Tiptree Inc. — Q1 2019 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2019, compared with Q1 2018. Tiptree is a holding company with one reportable segment, Specialty Insurance; its non-insurance businesses and investments are reported as Tiptree Capital.
Key financial results
| Metric | Q1 2019 | Q1 2018 / comparator |
|---|---|---|
| Total revenue | $183.9 million | $148.1 million; up 24.2% |
| Net income from continuing operations | $4.3 million | Loss of $5.5 million |
| Net income attributable to common stockholders | $3.9 million; diluted EPS $0.11 | $23.6 million; diluted EPS $0.79 |
| Operating EBITDA / Adjusted EBITDA (non-GAAP) | $12.6 million / $14.6 million | $8.9 million / $5.4 million |
| Operating cash flow | $(8.2) million | $3.5 million |
| Investing / financing cash flow | $94.7 million / $(82.0) million | $(21.0) million / $(32.8) million |
| Cash and cash equivalents | $88.1 million; $101.1 million including restricted cash | $86.0 million at Dec. 31, 2018, excluding restricted cash |
| Total assets / stockholders’ equity | $1.815 billion / $394.7 million | $1.865 billion / $399.3 million at Dec. 31, 2018 |
| Debt, net / face value | $282.8 million / $291.1 million | $354.1 million net at Dec. 31, 2018 |
| Book value per share (non-GAAP) | $11.12 | $10.59 at March 31, 2018 |
Material changes and operating performance
- Revenue increased 24.2%, reflecting higher earned premiums, service and administrative fees, and investment gains. Net earned premiums rose to $119.0 million from $101.6 million.
- Common-stockholder income fell from $23.6 million, principally because Q1 2018 included the Care sale gain; Q1 2019 had no discontinued-operations income. Continuing operations improved from a loss to a profit.
- Specialty Insurance pre-tax income increased to $8.1 million from $1.3 million. Its combined ratio improved to 93.5% from 93.8% (below 100% indicates underwriting profit). Underwriting margin, a non-GAAP measure, was $32.5 million versus $30.0 million.
- Gross written premiums declined 1.1% to $198.4 million, while net written premiums rose 10.8% to $121.0 million. The company attributed the gross decline to discontinued non-standard auto programs; growth in credit and warranty products and higher retention supported net premiums.
- Tiptree Capital reported $5.9 million of continuing pre-tax income versus a $1.7 million loss. Investment gains and Invesque dividends contributed; reported results include fair-value movements.
- Net realized and unrealized gains were $20.2 million, compared with $7.4 million in the GAAP statements a year earlier. Management’s segment discussion also presents a differently scoped measure that excludes mortgage performing-loan and NPL gains/losses; investors should distinguish the measures.
Liquidity, capital, and other developments
- Investing cash inflow largely reflected sales and maturities of investments; the company said it reduced loan investments and used substantial proceeds to repay asset-based debt. Financing outflow included debt paydowns and $9.1 million of share repurchases.
- Debt declined mainly after repayment of asset-based borrowings. The filing reports compliance with debt covenants or waivers as of March 31, 2019. Several short-term facilities were extended after quarter-end, including a mortgage warehouse line extended to May 2020.
- Management said cash, subsidiary distributions, and subsidiary financing access were expected to fund operations for at least the next 12 months. Insurance-subsidiary dividends available without regulatory approval were approximately $4.5 million at quarter-end; statutory capital exceeded stated risk-based capital thresholds.
- During Q1, Tiptree repurchased 1.47 million shares for $9.1 million. The board declared a $0.04-per-share quarterly dividend on May 2, payable May 27, 2019.
- Tiptree agreed to invest $75 million to seed funds managed by related party Corvid Peak, in exchange for management control and profit participation arrangements. No consideration was paid at agreement closing; the filing describes the investment as a strategic initiative, not a completed $75 million cash outlay in Q1.
- Luxury Mortgage was classified as held for sale, subject to regulatory review; no impairment was recorded. The company adopted lease accounting in Q1 and recognized operating lease liabilities of $31.5 million and right-of-use assets of $29.6 million.
Outlook, risks, and contingencies
The filing provides no quantified full-year earnings or revenue guidance. Management described growth opportunities in warranty and specialty programs and said the quarter’s results are not necessarily indicative of full-year performance. It cited sensitivity to economic conditions, interest rates, market liquidity and volatility, credit performance, insurance pricing and claims, reserve estimates, reinsurance, and investment fair values. Invesque is a significant holding; fair-value changes or a change in its dividend policy could materially affect results.
A Kentucky class-action case involving the duration of certain credit insurance policies remains pending. Tiptree is vigorously defending it, considers a materially adverse outcome unlikely based on information available, but cannot estimate a reasonably possible loss range. The filing also identifies dependence of the mortgage business on short-term warehouse financing and restrictions on subsidiary distributions. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- How much of Q1 revenue and earnings growth came from recurring insurance and fee operations versus volatile fair-value gains?
- Whether net written premium growth and the improved combined ratio persist as product mix and retention change; monitor prior-year claims development, including the $2.4 million adverse development disclosed for Q1.
- Timing, funding, expected returns, and related-party terms of the planned $75 million Corvid Peak fund-seeding investment.
- Refinancing and renewal status of debt facilities and warehouse lines, and the availability of cash at regulated insurance subsidiaries.
- Progress and potential proceeds from the Luxury sale, and developments or loss estimates in the Kentucky class action.