Tiptree Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. Tiptree reports Insurance and Mortgage segments, with other non-insurance activities grouped within Tiptree Capital.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $363.5 | $286.6 | $1,028.2 | $881.0 |
| Net income (loss) attributable to common stockholders | $14.2 | $2.0 | $(9.1) | $38.6 |
| Diluted EPS | $0.38 | $0.06 | $(0.26) | $1.11 |
| Adjusted net income (non-GAAP) | $19.4 | $20.7 | $48.8 | $47.0 |
| Adjusted EBITDA (non-GAAP) | $8.9 | $12.4 | $49.4 | $84.6 |
- Revenue rose 26.8% in Q3 and 16.7% year to date, largely on growth in insurance premiums and fees, vessel charter revenue and mortgage servicing. Nine-month GAAP earnings were pressured by investment losses and taxes associated with the Fortegra transaction.
- Insurance revenue increased 32.6% in Q3 and 25.2% year to date. Nine-month gross written premiums and premium equivalents grew 20.9% to $1.96 billion. The nine-month combined ratio was 91.0%, unchanged year over year; Q3 was 91.5%, compared with 89.6%.
- Mortgage income before tax fell to $3.4 million for nine months from $25.1 million. Originations declined 20.3% to $941.0 million and gain-on-sale margin declined to 4.6% from 5.7%, reflecting higher mortgage rates. Servicing income and fair-value gains on mortgage servicing rights partly offset the declines.
- Cash from operations was $400.9 million for the first nine months, versus $186.0 million in 2021. Investing activities provided $28.9 million; financing activities used $104.3 million. Cash, cash equivalents and restricted cash totaled $513.8 million at September 30, including $503.5 million of cash and cash equivalents.
- Total assets were $3.99 billion and total stockholders’ equity was $519.6 million. Book value per share, a non-GAAP measure, was $10.68, down from $11.37 at September 30, 2021. Accumulated other comprehensive loss was $47.7 million, including losses from fixed-income securities and foreign currency translation.
- Debt, net, was $266.3 million, down from $393.3 million at December 31, 2021. The company reported compliance with outstanding debt covenants or waivers for any non-compliance. Cash at subsidiaries may be subject to regulatory, contractual and other restrictions and is not necessarily available to the parent.
Material changes and notable transactions
- Warburg invested $200 million in Fortegra in June 2022. Tiptree retained approximately 79.5% ownership before conversion or exercise of outstanding securities; Warburg held 17.4% common ownership plus preferred stock and warrants. The transaction reduced Tiptree’s Fortegra ownership below 80%, triggering tax deconsolidation while Fortegra remained consolidated for GAAP reporting.
- The transaction generated a $38.2 million deferred tax liability: $24.1 million was charged to nine-month income tax expense and $14.1 million was recorded directly in Tiptree equity. The nine-month effective tax rate was 108.9%.
- Tiptree sold two dry bulk vessels in Q3 for proceeds of $46.2 million and recorded a $14.1 million gain; total dry-bulk vessel sale proceeds for the first nine months were $67.7 million, with a $21.2 million gain. Agreements to sell the remaining two product tankers for about $49 million were signed, with completion expected in Q4 2022.
- Luxury was deconsolidated effective July 1, 2022 following an amendment to its sale agreement. ITC Compliance GRP was acquired in April for approximately $15 million net of acquired cash, plus potential earn-outs.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is provided. Management said available cash, subsidiary distributions, financing access and investment sales were expected to fund operations for at least the next 12 months and over the long term.
- Management highlighted inflation and rising interest rates as risks to insurance claim costs, investment values, floating-rate borrowing costs and mortgage originations and margins. A potential recession could also weaken shipping charter rates and utilization. Management noted that losses on available-for-sale securities were largely unrealized, but sales before recovery could affect earnings.
- Reinsurance receivables increased to $1.19 billion from $880.8 million at year-end. Management stated it did not believe reinsurer concentration presented a loss risk, citing collateralization and reinsurer quality; investors should monitor collectability and counterparty exposure.
- In the Mullins class action, October 2022 court orders ruled against the company on certain claims; Tiptree appealed. Other claims remained pending, trial was scheduled for December 2023, and the company said it could not estimate a reasonably possible loss range. Management did not expect a material adverse financial effect based on information then available.
- On October 21, 2022, Fortegra entered a $200 million revolving credit facility, available for letters of credit with a $25 million swing-loan sublimit, maturing in 2027. The filing states that this facility was entered after the reporting date.
- The board declared a $0.04-per-share quarterly dividend on November 1, payable November 28, 2022. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Key facts for investors to verify
- How much of the nine-month GAAP loss reflects the Fortegra tax deconsolidation and fair-value investment losses, and how much reflects recurring operating performance.
- Whether insurance loss costs, business mix and the combined ratio remain manageable as premiums grow, particularly under inflationary claim-cost pressure.
- Mortgage origination volumes, gain-on-sale margins, servicing asset assumptions and access to warehouse funding as interest rates change.
- Liquidity available at the parent versus regulated or otherwise restricted subsidiaries, and the terms, availability and use of Fortegra’s post-quarter credit facility.
- Completion and realized proceeds from the remaining tanker sales, and the outcome and potential financial exposure of the Mullins litigation.
- Non-GAAP adjusted net income, adjusted EBITDA and book value per share reconciliations and assumptions; these measures are not substitutes for GAAP results.