investment Income
Unrealized gains (losses)
Year-to-date Investment portfolio income
Overview
We actively manage our investment portfolio to achieve a balance
of two primary objectives:
• Cash and liquid short and medium term securities to cover
near-term claims obligations
• Enhanced risk-adjusted returns through selective alternative
investments with a focus on stable, longer-term higher yielding
assets
2Q'16 2Q'17
Cash & cash equivalents (2) $12.9 $55.2
Available for sale securities, at fair value 165.0 147.8
Equity securities, at fair value 33.3 39.2
Loans, at fair value, net (3) 84.6 75.6
Real estate, net 7.2 24.4
Other investments 4.1 4.0
Net investments (2)(3) $307.1 $346.2
5.1 8.2
3.1
5.05.9
(10.0)
(1.0)
(3.5)
1H'171H'16
8.9% (0.2)% Average Annualized Yield % (4)
Highlights
• Net investments grew $39.1 million, or 12.7% from June
30, 2016
• Portfolio income down year-over-year driven primarily by
unrealized losses on equity positions in '17 compared to
gains in '16
• Investment income related to non-performing residential
mortgages up year-over-year as portfolio begins to
stabilize and generate more consistent realized gains(1) See the appendix for a reconciliation of Non-GAAP measures net investments and net portfolio income to GAAP financials.
(2) Cash and cash equivalents, plus restricted cash, net of due to/due from brokers See appendix for reconciliation to GAAP financials.
(3) Net of non-recourse asset based financing of $140.4 million and $65.1 million for 2Q'17 and 2Q'16, respectively.
(4) 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 three quarters total investments less investment portfolio debt plus cash.
TTM net portfolio income
1H'16 1H'17
- Equities $5.0 $(10.1)
- Loans $0.9 $0.1
$17.1 $11.1
$(0.3) $13.1
8
As adjusted revenue components (1)
Year-to-date financial highlights
Year-over-year improvement in pre-tax income driven by:
• $3.4m of unrealized and realized gains compared to $2.5 of
unrealized losses in 2016
• Increases in incentive fees on older vintage CLOs
Partially offset by:
• Declining base management fees as older vintage CLOs run-off
• Reduced distributions as our investments in sub-notes decline
Recent developments and outlook
1Q'17 sales reduced exposure in CLOs to $43.3m
as of Jun'17
Continued focus on developing asset management
opportunities in other asset classes that leverage our
expertise
Key financials (1)
ASSET MANAGEMENT
(2.5)
3.4
6.7
4.4
5.1
5.8
$13.6
2.7
$12.0
Other income
Distributions (sub-notes)
Unrealized & realized
gains (losses)
1H'16
Average net assets, at fair
value (3 quarter average)$89.8
1) See the appendix for a reconciliation of Adjusted EBITDA and As Adjusted Revenue to GAAP financials.
(2) AUM is estimated and unaudited. Consists of NOPCB for CLOs, excludes Credit Opportunities Fund as it
was not earning third party fees as of 6/30/2017.
$12.0 $13.6
2Q'16 2Q'17 1H'16 1H'17
Fee-earning AUM(2) ($B) $2.0 $1.6 $2.0 $1.6
Revenue $2.2 $3.8 $6.0 $6.8
Income attributable to
consolidated CLOs $4.9 $2.9 $6.0 $6.8
Pre-tax Income $5.5 $4.5 $8.2 $10.1
Adjusted EBITDA $5.5 $4.5 $8.2 $10.1
1H'17
$60.8
Management &
incentive fees
As Adjusted Revenues
($ in millions)
9
1H'16 1H'17
$3.7
$4.8
Key financials (1) Year-to-date highlights and outlook
Improvement in pre-tax income of $1.2m over prior year driven
by increases in rental revenue, which outpaced higher
depreciation & other expenses from recent acquired properties
• Quarterly pre-tax income and NOI margin % down over
prior year as recently renovated projects are still in process
of improving occupancy and rental rates
Adjusted EBITDA of $5.4m, up 25.6% driven by properties
acquired during 2017
Expect continued EBITDA growth through:
ü NOI improvement driven by increases in occupancy rates,
property improvements and expense management
ü Additional property acquisitions
NOI by product
SENIOR LIVING
($ in millions)
(1) For explanation of Adjusted EBITDA, NOI, NOI Margin % and reconciliation
to GAAP senior living segment pre-tax income, see the Appendix.
(2) Includes accumulated depreciation and in-place lease amortization.
1H'16 1H'17
$24.3
$30.8
$6.3 $8.0
Managed properties Triple net leases
Revenues Net Operating Income
NOI
margin %
25.8% 26.0%
(1)
2Q'16 2Q'17 1H'16 1H'17
Revenue $14.6 $18.6 $28.5 $36.3
Pre-tax income $(1.2) $(2.3) $(5.0) $(3.8)
Adjusted EBITDA $2.3 $2.5 $4.3 $5.4
Net Operating Income (NOI) $5.1 $6.5 $10.0 $12.8
Accumulated depreciation(2) $31.6 $47.1
Property type 2Q'15 2Q'16 2Q'17*
Managed properties $135.7 $191.0 $246.0
NNN leases 97.2 97.2 161.6
Total purchase price $232.9 $288.2 $407.6
Debt outstanding 167.0 205.4 302.0
Average ownership 87.8% 85.5% 86.6%
Number of properties 24 26 40
Property overview
*Excludes $11.5m of real estate managed by Care and owned by our insurance subsidiary
10
Book value per share
as exchanged
Adjusted EBITDA
Trailing Twelve Months
WELL POSITIONED FOR 2017 AND BEYOND
Performance is expected to benefit from:
• Continued growth in specialty insurance operations
• Improvements in long-term, net investment income as our specialty
insurance investment portfolio grows
• Increasing NOI in our senior living operations through stabilizing
existing properties and additional investments in new properties
• A reduction in expenses over time as a result of improved corporate
infrastructure
• Re-investing capital from non-core asset sales into our businesses
2Q'16 2Q'17
$9.68 $9.87
2Q'16 2Q'17
$46.0
$64.7
2Q'17 highlights
ü Continued focus on more stable, repeatable earnings
ü Continued re-investment in core businesses
ü Year-to-date financial performance down versus prior year from impact
of investment gains and losses and Reliance contingent earn-out ...
operating earnings trending positively
(1)
(1) See the appendix for a reconciliation of Book value per share,
as exchanged and Adjusted EBITDA to GAAP financials.
Looking ahead ...
(1)
APPENDIX
12
Management uses EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. The Company believes that use of these financial measures on a consolidated basis and for each segment
provide supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service its debt and
to facilitate comparison among companies. The Company believes segment EBITDA and Adjusted EBITDA provides additional supplemental information to compare results among our segments. Adjusted
EBITDA is also used in determining incentive compensation for the Company’s executive officers. These measures are not a measurement of financial performance or liquidity under GAAP and should
not be considered as an alternative or substitute for net income. The Company’s presentation of these measures may differ from similarly titled non-GAAP financial measures used by other companies.
The Company defines EBITDA as GAAP net income of the Company adjusted to add consolidated interest expense, consolidated income taxes and consolidated depreciation and amortization expense
as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary course of its subsidiaries’ business
operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and (v) any significant one-time expenses.
NON-GAAP RECONCILIATIONS - EBITDA AND ADJUSTED EBITDA
($ in thousands, unaudited) Three Months Ended June 30, Six Months Ended June 30, Trailing Twelve Months Ended June 30,
2017 2016 2017 2016 2017 2016
Net income (loss) available to Class A common stockholders $ (4,443) $ 6,133 $ (3,343) $ 11,688 $ 10,289 $ 3,484
Add: net (loss) income attributable to noncontrolling interests (881) 888 (639) 2,747 3,632 1,978
Less: net income from discontinued operations — — — — — (730)
Net income (loss) before non-controlling interests $ (5,324) $ 7,021 $ (3,982) $ 14,435 $ 13,921 $ 6,192
Consolidated interest expense 9,304 6,451 18,083 12,931 34,853 25,009
Consolidated income taxes (1,875) 4,025 (709) 1,586 8,683 4,830
Consolidated depreciation and amortization expense 8,197 7,085 16,006 15,462 29,012 33,763
EBITDA $ 10,302 $ 24,582 $ 29,398 $ 44,414 $ 86,469 $ 69,884
Consolidated non-corporate and non-acquisition related interest expense(1) (6,306) (3,956) (12,170) (8,234) (23,119) (15,591)
Effects of Purchase Accounting (2) (435) (1,459) (900) (3,489) (2,464) (12,054)
Non-cash fair value adjustments (3) 3,174 — 3,687 1,416 4,964 116
Significant acquisition expenses (4) 36 — 277 383 605 893
Separation expense adjustments (5) — (1,736) (1,736) (1,736) (1,736) 3,473
Adjusted EBITDA from continuing operations $ 6,771 $ 17,431 $ 18,556 $ 32,754 $ 64,719 $ 46,721
Income from Discontinued Operations of the Company $ — $ — $ — $ — $ — $ (730)
EBITDA from Discontinued Operations $ — $ — $ — $ — $ — $ (730)
Adjusted EBITDA of the Company $ 6,771 $ 17,431 $ 18,556 $ 32,754 $ 64,719 $ 45,991
(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 June 30, 2017 and 2016 was an effective increase to pre-tax earnings of $381 thousand and $519 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.
13
Management uses EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. The Company believes that consolidated EBITDA and Adjusted EBITDA on a consolidated basis and for each
segment provide supplemental information useful to investors as it is frequently used by the financial community to analyze performance period to period, to analyze a company’s ability to service
its debt and to facilitate comparison among companies. The Company believes segment EBITDA and Adjusted EBITDA provides additional supplemental information to compare results among our
segments. The Company's Adjusted EBITDA is used in determining incentive compensation for the Company’s executive officers. These measures are not a measurement of financial performance or
liquidity under GAAP and should not be considered as an alternative or substitute for net income. The Company’s presentation of these measures may differ from similarly titled non-GAAP financial
measures used by other companies. The Company defines EBITDA as GAAP net income of the Company adjusted to add consolidated interest expense, consolidated income taxes and consolidated
depreciation and amortization expense as presented in its financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary
course of its subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add back significant acquisition related costs, (iv) adjust for significant relocation costs and (v) any
significant one-time expenses.
NON-GAAP RECONCILIATIONS - EBITDA AND ADJUSTED EBITDA
Three Months Ended June 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) $ (732) $ 12,765 $ 4,529 $ 5,493 $ (2,294) $ (1,155) $ (434) $ 2,312 $ (8,268) $ (8,369) $ (7,199) $ 11,046
Add back:
Interest expense 3,590 2,057 2 40 2,999 2,095 1,441 1,235 1,272 1,024 9,304 6,451
Depreciation and amortization expenses 3,197 3,399 — — 4,726 3,410 213 215 61 61 8,197 7,085
Segment EBITDA $ 6,055 $ 18,221 $ 4,531 $ 5,533 $ 5,431 $ 4,350 $ 1,220 $ 3,762 $ (6,935) $ (7,284) $ 10,302 $ 24,582
EBITDA adjustments:
Asset-specific debt interest (1,864) (637) (2) (40) (2,999) (2,095) (1,441) (1,184) — — (6,306) (3,956)
Effects of purchase accounting (435) (1,459) — — — — — — — — (435) (1,459)
Non-cash fair value adjustments 113 — — — — — 3,061 — — — 3,174 —
Significant acquisition expenses — — — — 36 — — — — — 36 —
Separation expenses — — — — — — — — — (1,736) — (1,736)
Segment Adjusted EBITDA $ 3,869 $ 16,125 $ 4,529 $ 5,493 $ 2,468 $ 2,255 $ 2,840 $ 2,578 $ (6,935) $ (9,020) $ 6,771 $ 17,431
Six Months Ended June 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) $ 4,069 $ 24,968 $ 10,110 $ 8,197 $ (3,824) $ (5,014) $ 34 $ 1,329 $ (15,080) $ (13,459) $ (4,691) $ 16,021
Add back:
Interest expense 7,035 3,696 2 746 5,700 3,949 2,794 2,420 2,552 2,120 18,083 12,931
Depreciation and amortization expenses 6,491 7,382 — — 8,981 7,540 411 417 123 123 16,006 15,462
Segment EBITDA $ 17,595 $ 36,046 $ 10,112 $ 8,943 $ 10,857 $ 6,475 $ 3,239 $ 4,166 $ (12,405) $ (11,216) $ 29,398 $ 44,414
EBITDA adjustments:
Asset-specific debt interest (3,674) (1,221) (2) (746) (5,700) (3,949) (2,794) (2,318) — — (12,170) (8,234)
Effects of purchase accounting (900) (3,489) — — — — — — — — (900) (3,489)
Non-cash fair value adjustments 226 — — — — 1,416 3,461 — — — 3,687 1,416
Significant acquisition expenses — — — — 277 383 — — — — 277 383
Separation expenses — — — — — — — — (1,736) (1,736) (1,736) (1,736)
Segment Adjusted EBITDA $ 13,247 $ 31,336 $ 10,110 $ 8,197 $ 5,434 $ 4,325 $ 3,906 $ 1,848 $ (14,141) $ (12,952) $ 18,556 $ 32,754
14
NON-GAAP RECONCILIATIONS - BOOK VALUE PER SHARE, AS EXCHANGED
Management uses Book value per share, as exchanged, which is a non-GAAP financial measure. As exchanged assumes full exchange of the limited partners units of TFP for Tiptree Class A common
stock. Management believes the use of this 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.
Tiptree’s book value per share, as exchanged, was $9.87 as of June 30, 2017 compared with $9.68 as of June 30, 2016. Total stockholders’ equity, net of other non-controlling interests for the Company
was $365.8 million as of June 30, 2017, which comprised total stockholders’ equity of $390.7 million adjusted for $24.9 million attributable to non-controlling interest at certain operating subsidiaries
that are not wholly owned by the Company, such as Siena, Luxury and Care. Total stockholders’ equity, net of other non-controlling interests for the Company was $361.1 million as of June 30, 2016,
which comprised total stockholders’ equity of $380.5 million adjusted for $19.3 million attributable to non-controlling interest at subsidiaries that are not wholly owned by the Company. Additionally,
the Company’s book value per share is based upon Class A common shares outstanding, plus Class A common stock issuable upon exchange of partnership units of TFP which is equal to the number
of Class B outstanding shares. The total shares as of June 30, 2017 and June 30, 2016 were 37.1 million and 37.3 million, respectively.
(1) As of June 30, 2017, excludes 5,985,543 shares of Class A common stock held by subsidiaries of the Company. See Note 23—Earnings per Share, in the Form 10-Q for June 30, 2017, for further discussion of potential dilution from warrants.
($ in thousands, unaudited, except per share information) June 30,
2017
March 31,
2017
December
31, 2016
September
30, 2016
June 30,
2016
Total stockholders’ equity $ 390,672 $ 393,838 $ 390,144 $ 381,341 $ 380,465
Less non-controlling interest - other 24,867 22,970 20,636 19,939 19,338
Total stockholders equity, net of non-controlling interests - other $ 365,805 $ 370,868 $ 369,508 $ 361,402 $ 361,127
Total Class A shares outstanding (1) 29,017 28,492 28,388 28,351 29,258
Total Class B shares outstanding 8,049 8,049 8,049 8,049 8,049
Total shares outstanding 37,066 36,541 36,437 36,400 37,307
Book value per share, as exchanged $ 9.87 $ 10.15 $ 10.14 $ 9.93 $ 9.68
15
NON-GAAP RECONCILIATIONS - SPECIALTY INSURANCE
The following table provides a reconciliation between as adjusted underwriting margin and pre-tax income. We generally limit the underwriting risk we assume through the use of both reinsurance
(e.g., quota share and excess of loss) and retrospective commission agreements with our partners (e.g., commissions paid adjust based on the actual underlying losses incurred), which manage and
mitigate our risk. Period-over-period comparisons of revenues are often impacted by the PORCs and clients’ 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 partners and reinsurers is reflected in a reduction in commissions paid. In order to better explain to investors the net financial
impact of the risk retained by the Company of the insurance contracts written and the impact on profitability, we use the Non-GAAP metric - As Adjusted Underwriting Margin. For the same reasons
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. Expressed as a percentage, the combined ratio 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.
Investors use this ratio to evaluate our ability to profitably underwrite the risks we assume over time and manage our operating costs. As such, we believe that presenting underwriting margin and
the combined ratio provides useful information to investors and aligns more closely to how management measures the underwriting performance of the business.
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands, unaudited) GAAP
Non-GAAP
adjustments
Non-GAAP - As
Adjusted GAAP
Non-GAAP
adjustments
Non-GAAP - As
Adjusted
Revenues: 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
Net earned premiums $ 87,477 $ 46,292 $ — $ — $ 87,477 $ 46,292 $176,708 $ 90,907 $ — $ — $176,708 $ 90,907
Service and administrative fees 23,067 28,269 224 1,646 23,291 29,915 46,843 58,579 506 3,842 47,349 62,421
Ceding commissions 2,017 10,545 15 116 2,032 10,661 4,288 21,248 36 307 4,324 21,555
Other income 985 601 — — 985 601 2,050 1,255 — — 2,050 1,255
Less underwriting expenses:
Policy and contract benefits 29,802 22,857 — — 29,802 22,857 62,794 46,555 — — 62,794 46,555
Commission expense 56,546 34,836 629 3,111 57,175 37,947 113,339 67,874 1,354 7,374 114,693 75,248
Underwriting Margin - Non-GAAP $ 27,198 $ 28,014 $ (390) $ (1,349) $ 26,808 $ 26,665 $ 53,756 $ 57,560 $ (812) $ (3,225) $ 52,944 $ 54,335
Less operating expenses:
Employee compensation and benefits 9,718 9,298 — — 9,718 9,298 20,727 18,885 — — 20,727 18,885
Other expenses 9,050 7,795 45 111 9,095 7,906 18,562 16,753 88 264 18,650 17,017
Combined Ratio 92.4% 85.5% —% —% 92.8% 87.7% 93.6% 85.5% — — 94.0% 88.1%
Plus investment revenues:
Net investment income 3,687 2,697 — — 3,687 2,697 8,192 5,102 — — 8,192 5,102
Net realized and unrealized gains (6,062) 4,603 — — (6,062) 4,603 (5,064) 9,022 — — (5,064) 9,022
Less other expenses:
Interest expense 3,590 2,057 — — 3,590 2,057 7,035 3,696 — — 7,035 3,696
Depreciation and amortization expenses 3,197 3,399 (54) (941) 3,143 2,458 6,491 7,382 (166) (2,428) 6,325 4,954
Pre-tax income (loss) $ (732) $ 12,765 $ (381) $ (519) $ (1,113) $ 12,246 $ 4,069 $ 24,968 $ (734) $ (1,061) $ 3,335 $ 23,907
16
NON-GAAP RECONCILIATIONS - SPECIALTY INSURANCE
The following table presents product specific revenue and expenses within the specialty insurance segment. We generally limit the underwriting risk we assume through the use of both reinsurance
(e.g., quota share and excess of loss) and retrospective commission agreements with our partners (e.g., commissions paid adjust based on the actual underlying losses incurred), which manage and
mitigate our risk. Period-over-period comparisons of revenues are often impacted by the PORCs and clients’ 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 partners and reinsurers is reflected in a reduction in commissions paid. In order to better explain to investors the net financial
impact of the risk retained by the Company of the insurance contracts written and the impact on profitability, we use the Non-GAAP metric - As Adjusted Underwriting Margin. For the same reasons
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 measures the underwriting performance of the business.
Six Months Ended June 30,
($ in thousands, unaudited) Credit Protection Warranty Programs Services and Other Insurance Total
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
As Adjusted Revenues:
Net earned premiums $ 142,129 $ 59,020 $ 20,625 $ 18,254 $ 13,954 $ 13,633 $ — $ — $ 176,708 $ 90,907
Service and administrative fees 20,770 23,110 17,921 29,305 5,387 6,073 3,271 3,933 47,349 62,421
Ceding commissions 4,324 21,553 — 1 — — — 1 4,324 21,555
Other income 202 129 — 86 — — 1,848 1,040 2,050 1,255
Less product specific expenses:
Policy and contract benefits 29,806 13,810 20,712 20,429 12,091 12,272 185 44 62,794 46,555
Commission expense 106,042 58,321 5,632 14,301 2,570 2,425 449 201 114,693 75,248
As Adjusted underwriting margin $ 31,577 $ 31,681 $ 12,202 $ 12,916 $ 4,680 $ 5,009 $ 4,485 $ 4,729 $ 52,944 $ 54,335
17
The investment portfolio consists of assets contributed by Tiptree, cash generated from operations, and from insurance premiums written. 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 across select asset classes, sectors and geographies while maintaining adequate liquidity to
meet our claims payment obligations.
In managing our investment portfolio we analyze net investments 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 of 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 management uses to analyze
the profitability of our investment portfolio. Management believes this information 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 net 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.
NON-GAAP RECONCILIATIONS - SPECIALTY INSURANCE
($ in thousands) As of June 30,
2017 2016
Total Investments $ 431,416 $ 359,338
Investment portfolio debt (1) (140,430) (65,119)
Cash and cash equivalents 38,279 9,922
Restricted cash (2) 24,425 5,976
Receivable due from brokers (3) 4,544 —
Liability due to brokers (3) (12,070) (3,042)
Net investments - Non-GAAP $ 346,164 $ 307,075
Three Months Ended June 30, Six Months Ended June 30, Trailing Twelve Months Ended June 30,
2017 2016 2017 2016 2017 2016
Net investment income $ 3,687 $ 2,697 $ 8,192 $ 5,102 $ 16,073 $ 8,926
Realized gains (losses) 3,887 3,372 4,963 3,131 6,552 2,584
Unrealized gains (losses) (9,949) 1,231 (10,027) 5,891 (5,875) 7,352
Interest expense (1,764) (526) (3,465) (1,011) (5,609) (1,760)
Net portfolio income - Non-GAAP $ (4,139) $ 6,774 $ (337) $ 13,113 $ 11,141 $ 17,102
Average Annualized Yield % (4) (4.7)% 8.9% (0.2)% 8.9% 3.3% 6.3%
(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.
(4) 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 (five quarters for trailing twelve months) total
investments less investment portfolio debt plus cash.
18
NON-GAAP RECONCILIATIONS - ASSET MANAGEMENT
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.
Six Months Ended June 30,
($ in thousands, unaudited) GAAP Non-GAAP adjustments Non-GAAP - As Adjusted
Revenues: 2017 2016 2017 2016 2017 2016
Management fee income $ 5,037 $ 3,658 $ 368 $ 669 $ 5,764 $ 5,084
Distributions — — 2,567 2,821 4,391 6,689
Net realized and unrealized gains (losses) 1,188 (469) 1,380 (2,313) 3,432 (2,485)
Other income 566 2,819 (552) (82) 14 2,737
Total revenues $ 6,791 $ 6,008 $ 3,763 $ 1,095 $ 13,601 $ 12,025
Three Months Ended June 30,
($ in thousands, unaudited) GAAP Non-GAAP adjustments Non-GAAP - As Adjusted
Revenues: 2017 2016 2017 2016 2017 2016
Management fee income $ 3,330 $ 1,661 $ 360 $ 757 $ 3,690 $ 2,418
Distributions — — 1,824 3,868 1,824 3,868
Net realized and unrealized gains (losses) 335 223 863 297 1,198 520
Other income 153 344 (152) (10) 1 334
Total revenues $ 3,818 $ 2,228 $ 2,895 $ 4,912 $ 6,713 $ 7,140
19
NON-GAAP RECONCILIATIONS - SENIOR LIVING
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. It is also the basis upon which the management fees paid to the operators of our Managed Properties are calculated, and is a significant component of
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 differ from
similarly titled non-GAAP financial measures used by other companies. NOI is not a measure of financial performance or liquidity under GAAP and should not be considered a substitute for pre-tax
income.
(1) NOI Margin % is the relationship between Segment NOI and rental and related revenue.
($ in thousands, unaudited) Three Months Ended June 30, 2017 Three Months Ended June 30, 2016 Six Months Ended June 30, 2017 Six Months Ended June 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 $ 2,658 $ 15,587 $ 18,245 $ 1,845 $ 12,568 $ 14,413 $ 4,847 $ 30,801 $ 35,648 $ 3,689 $ 24,330 $ 28,019
Less: Property operating
expenses — 11,766 11,766 — 9,296 9,296 — 22,848 22,848 — 18,001 18,001
Segment NOI $ 2,658 $ 3,821 $ 6,479 $ 1,845 $ 3,272 $ 5,117 $ 4,847 $ 7,953 $ 12,800 $ 3,689 $ 6,329 $ 10,018
Segment NOI Margin % (1) 24.5% 26.0% 25.8% 26.0%
Other income $ 380 $ 208 $ 695 $ 492
Less: Expenses
Interest expense 3,128 2,095 5,700 3,949
Payroll and employee
commissions 754 625 1,533 1,283
Depreciation and 4,726 3,410 8,981 7,540
Other expenses 545 350 1,105 2,752
Pre-tax income (loss) $ (2,294) $ (1,155) $ (3,824) $ (5,014)