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Tiptree Financial Inc. Reports Financial Results For The Fourth Quarter And Year Ended December 31, 2013

-Economic Net income of Operating Company was $34.7 million for 2013-

NEW YORK, March 18, 2014 /PRNewswire/ -- Tiptree Financial Inc. ("Tiptree" or the "Company") (NASDAQ:TIPT), a diversified holding company which operates in four segments: insurance and insurance services, specialty finance (including corporate, consumer and tax-exempt credit), asset management and real estate, today announced its financial results for the fourth quarter and year ended December 31, 2013. Tiptree operates its business through Tiptree Operating Company, LLC ("Operating Company") which is owned 25% by Tiptree and 75% by Tiptree Financial Partners, L.P. ("TFP").

Fourth Quarter Highlights

  • Economic net income of Operating Company was $4.9 million; economic net income available to Class A stockholders was $2.2 million, or $0.21 per diluted Class A share.
  • GAAP net income of Operating Company was $6.1 million; GAAP net income available to Tiptree Class A stockholders was $2.3 million, or $0.22 per diluted Class A share.
  • Economic Book Value per Class A share was $10.42 at December 31, 2013.

2013 Highlights

  • Sold the Bickford Portfolio for cash of $44 million and a net gain of approximately $15.5 million.
  • Purchased an interest in Siena Capital Finance LLC for $10 million.
  • Economic net income of Operating Company was $34.7 million; economic net income available to Class A stockholders was $9.0 million, or $0.88 per diluted Class A share.
  • GAAP net income of Operating Company was $34.8 million; GAAP net income available to Tiptree Class A stockholders was $8.8 million, or $0.86 per diluted Class A share.
  • Completed a public listing on NASDAQ through the Contribution Transactions.

Geoffrey Kauffman, President and Chief Executive Officer of Tiptree, commented, "We made meaningful progress in 2013 as we successfully listed the Company on the NASDAQ, added Siena Capital and more recently completed the acquisition of Luxury Mortgage. We intend to continue to focus on increasing book value and cash flow through acquisitions that complement our diversified portfolio of holdings, while maintaining the disciplined approach that has proven successful for the past seven years.

As we move forward, we plan to continue our proven strategy of working closely with our portfolio companies' management teams to build strong strategic alliances. We will endeavor to help develop and execute their future growth plans and new business initiatives, while providing incremental capital to support this growth. We are energized by the growth opportunities both from within our current portfolio and from potential acquisitions in our ongoing efforts to create long-term shareholder value."

2013 Financial Overview

Economic Net income of Operating Company
Economic net income of Operating Company for the year ended 2013 was $34.7 million compared to $36.3 million for 2012. Although net income was relatively unchanged from the prior year, there were changes in various components of total revenue and total expenses. Revenue from dividend/ distributions increased $2.4 million due to the additional Telos warehouse activity in 2013 and management fee income increased $9.2 million due to the purchase of TAMCO in June 2012. Offsetting these revenue increases, our tax-exempt assets experienced higher than usual unrealized gains in 2012; the unrealized gains for the tax-exempt assets declined by $6.8 million in 2013 from their highs in 2012. Total expenses increased $9.3 million from 2012 to 2013 largely due to the internalization of employees in 2012 as a result of the purchase of TAMCO, an increase in interest expense related to the Company's new credit facility in 2013, and additional professional fees related to the Company's expenses as a public company in 2013.

GAAP Net income available to Class A common stockholders
Net income available to Class A common stockholders for 2013 was $8.8 million compared to $8.7 million for 2012, an increase of $0.1 million, or 1.3%. This increase was primarily due to the $29.1 million decrease representing the net impact of the consolidated CLOs on our net income available to Class A common stockholders offset in part by increases in revenue from administrative service fees of $26.5 million and the gain on the sale of the Bickford portfolio of $15.5 million.

About Tiptree Financial Inc.
Tiptree is a diversified holding company engaged through its consolidated subsidiaries in a number of businesses and is an active acquirer of new businesses. Tiptree, whose operations date back to 2007, currently has subsidiaries that operate in four industry segments: insurance and insurance services, specialty finance, asset management and real estate.

Forward-Looking Statements

This release contains "forward-looking statements" which involve risks, uncertainties and contingencies, many of which are beyond the Company's control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements. All statements contained in this release 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 the Company'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 the Company's Annual Report on Form 10-K, and as described in the Company's other filings with the Securities and Exchange Commission ("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.

Economic Net Income

Economic Net Income ("ENI") is a non-GAAP financial measure of profitability which Tiptree uses to measure the performance of its core business.  Management believes that ENI reflects the nature and substance of the economic results of Tiptree's businesses. Management also uses ENI as a measurement for determining incentive compensation. ENI as used by Tiptree may not be comparable to similar measures presented by other companies as it is a non-GAAP financial measure that is not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies.  ENI should be considered in addition to, not as a substitute for, financial measures determined in accordance with GAAP.

Economic Net Income Components

The following table details the individual revenue and expense components of the non-GAAP measure ENI for the periods indicated (in thousands):



Three Months Ended December 31,


Year ended December 31,




2013


2012


2013


2012


Revenues:










Interest income


$

102



$

131



$

510



$

527



Dividend/distribution income


7,191



5,006



22,844



20,436



Realized (losses) gains


(9)





(1,024)



414



Unrealized gains


299



10,766



20,572



27,355



Management fee income


3,884



3,623



16,165



6,974



Total revenues


11,467



19,526



59,067



55,706



Expenses:










Compensation expense


2,641



3,472



12,480



6,568



Distribution expense (convertible preferred)




810



1,747



2,789



Interest expense


1,765



343



3,261



1,276



Professional fees and other


2,202



1,278



6,835



4,359



Total expense


6,608



5,903



24,323



14,992



Economic Net Income before management fee expenses and waivers and incentive allocation


4,859



13,623



34,744



40,714



Less: Management fee expenses (1)








1,996



Less: Management fee expenses waived (1)








(1,066)



Economic Net Income before incentive allocation


4,859



13,623



34,744



39,784



Less: Incentive allocation (1)








3,459



Economic Net Income of Operating Company


4,859



13,623



34,744



36,325



Less: Economic net income attributable to TFP


3,461



10,224



25,911



27,276



Economic Net Income of Tiptree before tax provision


1,398



3,399



8,833



9,049



Less: Tax provision attributable to Tiptree


(764)





(197)





Economic Net Income of Tiptree


$

2,162



$

3,399



$

9,030



$

9,049





(1)

Following TFP's acquisition of TAMCO in June 2012 described in Note 1 to the financial statements contained in Tiptree's Form 10-K filed March

18, 2014. TAMCO no longer pays management or incentive fees. 

Reconciliation of GAAP Net Income To Economic Net Income

In addition to the other adjustments indicated in the table below, ENI includes the following adjustments: (i) adjustment to results from real estate to eliminate non-cash items similar to adjusted funds from operations ("AFFO") which is a non-GAAP financial measure widely used in the real estate industry, (ii) in our insurance segment, adjustment for fair value on available for sale securities, which is a non-GAAP measure frequently used throughout the insurance industry, and (iii) in our specialty finance segment, VIEs are shown as if not consolidated.

The following is a reconciliation of GAAP Net Income attributable to Tiptree to ENI for the three months and years ended December 31, 2013 and 2012 (in thousands):



Three Months Ended December 31,


Year Ended December 31,



2013


2012


2013


2012

GAAP Net Income of Tiptree


$

2,282



$

2,221



$

8,845



$

8,729


Plus:  Tax provision attributable to Tiptree


(764)





(197)




Plus:  Portion of NCI held by TFP


4,575



6,812



26,164



26,423


GAAP net income of Operating Company


6,093



9,033



34,812



35,152











Adjustments:









Adjustments to results from real estate operations (1)


1,829



816



(1,929)



2,937


Effect of change in majority ownership of subsidiaries (2)


(138)



2,558



(1,811)



3,018


Fair value adjustments to carrying value (3)


(4,074)



(572)



(3,135)



5,813


Reversal of VIEs net losses (gains) attributable to TFI (4)


1,149



(26)



7,380



(3,752)


Reversal of TAMCO net gains for periods prior to acquisition of TAMCO (5)




3,800





(2,760)


TFP convertible preferred reclass of distributions to expense (6)




(812)



(1,747)



(2,790)


Foreign exchange reserve (7)




(1,174)



1,174



(1,174)


Amortization of start-up expenses (8)







(119)


Economic Net Income of Operating Company


4,859



13,623



34,744



36,325


Less: Economic net income attributable to TFP


3,461



10,224



25,911



27,276


Economic Net Income of Tiptree before tax provision


1,398



3,399



8,833



9,049


Less:  Tax provision attributable to Tiptree


(764)





(197)




Economic Net Income of Tiptree


$

2,162



$

3,399



$

9,030



$

9,049




(1)

Adjustments to results from real estate operations includes the effects of straight lining lease revenue,  expenses associated with depreciation and amortization, certain transaction expenses, non-cash equity compensation expenses,  other non-cash charges, and incentive compensation  adjustments for unconsolidated partnerships and joint ventures.



(2)

Effect of change in majority ownership of subsidiaries is the dilutive effect of Care Inc.'s issuance of shares related to the Contribution Transactions and stock-based compensation, the effect of Tiptree's increased ownership of Philadelphia Financial due to accretion of preferred shares, and the increase in ownership of Siena.



(3)

Adjustment is to account at fair value the CLO subordinated notes held by Tiptree and PFG's available-for-sale securities.  Fair values are obtained from an independent third party pricing source.



(4)

Reversal of VIEs net losses/(gains) attributable to Tiptree (see reconciliation table below in thousands):







Year Ended December 31, 2013

 



Tiptree pro rata portion

of Net Income

 


Net Income (net of 1%

NCI)

 


Tiptree's ownership %

 

Telos 1


$

(1,588)



$

(22,341)



7.11%

Telos 2


(7,934)



(8,312)



95.45%

Telos 3


549



2,988



18.38%

Telos 4


1,593



2,241



71.08%

Total


$

(7,380)



$

(25,424)













Year Ended December 31, 2012

 



Tiptree pro rata portion

of Net Income

 


Net Income (net of 1%

NCI)

 


Tiptree's ownership %

 

Telos 1


$

297



$

4,173



7.11%

Telos 2


3,455



3,620



95.45%

Total


$

3,752



$

7,793




(5)

The purchase of TAMCO on June 30, 2012 was accounted for as a combination of entities under common control.  As a result, the assets and liabilities of TAMCO were presented as if TAMCO had been consolidated by Tiptree on January 1, 2010.  For non-controlling interest, we are reversing the effect of this recasting of financial information for prior periods.



(6)

Convertible preferred distribution reclassified as expense for purposes of ENI so as to reflect a cost of capital charge for outstanding convertible preferred. This class automatically converted to common shares effective July 1, 2013.



(7)

Reflects the timing difference on the recognition of yen exposure GAAP versus ENI.



(8)

Amortization of expenses associated with the start-up of Tiptree in 2007. The amortization period ended on June 30, 2012.

Reconciliation of GAAP Book Value to Economic Book Value:

Economic Book Value                                              

Economic Book Value ("EBV") is a non-GAAP financial measure which Tiptree uses to evaluate the performance of its core business. Management believes that EBV provides greater transparency and enhanced visibility into the underlying profitability drivers of our business and provides a useful, alternative view of the economic results of Tiptree's businesses. EBV includes the following adjustments: (i) reversal of GAAP value for TAMCO and CLO VIEs and replacement with fair value, (ii) addition of life to date AFFO adjustments for real estate operations, (iii) reclassification of convertible preferred distributions to expense and (iv) foreign exchange timing adjustment.

EBV as used by Tiptree may not be comparable to similar measures presented by other companies as it is a non-GAAP financial measure that is not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. EBV should be considered in addition to, not as a substitute for, financial measures determined in accordance with GAAP. The following is a reconciliation of GAAP book value attributable to Tiptree to EBV as of December 31, 2013 and 2012 (in thousands except share data):  



Year Ended December 31,



2013


2012

Economic Book Value





GAAP TFI Total Capital


$

565,856



$

535,588


Less: Non-controlling Interest in TFI


361,354



324,595


Less: Retained Earnings of consolidated TAMCO


84,591



102,635


GAAP Net Assets to Tiptree Class A Stockholders


119,911



108,358


Less net assets held directly at Tiptree


4,259



4,089


Plus portion of NCI held by TFP


339,283



315,640


GAAP Net Assets of Operating Company


454,935



419,909


Reversal of consolidation of TAMCO (including VIEs) (1)


(144,817)



(120,513)


Fair values of CLOs (2)


61,145



30,737


Value of TAMCO (3)


57,661



56,353


Adjustments to results from real estate operations (4)


3,711



5,603


TFP convertible preferred reclass of distributions to expense (5)




(810)


Foreign exchange reserve (6)




(1,174)


Total Adjustments


(22,300)



(29,804)


Economic Operating Company Net Assets


$

432,635



$

390,105


Units outstanding (7)


41,525



41,049


Economic Tiptree Book Value Per Class A Share


$

10.42



$

9.50




(1)

Under GAAP, Tiptree is required to consolidate all of the assets and liabilities of the VIEs managed by TAMCO on Tiptree's balance sheet regardless of Tiptree's economic interest. See Note 2(c) to the consolidated financial statements contained in Tiptree's Form 10-K filed March 18, 2014. Adjustment is reversal of consolidation of TAMCO and VIEs.



(2)

Adjustment is to include the fair value of our ownership position in the VIEs which has been reversed as described in note (1) above.



(3)

Values TAMCO at the lower of cost or market and reflects the valuation of the purchase price based on the value of the partnership units issued in consideration for TAMCO.



(4)

Adjustments to results from real estate operations reverses the amounts, since inception, related to the effects of straight lining lease revenue, expenses associated with  depreciation and amortization, certain transaction expenses, non-cash transactions expenses, non-cash equity compensation expenses, other non-cash charges, and incentive compensation adjustment for unconsolidated partnerships and joint ventures.



(5)

Convertible preferred distribution was reclassified as expense for purposes of ENI. This adjustment conforms the reclassification for EBV purposes.



(6)

A reserve was established for EBV purposes as of December 31, 2012 reflecting a timing difference relative to GAAP recognition of yen foreign exchange. Such reserve was subsequently reversed.



(7)

Assumes full redemption of Operating Company units for Class A common stock. Operating Company is owned approximately 25% by Tiptree and approximately 75% by TFP. Tiptree's ownership is equal to the number of shares of Class A common stock and pursuant to Operating Company's limited liability agreement this ratio will remain 1:1. TFP's  ownership is equal to 2.798 times the number of TFP partnership units outstanding and this ratio is expected to remain 2.798:1. There were 11,068 and 11,016 partnership units outstanding as of December 31, 2013 and 2012, respectively. The basic EBV per partnership unit was $29.16 and $26.58 as of December 31, 2013 and 2012, respectively.

 

 

TIPTREE FINANCIAL INC.

AND SUBSIDIARIES

Consolidated Balance Sheet

(in thousands, except share and per share data)




Year Ended December 31,



2013


2012

Assets





Cash and cash equivalents – unrestricted


$

120,557



$

88,563


Cash and cash equivalents – restricted


26,395



20,748


Trading investments, at fair value


35,991



60,816


Investments in available for sale securities, at fair value
(amortized cost: $17,708 and $15,693 in 2013 and 2012, respectively)


17,763



16,303


Investments in loans, at fair value


171,087



20,423


Loans owned, at amortized cost – net of allowance


40,260



5,467


Investments in partially-owned entities


9,972



8,388


Real estate


105,061



118,827


Policy loans


102,147



99,123


Deferred tax assets


3,310



5,342


Intangible assets


154,695



162,412


Goodwill


4,294



3,088


Other assets


49,201



37,589


Separate account assets


4,625,099



4,035,053


Assets of consolidated CLOs


1,414,616



851,660


Total assets


$

6,880,448



$

5,533,802


Liabilities and Stockholders' Equity





Liabilities:





Derivative financial instruments, at fair value


$

598



$

3,172


U.S. Treasuries, short position


18,493



20,175


Debt


360,609



195,648


Policy liabilities


112,358



108,868


Other liabilities and accrued expenses


21,829



14,988


Separate account liabilities


4,625,099



4,035,053


Liabilities of consolidated CLOs


1,175,606



620,310


Total liabilities


$

6,314,592



$

4,998,214


Commitments and contingencies










Stockholders' Equity:





Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued or outstanding


$



$


Common stock - Class A: $0.001 par value, 200,000,000 shares authorized, 10,556,390 and 10,226,250 shares issued and outstanding respectively


11



11


Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 30,968,877 and 0 shares issued and outstanding respectively


31




Additional paid-in capital


100,903



96,144


Accumulated other comprehensive income


33



311


Retained earnings


18,933



11,892


Total stockholders' equity of Tiptree Financial Inc.


119,911



108,358


Non-controlling interest


361,354



324,595


Appropriated retained earnings of consolidated TAMCO


84,591



102,635


Total stockholders' equity


565,856



535,588


Total liabilities and stockholders' equity


$

6,880,448



$

5,533,802


 


 

 

TIPTREE FINANCIAL INC.

AND SUBSIDIARIES

Consolidated Statement of Operations

(in thousands, except share and per share data)




Three months ended December 31,

(Unaudited)


Year ended December 31,



2013


2012


2013


2012

Net realized (loss) gain on investments


$

(63)



$

451



$

(833)



$

1,377


Change in unrealized appreciation on investments


1,957



996



2,971



9,129


Income from investments in partially owned entities


37



1,255



3,250



2,308


Net realized and unrealized gains


1,931



2,702



5,388



12,814


Investment income:









Interest income


5,346



2,440



16,477



9,938


Separate account fees


5,912



5,021



22,248



19,875


Administrative service fees


12,633



12,730



49,489



22,995


Rental revenue


2,481



463



5,760



1,717


Other income


844



581



1,545



2,870


Total investment income


27,216



21,235



95,519



57,395


Total net realized and unrealized gains and investment income


29,147



23,937



100,907



70,209


Expenses:









Interest expense


5,509



3,680



17,517



8,096


Payroll expense


9,275



8,691



35,552



21,437


Professional fees


2,351



2,694



8,555



11,873


Change in future policy benefits


1,208



998



4,710



4,040


Mortality expenses


2,591



2,586



10,476



9,924


Commission expense


539



471



2,344



1,960


Depreciation and amortization expenses


1,085



711



4,467



2,238


Other expenses


4,734



2,798



15,456



7,720


Total expenses


27,292



22,629



99,077



67,288


Net Income before taxes and income attributable to consolidate CLOs from continuing operations


1,855



1,308



1,830



2,921


Results of Consolidated CLOs:









Income attributable to consolidated CLOs


19,212



20,992



52,687



71,412


Expenses attributable to consolidated CLOs


14,247



12,693



48,268



37,883


Net Income attributable to consolidated CLOs


4,965



8,299



4,419



33,529


Income before taxes from continuing operations


6,820



9,607



6,249



36,450


Provision for income taxes


2,392



(483)



6,941



(321)


Income (loss) from continuing operations


4,428



10,090



(692)



36,771


Discontinued operations:









Gain on sale of Bickford portfolio, net






15,463




Income from discontinued operations, net




588



1,647



2,882


Provision for income taxes









Discontinued operations, net




588



17,110



2,882


Net income


4,428



10,678



16,418



39,653


Less net income attributable to noncontrolling interest


4,432



7,231



25,617



26,883


Less net (loss) income attributable to VIE subordinated noteholders


(2,286)



1,226



(18,044)



4,041


Net income available to common stockholders


$

2,282



$

2,221



$

8,845



$

8,729


Net income (loss) per Class A common share:









Basic, continuing operations, net


$

0.22



$

0.16



$

(0.81)



$

0.57


Basic, discontinued operations, net




0.06



1.67



0.28


Net income basic


0.22



0.22



0.86



0.85


Diluted, continuing operations, net


0.22



0.16



(0.81)



0.57


Diluted, discontinued operations, net




0.06



1.67



0.28


Net income dilutive


$

0.22



$

0.22



$

0.86



$

0.85


Weighted average number of Class A common shares:









Basic


10,349,856



10,289,603



10,250,438



10,286,412


Diluted


10,349,856



10,289,603



10,250,438



10,286,412


 

SOURCE Tiptree Financial Inc.

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