Press Release

Tiptree Financial Inc. Reports Second Quarter 2015 Financial Results

Company Release - 8/13/2015 6:15 AM ET
  • Tiptree Financial Inc. GAAP net income of $15.0 million for the second quarter and $14.0 million for the first half of 2015, representing its 77% ownership of Tiptree Operating Company, which had GAAP net income of $19.8 million for the second quarter and $18.0 million for the first half of 2015.
  • Tiptree Operating Company total Adjusted EBITDA of $32.2 million for the second quarter and $45.2 million for the first half of 2015.
  • Tiptree Operating Company Adjusted EBITDA for continuing operations of $7.2 million for the second quarter and $12.0 million for the first half of 2015.
  • Declared dividend of $0.025 per share to Class A stockholders.
  • GAAP book value of $9.34 per Class A common share as of June 30, 2015.

NEW YORK--(BUSINESS WIRE)-- Tiptree Financial Inc. (NASDAQ:TIPT) (“Tiptree Financial”), a diversified holding company which operates in the insurance and insurance services, specialty finance, asset management and real estate industries, today announced its financial results for the quarter and six months ended June 30, 2015. Tiptree Financial operates its business through Tiptree Operating Company, LLC (“Tiptree” or the “Company”), which is owned 77% by Tiptree Financial and 23% by Tiptree Financial Partners, L.P. (“TFP”). This release reports both the results of Tiptree and the results available to Tiptree Financial’s Class A stockholders.

Second Quarter 2015 Highlights

  • Completed the sale of Philadelphia Financial Group, Inc. (“PFG”) for a net after tax gain of $16.3 million. We received proceeds of $142.8 million and the tax associated with the sale of PFG is expected to be approximately $25.9 million.
  • First six months of 2015 Fortegra Financial Corporation (“Fortegra”) contributed $10.3 million in pre-tax earnings to consolidated results.
  • Sold CLO subordinated notes in Telos CLO 2007-2, Ltd. (“Telos 2”) and Telos CLO 2013-4, Ltd. (“Telos 4”) for net cash of $39.7 million partly to fund the diversification of our principal investments and secondarily to recycle capital from existing, amortizing CLOs into a new loan warehouse facility with the objective of creating new CLOs to increase asset management fees.
  • Invested $25.0 million in its credit opportunity strategy which involves the leveraged purchase of commercial loans.
  • Tiptree invested approximately $9.7 million in a pool of non-performing residential mortgages securing single family properties.

Subsequent Events

  • Closed its previously announced acquisition of Reliance First Capital, LLC, a retail mortgage origination company for a combination of cash and Class A Common Stock of Tiptree.
  • Contributed $30 million to Telos 2015-7, Ltd. and established a new warehouse line to leverage investments in loans in anticipation of launching a new CLO.
  • Declared a dividend of $0.025 per share to Class A stockholders and TFP limited partners on an as exchanged basis with a record date of August 24, 2015, and a payment date of August 31, 2015.
  • The Board has approved a stock purchase program for the purchase of up to an aggregate of $5 million of Class A common stock by the Company and Michael Barnes that has not yet commenced.

Geoffrey Kauffman, Co-Chief Executive Officer of Tiptree Financial, commented, “We are pleased with Tiptree’s results for the quarter and are confident that our strategic direction to take advantage of positive economic trends puts the Company in a strong position to drive long term shareholder value.”

Second Quarter and First Half 2015 Financial Overview

Consolidated Results

For the three months ended June 30, 2015, the Company reported after-tax net income of $19.8 million compared with after tax net income of $4.0 million in the comparable period of 2014. For the six months ended June 30, 2015, the Company reported after tax net income of $17.8 million compared with after tax net income of $7.6 million in the comparable period in 2014. The increases in both periods were primarily driven by the $27.2 million pre-tax gain (or $16.3 million after-tax gain) on the sale of the Company’s PFG subsidiary, the incorporation of Fortegra’s pre-tax earnings of $6.3 million in the second quarter of 2015 ($10.3 million for the six months ended June 30, 2015), partially offset by the loss on the sales of subordinated notes in Telos 2 and Telos 4.

The Company’s total adjusted EBITDA was $32.2 million in the three months ended June 30, 2015, compared with total adjusted EBITDA of $11.4 million in the three months ended June 30, 2014. The primary driver of the increase in total adjusted EBITDA was the gain on sale of PFG. The primary driver of the increase in adjusted EBITDA for continuing operations was the incorporation of Fortegra’s adjusted EBITDA of $9.2 million for the second quarter of 2015.

The Company’s total adjusted EBITDA was $45.2 million in the six months ended June 30, 2015, compared with total adjusted EBITDA of $21.9 million in the six months ended June 30, 2014. The primary driver of the increase in total adjusted EBITDA was the gain on sale of PFG, partially offset by the loss on the sale of subordinated notes in Telos 2 and Telos 4. The primary driver of the increase in adjusted EBITDA for continuing operations was the incorporation of Fortegra’s results for the first half of 2015 of $17.5 million.

Management believes that adjusted EBITDA provides a supplementary metric to enhance investors’ understanding of the on-going earnings potential of the Company’s businesses and an indication of the Company’s ability to generate additional funds for re-investment in the combined businesses. As adjusted EBITDA is a Non-GAAP measure, it should be reviewed in conjunction with the Company’s GAAP results. See “Non-GAAP Financial Measures-EBITDA and Adjusted EBITDA” below for further information relating to the Company’s adjusted EBITDA measure, including a reconciliation to GAAP net income.

Segment Results

Insurance and Insurance Services segment

Insurance and insurance services segment pre-tax income was $6.3 million for the second quarter and $10.3 million for the first half of 2015. Pre-tax income increased from $4.0 million in the first quarter of 2015 to $6.3 million in the second quarter of 2015. The quarter over quarter improvement in revenues was largely attributable to strong sales of credit and warranty insurance products partially offset by competitive pressure in mobile device protection plans and motor club memberships resulting in reduced contract volumes in those two product lines. Results in this segment reflect our acquisition of Fortegra in December 2014 and previously reflected the results of PFG prior to PFG being treated as a discontinued operation. As such, given that segment results year over year reflect different business models and different earnings profiles, we have not provided year over year comparisons.

Specialty Finance segment

Specialty Finance segment pre-tax income was $568 thousand for the three months ended June 30, 2015, compared with a pre-tax net loss of $731 thousand for the second quarter of 2014. For the six months ended June 30, 2015, the specialty finance segment pre-tax net income was $1.0 million, compared with a pre-tax net loss of $1.5 million for the prior year comparable period. The Luxury and Siena businesses benefited from an improving US economy. The increase is primarily driven by increased mortgage originations at Luxury and higher lending volume at Siena. At Luxury, the subsidiary’s improved business outlook reflects the improving housing and mortgage markets, while Siena’s improved results reflect the growing confidence of small businesses to borrow and invest.

Real Estate segment

Care had a pre-tax net loss of $2.0 million for the second quarter of 2015, compared with a pre-tax net loss of $751 thousand in the second quarter of 2014. Care had a pre-tax loss of $6.2 million in the first half of 2015, compared with pre-tax loss of $1.5 million in the first half of 2014. Care made significant investments in senior housing properties and joint ventures during 2014 and the first quarter of 2015. The increase in the number of Care properties generated higher rental and other income in the first half of 2015, but the revenue improvement was more than offset by additional amortization expenses as the result of increased value attributable to the acquired properties as a consequence of the expansion in Care’s business.

Care had Adjusted EBITDA of $2.0 million for the second quarter of 2015 compared to $784 thousand in the comparable period of 2014 and $2.7 million of Adjusted EBITDA for the first half of 2015 compared to $1.6 million in the comparable period in 2014. See “—Non-GAAP Financial Measures - EBITDA and Adjusted EBITDA” below for a reconciliation to GAAP net income.

Asset Management

Pre-tax net income for the asset management segment was $2.4 million for the second quarter of 2015, compared with pre-tax net income of $2.6 million for the second quarter of 2014, a decline of $0.2 million. Pre-tax net income for the first half of 2015 was $4.5 million, as compared to $4.9 million in the prior year period. The principal reason for the decline was the reduction in CLO management fees, driven by a combination of amortized AUM and lower fees.

Net Income attributable to CLOs managed by the Company

Pre-tax net income from the Company’s CLO business was $1.9 million for the second quarter of 2015, compared with net pre-tax net income of $7.1 million in the second quarter of 2014. Pre-tax net income attributable to consolidated CLOs was $2.7 million in the first half of 2015 versus $11.7 million in the prior year period. The primary drivers of the decline in 2015 were attributable to realized and unrealized losses incurred on the Company’s holdings of CLO subordinated notes in the second quarter of 2015. The Company sold its holdings of subordinated notes issued by Telos 2 and Telos 4 during the second quarter of 2015. The sale generated net cash proceeds of $39.7 million and realized a total cumulative loss of $22.0 million, of which a net total of $8.0 million was recognized in the first half of 2015. The total cumulative realized loss on the CLO subordinated notes sold was offset by total cumulative distributions of $94.3 million received by the company over the period the subordinated notes were held, of which $3.2 million was earned in 2015. The sale had the effect of reducing the total amount of distributions earned from holdings of subordinated notes in the second quarter of 2015. A portion of the proceeds, $30 million, was invested into a new loan warehouse facility in the third quarter 2015 in anticipation of the creation of a new CLO (Telos 7). Net interest income from the redeployment of these proceeds into new loans will be recorded in the second half of the year until the CLO is issued, offsetting a portion of the loss of the future dividend income on the subordinated notes sold. A component of the realized loss on the sale of the subordinated notes is attributable to the future value of this loss in the dividend income.

Corporate and Other

The Company’s corporate and other segment incorporates revenues from the Company’s principal investment activities, including investments in CLO subordinated notes, investments in tax exempt securities, income from the Company’s credit investment portfolio, net interest income from any loans funded through warehouse facilities and net gains or losses from the Company’s corporate finance activity, including the interest rate and credit derivative risk mitigation transactions. Segment expenses include interest expense on the Fortress credit facility and head office payroll and other expenses.

Pre-tax loss from the corporate and other segment for the second quarter 2015 was $8.8 million compared to $339 thousand in the comparable period in 2014. Pre-tax loss from the corporate and other segment for the six months ended June 30, 2015 was $17.1 million compared to a pre-tax income of $502 thousand for the comparable period in 2014. The primary driver of the loss in the second quarter and first six months of 2015 was realized and unrealized net losses of $11.9 million on CLO subordinated notes compared to net income generated by warehouse credit facilities in place in the first half of 2014, as discussed above.

Earnings Conference Call

Tiptree Financial will host a conference call on Friday, August 14, 2015 at 11:00 a.m. Eastern Time to discuss its second quarter 2015 financial results. A copy of our investor presentation for the second quarter 2015, 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.tiptreefinancial.com.

The conference call will be available via live or archived webcast at http://www.investors.tiptreefinancial.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 Friday, August 14, 2015 at 2:00 p.m. Eastern Time, until midnight Eastern on Friday, August 21, 2015. To listen to the replay, please dial 1-877-870-5176 (domestic) or 1-858-384-5517 (international), Passcode 13617634.

About Tiptree

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 five segments: insurance and insurance services, specialty finance, asset management, real estate and corporate and other (which includes Tiptree’s principal investments).

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. 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 Financial Inc. As of

Consolidated Statements of Financial Condition (GAAP)
(in thousands except per share amounts)

June 30,
2015

 

December 31,
2014

(Unaudited) As adjusted
Cash and cash equivalents – unrestricted $ 170,100 $ 52,987
Cash and cash equivalents – restricted 30,085 28,045
Trading assets, at fair value 31,824 30,163
Investments in available for sale securities, at fair value 179,772 171,128
Mortgage loans held for sale, at fair value 56,417 28,661
Investments in loans, at fair value 63,718 2,601
Loans owned, at amortized cost – net of allowance 51,439 36,095
Notes receivable, net 21,647 21,916
Accounts and premiums receivable, net 56,947 39,666
Reinsurance receivables 300,065 264,776
Investments in partially-owned entities 113 2,451
Real estate 208,565 131,308
Intangible assets 103,607 120,394
Other receivables 46,565 36,068
Goodwill 92,118 92,118
Other assets 76,131 36,875
Assets of consolidated CLOs 1,883,030 1,978,094
Assets held for sale   5,129,745  
Total assets $ 3,372,143   $ 8,203,091  
Liabilities and Stockholders’ Equity

Liabilities:

Trading liabilities, at fair value $ 22,371 $ 22,573
Debt 464,372 363,199
Unearned premiums 333,560 299,826
Policy liabilities 69,638 63,365
Deferred revenue 65,594 45,393
Deferred tax liabilities 32,473 45,925
Commissions payable 6,904 12,983
Other liabilities and accrued expenses 135,876 63,928
Liabilities of consolidated CLOs 1,835,238 1,877,377
Liabilities held for sale and discontinued operations 771   5,006,901  
Total liabilities $ 2,966,797   $ 7,801,470  

Stockholders’ Equity:

Preferred stock $ $
Common stock - Class A 32 32
Common stock - Class B 10 10
Additional paid-in capital 271,189 271,090
Accumulated other comprehensive income (265 ) (49 )
Retained earnings 25,758   13,379  
Total stockholders’ equity of Tiptree Financial Inc. 296,724 284,462
Non-controlling interests (including $92,968 and $90,144 attributable to Tiptree Financial Partners, L.P., respectively) 108,622   117,159  
Total stockholders’ equity 405,346   401,621  
Total liabilities and stockholders’ equity $ 3,372,143   $ 8,203,091  
   
Book Value Per Share - Tiptree Financial Inc.

June 30,
2015

December 31,
2014

Total stockholders’ equity of Tiptree Financial Inc. $ 296,724 $ 284,462
Class A common stock outstanding 31,764 31,830
Class A book value per common share (1) $ 9.34 $ 8.94
 

Note:

(1) See “—Tiptree Financial Inc. and the Company Book Value Per Share” below for further discussion of book value per common share.

   

Tiptree Financial Inc.

Consolidated Statements of Income (GAAP)

 
(Unaudited, in thousands, except share and per share data) Three months ended June 30, Six months ended June 30,
2015   2014 2015   2014
Revenues: As adjusted As adjusted
Net realized and unrealized gains (losses) on investments $ 443   $ (29 ) $ 222 $ 875
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments 368 105 719 190
Interest income 2,867 3,184 5,163 7,176
Net credit derivative losses (444 ) (1,257 ) (534 ) (1,521 )
Service and administrative fees 25,545 47,472
Ceding commissions 10,148 20,085
Earned premiums, net 39,707 77,060
Gain on sale of loans held for sale, net 4,005 1,759 6,598 2,734
Loan fee income 1,882 980 3,281 1,409
Rental revenue 11,191 4,383 20,560 8,839
Other income 3,467   515   6,563   804  
Total revenue 99,179   9,640   187,189   20,506  
Expenses:
Interest expense 6,194 2,643 11,323 5,457
Payroll and employee commissions 23,429 7,297 43,770 13,012
Commission expense 23,927 40,455
Member benefit claims 8,240 15,819
Net losses and loss adjustment expenses 12,926 25,376
Professional fees 3,671 1,916 8,299 2,990
Depreciation and amortization expenses 11,359 1,662 26,823 3,330
Acquisition costs 1,349
Other expenses 12,929   2,437   24,073   5,015  
Total expense 102,675   15,955   197,287   29,804  
 
Results of consolidated CLOs:
Income attributable to consolidated CLOs 19,033 18,083 34,696 32,698
Expenses attributable to consolidated CLOs 17,117   11,012   32,038   20,984  
Net Income attributable to consolidated CLOs 1,916   7,071   2,658   11,714  
(Loss) income before taxes from continuing operations (1,580 ) 756 (7,440 ) 2,416
Less: Provision (benefit) for income taxes (371 ) (1,080 ) (1,867 ) (1,732 )
(Loss) income from continuing operations (1,209 ) 1,836 (5,573 ) 4,148
 
Discontinued operations:
Income from discontinued operations, net 4,654 2,186 6,999 3,476
Gain on sale of discontinued operations, net 16,349     16,349    
Discontinued operations, net 21,003   2,186   23,348   3,476  
Net income before non-controlling interests 19,794 4,022 17,775 7,624
Less: net income attributable to noncontrolling interests - Tiptree Financial Partners, L.P. 4,735 2,245 3,875 4,551
Less: net income (loss) attributable to noncontrolling interests - Other 97   (262 ) (83 ) (592 )
Net income available to common stockholders $ 14,962   $ 2,039   $ 13,983   $ 3,665  
 
Net income (loss) per Class A common share:
Basic, continuing operations, net $ (0.03 ) $ 0.14 $ (0.11 ) $ 0.27
Basic, discontinued operations, net 0.50   0.05   0.55   0.08  
Net income basic 0.47   0.19   0.44   0.35  
 
Diluted, continuing operations, net (0.03 ) 0.14 (0.11 ) 0.27
Diluted, discontinued operations, net 0.50   0.05   0.55   0.08  
Net income dilutive $ 0.47   $ 0.19   $ 0.44   $ 0.35  
Weighted average number of Class A common shares:
Basic

31,881,904

10,617,863

31,962,065

10,602,311
Diluted

31,881,904

10,617,863

31,962,065

10,602,311
 
 

Tiptree Financial Inc.

Segment Statement of Operations

(Unaudited, in thousands)

Three months ended June 30, 2015

Insurance
and insurance
services(1)

 

Specialty
finance

  Real estate  

Asset
management

 

Corporate
and other

  Totals
Net realized and unrealized gains (losses) on investments $ 5 $ (195 ) $ 369 $ $ 264 $ 443
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments 368 368
Interest income 687 1,822 25 333 2,867
Service and administrative fees 25,545 25,545
Ceding commissions 10,148 10,148
Earned premiums, net 39,707 39,707
Gain on sale of loans held for sale, net 4,005 4,005
Loan fee income 1,882 1,882
Rental revenue 7 11,184 11,191
Other income 2,429   91   772   38   (307 ) 3,023  
Total revenue 78,521   7,980   12,350   38   290   99,179  
 
Interest expense 1,775 834 1,810 1,775 6,194
Payroll and employee commissions 9,678 4,520 4,129 264 4,838 23,429
Commission expense 23,927 23,927
Member benefit claims 8,240 8,240
Net losses and loss adjustment expenses 12,926 12,926
Depreciation and amortization expenses 7,258 124 3,945 32 11,359
Other expenses 8,417   1,934   4,435   175   1,639   16,600  
Total expense 72,221 7,412 14,319 439 8,284 102,675
Net income attributable to consolidated CLOs       2,752   (836 ) 1,916  
Pre-tax income (loss) $ 6,300   $ 568   $ (1,969 ) $ 2,351   $ (8,830 ) $ (1,580 )
Less: Provision (benefit) for income taxes (371 )
Discontinued operations 21,003  
Net income before non-controlling interests $ 19,794
Less: net income attributable to noncontrolling interests from continuing operations and discontinued operations - Tiptree Financial Partners, L.P. 4,735
Less: net income attributable to noncontrolling interests from continuing operations and discontinued operations - Other 97  
Net income available to common stockholders $ 14,962  
 

Note:

(1) The revenues and expenses associated with PFG are reported in Discontinued Operations.

 
Tiptree Financial Inc.
Segment Statement of Operations

(Unaudited, in thousands)

Three months ended June 30, 2014

Insurance
and insurance
services(1)

 

Specialty
finance

  Real estate  

Asset
management

 

Corporate
and other

  Totals
Net realized and unrealized gains (losses) on investments $ $ 148 $ (415 ) $ $ 238 $ (29 )
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments 105 105
Interest income 766 682 1,736 3,184
Gain on sale of loans held for sale, net 1,759 1,759
Loan fee income 980 980
Rental revenue 7 4,376 4,383
Other income   91   192   64   (1,089 ) (742 )
Total revenue   3,856   4,835   64   885   9,640  
 
Interest expense 311 978 1,354 2,643
Payroll and employee commissions 2,799 1,716 324 2,458 7,297
Depreciation and amortization expenses 127 1,535 1,662
Other expenses   1,240   1,357   173   1,583   4,353  
Total expense 4,477 5,586 497 5,395 15,955
Net intersegment revenue/(expense) (110 ) 110
Net income attributable to consolidated CLOs       3,010   4,061   7,071  
Pre-tax income (loss) $   $ (731 ) $ (751 ) $ 2,577   $ (339 ) $ 756  
Less: Provision (benefit) for income taxes (1,080 )
Discontinued operations 2,186  
Net income before non-controlling interests $ 4,022
Less: net income attributable to noncontrolling interests from continuing operations and discontinued operations - Tiptree Financial Partners, L.P. 2,245
Less: net (loss) attributable to noncontrolling interests from continuing operations and discontinued operations - Other (262 )
Net income available to common stockholders $ 2,039  

Note:

(1) The revenues and expenses associated with PFG are reported in Discontinued Operations. There is no activity reported in the second quarter of 2014 for this segment as Tiptree acquired Fortegra on December 4, 2014.

 
Tiptree Financial Inc.
Segment Statement of Operations

(Unaudited, in thousands)

Six months ended June 30, 2015

Insurance
and insurance
services(1)

 

Specialty
finance

  Real estate  

Asset
management

 

Corporate and
other

  Totals
Net realized and unrealized gains (losses) on investments $ $ 307 $ (116 ) $ $ 31 $ 222
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments 719 719
Interest income 1,399 3,175 44 545 5,163
Service and administrative fees 47,472 47,472
Ceding commissions 20,085 20,085
Earned premiums, net 77,060 77,060
Gain on sale of loans held for sale, net 6,598 6,598
Loan fee income 3,281 3,281
Rental revenue 24 20,536 20,560
Other income 4,884   131   1,310   101   (397 ) 6,029  
Total revenue 150,900   14,235   21,774   101   179   187,189  
 
Interest expense 3,514 1,345 3,140 3,324 11,323
Payroll and employee commissions 20,083 8,244 8,052 812 6,579 43,770
Commission expense 40,455 40,455
Member benefit claims 15,819 15,819
Net losses and loss adjustment expenses 25,376 25,376
Depreciation and amortization expenses 19,212 246 7,333 32 26,823
Other expenses 16,115   3,397   9,399   337   4,473   33,721  
Total expense 140,574 13,232 27,924 1,149 14,408 197,287
Net income attributable to consolidated CLOs       5,573   (2,915 ) 2,658  
Pre-tax income (loss) $ 10,326   $ 1,003   $ (6,150 ) $ 4,525   $ (17,144 ) $ (7,440 )
Less: Provision (benefit) for income taxes (1,867 )
Discontinued operations 23,348  
Net income before non-controlling interests $ 17,775
Less: net income attributable to noncontrolling interests from continuing operations and discontinued operations - Tiptree Financial Partners, L.P. 3,875
Less: net (loss) attributable to noncontrolling interests from continuing operations and discontinued operations - Other (83 )
Net income available to common stockholders $ 13,983  

Segment Assets as of June 30, 2015

Segment assets $ 840,262 $ 123,636 $ 240,247 $ 2,782 $ 282,186 $ 1,489,113
Assets of consolidated CLOs 1,883,030
Assets held for sale  
Total assets $ 3,372,143  

Note:

(1) The revenues and expenses associated with PFG are reported in Discontinued Operations.

 
Tiptree Financial Inc.
Segment Statement of Operations

(Unaudited, in thousands)

Six months ended June 30, 2014

Insurance and
insurance
services(1)

 

Specialty
finance

  Real estate  

Asset
management

 

Corporate
and other

  Totals
Net realized and unrealized gains (losses) on investments $ $ 115 $ (724 ) $ $ 1,484 $ 875
Net realized and unrealized gains on mortgage pipeline and associated hedging instruments 190 190
Interest income 1,220 1,365 4,591 7,176
Gain on sale of loans held for sale, net 2,734 2,734
Loan fee income 1,409 1,409
Rental revenue 17 8,822 8,839
Other income   92   386   158   (1,353 ) (717 )
Total revenue   5,777   9,849   158   4,722   20,506  
 
Interest expense 455 1,956 3,046 5,457
Payroll and employee commissions 4,392 3,514 1,030 4,076 13,012
Depreciation and amortization expenses 237 3,093 3,330
Other expenses   1,972   2,801   363   2,869   8,005  
Total expense 7,056 11,364 1,393 9,991 29,804
Net intersegment revenue/(expense) (188 ) 188
Net income attributable to consolidated CLOs       6,131   5,583   11,714  
Pre-tax income (loss) $   $ (1,467 ) $ (1,515 ) $ 4,896   $ 502   $ 2,416  
Less: Provision for income taxes (1,732 )
Discontinued operations 3,476  
Net income before non-controlling interests $ 7,624
Less: net (loss) attributable to noncontrolling interests from continuing operations and discontinued operations - Tiptree Financial Partners, L.P. 4,551
Less: net income attributable to noncontrolling interests from continuing operations and discontinued operations - Other (592 )
Net income available to common stockholders $ 3,665  
 

Segment Assets as of December 31, 2014

Segment assets $ 767,914 $ 79,075 $ 179,822 $ 2,871 $ 65,570 $ 1,095,252
Assets of consolidated CLOs 1,978,094
Assets held for sale 5,129,745  
Total assets $ 8,203,091  
 

Note:

(1) The revenues and expenses associated with PFG are reported in Discontinued Operations. There is no activity reported in the first half of 2014 for this segment as Tiptree acquired Fortegra on December 4, 2014.

Tiptree Financial Inc.
Non-GAAP Financial Measures
(Unaudited, in thousands)

Non-GAAP Financial Measures - EBITDA and Adjusted EBITDA

In addition to the results of operations presented in accordance with GAAP, management uses EBITDA and Adjusted EBITDA on a consolidated basis and for each segment, which are non-GAAP financial measures. We believe that consolidated EBITDA and Adjusted EBITDA 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. We believe segment EBITDA and Adjusted EBITDA provides additional supplemental information to compare results among our segments. EBITDA and Adjusted EBITDA are not a measurement of financial performance or liquidity under GAAP; therefore, EBITDA and Adjusted EBITDA should not be considered as an alternative or substitute for GAAP. Our presentation of EBITDA and Adjusted EBITDA may differ from similarly titled non-GAAP financial measures used by other companies. We define 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 our financial statements and Adjusted EBITDA as EBITDA adjusted to (i) subtract interest expense on asset-specific debt incurred in the ordinary course of our subsidiaries’ business operations, (ii) adjust for the effect of purchase accounting, (iii) add significant acquisition related costs and (iv) adjust for significant relocation costs.

 
Reconciliation from the Company’s GAAP net income to
Non-GAAP financial measures - EBITDA and Adjusted EBITDA
(Unaudited)
(in thousands)  

Three months ended
June 30,

 

Six months ended
June 30,

 

Year ended
December 31,

2015   2014 2015   2014 2014
Net income (loss) available to Class A common stockholders $ 14,962   $ 2,039 $ 13,983 $ 3,665 $ (1,710 )
Add: net income attributable to noncontrolling interests - Tiptree Financial Partners, L.P. 4,735 2,245 3,875 4,551 6,791
Add: net income (loss) attributable to noncontrolling interests - Other 97 (262 ) (83 ) (592 ) (497 )
Less: net income from discontinued operations   21,003     2,186   23,348     3,476     (7,937 )
Income (loss) from Continuing Operations of the Company $ (1,209 ) $ 1,836 $ (5,573 ) $ 4,148 $ (3,353 )
Consolidated interest expense 6,194 2,643 11,323 5,457 12,541
Consolidated income taxes (371 ) (1,080 ) (1,867 ) (1,732 ) 4,141
Consolidated depreciation and amortization expense   11,359     1,662   26,823     3,330     11,945  
EBITDA for Continuing Operations $ 15,973 $ 5,061 $ 30,706 $ 11,203 $ 25,274
Consolidated non-corporate and non-acquisition related interest expense(1) (2,663 ) (1,289 ) (4,441 ) (2,938 ) (7,236 )
Effects of Purchase Accounting related to the Fortegra acquisition(2) (6,118 ) (15,601 ) (4,168 )
Significant acquisition related costs(3)         1,349       6,121  
Subtotal Adjusted EBITDA for Continuing Operations of the Company   $ 7,192     $ 3,772   $ 12,013     $ 8,265   $ 19,991  
 
Income from Discontinued Operations of the Company(4) $ 21,003 $ 2,186 $ 23,348 $ 3,476 $ 7,937
Consolidated interest expense 2,572 2,896 5,226 5,810 11,475
Consolidated income taxes 1,054 1,577 3,796 2,658 5,525

Consolidated depreciation and amortization expense

  404     937   862     1,740     4,379  
EBITDA for Discontinued Operations $ 25,033 $ 7,596 $ 33,232 $ 13,684 $ 29,316
Significant relocation costs(5)               5,477  
Subtotal Adjusted EBITDA for Discontinued Operations of the Company   $ 25,033     $ 7,596   $ 33,232     $ 13,684     $ 34,793  
                   
Total Adjusted EBITDA of the Company   $ 32,225     $ 11,368   $ 45,245     $ 21,949     $ 54,784  
 

Notes:

 
(1) The consolidated non-corporate and non-acquisition related interest expense subtracted from Adjusted EBITDA includes interest expense associated with asset-specific debt at subsidiaries in the Specialty Finance, Real Estate and Corporate and Other segments. For the quarter ended June 30, 2015, interest expense for the asset-specific debt was $834 thousand for Specialty Finance, $1.7 million for Real Estate and $83 thousand for Corporate and Other, totaling $2.7 million. For the quarter ended June 30, 2014, interest expense for the asset-specific debt was $311 thousand for Specialty Finance and $1 million for Real Estate totaling $1.3 million. For the six months ended June 30, 2015, interest expense for the asset-specific debt was $1.3 million for Specialty Finance, $3 million for Real Estate and $83 thousand for Corporate and other, totaling $4.4 million. For the six months ended June 30, 2014, interest expense for the asset-specific debt was $455 thousand for Specialty Finance, $2 million for Real Estate, and $527 thousand for Corporate and Other segments, totaling $2.9 million.
 
(2)

Tiptree’s purchase of Fortegra resulted in a number of purchase accounting adjustments being made as of the date of acquisition, which included setting deferred cost assets to a fair value of zero, modifying deferred revenue liabilities to their respective fair values, and recording a substantial intangible asset representing the value of the acquired insurance policies and contracts. Following the purchase accounting adjustments, for the quarter ended June 30, 2015, expenses associated with deferred costs were more favorably stated by $7.9 million and current period income associated with deferred revenues were less favorably stated by $1.8 million. For the six months ended June 30, 2015, expenses associated with deferred costs were more favorably stated by $20.3 million and current period income associated with deferred revenues were less favorably stated by $4.7 million. Thus, the purchase accounting effect increased EBITDA by $6.1 million and $15.6 million in the quarter ended June 30, 2015 and the six months ended June 30, 2015, respectively, above what the historical basis of accounting would have generated. The impact of purchase accounting has been reversed to reflect an adjusted EBITDA without the purchase accounting effect.

 
(3) Significant acquisition related costs in connection with Care’s acquisition of the Royal Portfolio and Greenfield II Portfolio properties included taxes of $504 thousand, legal costs of $414 thousand and $431 thousand of other property acquisition expenses.
 
(4) See Note 5—Dispositions, Asset Held for Sale and Discontinued Operations, in the accompanying consolidated financial statements contained in Tiptree Financial’s form 10-Q for the quarter ended June 30, 2015, for further discussion of discontinued operations.
 
(5) Significant relocation costs for discontinued operations included expenses incurred in connection with the move of PFAS’s physical location from New Jersey to Philadelphia for the year ended December 31, 2014.
 
 

Segment EBITDA and ADJUSTED EBITDA - Three months ended June 30, 2015 and June 30, 2014 (Unaudited)

 
($ in thousands) Segment EBITDA and ADJUSTED EBITDA - Three months ended June 30, 2015 and June 30, 2014

Insurance
and
insurance
services

  Specialty finance   Real estate   Asset management   Corporate and other   Totals

Three
months
ended
June 30,

Three months ended
June 30,

Three months ended
June 30,

Three months ended
June 30,

Three months ended
June 30,

Three months ended
June 30,

2015 2015   2014 2015   2014 2015   2014   2015   2014 2015   2014
Pre tax income/(loss) $ 6,300 $ 568   $ (731 ) $ (1,969 )   $ (751 ) $ 2,351   $ 2,577 $ (8,830 )   $ (339 ) $ (1,580 )   $ 756
Add back:
Interest expense 1,775 834 311 1,810 978 1,775 1,354 6,194 2,643
Depreciation and amortization expenses 7,258   124     127   3,945     1,535         32       11,359     1,662  
Segment EBITDA $ 15,333 $ 1,526 $ (293 ) $ 3,786 $ 1,762 $ 2,351 $ 2,577 $ (7,023 ) $ 1,015 $ 15,973 $ 5,061
 
EBITDA adjustments:
Asset-specific debt interest (834 ) (311 ) (1,746 ) (978 ) (83 ) (2,663 ) (1,289 )
Fortegra purchase accounting (6,118 )                         (6,118 )    
Segment Adjusted EBITDA $ 9,215   $ 692     $ (604 ) $ 2,040     $ 784   $ 2,351     $ 2,577   $ (7,106 )   $ 1,015   $ 7,192     $ 3,772  
 
 

Segment EBITDA and ADJUSTED EBITDA - Six months ended June 30, 2015 and June 30, 2014 (Unaudited)

 
($ in thousands) Segment EBITDA and ADJUSTED EBITDA - Six months ended June 30, 2015 and June 30, 2014

Insurance
and
insurance
services

  Specialty finance   Real estate   Asset management   Corporate and other   Totals

Six months
ended
June 30,

Six months ended
June 30,

Six months ended
June 30,

Six months ended
June 30,

Six months ended
June 30,

Six months ended
June 30,

2015 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Pre tax income/(loss) $ 10,326 $ 1,003 $ (1,467 ) $ (6,150 ) $ (1,515 ) $ 4,525 $ 4,896 $ (17,144 ) $ 502 $ (7,440 ) $ 2,416
Add back:
Interest expense 3,514 1,345 455 3,140 1,956 3,324 3,046 11,323 5,457
Depreciation and amortization expenses 19,212   246   237   7,333   3,093       32     26,823   3,330  
Segment EBITDA $ 33,052 $ 2,594 $ (775 ) $ 4,323 $ 3,534 $ 4,525 $ 4,896 $ (13,788 ) $ 3,548 $ 30,706 $ 11,203
 
EBITDA adjustments:
Asset-specific debt interest (1,345 ) (455 ) (3,013 ) (1,956 ) (83 ) (527 ) (4,441 ) (2,938 )
Fortegra purchase accounting (15,601 ) (15,601 )
Significant acquisition expenses       1,349             1,349    
Segment Adjusted EBITDA $ 17,451   $ 1,249   $ (1,230 ) $ 2,659   $ 1,578   $ 4,525   $ 4,896   $ (13,871 ) $ 3,021   $ 12,013   $ 8,265  
 

Tiptree Financial Inc. and the Company
Book Value Per Share
(Unaudited, in thousands, except per share amounts)

Tiptree Financial’s book value per share was $9.34 as of June 30, 2015 compared with $8.94 as of December 31, 2014. Total stockholders' equity for the Company was $395.3 million as of June 30, 2015, which comprised total stockholders' equity of $405.3 million adjusted for $15.7 million attributable to non-controlling interest at subsidiaries that are not wholly owned by the Company, such as Siena, Luxury and Care, and net liabilities of $5.7 million wholly owned by Tiptree Financial Inc. Total stockholders' equity for the Company was $381.3 million as of December 31, 2014, which comprised total stockholders' equity of $401.7 million adjusted for $27.1 million attributable to non-controlling interest at subsidiaries that are not wholly owned by the Company and net liabilities of $6.7 million wholly owned by Tiptree Financial Inc. 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. The total shares as of June 30, 2015 and December 31, 2014 were 41.5 million and 41.6 million, respectively.

Tiptree Financial’s Class A book value per common share and the Company’s book value per share are presented below.

 
Book value per share - Tiptree Financial (in thousands, except per share data)
 

June 30,
2015

 

December 31,
2014

Total stockholders’ equity of Tiptree Financial $ 296,724 $ 284,462
Class A common stock outstanding 31,764 31,830
Class A book value per common share(1) $ 9.34 $ 8.94
         
Book value per share - the Company        
Total stockholders’ equity of the Company $ 395,340 $ 381,300
 
Class A common stock outstanding 31,764 31,830
Class A common stock issuable upon exchange of partnership units of TFP 9,767   9,770
Total shares 41,531   41,600
 
Company book value per share $ 9.52 $ 9.17
 

Notes:

(1)   See Note 24—Earnings per Share, in the Form 10-Q for the quarter ended June 30, 2015, for further discussion of potential dilution from warrants.
 

Tiptree Financial Inc.
Investor Relations, 212-446-1400
ir@tiptreefinancial.com

Source: Tiptree Financial Inc.