Tiptree Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise. Tiptree is a holding company with one reportable segment, Specialty Insurance, and other operations grouped as Tiptree Capital.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Total revenue | $191.1 | $152.7 | $375.0 | $300.8 |
| Income from continuing operations before tax | $15.7 | $1.6 | $20.9 | $(5.5) |
| Net income attributable to common stockholders | $11.7 | $0.8 | $15.7 | $24.4 |
| Diluted EPS | $0.32 | $0.02 | $0.43 | $0.73 |
| Operating EBITDA (non-GAAP) | $12.7 | $15.0 | $25.3 | $23.9 |
| Adjusted EBITDA (non-GAAP) | $22.9 | $10.1 | $37.5 | $15.5 |
- Revenue drivers: H1 earned premiums increased to $235.5 from $201.7; growth in written premiums, investment gains, and the Telos sale contributed to revenue growth. Q2 included a $7.6 pre-tax gain on the sale of Telos CLO management assets.
- Insurance: H1 gross written premiums were $461.0, up 17%, and net written premiums were $274.6, up 34%. Underwriting margin (non-GAAP) was $35.1 in Q2 versus $30.9 and $67.6 in H1 versus $61.0. The combined ratio was 92.7% in Q2 and 93.2% in H1, compared with 92.3% and 93.1%, respectively.
- Cash flow: H1 operating cash flow was $1.8, down from $10.2. Investing activities provided $156.3, versus $49.6 used in the prior-year period, reflecting investment sales and reduced loan investments. Financing activities used $64.5. Cash, cash equivalents and restricted cash totaled $189.4 at June 30; unrestricted cash and equivalents were $175.8.
- Debt and equity: Balance-sheet debt, net, was $296.6 at June 30, down from $354.1 at year-end 2018. The debt schedule reported $304.7 of face-value debt before discounts and financing costs. Separately, liabilities held for sale included $69.4 of debt, net. Total stockholders’ equity was $407.0, versus $399.3 at year-end. Book value per share, a non-GAAP measure, was $11.47.
- Liquidity: Management said cash, subsidiary distributions and financing access should be adequate for at least the next 12 months. Insurance subsidiaries had $4.5 available for ordinary dividends without regulatory approval; their RBC levels exceeded regulatory thresholds.
Material changes versus the prior comparable period
- Q2 common-stockholder income rose to $11.7 from $0.8, supported by improved insurance performance and higher realized and unrealized investment gains.
- H1 common-stockholder income fell to $15.7 from $24.4, principally because 2018 included $34.5 of net income from discontinued operations, largely tied to the Care sale. H1 2019 continuing-operations income improved to $16.5 from a $4.6 loss.
- Insurance premiums and underwriting margin grew, while the combined ratio edged higher. The company reported H1 prior-year claims development of $3.2, primarily in non-standard auto.
- Tiptree sold its Telos CLO management business in April 2019, recording a $7.6 pre-tax gain; possible additional consideration is contingent on performance and was not recognized.
- The company reduced exposure to leveraged credit, including selling about $110.0 of assets and repaying asset-based debt. H1 investment income declined, but realized and unrealized gains increased.
- During H1, Tiptree repurchased 1.47 million shares for $9.1. It reported a quarterly dividend of $0.04 per share, up from $0.035 a year earlier.
Outlook, commentary, risks and unusual items
- Management identified opportunities to expand warranty and specialty-program products, while continuing growth in credit protection. No specific full-year earnings or revenue guidance was provided.
- Results can be affected by economic conditions, interest rates, market volatility, credit performance, insurance pricing and claims, regulation, and shipping-market cycles. Fair-value changes on loans and equities can make earnings volatile; Invesque is a significant investment holding.
- Luxury Mortgage was classified as held for sale pending regulatory review. Assets held for sale were $77.5 and related liabilities were $72.1; no impairment was recorded.
- A $75.0 commitment to seed investment funds managed by Corvid Peak is part of a related-party arrangement involving Executive Chairman Michael Barnes. The filing describes management and incentive fees and a staged potential economic interest; no consideration was paid at closing.
- A long-running Kentucky class action involving credit insurance coverage remains pending. Management said it was vigorously defending the case and could not reasonably estimate a loss range, while believing resolution should not materially adversely affect the company’s financial position.
- Operating lease adoption added a $27.5 right-of-use asset and $32.7 lease liability at June 30. The company reported no material change in risk factors and said disclosure controls were effective.
Investor verification priorities
- Assess the sustainability of earnings excluding investment fair-value gains and the Telos disposal gain; review the company’s non-GAAP reconciliations.
- Track insurance premium growth, claims development, combined ratio, retention, and reinsurance recoverability, including exposure to the three largest non-affiliated reinsurer balances.
- Review debt maturities, mortgage warehouse financing availability, and the distinction between reported debt and debt classified within liabilities held for sale.
- Monitor Invesque concentration, Level 3 valuation assumptions, and performance of the credit and mortgage portfolios.
- Follow the Luxury sale review, the Corvid Peak related-party commitment and fee terms, and developments in the Kentucky litigation.