Business Wire | May 5, 2021 04:49PM EDT

Tiptree Reports Q1 2021 Results With Record Revenues and Net Income

May 05, 2021

NEW YORK--(BUSINESS WIRE)--May 05, 2021--Tiptree Inc. (NASDAQ:TIPT) ("Tiptree" or the "Company"), a holding company that combines specialty insurance operations with investment management, today announced its financial results for the three months ended March 31, 2021.

($ in thousands, except per share information) Three Months Ended March 31,

GAAP: 2021 2020

Total revenues $ 294,688 $ 129,671

Net income (loss) attributable to common $ 28,581 $ (60,007 )stockholders

Diluted earnings per share $ 0.81 $ (1.74 )

Cash dividends paid per common share $ 0.04 $ 0.04

Return on average equity 31.8 % (64.1 )%



Non-GAAP: ^(1)

Adjusted net income $ 13,155 $ 6,907

Adjusted return on average equity 13.7 % 7.3 %

Book value per share $ 11.63 $ 9.73

(1) For information relating to Adjusted net income, Adjusted return on average equity and book value per share, including a reconciliation to GAAP financials, see "-Non-GAAP Reconciliations" below.

Earnings Conference Call

Tiptree will host a conference call on Thursday, May 6, 2021 at 9:00 a.m. Eastern Time to discuss its Q1 2021 financial results. A copy of our investor presentation, to be used during the conference call, as well as this press release, will be available in the Investor Relations section of the Company's website, located at www.tiptreeinc.com.

The conference call will be available via live or archived webcast at http://www.investors.tiptreeinc.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. To participate in the telephone conference call, please dial 1-877-407-4018 (domestic) or 1-201-689-8471 (international). Please dial in at least five minutes prior to the start time.

A replay of the call will be available from Thursday, May 6, 2021 at 1:00 p.m. Eastern Time, until midnight Eastern on Thursday, May 13, 2021. To listen to the replay, please dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international), Passcode: 13717974.

Financial Highlights

Overall:

* Net income for Q1'21 of $28.6 million, up from a net loss of $60.0 million in Q1'20 driven by improved performance in insurance and mortgage operations, in addition to realized and unrealized gains on investments in Q1'21 as compared to unrealized losses in Q1'20. * Adjusted net income increased 90.5% to $13.2 million, from $6.9 million in Q1'20, driven by growth and improved margins in insurance and mortgage operations. * Adjusted return on average equity was 13.7% in Q1'21, as compared to 7.3% in Q1'20. * Book value per share of $11.63 as of March 31, 2021, when combined with dividends paid, increased 21.2% from the prior year, driven by a combination of net income and share repurchases at discounts to book value per share. * In Q1'21, Tiptree purchased and retired 488,662 shares of common stock for $2.5 million in aggregate, at an average 57% discount to book value. Over the past four quarters, $17.8 million of capital returned to shareholders including 2,289,817 share repurchases at an average 49% discount to book value per share.

Insurance (Fortegra Group):

* Gross written premiums and premium equivalents of $505.0 million, up 28.7% versus prior year driven by robust 27.9% organic growth with all lines of business and regions contributing. * Total revenues increased 55.3% to $222.6 million, from $143.3 million in Q1'20, driven by increases in earned premiums, net, service and administrative fees, and net realized and unrealized gains in Q1'21 as compared to losses in Q1'20. Excluding the impact of realized and unrealized gains and losses, revenues increased by 20.3% over the prior year period. * The combined ratio improved to 91.5%, as compared to 93.6% in the prior year period driven by the shift in business mix toward warranty and commercial programs improving the underwriting ratio along with continued scalability of the technology and shared service platform improving the expense ratio. * Income before taxes of $21.5 million in Q1'21, increased $48.6 million as compared to a loss before taxes of $27.1 million in 2020. Return on average equity was 23.9% in Q1'21 as compared to (28.3)% in Q1'20. * Adjusted net income increased 46.3% to $12.8 million, as compared to $8.7 million in Q1'20. Adjusted return on average equity was 17.9%, as compared to 12.7% in Q1'20. The increase in both metrics was driven by growth in revenues and the improved combined ratio.

Mortgage:

* Income before taxes of $13.1 million compared to loss before taxes of $1.1 million in prior year period. Return on average equity of 60.9%, compared to (6.8)%. * Adjusted net income of $7.5 million in Q1'21, an increase of $7.3 million from Q1'20. Adjusted return on average equity of 45.6% compared to 2.3% in Q1'20. The increase in both metrics was driven by growth in volumes and margins resulting from reduced interest rates and home price appreciation.

Results of Operations

Revenues

For the three months ended March 31, 2021, revenues were $294.7 million, which increased $165.0 million or 127.3% compared to the prior year period, primarily due to net realized and unrealized gains in the 2021 period compared to losses in the 2020 period. Additionally, growth in Fortegra's commercial, credit and warranty programs resulted in increases to earned premiums, net, and service and administrative fees, and improvements in mortgage volumes and margins led to increased realized gains.

The combination of unearned premiums and deferred revenues of $1,316.6 million on the balance sheet grew by $283.5 million, or 27.4%, from March 31, 2020 to March 31, 2021 as a result of Fortegra's growth in gross written premiums and premium equivalents, primarily related to commercial, credit and warranty programs.

The table below provides a breakdown between net realized and unrealized gains and losses from Invesque and other securities, which impacted our consolidated results on a pre-tax basis. Many of our investments are carried at fair value and marked to market through unrealized gains and losses. As a result, we expect our earnings relating to these investments to be relatively volatile between periods. Our fixed income securities are primarily marked to market through accumulated other comprehensive income (AOCI) in stockholders' equity and do not impact net realized and unrealized gains and losses until they are sold.

($ in thousands) Three Months Ended March 31,

2021 2020

Net realized and unrealized gains (losses)^(1) $ 10,215 $ (24,791 )

Net realized and unrealized gains (losses) - $ 16,643 $ (58,713 ) Invesque

(1) Excludes Invesque and Mortgage realized and unrealized gains and losses.

Net Income (Loss) Attributable to Common Stockholders

For the three months ended March 31, 2021, net income attributable to common stockholders was $28.6 million, an increase of $88.6 million from a net loss of $60.0 million for the three months ended March 31, 2020. The increase for the three months ended March 31, 2021 was primarily driven by the same factors that impacted revenues in the respective periods.

Non-GAAP

Management uses Adjusted net income and book value per share as measurements of operating performance. Management believes these measures provide supplemental information useful to investors as they are frequently used by the financial community to analyze financial performance and comparison among companies. Management uses Adjusted net income and adjusted return on average equity as part of its capital allocation process and to assess comparative returns on invested capital. Adjusted net income represents income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, stock-based compensation, net realized and unrealized gains (losses), and intangibles amortization associated with purchase accounting. Adjusted net income and Adjusted return on average equity are not measurements of financial performance or liquidity under GAAP and should not be considered as an alternative or substitute for GAAP net income. See "Non-GAAP Reconciliations" for a reconciliation of these measures to their GAAP equivalents.

Adjusted net income for the three months ended March 31, 2021 was $13.2 million, an increase of $6.2 million from the prior year period. For March 31, 2021, adjusted return on average equity was 13.7%, as compared to 7.3% at March 31, 2020, with the increase in both metrics driven by improved performance in our insurance and mortgage operations.

Total stockholders' equity was $397.4 million as of March 31, 2021 compared to $344.3 million as of March 31, 2020. In the four quarters ended March 31, 2021, Tiptree returned $17.8 million to shareholders through share repurchases and dividends paid. Book value per share for the period ended March 31, 2021 was $11.63, an increase from book value per share of $9.73 as of March 31, 2020. The key drivers of the increase from the prior year were income per share and the purchase of 2.3 million shares at an average 49% discount to book value over the past four quarters. The increase was partially offset by dividends paid of $0.16 per share.

Results by Segment

We classify our business into two reportable segments, Insurance and Mortgage, with the remainder of our operations aggregated into Tiptree Capital - Other. Corporate activities include holding company interest expense, corporate employee compensation and benefits, and other expenses, including, but not limited to, public company expenses.

Pre-tax Income

($ in thousands) Three Months Ended March 31,

2021 2020

Insurance $ 21,528 $ (27,117)

Mortgage 13,077 (1,090)

Tiptree Capital - other 14,994 (45,241)

Corporate (10,207 ) (8,303)

Income (loss) before taxes $ 39,392 $ (81,751)

Adjusted net income - Non-GAAP (1)

The following tables present the components of Adjusted net income.

($ in thousands) Three Months Ended March 31,

2021 2020

Insurance $ 12,776 $ 8,734

Mortgage 7,465 196

Tiptree Capital - other 567 3,291

Corporate (7,653) (5,314 )

Adjusted net income^ (1) $ 13,155 $ 6,907

(1)For further information relating to the Company's Adjusted net income, including a reconciliation to GAAP income (loss) before taxes, see "-Non-GAAP Reconciliations."

About Tiptree

Tiptree Inc. (NASDAQ: TIPT) is a holding company that allocates capital across a broad spectrum of businesses, assets and other investments. Our principal operating business, Fortegra, is a specialty insurance program underwriter and service provider, which focuses on niche business lines and fee-oriented services. We also allocate capital to a diverse group of businesses and investments that we refer to as Tiptree Capital. For more information, please visit www.tiptreeinc.com.

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 for our businesses 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. 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.

Tiptree Inc.

Condensed Consolidated Balance Sheets

($ in thousands, except share data)

As of

March 31, December 31, 2021 2020

Assets:

Investments:

Available for sale securities, at fair value, net $ 409,947 $ 377,133 of allowance for credit losses

Loans, at fair value 110,458 90,732

Equity securities 145,022 123,838

Other investments 218,471 219,701

Total investments 883,898 811,404

Cash and cash equivalents 123,879 136,920

Restricted cash 53,294 58,355

Notes and accounts receivable, net 348,314 370,452

Reinsurance receivables 713,730 728,009

Deferred acquisition costs 272,924 229,430

Goodwill 179,236 179,236

Intangible assets, net 134,315 138,215

Other assets 179,688 162,034

Assets held for sale 159,335 181,705

Total assets $ 3,048,613 $ 2,995,760



Liabilities and Stockholders' Equity

Liabilities:

Debt, net $ 393,959 $ 366,246

Unearned premiums 892,009 860,690

Policy liabilities and unpaid claims 251,323 233,438

Deferred revenue 424,608 399,211

Reinsurance payable 201,331 224,660

Other liabilities and accrued expenses 335,523 362,865

Liabilities held for sale 152,461 175,112

Total liabilities $ 2,651,214 $ 2,622,222



Stockholders' Equity:

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

Common stock: $0.001 par value, 200,000,000shares authorized, 32,538,486 and 32,682,462 33 33 shares issued and outstanding, respectively

Additional paid-in capital 313,140 315,014

Accumulated other comprehensive income (loss), 2,592 5,674 net of tax

Retained earnings 62,678 35,423

Total Tiptree Inc. stockholders' equity 378,443 356,144

Non-controlling interests 18,956 17,394

Total stockholders' equity 397,399 373,538

Total liabilities and stockholders' equity $ 3,048,613 $ 2,995,760

Tiptree Inc.

Condensed Consolidated Statements of Operations

($ in thousands, except share data)

Three Months Ended March 31,

2021

2020

Revenues:

Earned premiums, net

$

146,919

$

121,321

Service and administrative fees

58,050

43,724

Ceding commissions

3,025

6,525

Net investment income

2,767

3,488

Net realized and unrealized gains (losses)

69,371

(62,441

)

Other revenue

14,556

17,054

Total revenues

294,688

129,671

Expenses:

Policy and contract benefits

67,174

60,876

Commission expense

88,645

70,401

Employee compensation and benefits

52,924

38,501

Interest expense

9,252

7,551

Depreciation and amortization

5,934

3,863

Other expenses

31,367

30,230

Total expenses

255,296

211,422

Income (loss) before taxes

39,392

(81,751

)

Less: provision (benefit) for income taxes

8,752

(21,181

)

Net income (loss)

30,640

(60,570

)

Less: net income (loss) attributable to non-controlling interests

2,059

(563

)

Net income (loss) attributable to common stockholders

$

28,581

$

(60,007

)

Net income (loss) per common share:

Basic earnings per share

$

0.86

$

(1.74

)

Diluted earnings per share

$

0.81

$

(1.74

)

Weighted average number of common shares:

Basic

32,420,982

34,566,330

Diluted

36,184,019

34,566,330

Dividends declared per common share

$

0.04

$

0.04

Tiptree Inc. Non-GAAP Reconciliations (Unaudited)

Non-GAAP Financial Measures - Adjusted net income and Adjusted return on average equity

The Company defines Adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting. We use adjusted net income as an internal operating performance measure in the management of business as part of our capital allocation process. We believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and for comparison among companies. Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently.

We define Adjusted return on average equity as Adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholder's equity during the period. We use Adjusted return on average equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance with GAAP, and other companies may define adjusted return on average equity differently.

Tiptree Inc.

Condensed Consolidated Statements of Operations

($ in thousands, except share data)

Three Months Ended March 31,

2021 2020

Revenues:

Earned premiums, net $ 146,919 $ 121,321

Service and administrative fees 58,050 43,724

Ceding commissions 3,025 6,525

Net investment income 2,767 3,488

Net realized and unrealized gains (losses) 69,371 (62,441 )

Other revenue 14,556 17,054

Total revenues 294,688 129,671

Expenses:

Policy and contract benefits 67,174 60,876

Commission expense 88,645 70,401

Employee compensation and benefits 52,924 38,501

Interest expense 9,252 7,551

Depreciation and amortization 5,934 3,863

Other expenses 31,367 30,230

Total expenses 255,296 211,422

Income (loss) before taxes 39,392 (81,751 )

Less: provision (benefit) for income taxes 8,752 (21,181 )

Net income (loss) 30,640 (60,570 )

Less: net income (loss) attributable to 2,059 (563 )non-controlling interests

Net income (loss) attributable to common $ 28,581 $ (60,007 )stockholders



Net income (loss) per common share:

Basic earnings per share $ 0.86 $ (1.74 )

Diluted earnings per share $ 0.81 $ (1.74 )



Weighted average number of common shares:

Basic 32,420,982 34,566,330

Diluted 36,184,019 34,566,330

Dividends declared per common share $ 0.04 $ 0.04



Tiptree Inc. Non-GAAP Reconciliations (Unaudited)

Non-GAAP Financial Measures - Adjusted net income and Adjusted return on average equity

The Company defines Adjusted net income as income before taxes, less provision (benefit) for income taxes, and excluding the after-tax impact of various expenses that we consider to be unique and non-recurring in nature, including merger and acquisition related expenses, stock-based compensation, net realized and unrealized gains (losses) and intangibles amortization associated with purchase accounting. We use adjusted net income as an internal operating performance measure in the management of business as part of our capital allocation process. We believe adjusted net income provides useful supplemental information to investors as it is frequently used by the financial community to analyze financial performance between periods and for comparison among companies. Adjusted net income should not be viewed as a substitute for income before taxes calculated in accordance with GAAP, and other companies may define adjusted net income differently.

We define Adjusted return on average equity as Adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholder's equity during the period. We use Adjusted return on average equity as an internal performance measure in the management of our operations because we believe it gives our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Adjusted return on average equity should not be viewed as a substitute for return on average equity calculated in accordance with GAAP, and other companies may define adjusted return on average equity differently.

Three Months Ended March 31, 2021

Tiptree Capital

($ in Insurance Mortgage Other Corporate Totalthousands) Expenses

Income (loss) $ 21,528 $ 13,077 $ 14,994 $ (10,207) $ 39,392 before taxes

Less: Incometax (benefit) (4,429 ) (3,096 ) (2,907 ) 1,680 (8,752 )expense

Less: Netrealized andunrealized (9,624 ) (3,420 ) (13,766 ) - (26,810 )gains (losses)^(1)

Plus:Intangibles 3,834 - - - 3,834 amortization ^(2)

Plus:Stock-based 372 165 8 520 1,065 compensationexpense

Plus:Non-recurring 270 - - - 270 expenses

Plus: Non-cashfair value - - (657 ) - (657 )adjustments

Less: Tax on 825 739 2,895 354 4,813 adjustments

Adjusted net $ 12,776 $ 7,465 $ 567 $ (7,653) $ 13,155 income



Adjusted net $ 12,776 $ 7,465 $ 567 $ (7,653) $ 13,155 income

Averagestockholders' 285,885 65,533 113,218 (79,166) 385,470 equity

Adjustedreturn on 17.9 % 45.6 % 2.0 % NM% 13.7 %average equity

Three Months Ended March 31, 2020

Tiptree Capital

($ in thousands)

Insurance

Mortgage

Other

Corporate Expenses

Total

Income (loss) before taxes

$

(27,117

)

$

(1,090)

$

(45,241)

$

(8,303)

$

(81,751

)

Less: Income tax (benefit) expense

7,663

515

9,672

3,331

21,181

Less: Net realized and unrealized gains (losses)

33,601

1,348

48,555

-

83,504

Plus: Intangibles amortization (2)

2,168

-

-

-

2,168

Plus: Stock-based compensation expense

351

-

151

1,169

1,671

Plus: Non-recurring expenses

2,195

-

-

407

2,602

Plus: Non-cash fair value adjustments

-

-

351

-

351

Less: Tax on adjustments

(10,127

)

(577)

(10,197)

(1,918)

(22,819

)

Adjusted net income

$

8,734

$

196

$

3,291

$

(5,314)

$

6,907

Adjusted net income

$

8,734

$

196

$

3,291

$

(5,314)

$

6,907

Average stockholders' equity

274,922

33,656

147,480

(78,182)

377,876

Adjusted return on average equity

12.7

%

2.3

%

8.9

%

NM%

7.3

%

(1) Results for the three months ended March 31, 2021 included $48 of incentive fees paid with respect to specific unrealized and realized gains that are added-back to Adjusted net income.

(2) Specifically associated with acquisition purchase accounting.

Non-GAAP Financial Measures - Book value per share

Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders' equity and total shares outstanding, net of treasury shares.

Three Months Ended March 31, 2020

Tiptree Capital

($ in Insurance Mortgage Other Corporate Totalthousands) Expenses

Income (loss) $ (27,117 ) $ (1,090) $ (45,241) $ (8,303) $ (81,751 )before taxes

Less: Incometax (benefit) 7,663 515 9,672 3,331 21,181 expense

Less: Netrealized andunrealized 33,601 1,348 48,555 - 83,504 gains(losses)

Plus:Intangibles 2,168 - - - 2,168 amortization^(2)

Plus:Stock-based 351 - 151 1,169 1,671 compensationexpense

Plus:Non-recurring 2,195 - - 407 2,602 expenses

Plus:Non-cash fair - - 351 - 351 valueadjustments

Less: Tax on (10,127 ) (577) (10,197) (1,918) (22,819 )adjustments

Adjusted net $ 8,734 $ 196 $ 3,291 $ (5,314) $ 6,907 income



Adjusted net $ 8,734 $ 196 $ 3,291 $ (5,314) $ 6,907 income

Averagestockholders' 274,922 33,656 147,480 (78,182) 377,876 equity

Adjustedreturn on 12.7 % 2.3 % 8.9 % NM% 7.3 %averageequity

(1) Results for the three months ended March 31, 2021 included $48 of incentive fees paid with respect to specific unrealized and realized gains that are added-back to Adjusted net income.

(2) Specifically associated with acquisition purchase accounting.

Non-GAAP Financial Measures - Book value per share

Management believes the use of this financial measure provides supplemental information useful to investors as book value is frequently used by the financial community to analyze company growth on a relative per share basis. The following table provides a reconciliation between total stockholders' equity and total shares outstanding, net of treasury shares.

($ in thousands, except per share information) As of March 31, 2021

2021 2020

Total stockholders' equity $ 397,399 $ 344,336

Less: Non-controlling interests 18,956 10,483

Total stockholders' equity, net of non-controlling $ 378,443 $ 333,853 interests



Total common shares outstanding 32,538 34,302



Book value per share $ 11.63 $ 9.73

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CONTACT: Tiptree Inc. Investor Relations, 212-446-1400 ir@tiptreeinc.com