Tiptree Financial Inc. Reports Financial Results for the Nine Months Ended September 30, 2013 PR Newswire NEW YORK, Nov. 14, 2013 NEW YORK, Nov. 14, 2013 /PRNewswire/ --Tiptree Financial Inc. ("Tiptree", "the Company" or "we") (NASDAQ: TIPT), today filed its Quarterly Report on Form 10-Q and announced its financial results for the nine months ended September 30, 2013. Tiptree is a diversified holding company which conducts its operations through its operating subsidiary Tiptree Operating Company, LLC ("Operating Subsidiary"). We operate in four segments: insurance and insurance services, specialty finance (including corporate, consumer and tax-exempt credit), asset management and real estate. Tiptree is the sole managing member of, and owns approximately 25% of, Operating Subsidiary. As the sole managing member of Operating Subsidiary, Tiptree operates and controls all of the business and affairs of Operating Subsidiary and its subsidiaries and consolidates the financial results of Operating Subsidiary and its subsidiaries. Tiptree Financial Partners L.P's ("TFP") ownership of approximately 75% of Operating Subsidiary is reflected as a non-controlling interest in Tiptree's consolidated financial statements. Tiptree's Class A common stock is traded on Nasdaq and has both economic and voting rights; Tiptree's Class B common stock is held by TFP and has voting but no economic rights. oEconomic Net Income of Operating Subsidiary for the nine months ended September 30, 2013 was $29.9 million. Economic Net Incomeavailable to Tiptree Class A stockholders for the nine months ended September 30, 2013 was $6.9 million, or $0.67 per diluted Class A share, compared with an Economic Net Income of $5.7 million, or $0.55 per diluted Class A share, for the nine months ended September 30, 2012. Economic Net Income for the nine months ended September 30, 2013 was primarily driven by strong results in corporate credit, real estate, insurance and insurance services and asset management. oDilutive Tiptree Economic Book Value per Class A share was $9.98 at September 30, 2013, compared with Dilutive Tiptree Economic Book Value per Class A share of $9.30 at December 31, 2012. oGAAP net income of Operating Subsidiary for the nine months ended September 30, 2013 was $29 million. GAAP net income available to Tiptree Class A stockholders for the nine months ended September 30, 2013 was $6.6 million, or $0.64 per diluted share, compared with GAAP net income available to Class A stockholders for the nine months ended September 30, 2012 of $6.5 million, or $0.63 per diluted share. A reconciliation of Economic Net Income and Economic Book Value to reported GAAP results is attached. The nine months ended September 30, 2013 have been a transformative period for Tiptree. The following highlights certain developments during this period, which are described in more detail in the Form 10-Q filed by Tiptree today. oContribution Transactions. We completed a transaction we refer to as the Contribution Transactions, creating Tiptree's current capital and ownership structure on July 1, 2013. TFP and Care Investment Trust Inc. (prior to the Contribution Transactions, "Care Inc.") each contributed substantially all of their assets to Operating Subsidiary in exchange for ownership in Operating Subsidiary. oAcquisitions and dispositions. We sold our membership interests in an entity that owned fourteen senior living facilities, which we refer to as the Bickford Portfolio, on June 28, 2013 for net cash of $44 million and a net gain of approximately $15.5 million. We purchased an aggregate of approximately 66.7% of the voting equity interests of Siena Capital Finance LLC ("Siena") for an aggregate of $10 million in two stages on April 2013 and July 2013. A capital contribution by another investor in Siena diluted our interest in Siena to approximately 62% in October 2013. We entered into a definitive agreement to make a $5 million loan to Luxury Mortgage Corp. ("Luxury") on April 2013. Half of the loan has been funded and the remainder will be funded upon regulatory approval and other closing conditions, whereupon we will receive approximately 67.5% of Luxury's common stock. oAsset Management Activity. Telos CLO 2013-3, Ltd. ("Telos 3") and Telos CLO 2013-4, Ltd. ("Telos 4") became effective on June 5, 2013 and October 23, 2013, respectively. In anticipation of issuing CLO notes for Telos CLO 2013-5, Ltd. ("Telos 5"), Telos entered into a $100 million warehouse credit agreement on August 6, 2013, which was increased to $140 million on September 25, 2013. oDebt Financing. Operating Subsidiary borrowed $50 million under a Credit Agreement entered into with Fortress Credit Corp. ("Fortress") on September 18, 2013. The Credit Agreement includes an option to borrow an additional $125 million, subject to satisfaction of certain customary conditions. oEquity Activity. Our Class A common stock has been trading on the Nasdaq Capital Market under the symbol "TIPT" since August 9, 2013. A registration statement facilitating public resales of approximately 7.2 million shares of our Class A common stock owned by TFP prior to the Contribution Transactions and distributed to TFPlimited partners in redemption of partnership interests in TFPbecame effective on October 18, 2013. Tiptree's board of directors reviewed a variety of factors includingthe attractive risk adjusted yields available on investment opportunities that the Company is currently considering, and the relatively low year-to-date expected tax obligationsof Operating Subsidiary's investors, and has unanimously decided not to declare a dividend at this time. Cautionary Statement Regarding 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," "plan," "target," and similar expressions are generally 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 Quarterly Report on Form 10-Q, 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. 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, Variable Interest Entities ("VIEs"), such as Collateralized Loan Obligations ("CLOs") are shown as if not consolidated. Reconciliation of ENI to the most comparable GAAP measure is presented below. 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. The following table details the individual revenue and expense components of the non-GAAP measure Economic Net Income for the periods indicated (unaudited in thousands): Nine month period Nine month period ended ended September 30, 2013 September 30, 2012 Revenues: Interest income $ 408 $ 396 Dividend/distribution income 15,653 15,430 Realized gains (losses) (1,015) 414 Unrealized gains 20,273 16,589 Management fee income 12,281 3,351 Total revenues $ 47,600 $ 36,180 Expenses: Compensation expense 9,839 3,096 Distribution expense (convertible 1,747 1,979 preferred) Interest expense 1,496 933 Professional fees and other 4,633 3,081 Total expense $ 17,715 $ 9,089 Economic Net Income (loss) before management fee expenses and waivers $ 29,885 $ 27,091 and incentive allocation Less: Management fee expenses (1) — 1,996 Less: Management fee expenses waived — (1,066) (1) Economic Net Income before incentive 29,885 26,161 allocation Less: Incentive allocation (1) — 3,459 Economic Net Income of Operating 29,885 22,702 Subsidiary Less: Economic net income attributable $ 22,450 $ 17,052 to TFP Economic Net Income of Tiptree before 7,435 5,650 tax provision Less: Tax provision attributable to $ 567 $ — Tiptree Economic Net Income of Tiptree $ 6,868 $ 5,650 (1) Following TFP's acquisition of TAMCO in June 2012 described in Note 1 to the financial statements, TAMCO no longer pays management or incentive fees. Reconciliation of GAAP Book Value to 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. Reconciliation of EBV to the most comparable GAAP measure is presented below. 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 September 30, 2013 and December 31, 2012 (in thousands except share data): September 30, 2013 December 31, 2012 GAAP Net Assets to Tiptree Class A $ 114,234 $ 108,357 Stockholders Less cash and cash equivalents held 3,884 4,089 directly at Tiptree Plus portion of NCI held by TFP 335,765 315,640 GAAP Net Assets of Operating Subsidiary 446,115 419,908 Reversal of consolidation of TAMCO (146,373) (120,513) (including VIEs)(1): Fair values of CLOs (2) 63,173 30,737 Value of TAMCO (3) 57,661 56,353 Adjustments to results from real estate 1,857 5,603 operations (4) TFP convertible preferred reclass of — (810) distributions to expense (5) Foreign exchange reserve (6) — (1,174) Economic Operating Subsidiary Net $ 422,433 $ 390,104 Assets (before dilutive adjustments) Dilutive adjustments (7) 25,894 25,894 Economic Operating Subsidiary Net $ 448,327 $ 415,998 Assets (after dilutive adjustments) Basic Units outstanding (8) 41,229 41,049 Dilutive Unit adjustments (7) 3,690 3,685 Dilutive Economic Operating Subsidiary 44,919 44,734 Units Outstanding Basic Economic Book Value Per Unit (9) $ 10.25 $ 9.50 Dilutive Economic Book Value Per Unit $ 9.98 $ 9.30 (9) Tiptree Class A Economic Book Value Tiptree Class A shares outstanding 10,260 10,226 Basic Economic Tiptree Book Value Per $ 10.25 $ 9.50 Class A Share Dilutive Economic Tiptree Book Value $ 9.98 $ 9.30 Per Class A Share (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. 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) Adjustment to value TAMCO at the lower of cost and market. The December 31, 2012 amount reflects Tiptree's initial valuation of the purchase price based on the March 31, 2012 value of partnership units issued in consideration for TAMCO. The September 30, 2013 amount reflects Tiptree's final valuation of the purchase price based on the June 30, 2012 value of 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) Adjustments include the proceeds that would be received by Operating Subsidiary and the units issued assuming exercise of all outstanding warrants. (8) Excludes 6,474 units issued in respect of shares of Class A common stock to directors of Tiptree as part of their annual retainer. (9) As a result of the Contribution Transactions,Operating Subsidiary 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 Subsidiary'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 September 30, 2013 and December 31, 2012, respectively. The basic EBV per partnership unit was $28.68 and $26.59 as of September 30, 2013 and December 31, 2012, respectively. The diluted EBV per partnership unit was $27.92 and $26.02 as of September 30, 2013 and December 31, 2012, respectively. Reconciliation of GAAP Net Income to Economic Net Income The following is a reconciliation of GAAP Net Income attributable to Tiptree to ENI for the nine month periods ended September 30, 2013 and 2012 (in thousands): Nine month period Nine month period ended September ended September 30, 2013 30, 2012 GAAP Net Income of Tiptree $ 6,563 $ 6,508 Plus: Tax provision attributable to 567 — Tiptree Plus: Portion of NCI held by TFP 21,589 19,611 GAAP net income of Operating Subsidiary $ 28,719 $ 26,119 Adjustments: Adjustments to results from real estate (3,758) 2,121 operations (1) Effect of change in majority ownership of (1,673) 460 subsidiaries (2) Fair value adjustments to carrying value 939 6,385 (3) Reversal of VIEs net losses (gains) 6,231 (3,726) attributable to TFP (4) Reversal of TAMCO net gains for periods — (6,560) prior to acquisition of TAMCO (5) TFP convertible preferred reclass of (1,747) (1,978) distributions to expense (6) Foreign exchange reserve (7) 1,174 — Amortization of start-up expenses (8) — (119) Economic Net Income of Operating 29,885 22,702 Subsidiary Less: Economic net income attributable to 22,450 17,052 TFP Economic Net Income of Tiptree before tax 7,435 5,650 provision Less: Tax provision attributable to 567 — Tiptree Economic Net Income of Tiptree $ 6,868 $ 5,650 (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): Nine month period ended September 30, 2013 Tiptree pro rata portion of Net Income (net of 1% Tiptree's NCI) ownership % Net Income Telos 1 $ (18,262) $ (18,079) 7.11% Telos 2 (5,977) (5,917) 95.45% Telos 3 1,441 1,427 19.79% Telos 4 563 557 71.08% Total $ (22,235) $ (22,012) Nine month period ended September 30, 2012 Tiptree pro rata portion of Net Income (net of 1% Tiptree's NCI) ownership % Net Income Telos 1 $ 2,849 $ 2,821 7.11% Telos 2 3,731 3,694 95.45% Total $ 6,580 $ 6,515 (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. TIPTREE FINANCIAL INC. AND SUBSIDIARIES Consolidated Balance Sheet (Unaudited) (in thousands, except share and per share data) September30, 2013 December31, 2012 Assets Cash and cash equivalents – $ 123,721 $ 88,563 unrestricted Cash and cash equivalents – restricted 34,210 20,748 Due from separate accounts 2,467 2,128 Investments in trading securities, at 39,333 59,982 fair value Investments in available for sale securities, at fair value (amortized 17,721 16,303 cost: $17,546 and $15,693 in 2013 and 2012, respectively) Investments in loans, at fair value 128,467 20,423 Loans owned, at amortized cost – net of 32,443 5,467 allowance Investments in partially-owned entities 11,075 8,388 Derivative financial instruments, at 2 834 fair value Due from brokers, dealers, and trustees 247 8,539 Real estate 62,492 118,827 Reinsurance receivables 9,080 8,802 Management fee receivables 255 249 Policy loans 104,875 99,123 Insurance policies and contracts 39,809 41,379 acquired Deferred policy acquisition costs 4,543 3,878 Separate account assets 4,353,490 4,035,053 Deferred tax assets 4,834 5,342 Notes receivable 6,071 — Accrued interest and dividends 1,048 1,642 receivable Intangible assets 115,286 121,033 Goodwill 4,243 3,088 Assets of consolidated CLOs 1,491,744 851,660 Other assets 16,777 12,351 Total assets $ 6,604,233 $ 5,533,802 Liabilities and Stockholders' Equity Liabilities: Derivative financial instruments, at $ — $ 3,172 fair value U.S. Treasuries, short position 18,945 20,175 Mortgage notes payable 33,254 95,232 Notes payable 146,500 100,416 Loans payable 58,749 — Policy liabilities 114,930 108,868 Separate account liabilities 4,353,490 4,035,053 Due to brokers, dealers and trustees 47,120 — Accrued interest payable 293 420 Liabilities of consolidated CLOs 1,250,931 620,310 Other liabilities and accrued expenses 24,243 14,568 Total liabilities $ 6,048,455 $ 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, 10,260,379 and 10,226,250 11 11 shares issued and outstanding respectively Common stock - Class B: $0.001 par value, 50,000,000 shares authorized, 30,968,877 and 0 shares 31 — issued and outstanding respectively Additional paid-in capital 97,250 96,144 Accumulated other comprehensive income 290 311 Retained earnings 16,652 11,892 Total stockholders' equity of Tiptree 114,234 108,358 Financial Inc. Non-controlling interest 354,667 324,595 Appropriated retained earnings of 86,877 102,635 consolidated TAMCO Total stockholders' equity 555,778 535,588 Total liabilities and stockholders' $ 6,604,233 $ 5,533,802 equity TIPTREE FINANCIAL INC. AND SUBSIDIARIES Summary Consolidated Statements of Operations (unaudited in thousands) Three month Three month Nine month Nine month period ended period ended period ended period ended September 30, September 30, September September 30, 30, 2013 2012 2013 2012 Revenues: Net realized (losses) gains and change in unrealized appreciation (depreciation) on investments: Net realized gains $ 669 $ 620 $ (770) $ 926 (losses) Change in unrealized 5,314 1,816 4,227 9,186 appreciation Net realized and 5,983 2,436 3,457 10,112 unrealized gains Investment income: Interest income 3,916 2,317 11,131 7,498 Separate account and administrative 18,286 15,372 53,192 25,119 service fees Rental revenue 1,363 429 3,279 1,254 Income attributable to consolidated 11,256 23,804 33,475 50,420 CLOs Other income 325 734 701 2,289 Total investment 35,146 42,656 101,778 86,580 income Total net realized and unrealized gains and 41,129 45,092 105,235 96,692 investment income Expenses: Interest expense 4,110 3,348 12,008 4,416 Payroll expense 8,741 7,448 26,277 12,746 Professional fees 2,252 4,755 6,204 9,179 Change in future 1,189 1,047 3,502 3,042 policy benefits Mortality expenses 2,633 2,542 7,885 7,338 Commission expense 631 496 1,805 1,489 Depreciation and amortization 1,215 593 3,382 1,527 expenses Expenses attributable to the 12,783 6,183 34,021 25,190 consolidated CLOs Other expenses 4,240 1,153 10,722 4,922 Total expenses 37,794 27,565 105,806 69,849 Income before taxes from continuing 3,335 17,527 (571) 26,843 operations Provision for 1,434 735 4,549 162 income taxes Income from continuing 1,901 16,792 (5,120) 26,681 operations Discontinued operations: Gain on sale of Bickford portfolio, — — 15,463 — net Income from discontinued — 721 1,647 2,294 operations, net Provision for — — — — income taxes Discontinued — 721 17,110 2,294 Operations, net Net income 1,901 17,513 11,990 28,975 Less net income attributable to the 7,008 9,485 21,185 19,652 noncontrolling interest Less net (loss) income attributable to the VIE (6,937) 4,939 (15,758) 2,815 subordinated noteholders Net income available to common $ 1,830 $ 3,089 $ 6,563 $ 6,508 stockholders SOURCE Tiptree Financial Inc. Contact: (212) 446-1400, firstname.lastname@example.org
Tiptree Financial Inc. Reports Financial Results for the Nine Months Ended September 30, 2013
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