Tiptree Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. Tiptree is a holding company whose reportable segment is Specialty Insurance, alongside non-insurance businesses and investments grouped as Tiptree Capital.
Financial results and key metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $189.2 | $172.7 | $564.2 | $473.4 |
| Net income (loss) before non-controlling interests | $(0.9) | $(0.5) | $15.6 | $29.4 |
| Net income (loss) attributable to common stockholders | $(1.5) | $(0.6) | $14.2 | $23.8 |
| Diluted earnings per share | $(0.04) | $(0.02) | $0.39 | $0.69 |
| Operating EBITDA, non-GAAP | $17.3 | $14.4 | $42.6 | $38.3 |
| Adjusted EBITDA, non-GAAP | $6.2 | $7.7 | $43.7 | $23.2 |
Revenue increased 9.6% in Q3 and 19.2% year to date. Nine-month revenue growth reflected higher earned premiums, investment gains, shipping activity, improved specialty finance results and a $7.6 million gain on the Telos asset-management business sale. The 2018 comparison includes a $46.2 million pre-tax gain on the sale of Care, which substantially contributed to the prior-year nine-month earnings comparison. Continuing-operations diluted EPS was $0.39 for 2019 versus $(0.12) for 2018.
Specialty Insurance generated nine-month pre-tax income of $28.4 million, up from $15.8 million. Its combined ratio improved to 92.8% from 93.1%; underwriting margin, a non-GAAP measure, rose to $104.3 million from $92.4 million. Gross written premiums grew 18.8% to $736.1 million and net written premiums rose 29.2% to $434.8 million. Tiptree Capital reported nine-month pre-tax income of $16.2 million, versus a $1.2 million loss, with the Telos sale gain and improved shipping and investment results contributing.
Insurance net investment income declined to $10.7 million for the first nine months from $13.9 million. Management’s non-GAAP net portfolio income rose to $14.8 million from $7.0 million; its average annualized yield was 4.1% versus 2.2%. Fair-value movements remain a source of earnings volatility.
Cash flow, balance sheet and capital
- Cash flow: Nine-month operating cash flow was $19.4 million, down from $43.6 million. Investing activities provided $67.7 million, compared with $92.1 million used in 2018; financing activities used $27.8 million. Cash, cash equivalents and restricted cash increased $59.3 million to $154.0 million, including $136.1 million of cash and equivalents and $17.8 million restricted cash.
- Assets and equity: Total assets were $2.056 billion at September 30, up from $1.865 billion at December 31, 2018. Total stockholders’ equity was $407.4 million, compared with $399.3 million. Management reported book value per share of $11.43, up from $10.77 a year earlier.
- Debt: Debt, net, was $329.5 million at quarter-end versus $354.1 million at year-end 2018. Debt face value was $337.5 million, with $157.8 million of principal maturities in 2020 and $160.0 million due in 2024 or later. The filing says the company was in compliance with borrowing covenants or had obtained waivers for any non-compliance.
- Capital returns: Tiptree repurchased 1.47 million shares for $9.1 million in the first nine months, at an average $6.17 per share. Dividends declared were $0.12 per share year to date; the board declared a further $0.04 quarterly dividend on November 5, 2019.
Material changes, outlook and risks
- On July 1, 2019, a Specialty Insurance subsidiary acquired a majority interest in Defend, an automotive finance and insurance provider and administrator operating in Central Europe and the UK, for approximately $4.6 million net cash consideration.
- Tiptree sold the Telos CLO management contracts and related assets in April 2019, recognizing a $7.6 million pre-tax gain. Additional consideration is contingent on performance and will not be recognized unless realized.
- Luxury Mortgage was classified as held for sale pending regulatory approval. At September 30, assets held for sale were $85.3 million and related liabilities were $79.7 million; no impairment was recorded.
- Management stated cash, subsidiary distributions and access to financing should be adequate for operations for at least the next 12 months. The filing gives no specific earnings or revenue guidance.
- Management highlighted exposure to interest rates, credit and equity-market movements, shipping-market cyclicality, mortgage warehouse financing availability, insurance underwriting and reserve estimates, and reliance on reinsurance recoverables. The three largest non-affiliated reinsurer balances totaled $113.2 million and were reported as collateralized.
- The company has a longstanding Kentucky class-action case concerning credit insurance coverage. Management believes the outcome should not be materially adverse but cannot reasonably estimate a loss range; punitive damages in similar industry cases are noted as a risk. No material change to previously disclosed risk factors was reported.
- A related-party agreement with Corvid Peak commits Tiptree to invest $75 million to seed funds; $25 million had been funded by September 30. The arrangement includes management and incentive fees and a path to future economic interests in Corvid Peak.
Important facts for investors to verify
- Whether premium growth and the improved combined ratio are sustained, and how retention, commissions and claims development evolve.
- How much future earnings depend on fair-value gains and losses, particularly Invesque shares, loans and other investments.
- Liquidity and refinancing plans for 2020 maturities, mortgage warehouse lines and the Fortress credit facility.
- Regulatory approval and expected completion of the Luxury Mortgage sale, and any related changes to reported debt and liquidity.
- The funded and remaining commitment under the Corvid Peak arrangement, its fees, and the terms for future ownership interests.
- Any developments in the Kentucky litigation, reinsurance recoverability, and management’s non-GAAP performance measures and reconciliations.