Tiptree Inc. — Q1 2022 Form 10-Q Summary
Period: Three months ended March 31, 2022; comparative period is Q1 2021. Dollar amounts below are in U.S. dollars. Unless stated otherwise, amounts are in millions. Tiptree operates Insurance and Mortgage reportable segments, plus other Tiptree Capital activities.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $324.9 | $294.7 |
| Income (loss) before tax | $(1.0) | $39.4 |
| Net income (loss) attributable to common stockholders | $(1.0); $(0.03) diluted EPS | $28.6; $0.81 diluted EPS |
| Adjusted net income (non-GAAP) | $15.5 | $13.2 |
| Adjusted EBITDA (non-GAAP) | $(14.9) | $45.7 |
| Net cash provided by operating activities | $149.1 | $27.3 |
| Cash and cash equivalents at quarter-end | $178.0 | Not stated here |
| Debt, net, excluding debt classified as held for sale | $391.3 | $393.3 at Dec. 31, 2021 |
Revenue rose 10.3%, while GAAP earnings fell sharply. Net realized and unrealized gains were $17.2 million versus $69.4 million a year earlier. Stockholders’ equity was $383.2 million at March 31, versus $400.2 million at year-end 2021; book value per share was $10.51, compared with $11.63 at March 31, 2021. The quarter included a $20.5 million after-tax other comprehensive loss, mainly from unrealized losses on available-for-sale securities. The declared quarterly dividend was $0.04 per common share.
Cash flow comparisons reflect substantial mortgage-loan origination and sale activity. Investing activities used $18.7 million, and financing activities used $124.7 million, principally as mortgage warehouse principal repayments exceeded new borrowings. Cash, cash equivalents and restricted cash totaled $197.5 million at quarter-end before cash reclassified to assets held for sale.
Segments and changes versus the prior period
- Insurance: Revenue increased 26.9% to $282.5 million; gross written premiums and premium equivalents rose 25.9% to $600.9 million. The combined ratio improved to 90.5% from 91.5% (below 100% generally indicates underwriting profit). Pretax income declined to $14.7 million from $21.5 million, primarily due to investment losses versus gains a year earlier. Adjusted net income increased to $21.1 million from $12.8 million.
- Mortgage: Revenue declined to $25.4 million from $34.5 million and pretax income to $4.3 million from $13.1 million. Originations fell 15.6% to $354.4 million and gain-on-sale margins narrowed to 4.3% from 6.0%, amid higher mortgage rates. Higher servicing fees and a positive servicing-rights valuation adjustment partially offset the decline.
- Tiptree Capital—Other: Pretax loss was $7.7 million, versus $15.0 million of income. Invesque-related results swung from gains to losses; maritime transportation pretax income improved to $2.7 million from $0.5 million as charter rates increased.
- Corporate: Pretax expense increased to $12.2 million from $10.2 million, including higher incentive compensation and professional fees.
Liquidity, outlook, risks and notable items
- Management said cash, subsidiary distributions, financing access and investment sales are expected to be adequate for operations for at least the next 12 months and over the long term. Insurance subsidiaries’ ordinary dividend capacity was approximately $35.1 million, subject to regulatory and other restrictions.
- Debt included $272.5 million of corporate debt and $129.6 million of asset-based debt at face value. The company reported covenant compliance or waivers. Floating-rate borrowings expose interest expense to rate increases; the filing also discusses uncertainty around the transition away from LIBOR.
- Management reported no full-year earnings guidance. It highlighted growth in specialty insurance and service contracts, while warning that rising interest rates may pressure mortgage volumes and margins, raise floating-rate borrowing costs, and reduce fixed-income investment values. Additional risks include Invesque valuation volatility and cyclical shipping rates and utilization.
- Available-for-sale securities had $30.0 million of gross unrealized losses at quarter-end; management said it expected to hold the securities in loss positions until recovery. Equity and other fair-value investment movements affected current earnings.
- The $200 million Warburg Pincus strategic investment in Fortegra was expected to close in Q2 2022, subject to regulatory approvals. In April, Fortegra acquired ITC Compliance GRP Limited for approximately $15.6 million net cash consideration.
- Luxury was classified as held for sale under a definitive sale agreement, pending regulatory approval. In March, Tiptree agreed to sell a maritime vessel for $21.5 million, with closing expected in Q2. In May, $13.1 million of debt related to tanker investments was prepaid at a 10% discount; the mortgage warehouse line was also renewed through April 2023.
- A long-running Kentucky insurance class action remains pending. The company is challenging a partial summary judgment ruling; a sanctions hearing was scheduled for June 9, 2022. Management could not estimate a reasonably possible loss range, while stating it did not expect the case to be materially adverse based on information available.
Important facts for investors to verify
- Whether Fortegra’s premium growth and improved combined ratio persist, and how claim severity and business mix affect underwriting results.
- Mortgage origination volumes, gain-on-sale margins and servicing-rights valuations as interest rates change.
- Fair-value exposure to Invesque and other investments, and the effect of unrealized losses on earnings, OCI and book value.
- Completion, timing and financial effects of the Warburg Pincus investment and announced asset sales, including regulatory approvals.
- Liquidity and refinancing needs, including floating-rate debt exposure, warehouse funding availability and the LIBOR transition.
- Developments in the Kentucky litigation and any change in the company’s ability to estimate potential losses.