Q4 2019 Earnings Call

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Greetings and welcome to Tiptree incorporated fourth quarter and full year 2019 earnings conference call.

This time, all participants are in listen only mode.

Question answer session will follow the formal presentation.

If anyone should require operator assistance started the conference. Please press star zero on your telephone keypad.

Please note this conference is being recorded.

I'll now turn the conference over to your host Sandra Bell Chief Financial Officer for Tiptree. Thank you you may begin.

Good morning, and welcome to our 2019 earnings call. We're joined today by our executive Chairman Michael Barb.

You can find the slides that accompany this review on our Investor Relations website.

Please note that some of our comments today will contain forward looking statement.

Based on our current view of our business.

And actual future results may differ materially.

Please see our most recent FCC filings, which identified the principal risk and uncertainties that could affect future performance.

Before I turn the call over to Michael just a few housekeeping item to review.

Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings materials reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our way.

I'd say with that I will turn the call over to Michael.

Thank you Sandra good morning to everyone.

We're pleased with the performance of our business in 2019.

We started the year with several key objectives and ended the year, having successfully accomplished what we set out to do.

Our first 2019 objective was to grow Tiptree insurance profitably.

Typically and through acquisition.

Our gross written premiums grew to over 1 billion up 17% year over year, while net written premiums grew 15.1%.

We have continued to maintain this growth without compromising our profitability as our combined ratio remained steady in the low nineties.

Honored premiums and deferred revenues.

Future profitability of our business continued double digit growth rates, increasing by almost 26%.

On January 3rd 2020, we completed the acquisition of Smart Auto care, which we believe will significantly accelerate our growth in auto warranty.

We also expanded in Europe by acquiring a majority interest and defend a specialty insurance administrator.

Both were acquired at attractive valuations and are expected to provide the opportunity for revenue and cost synergies over time.

Our second objective was to grow our insurance investment portfolio and improved total return.

Our insurance portfolio ended the year at approximately 540 million up 16.5%.

Our total return on the portfolio of 5.4% also improved.

Driven by investment gains on equities and fixed income securities.

Our third objective was to continue our effort to reposition our tiptree capital investments to drive long term total returns.

We increased our capital allocated to shipping in the second half of the year by purchasing two product tankers further broadening our exposure to another class vessel and diversifying our exposure to cyclical factors in the industry over the long term.

Our mortgage origination volumes have been strong as interest rates remain historically low leading to improved profitability in 2019.

Our last objective was to continue to grow book value per share and to deliver returns to shareholders through a combination of share buybacks and dividends.

Our book value per share increased 6.8% to $11.52.

And when added with dividends, we delivered a year to date total return to shareholders of 8.2%.

Since our inception in June 2007.

Our annualized total return is 9.5% as represented by growth in book value per share plus dividends paid compared to 8.6% for the S&P, 507.3% Frode Russell 2000 over the same period.

More recently as investors struggled to fully understand the corona viruses impact on different business sectors.

We have seen and expect to continue to see extraordinary market price volatility.

However, we currently see a limited impact to our own businesses.

And feel we are well positioned to absorb the changing outlooks for interest rates commodity prices global trade and consumer demand in short we believe we're well positioned to write off this storm as it evolves.

With that I'll pass it to Sater, who will take you through the financial results in more detail.

Thank you Michael.

Page four we have presented the company's key metrics for the fourth quarter and total year 2019.

Net income before non controlling interest for the quarter was 4.6 million an increase of 4.1 million over the prior year.

This increase was primarily driven by unrealized gains on investments in the insurance portfolio versus unrealized losses in the prior period.

Net income before non controlling interest for the total year 2019 was 20.1 million.

Down from the prior year, given the gain on sale of our senior living operations in 2018.

Excluding that gain and income from discontinued operations net income from continuing operations was up 34 million.

The primary drivers of this increase was continued improvement in operating results at our insurance business.

The realized gain on sale oversee alone manager and investment gains in our insurance investment portfolio.

Operating EBITDA for the quarter was 21 million.

From the prior year due to growth in Tiptree insurance results.

Well its full year contributions from our shipping operation and improved volumes in our mortgage business.

Operating EBITDA for the year was 63.6 million.

15.8% from 2018.

Well net investment income in the insurance portfolio was down primarily as a result of higher cash balances from the realignment of its investment Nick the results for the year were more than offset by insurance underwriting growth in Cogs remediation contributions from shipping in mortgage operation.

On the bottom of the page we show a walk from operating EBITDA to total pretax income highlighting the key differences between the two metric.

Book value per share increased to $11.52 up 73 cents from year end 2018.

Driven by earning and share buybacks at an average 40% discount to book.

Turning to page five.

We highlight our capital allocated between Tiptree insurance and Tiptree capital along with the respective return to assist investors in understanding Tiptrees enterprise value.

When considering capital allocation decisions, we look at total capital, which includes corporate debt held at both the holding company and that our insurance subsidiary.

We evaluate our return on capital using operating EBITDA.

Our total return is driven by a 13.4, 13.4% return in specialty insurance.

And at 12.2% return and Tiptree capital.

The key drivers for the period, where growth in insurance operating EBITDA across all product lines.

Consistent and stable dividends from learned that shares.

Positive contributions from shipping in mortgage operation operations, and Tiptree capital and relatively stable corporate expenses.

Since yearend 2019.

We executed to material transactions that will impact our results moving forward.

In January 2020, we acquired smart auto care, a growing provider a vehicle service contract.

We valued the business at 160 million, which represented an 8.3 multiple other Justin Kashi EBITDA in connection we upsized, our outstanding corporate debt through a new hundred 25 million five year borrowing facility.

With that let's turn to Tiptree Insurances result.

On page seven we highlight our underwriting performance and then on the following page returns from the investment portfolio.

We continue to see positive top line growth across our product lines, including our European warranty programs.

We hit an important milestone in 2019 with gross written premiums crossing the billion dollar Mark.

This was up 447 million or 17% over the prior year, while net written premiums grew 15%.

Underwriting margin was up 14% and our combined ratio held steady at 92.6% demonstrating our ability to continue to grow profitably in our insurance business.

Unearned premiums and deferred revenue on the balance sheet stand at 850 million as of the ended the fourth quarter up 25.8% from this time last year.

<unk> premiums and deferred revenue are recognized into revenue over the life of the underlying contracts.

This growth is key to our future earnings both from underwriting profits as well as contributions from the growing and that's in portfolio of paid in premiums.

Turning to the investment portfolio on page eight our net investments grew by 77 million year over year up 16.5% driven by our gross and net written premiums.

Net investment income was 14 million.

Down 5.2 million as we reduced our exposure to corporate loans. However, when combined with the reduction in asset base interest. This metric was relatively flat.

We ended the year with 89 million of insurance company cash, which is available for reinvestment.

Net portfolio income was 26.4 million up approximately 25 million versus the prior year period.

The improved performance was driven by unrealized gains in 2019 versus unrealized losses in the prior year period.

On the next page we've outlined some of the key strategic benefits of our acquisition of Smart auto care.

This acquisition accelerates, our gross and adds significant scale to our auto warranty platform.

Providing additional diversification to the auto dealerships with whom we partner.

Smart auto cares written premium and premium equivalents on a pro forma combined basis increases our volume in warranty by approximately 70% and by 17% overall.

On page 11, we present the results of Tiptree capital, which today consists of our invest shares.

Shipping and mortgage operations.

Over time, we would expect that our investments could shift as we recognize returns in one asset class her business and reinvest in others.

Our senior living operations are included in our 2018 results.

To facilitate period over period comparisons.

As of the ended the year, our investor position represents 100, an 11.9 million of which 92.6 million is held in Tiptree capital.

The remainder is in our insurance company portfolio.

For the year operating EBITDA increased to 22.8 million driven by a combination of stability in dividends on our best shares.

Full year of operations that are shipping business and improvement in mortgage volumes as the result of the drop in interest right now.

Now, we will turn the call back to Michael to conclude our prepared remarks.

Thanks Sandra.

We are pleased with our results for the year, having executed on our major objectives and deliver results in line with her expectations.

The capital will give allocated this year to dividends and share buyback continues to reflect our positive view of the cash flow generating capacity of our businesses.

As we look forward to 2020.

We will continue to drive organic growth and to look to find new acquisitions, which we believe would add to that success.

In spite of the dramatic market volatility, which has resulted from the spreading corona virus.

We see a limited impact on our current businesses and feel well positioned to write out the store.

With that we will open up the line for questions.

Thank you.

This time, we will be conducting a question answer session. If he would like to ask your question. Please press star one on your telephone keypad confirmation told would indicate your line is in the question Q.

You May press star to who'd like to remove your question from the Q4 participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys. Once again, if you like to ask your question. Please press star one.

[noise] received any questions like call back to Sandra Bell for closing remarks.

And for joining US today, if you have any question. Please feel free to reach out to me directly. This includes our 2019 conference call.

[laughter].

Thank you.

This concludes todays conference you may disconnect your lines at this time you for your participation.