Tiptree Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise. Tiptree is a holding company with Insurance and Mortgage reportable segments and other investment and operating activities (“Tiptree Capital”).
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $299.7 | $199.2 | $594.4 | $328.9 |
| Income (loss) before tax | $11.5 | $4.4 | $50.9 | $(77.3) |
| Net income (loss) attributable to common stockholders | $8.0 | $3.8 | $36.6 | $(56.2) |
| Diluted earnings (loss) per share | $0.22 | $0.10 | $1.05 | $(1.64) |
| Adjusted net income (non-GAAP) | $13.1 | $10.5 | $26.3 | $17.4 |
Q2 revenue rose 50.4% year over year; first-half revenue rose 80.7%. First-half GAAP earnings improved substantially from the prior-year loss, reflecting stronger insurance and mortgage operations and a reversal from investment losses to gains. Six-month net realized and unrealized gains were $105.5 million versus losses of $32.3 million a year earlier; these fair-value-sensitive results can be volatile. The filing reports no consolidated profit-margin measure.
Segments and operating metrics
- Insurance: First-half revenue was $474.8 million, up 54.0%, and pretax income was $36.2 million versus a $13.0 million loss. Gross written premiums and premium equivalents grew 51.3% to $1.076 billion. The six-month combined ratio improved to 91.8% from 92.9% (below 100% generally indicates underwriting profit); the underwriting ratio was 75.5% and expense ratio 16.3%. Growth came from insurance and warranty programs, including acquired businesses.
- Mortgage: First-half pretax income increased to $18.9 million from $6.3 million, with higher loan volumes and gain-on-sale margins. Q2 pretax income declined to $5.8 million from $7.4 million: funded volume fell 13.3% and gain-on-sale margin was 5.6%, versus 6.9% a year earlier.
- Tiptree Capital—Other: First-half pretax income was $17.6 million versus a $54.4 million loss, largely reflecting Invesque valuation gains versus losses in 2020, as well as stronger dry-bulk shipping rates. Invesque dividend income had been suspended in April 2020.
Balance sheet, cash flow and debt
- Total assets were $3.212 billion at June 30, up from $2.996 billion at December 31, 2020; total stockholders’ equity was $405.0 million, up from $373.5 million. Book value per share, a non-GAAP measure, was $11.59, versus $9.97 at June 30, 2020.
- Cash and cash equivalents were $141.7 million, including $93.9 million outside statutory insurance subsidiaries; restricted cash was $36.3 million. Management said available cash, subsidiary distributions, financing access and investment sales were expected to fund operations for at least 12 months.
- For the first half, operating cash flow was $145.6 million, investing cash outflow $125.9 million and financing cash outflow $35.0 million. Operating cash flow included mortgage loan sale proceeds exceeding originations and growth in unearned premiums and deferred revenue; cash flows are affected by mortgage origination and sale volume.
- Debt, net, was $381.9 million, compared with $366.2 million at year-end. This excludes $119.0 million of debt classified within Luxury liabilities held for sale. Debt includes $277.2 million of corporate debt and $117.0 million of asset-based debt. The company reported compliance with debt covenants or applicable waivers. The Fortress term facility carried LIBOR plus 6.75%, with a 1.0% LIBOR floor and maturity in February 2025; mortgage warehouse financing is short-term and partly uncommitted.
- Cash dividends declared were $0.08 per common share for the first half. The company repurchased 528,662 shares for $2.9 million during the period.
Changes, outlook and material matters
- Growth in insurance premiums and fee-based warranty activity drove higher earned premiums, service fees, commissions and claims costs. Insurance scale helped reduce the first-half expense ratio; management attributed improvement partly to technology and shared-service efficiencies.
- Investment gains materially contributed to the year-over-year earnings improvement. Management notes equity holdings are relatively concentrated, including Invesque, and fair-value movements affect earnings. Rising or falling interest rates may affect investment values, mortgage activity and floating-rate debt costs.
- Luxury was classified as held for sale under a definitive sale agreement, not as a discontinued operation. Tiptree recorded $0.8 million of impairment in the first half of 2021; held-for-sale assets were $140.3 million and liabilities $133.3 million at June 30.
- The potential Fortegra IPO registration statement was withdrawn. Related professional, audit, legal and investment-banking expenses were recorded. Fortegra and subsidiaries entered into an investment advisory agreement with Corvid Peak, a related party controlled by Tiptree’s Executive Chairman; fees and the arrangement’s terms are disclosed in the filing.
- In July 2021, a court granted plaintiffs’ partial summary judgment on certain disability policies in the Mullins litigation. Tiptree intends to challenge the order; management said it could not estimate a reasonably possible loss range and believes the ultimate resolution should not materially adversely affect financial position.
- No formal full-year numerical guidance is provided. Management cited growth opportunities in specialty insurance and warranty products, while cautioning that economic conditions, interest rates, regulation, claims and market volatility could affect results. It also warned that mortgage benefits from low rates and higher home prices may reverse, and shipping rates may decline from cyclical highs.
- After quarter-end, the board declared a $0.04-per-share dividend payable August 30, 2021. Tiptree also granted performance stock units to senior executives, with share-price milestones from $15 to $60; the awards are intended to cover three years of equity compensation.
Important facts for investors to verify
- How much of earnings growth is supported by recurring insurance and fee operations versus investment fair-value gains and mortgage gain-on-sale activity.
- Insurance growth quality, loss development and the sustainability of the combined-ratio improvement; first-half prior-year adverse development was $2.6 million.
- Exposure to concentrated equity holdings, particularly Invesque, and sensitivity to interest rates, market valuations and shipping conditions.
- Liquidity and refinancing access, including uncommitted mortgage warehouse funding, corporate debt maturities, and cash availability within regulated insurance subsidiaries.
- Progress and final terms of the Luxury sale, the outcome and potential exposure in the Mullins litigation, and related-party investment advisory fees.