NEW YORK, Feb. 14 /PRNewswire-FirstCall/ -- National Financial Partners Corp. today reported a 42.7% increase in revenue to $290.4 million for the fourth quarter of 2005 from $203.5 million in the fourth quarter of 2004. Net income increased 75.8% to $21.1 million, or $0.54 per diluted share, in the fourth quarter of 2005, from $12.0 million, or $0.32 per diluted share, in the fourth quarter of 2004. Cash earnings increased 58.3% to $32.6 million in the fourth quarter of 2005, from $20.6 million in the prior year period. Cash earnings per diluted share ("Cash EPS") was $0.83, an increase of 48.2% from the fourth quarter of 2004. (The Company defines cash earnings as net income excluding amortization of intangibles, depreciation and impairment of goodwill and intangible assets. A full reconciliation of net income to cash earnings is provided in the attached tables.) Net income and cash earnings benefited from the growth of revenue from existing firms and additional revenue from acquired firms offset in part by higher commission and fee expense and increased management fee expense.
"The quarter's performance was driven by continued strong organic growth and the high level of acquisition activity earlier in 2005. 'Same store' revenue grew 32% for the quarter and 22% for the full year. In the quarter, life insurance and wealth transfer firms significantly contributed to our 'same store' growth, benefiting from strong sales of financed life insurance products. We believe that such sales were driven by premium financing opportunities that may be diminished in the future. To the extent such opportunities become limited, our growth comparisons may be impacted during the course of the year. The diversification of our firms and their ability to adapt to changing market conditions, as well as acquisition activity, continue to provide strong long term growth prospects," said Jessica Bibliowicz, Chairman and Chief Executive Officer.
Acquisitions
As a leading independent distributor of financial service products, the Company operates a national distribution network with over 160 owned firms. Understanding the Company's acquisitions is essential to understanding its operating results.
Fourth Quarter:
In the fourth quarter, the Company consummated two transactions including one annuity and estate planning firm and one group benefits subacquisition. These two acquisitions generated $1.7 million in 2004 revenue, the most recent full year prior to acquisition, and represented $540,000 of acquired base earnings. (The term base earnings represents the cumulative preferred portion of the pre-tax earnings before owners' compensation of acquired firms that the Company capitalizes at the time of acquisition). The aggregate consideration paid by the Company included $1.7 million in cash and the issuance of 20,694 shares of NFP common stock.
Full Year 2005:
The Company completed 27 acquisitions (including 7 sub-acquisitions) with aggregate base earnings of $26.3 million. The 20 acquired firms generated revenue of approximately $125.4 million in 2004, and contributed approximately $38.0 million and $105.4 million to the Company's fourth quarter 2005 and full-year revenue, respectively. The Company paid the aggregate acquisition consideration in a combination of $110.4 million in cash and approximately 1.3 million shares of NFP common stock.
January 1, 2006 through February 14, 2006:
As previously disclosed, the Company completed eight acquisitions (including one sub-acquisition) with aggregate 2005 revenue of approximately $39.7 million. The acquisition consideration paid was a combination of cash, common stock, and assumption of debt. The payments by NFP for the seven acquired firms included approximately $36.6 million in cash, the issuance of approximately 347,000 shares of NFP common stock, and the assumption of approximately $0.6 million of debt. NFP's share of the sub-acquisition purchase price was approximately $1.5 million in cash. In total, the Company acquired base earnings of approximately $9.9 million effective January 1, 2006.
Ms. Bibliowicz commented, "Our 2005 acquisitions add to our existing growth platform and broaden our distribution reach. Looking forward to 2006, we are on track to reach or exceed our acquisition budget of $15 million. The completed 2006 acquisitions not only enhance our growth and diversification, but also offer attractive strategic advantages given their expertise within their respective product markets."
Fourth Quarter Events
Gains, including those previously announced asset sales, contributed $6.6 million to pretax income. In addition, the Company recorded a $2.3 million net contribution related to benefits received under our key man life insurance program. It is the Company's practice to maintain key man life insurance on its principals. This net contribution was recognized within the "Net interest and other" line of the Company's income statement.
Largely offsetting these positive contributions to earnings was an additional management fee expense of $6.1 million pretax. This expense results from the fourth quarter implementation of a modification in management fee calculation. Management implemented this change for all firms to further enhance controls over this significant and key expense item.
Fourth Quarter Results
Revenue increased $86.9 million, or 42.7%, to $290.4 million in the fourth quarter of 2005. Components of the increase included "same store" revenue growth of $52.4 million, or 31.6%, to $218.2 million; revenue growth of $7.5 million, or 19.1%, to $46.7 million from NFP Insurance Services, Inc. ("NFPISI") and NFP Securities, Inc. ("NFPSI"); and $38.0 million of revenue from firms acquired subsequent to the start of the fourth quarter of 2004 (these firms are not included in the calculation of "same store" revenue growth); less revenue from dispositions and eliminations.
Net income was $21.1 million in the fourth quarter of 2005, or $0.54 per diluted share, up from $12.0 million, or $0.32 per diluted share in the prior year period. Cash earnings were $32.6 million, up 58.3% from $20.6 million in the fourth quarter of 2004. Cash EPS was $0.83, an increase of 48.2% from the fourth quarter of 2004.
Gross margin before management fees was $139.9 million in the fourth quarter of 2005, an increase of $36.8 million or 35.7% over the prior year period. Gross margin after management fees was $48.0 million in the fourth quarter of 2005, an increase of $3.6 million or 8.1% over the prior year period. Gross margin as a percentage of revenue was 16.5% in the fourth quarter of 2005 compared with 21.8% in the prior period. The decline in gross margin percentage was the result of increased management fee expense and commission and fee expense. The management fee expense reflected the previously discussed change in payment practices, a high level of production from a small set of firms where the principals' economic interest exceeds 60%, and the accrual for incentive payments. Management fees, as a percentage of gross margin before management fees, was 65.7% versus 56.9% a year ago. The commission and fee expense, as a percentage of revenue, declined sequentially, but was higher than last year due to a higher percentage of life brokerage business.
Corporate general and administrative expense ("G&A") decreased 20.2% to $9.5 million in the fourth quarter of 2005 from $11.9 million in the prior year period. As a percentage of revenue, G&A was 3.3% in the fourth quarter of 2005 and 5.8% in the fourth quarter of 2004. The previous year's G&A expense included $2.3 million expense for higher accruals for Sarbanes-Oxley compliance including additional audit and consulting fees. Stock-based compensation, which is not included in Corporate G&A, increased by $0.7 million to $1.4 million in the fourth quarter of 2005 versus the prior year period. The 2005 fourth quarter expense reflects restricted stock unit awards granted in the first and fourth quarters of 2005.
In the fourth quarter, the Company took a $3.0 million impairment charge related to four firms, three of which had been previously impaired. The Company reviews and evaluates the financial and operating results of its acquired firms on a firm-by-firm basis throughout the year.
The effective income tax rate in the fourth quarter of 2005 was 39.9% compared with 46.9% in the 2004 period. For the full year, the tax rate was 42.1% compared with 44.3% a year ago.
Earnings Conference Call
The Company will conduct its fourth quarter 2005 earnings conference call and audio webcast on Wednesday, February 15, 2006, from 8:00 to 9:00 a.m. (ET). The conference call will be available live via telephone and the Internet. To access the call, dial (617) 213-8064 (when prompted, callers should enter the access code 84052427). To listen to the conference call over the Internet, visit http://www.nfp.com/ (through a link on the Investor Relations page). The conference call will be available for replay via telephone and Internet for a period of approximately 90 days. To listen to a replay of the conference call via telephone, dial (617) 801-6888. The access code for the replay is 14296802. To access the replay of the conference call over the Internet, visit the above-mentioned Web site.
Quarterly Financial Supplement
A copy of the Company's quarterly financial supplement, which provides additional financial data, is available on the Investor Relations section of the Company's Web site at http://www.nfp.com/.
Reconciliation of Non-GAAP Measures
The Company analyzes its performance using non-GAAP measures called cash earnings and cash earnings per diluted share. Cash earnings are defined as net income, excluding amortization of intangibles, depreciation and impairment of goodwill and intangible assets. Cash earnings per diluted share are calculated by dividing cash earnings as defined above by the number of weighted average diluted shares outstanding for the period indicated. The Company also uses non-GAAP measures called gross margin before management fees and gross margin before management fees as a percentage of revenue. The Company believes these non-GAAP measures provide additional meaningful methods of evaluating certain aspects of the Company's operating performance from period to period on a basis that may not be otherwise apparent under GAAP. Cash earnings and cash earnings per diluted share should not be viewed as substitutes for GAAP net income and GAAP net income per diluted share, respectively. Gross margin before management fees and gross margin before management fees as a percentage of revenue should not be viewed as substitutes for GAAP gross margin and GAAP gross margin as a percentage of revenue, respectively. A full reconciliation of net income to cash earnings and gross margin to gross margin before management fees is provided in the attached tables as well as the Company's quarterly financial supplement, which is available on the Investor Relations section of the Company's Web site at http://www.nfp.com/.
About National Financial Partners Corp.
Founded in 1998, National Financial Partners Corp. ("NFP") is a leading independent distributor of financial services products to high net worth individuals and growing entrepreneurial companies. NFP is headquartered in New York and operates a national distribution network with over 1,900 producers in 41 states and Puerto Rico consisting of over 160 firms and over 210 affiliated third-party distributors.
Forward-Looking Statements
This release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words "anticipate," "expect," "intend," "plan," "believe," "estimate," "may," "will" and "continue" and similar expressions of a future or forward-looking nature. Forward-looking statements may include discussions concerning revenue, expenses, earnings, cash flow, dividends, capital structure, credit facilities, market and industry conditions, premium and commission rates, interest rates, contingencies, the direction or outcome of regulatory investigations and litigation, income taxes and NFP's operations. These forward-looking statements are based on management's current views with respect to future results, and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward- looking statement include: (1) NFP's success in acquiring high quality independent financial services distribution firms, (2) the performance of NFP's firms following acquisition, (3) competition in the business of providing financial services to the high net worth and entrepreneurial corporate markets, (4) the impact of legislation or regulations in jurisdictions in which NFP's subsidiaries operate, including elimination or modification of the federal estate tax or changes in the tax treatment of life insurance products that we sell, (5) NFP's dependence on principals and its ability to effectively manage its business, (6) changes in premiums and commission rates, (7) changes in the pricing, design or underwriting of insurance products that result in these products becoming less attractive to our customers, (8) adverse results or other consequences from litigation, arbitration or regulatory investigations, including those related to compensation agreements with insurance companies, (9) adverse results or other consequences from higher than anticipated compliance costs, including those related to expenses arising from internal reviews of business practices, (10) changes in interest rates or general economic conditions, and (11) other factors described in NFP's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made. NFP expressly disclaims any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited-in thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Revenue:
Commissions and fees $290,367 $203,549 $891,446 $639,472
Cost of services:
Commissions and fees 74,983 44,723 247,810 163,781
Operating expenses 75,504 55,740 259,859 190,192
Management fees 91,928 58,667 208,613 145,073
Total cost of services 242,415 159,130 716,282 499,046
Gross margin 47,952 44,419 175,164 140,426
Corporate and other expenses:
General and administrative 9,526 11,928 41,258 35,409
Stock-based compensation 1,400 654 4,505 1,440
Amortization of intangibles 6,297 5,071 23,709 19,550
Impairment of goodwill and
intangible assets 2,955 1,621 8,057 4,791
Depreciation 2,244 1,954 7,815 6,658
Gain on sale of subsidiaries (6,615) - (6,298) (145)
Total corporate and other
expenses 15,807 21,228 79,046 67,703
Income from operations 32,145 23,191 96,118 72,723
Net interest and other 2,955 (615) 895 (616)
Income before income taxes 35,100 22,576 97,013 72,107
Income tax expense 14,004 10,592 40,831 31,965
Net income $21,096 $11,984 $56,182 $40,142
Earnings per share:
Basic $0.57 $0.35 $1.57 $1.19
Diluted $0.54 $0.32 $1.48 $1.10
Weighted average shares
outstanding:
Basic 36,781 34,161 35,679 33,688
Diluted 39,280 37,042 38,036 36,640
CALCULATION OF GROSS MARGIN
(Unaudited-in thousands)
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Total revenue $290,367 $203,549 $891,446 $639,472
Cost of services
(excludes management fees):
Commissions and fees 74,983 44,723 247,810 163,781
Operating expenses 75,504 55,740 259,859 190,192
Gross margin before
management fees 139,880 103,086 383,777 285,499
Management fees 91,928 58,667 208,613 145,073
Gross margin $47,952 $44,419 $175,164 $140,426
Gross margin as percentage of
total revenue 16.5% 21.8% 19.6% 22.0%
Gross margin before management
fees as percentage of
total revenue 48.2% 50.6% 43.1% 44.6%
Management fees, as a percentage
of gross margin before
management fees 65.7% 56.9% 54.4% 50.8%
RECONCILIATION OF NET INCOME TO CASH EARNINGS
(Unaudited-in thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
GAAP Net Income $21,096 $11,984 $56,182 $40,142
Amortization of intangibles 6,297 5,071 23,709 19,550
Depreciation 2,244 1,954 7,815 6,658
Impairment of goodwill and
intangible assets 2,955 1,621 8,057 4,791
Cash Earnings $32,592 $20,630 $95,763 $71,141
GAAP Net Income per share - diluted $0.54 $0.32 $1.48 $1.10
Amortization of intangibles 0.16 0.14 0.62 0.53
Depreciation 0.06 0.05 0.21 0.18
Impairment of goodwill and
intangible assets 0.08 0.04 0.21 0.13
Cash Earnings per share - diluted (1) $0.83 $0.56 $2.52 $1.94
(1) The sum of the per-share components of cash earnings per share -
diluted may not agree to cash earnings per share - diluted due to
rounding.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
December 31, December 31,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $105,761 $83,103
Cash, cash equivalents and securities
purchased under resale agreements in
premium trust accounts 52,407 53,692
Current receivables 115,279 69,721
Other current assets 19,396 23,175
Total current assets 292,843 229,691
Intangibles, net 340,969 273,207
Goodwill, net 357,353 281,212
Deferred tax assets 17,726 17,937
Other non-current assets 37,747 24,413
Total assets $1,046,638 $826,460
LIABILITIES
Current liabilities:
Premiums payable to insurance carriers $55,047 $51,043
Bank loan 40,000 -
Other current liabilities 182,059 134,193
Total current liabilities 277,106 185,236
Deferred tax liabilities 94,958 86,623
Other non-current liabilities 14,889 8,329
Total liabilities 386,953 280,188
STOCKHOLDERS' EQUITY
Common stock 3,822 3,530
Additional paid-in capital 623,102 533,825
Retained earnings 67,808 30,000
Treasury stock (35,047) (21,083)
Total stockholders' equity 659,685 546,272
Total liabilities and
stockholders' equity $1,046,638 $826,460
