NEW YORK, Aug. 6 /PRNewswire-FirstCall/ -- National Financial Partners Corp. , a national network of independent financial advisors specializing in life insurance and wealth transfer, corporate and executive benefits, and financial planning and investment advisory services, today reported amended financial results for its 2007 second quarter. This press release should be read in conjunction with the Company's previously furnished press release dated August 1, 2007.
The amendment reflects a change in the accounting treatment for NFP's acquisition of substantially all of the economic interest under the terms of the management agreement in Preferred Services Group of N.Y., LTD. from the management company of its principal. Following the release of its 2007 second quarter results on August 1, 2007, it was determined that the unique preexisting nature of the relationship between NFP, its firm principals and their management companies require that the cost of acquiring the management company and terminating the management contract may not be capitalized under purchase accounting. The change in accounting treatment shifts the purchase price from the balance sheet to the income statement. This results in NFP recognizing an expense for the management agreement buyout and reducing intangible assets by $13.0 million. (Net income was reduced by $7.7 million, net of tax.) While the revised accounting treatment lowers GAAP earnings per share it does not change the underlying business purpose, structure or expected economic return of the transaction.
Amended second quarter 2007 net income was $10.4 million, or $0.26 per diluted share. Including the cost of acquiring this additional economic interest, cash earnings were $22.6 million, or $0.57 per diluted share. Second quarter 2007 cash earnings, excluding the management agreement buyout, remained $30.3 million, or $0.76 per diluted share. (Cash earnings is a non- GAAP number, which the Company defines as net income excluding amortization of intangibles, depreciation and impairment of goodwill and intangible assets. A full reconciliation of net income to cash earnings and cash earnings excluding the management agreement buyout, net of tax, is provided in the attached tables.) The revised accounting treatment does not affect the company's reported revenue, revenue growth, "same store" revenue, net "same store" revenue, gross margin before management fees or management fees. Further, the Company's discussion and analysis of financial and general business trends remain unchanged from its second quarter of 2007 press release. Excluding the expense from the management agreement buyout, management's cash earnings targets remain unchanged.
The Company expects to file its Form 10-Q for the period ended June 30, 2007 on or about August 7, 2007.
Conference Call
The Company will conduct a conference call and audio webcast on August 7, 2007, from 8:30 to 9:00 a.m. (ET). The conference call will be available live via telephone and the Internet. To access the call, dial (617) 597-5313 (when prompted, callers should provide the access code "NFP"). 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 90 days. To listen to a replay of the conference call via telephone, dial (888) 286-8010. The access code for the replay is 94568657. To access the replay of the conference call over the Internet, visit the above-mentioned Web site.
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, NFP is a leading independent distributor of financial services products to high net worth individuals and entrepreneurial companies. NFP is headquartered in New York and operates a distribution network of over 175 firms.
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) NFP's ability, through its operating structure, to respond quickly to operational or financial situations, (5) NFP's ability to effectively manage its business through the principals of its firms, (6) changes in tax laws, including the elimination or modification of the federal estate tax and any change in the tax treatment of life insurance products, (7) changes in the pricing, design or underwriting of insurance products, (8) changes in premiums and commission rates, (9) adverse developments in the insurance markets in which NFP operates, resulting in fewer sales of insurance-related products, (10) adverse results or other consequences from litigation, arbitration or regulatory investigations, including those related to compensation agreements with insurance companies and activities within the life settlements industry, (11) uncertainty in the insurance and life settlements industries arising from investigations into certain business practices and subpoenas received by various governmental authorities and related litigation, (12) the reduction of NFP's revenue and earnings due to the elimination or modification of compensation arrangements, including contingent compensation arrangements, (13) changes in interest rates or general economic conditions, (14) the impact of legislation or regulations in jurisdictions in which NFP's subsidiaries operate, including the possible adoption of comprehensive and exclusive federal regulation over all interstate insurers, (15) adverse results or other consequences from higher than anticipated compliance costs, including those related to expenses arising from internal reviews of business practices and regulatory investigations, and (16) other factors described in NFP's filings with the Securities and Exchange Commission, including those set forth in NFP's Annual Report on Form 10-K for the year ended December 31, 2006. 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 Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Revenue:
Commissions and fees $282,995 $262,294 $527,219 $500,566
Cost of services:
Commissions and fees 88,470 85,176 169,777 165,776
Operating expenses (1) 87,767 75,745 173,898 149,959
Management fees (2) 48,049 53,114 84,353 96,342
Total cost of services 224,286 214,035 428,028 412,077
Gross margin 58,709 48,259 99,191 88,489
Corporate and other expenses:
General and administrative 14,858 12,916 29,561 25,456
Amortization of intangibles 8,402 6,814 16,408 13,525
Impairment of goodwill and
intangible assets 1,184 3,001 3,013 5,426
Depreciation 2,642 2,220 5,110 4,335
Management agreement buyout 13,046 - 13,046 -
(Gain) loss on sale of
subsidiaries (401) (16) (1,984) 327
Total corporate and other expenses 39,731 24,935 65,154 49,069
Income from operations 18,978 23,324 34,037 39,420
Net interest and other (333) 273 7 335
Income before income taxes 18,645 23,597 34,044 39,755
Income tax expense 8,237 9,872 15,143 16,571
Net income $10,408 $13,725 $18,901 $23,184
Earnings per share:
Basic $0.28 $0.37 $0.50 $0.62
Diluted $0.26 $0.34 $0.47 $0.58
Weighted average shares outstanding:
Basic 37,833 37,564 37,745 37,410
Diluted 39,943 40,113 39,882 40,010
(1) Excludes amortization and depreciation shown separately in Corporate
and other expenses.
(2) Excludes management agreement buyout shown separately in Corporate and
other expenses.
CALCULATION OF GROSS MARGIN
(Unaudited-in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Total revenue $282,995 $262,294 $527,219 $500,566
Cost of services:
Commissions and fees 88,470 85,176 169,777 165,776
Operating expenses (1) 87,767 75,745 173,898 149,959
Gross margin before
management fees 106,758 101,373 183,544 184,831
Management fees (2) 48,049 53,114 84,353 96,342
Gross margin $58,709 $48,259 $99,191 $88,489
Gross margin as percentage of
total revenue 20.7% 18.4% 18.8% 17.7%
Gross margin before management
fees as percentage of
total revenue 37.7% 38.6% 34.8% 36.9%
Management fees, as a percentage
of gross margin before
management fees (2) 45.0% 52.4% 46.0% 52.1%
RECONCILIATION OF NET INCOME TO CASH EARNINGS
(Unaudited-in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
GAAP Net Income $10,408 $13,725 $18,901 $23,184
Amortization of intangibles 8,402 6,814 16,408 13,525
Impairment of goodwill and
intangible assets 1,184 3,001 3,013 5,426
Depreciation 2,642 2,220 5,110 4,335
Cash Earnings $22,636 $25,760 $43,432 $46,470
Management agreement buyout,
net of tax 7,681 - 7,681 -
Cash Earnings excluding management
agreement buyout, net of tax $30,317 $25,760 $51,113 $46,470
GAAP Net Income per share - diluted $0.26 $0.34 $0.47 $0.58
Amortization of intangibles 0.21 0.17 0.41 0.34
Impairment of goodwill and
intangible assets 0.03 0.07 0.08 0.14
Depreciation 0.07 0.06 0.13 0.11
Cash Earnings per share - diluted (3) $0.57 $0.64 $1.09 $1.16
Management agreement buyout,
net of tax 0.19 - 0.19 -
Cash Earnings per share - diluted
excluding management agreement buyout,
net of tax (3) $0.76 $0.64 $1.28 $1.16
(1) Excludes amortization and depreciation shown separately in Corporate
and other expenses.
(2) Excludes management agreement buyout shown separately in Corporate and
other expenses.
(3) The sum of the per-share components of cash earnings per share -
diluted and cash earnings per share - diluted excluding management
agreement buyout, net of tax, may not agree to cash earnings per share
- diluted and cash earnings per share - diluted excluding management
agreement buyout, net of tax, due to rounding.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited-in thousands)
June 30, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $86,329 $98,206
Cash, cash equivalents and
securities purchased under resale
agreements in premium trust accounts 59,879 57,443
Current receivables 125,027 141,866
Other current assets 31,391 24,144
Total current assets 302,626 321,659
Intangibles, net 438,948 390,252
Goodwill, net 554,659 466,391
Deferred tax assets 19,473 17,726
Other non-current assets 50,213 41,016
Total assets $1,365,919 $1,237,044
LIABILITIES
Current liabilities:
Premiums payable to insurance carriers $58,237 $57,581
Borrowings 90,000 83,000
Other current liabilities 128,818 191,547
Total current liabilities 277,055 332,128
Deferred tax liabilities 114,283 105,163
Convertible senior notes 230,000 -
Other non-current liabilities 40,314 24,881
Total liabilities 661,652 462,172
STOCKHOLDERS' EQUITY
Common stock at par value 4,151 4,019
Additional paid-in capital 741,979 706,512
Retained earnings 99,132 101,281
Treasury stock (140,995) (36,940)
Total stockholders' equity 704,267 774,872
Total liabilities and
stockholders' equity $1,365,919 $1,237,044
