Patriot National Announces Third Quarter 2016 Financial Results
GAAP Earnings Per Share of $0.06 and Adjusted Earnings Per Share of $0.12
FORT LAUDERDALE, Fla., Nov. 14, 2016 /PRNewswire/ -- Patriot National, Inc. (NYSE: PN), ("Patriot National or "the Company") a leading provider of technology and outsourcing solutions, today announced its financial results for the quarter ended September 30, 2016.
Financial Highlights:
(For the quarter ended September 30, 2016, all comparisons correspond to the prior-year period)
- Total Revenues increased 2.9% to $60.2 million
- Total Fee Income increased 2.9% to $60.2 million
- GAAP Net Income of $1.9 million, or $0.06 per diluted share
- Adjusted Earnings1 of $3.1 million, or $0.12 per diluted share
- Adjusted EBITDA1 of $11.4 million, down 21.9%
- Operating Cash Flow1 of $7.5 million, down 30.2%
1See Reconciliation of GAAP net income to Adjusted EBITDA, Adjusted Earnings and Operating Cash Flow in the accompanying financial tables.
Management Commentary:
"While our financial results for the third quarter were lower than expected, we are encouraged by the strength of our business development pipeline. We have been leveraging our deep customer relationships and broad product portfolio to serve a greater share of our customers' needs and are seeing solid evidence of success, including a significant expansion of our partnership with one of our key carriers," said Steven M. Mariano, Chief Executive Officer of Patriot National. "We are also realizing increased productivity throughout our organization as measured by revenue per employee. With our powerful operating platform, innovative technology solutions and greater efficiency, we expect our efforts will deliver stronger top-line growth and profitability."
Financial Results for the Three Months Ended September 30, 2016
Total fee income was $60.2 million for the third quarter of 2016, an increase of 2.9% compared with $58.5 million in the third quarter of 2015. The increase in fee income during the third quarter of 2016 was primarily due to contributions from acquisitions made in the trailing twelve months ended September 30, 2016. Organic fee income of $58.2 million did not change significantly year-over-year.
Total expenses for the third quarter of 2016 were $57.1 million, compared with $53.3 million in the third quarter of 2015. The increase was largely attributable to acquisitions made during the trailing twelve months ended September 30, 2016.
Third quarter 2016 GAAP net income was $1.9 million, or $0.06 per diluted share, compared to $3.8 million, or $0.14 per diluted share in the third quarter of 2015. Weighted average diluted shares were 32.1 million on a GAAP basis, which includes 5.4 million shares relating to the warrants associated with the PIPE financing as discussed in the Company's previous 10-Q (the "Warrants"); and 26.7 million shares excluding the Warrants on a non-GAAP basis respectively. It is important to note that pursuant to the Back-to-Back Agreement between the Company and Mr. Mariano, Mr. Mariano has agreed to tender any shares back to the Company for any shares delivered by the Company pursuant to the Warrant Agreement.
Adjusted Earnings for the third quarter of 2016 were $3.1 million, or $0.12 per diluted share, compared with Adjusted Earnings of $5.7 million, or $0.20 per diluted share, in the third quarter of 2015. In calculating the weighted average diluted shares, the Warrants previously mentioned have been excluded. Patriot National defines Adjusted Earnings and Adjusted Earnings Per Share as net income (loss) adjusted for cost for debt payoff, non-cash stock compensation costs, net realized gains (losses) on investments, increase (decrease) in fair value of warrant redemption liability, acquisition costs, non-recurring claims cost, severance expense, public offering costs and the income tax effect related to reconciling items.
Adjusted EBITDA for the third quarter of 2016 was $11.4 million, compared to Adjusted EBITDA of $14.6 million for the third quarter of 2015. Patriot National defines Adjusted EBITDA as net income (loss) adjusted for income tax, interest, depreciation and amortization, net realized gains (losses) on investments, increase (decrease) in fair value of warrant redemption liability, costs for debt payoff, non-cash stock compensation costs, acquisition costs, non-recurring claims cost, severance expense and public offering costs.
Operating Cash Flow for the third quarter of 2016 was $7.5 million, compared to $10.8 million for the third quarter of 2015. Patriot National defines Operating Cash Flow as Adjusted EBITDA less income tax expense, interest expense and capital expenditures.
As of September 30, 2016, the Company had $13.2 million in cash and approximately $135 million of debt outstanding inclusive of capital lease obligations, net of deferred financing charges.
Summary Financial Results
| Three Months Ended September 30, |
||||||
| In thousands, except per share amounts |
2016 |
2015 |
Change |
|||
| Total Revenues GAAP |
$ 60,222 |
$ 58,523 |
2.9% |
|||
| Total Fee Income |
$ 60,220 |
$ 58,532 |
2.9% |
|||
| Organic |
$ 58,173 |
$ 58,532 |
(0.6%) |
|||
| Acquisitions |
$ 2,047 |
$ - |
n/a |
|||
| Net Income (Loss) GAAP |
$ 1,876 |
$ 3,788 |
(50.5%) |
|||
| Earnings (Loss) per diluted share |
$ 0.06 |
$ 0.14 |
(58.7%) |
|||
| Adjusted EBITDA |
$ 11,423 |
$ 14,629 |
(21.9%) |
|||
| Adjusted EBITDA margins |
19.0% |
25.0% |
(24.1%) |
|||
| Adjusted Earnings |
$ 3,111 |
$ 5,699 |
(45.4%) |
|||
| Adjusted Earnings Diluted EPS |
$ 0.12 |
$ 0.20 |
(40.0%) |
|||
| Operating Cash Flow |
$ 7,504 |
$ 10,751 |
(30.2%) |
|||
Reconciliation of GAAP to Non-GAAP Financial Measures is provided in the following financial tables.
Outlook
The Company has withdrawn its previously issued financial guidance for 2016 and plans to provide guidance for 2017 at the time it announces its fourth quarter results.
Conference Call and Webcast
A conference call and audio webcast with analysts and investors will be held on Monday, November 14, 2016 at 9:00 a.m. Eastern Time, to discuss the Company's results.
- Live conference call: 1-844-881-0136 (domestic) or 1-412-317-6745 (international)
- Conference call replay available through December 14, 2016: 1-877-344-7529 (domestic) or 1-412-317-0088 (international)
- Replay access code: 10095739
- Live and archived webcast: ir.patnat.com
About Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, this press release provides information regarding Adjusted earnings and earnings per share (non-GAAP adjusted), Operating Cash Flow and Adjusted EBITDA.
A reconciliation of GAAP net income (loss) to both Adjusted earnings and Adjusted EBITDA can be found in the accompanying table. Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. Patriot National compensates for these limitations by relying primarily on its GAAP results and using Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA only as a supplement.
We have presented Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA in this release because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are as follows:
- Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;
- Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or tax payments that may represent a reduction in cash available to us;
- Operating Cash Flow does not reflect changes in working capital that may represent a reduction in cash available to us; and
- Other companies, including companies in our industry, may calculate Adjusted Earnings or Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
About Patriot National
Patriot National, Inc. is a national provider of comprehensive technology and outsourcing solutions that help insurance companies and employers mitigate risk, comply with complex regulations and save time and money. Patriot National provides general agency services, technology outsourcing, software solutions, specialty underwriting and policyholder services, claims administration services, self-funded health plans and employment pre-screening services to its insurance carrier clients, employers and other clients. Patriot National is headquartered in Fort Lauderdale, Florida. For more information about Patriot National, please visit www.patnat.com.
Forward Looking Statements
This press release may include statements that may be deemed to be forward-looking statements. Words such as "may," "will," "should," "likely," "anticipates," "expects," "intends," "plans," "projects," "believes," "estimates," "positioned," "outlook," "Guidance," and similar expressions are used to identify these forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties, and there are important factors that could cause actual results to differ materially from those indicated in these statements, including the potential that we may not be able to deliver stronger top-line growth and profitability. For example, we may not be able to place insurance policies for our clients, our expenses may be higher than we expect, we may have difficulty integrating new acquisitions, new acquisitions may not perform as anticipated, as well as those matters contained in our filings with the Securities and Exchange Commission. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance or events and that results may differ materially from statements made in or suggested by the forward-looking statements contained in this press release. Any forward-looking statement that we may make in this press release speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments.
Media and Investor Contacts:
Cindy Campbell
Director of Investor Relations
Patriot National, Inc.
(954) 670-2907
[email protected]
| Patriot National, Inc. |
||||||||
| Consolidated Statement of Operations |
||||||||
| (In thousands, except per share amounts) |
||||||||
| (Unaudited) |
||||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||
| In thousands, except per share amounts |
2016 |
2015 |
2016 |
2015 |
||||
| Revenues |
||||||||
| Total Fee Income |
$ 60,220 |
$ 58,532 |
$ 181,557 |
$ 148,912 |
||||
| Net investment income |
2 |
49 |
37 |
85 |
||||
| Net losses on investments |
- |
(58) |
(295) |
(149) |
||||
| Total Revenues |
60,222 |
58,523 |
181,299 |
148,848 |
||||
| Expenses |
||||||||
| Salaries and related expenses |
23,449 |
21,549 |
69,430 |
53,782 |
||||
| Commission expense |
11,865 |
8,173 |
35,992 |
25,556 |
||||
| Outsourced services |
3,930 |
2,369 |
11,125 |
7,623 |
||||
| Other operating expenses |
10,139 |
11,967 |
29,437 |
25,252 |
||||
| Acquisition costs |
383 |
1,453 |
1,408 |
4,372 |
||||
| Interest expense, including deferred loan fees |
1,555 |
868 |
4,343 |
2,731 |
||||
| Depreciation and amortization |
4,743 |
4,380 |
14,160 |
10,075 |
||||
| Stock compensation expense |
1,037 |
2,586 |
3,738 |
8,791 |
||||
| Costs related to extinguishment of debt |
- |
- |
- |
13,681 |
||||
| Decrease in fair value of warrant redemption liability |
- |
- |
- |
(1,385) |
||||
| Increase (Decrease) in fair value of earn-out liability |
19 |
- |
(1,913) |
- |
||||
| Total Expenses |
57,120 |
53,345 |
167,720 |
150,478 |
||||
| Net income (loss) before income tax expense |
3,102 |
5,178 |
13,579 |
(1,630) |
||||
| Income tax (benefit) expense |
1,188 |
1,331 |
(5,960) |
(1,733) |
||||
| Net Income (Loss) Including Non-Controlling Interest in Subsidiary |
1,914 |
3,847 |
19,539 |
103 |
||||
| Net income attributable to non-controlling interest in subsidiary |
38 |
59 |
103 |
111 |
||||
| Net Income (Loss) |
$ 1,876 |
$ 3,788 |
$ 19,436 |
$ (8) |
||||
| Earnings (Loss) Per Common Share |
||||||||
| Basic |
$ 0.06 |
$ 0.14 |
$ 0.65 |
$ (0.00) |
||||
| Diluted |
0.06 |
0.14 |
0.64 |
(0.00) |
||||
| Weighted Average Common Shares |
||||||||
| Basic |
31,316 |
26,802 |
29,881 |
26,006 |
||||
| Diluted |
32,105 |
27,940 |
30,566 |
26,006 |
||||
| Consolidated Balance Sheets |
||||
| (In thousands) |
||||
| (Unaudited) |
||||
| September 30, |
December 31, |
|||
| In thousands |
2016 |
2015 |
||
| Assets |
||||
| Current Assets |
||||
| Cash |
$ 13,193 |
$ 8,372 |
||
| Short term investments |
- |
3,173 |
||
| Total cash and investments |
13,193 |
11,545 |
||
| Restricted cash |
17,589 |
16,055 |
||
| Fee income receivable |
9,418 |
8,159 |
||
| Fee income receivable from related party |
35,306 |
27,036 |
||
| Net receivable from related parties |
2,698 |
499 |
||
| Other current assets |
1,769 |
2,046 |
||
| Total current assets |
79,973 |
65,340 |
||
| Fixed assets, net |
5,311 |
5,092 |
||
| Goodwill |
121,683 |
118,141 |
||
| Intangible assets |
75,344 |
75,681 |
||
| Forward purchase asset |
57,511 |
28,120 |
||
| Deferred tax asset, net |
13,626 |
- |
||
| Advance on facilitation agreement |
1,547 |
2,000 |
||
| Other long term assets |
11,153 |
11,428 |
||
| Total Assets |
$ 366,148 |
$ 305,802 |
||
| Liabilities and Stockholders' Equity (Deficit) |
||||
| Liabilities |
||||
| Deferred claims administration services income |
$ 9,432 |
$ 10,639 |
||
| Net advanced claims reimbursements |
3,623 |
1,835 |
||
| Income taxes payable |
6,040 |
2,996 |
||
| Current earn-out payable |
4,746 |
10,556 |
||
| Accounts payable, accrued expenses and other liabilities |
42,867 |
32,809 |
||
| Deferred purchase consideration |
- |
6,128 |
||
| Revolver borrowings outstanding |
33,932 |
18,032 |
||
| Current portion of notes payable |
6,875 |
5,500 |
||
| Current portion of capital lease obligation |
414 |
2,232 |
||
| Total current liabilities |
107,929 |
90,727 |
||
| Earn-out payable |
6,940 |
1,827 |
||
| Notes payable, net of deferred loan fees of $2,203 and $2,352 |
93,437 |
98,648 |
||
| Warrant redemption liability |
57,511 |
28,120 |
||
| Total liabilities |
265,817 |
219,322 |
||
| Stockholders' Equity (Deficit) |
||||
| Total Patriot National, Inc. Stockholders' Equity (Deficit) |
100,463 |
86,715 |
||
| Less non-controlling interest |
(132) |
(235) |
||
| Total Stockholders' Equity (Deficit) |
100,331 |
86,480 |
||
| Total Liabilities and Stockholders' Equity (Deficit) |
$ 366,148 |
$ 305,802 |
||
| Reconciliation of GAAP to Non-GAAP Financial Measures |
||||||||
| (In thousands) |
||||||||
| (Unaudited) |
||||||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||
| In thousands |
2016 |
2015 |
2016 |
2015 |
||||
| Reconciliation from Net Income (Loss) to Adjusted EBITDA: |
||||||||
| Net Income (Loss) |
$ 1,876 |
$ 3,788 |
$ 19,436 |
$ (8) |
||||
| Income tax (benefit) expense |
1,188 |
1,331 |
(5,960) |
(1,733) |
||||
| Interest expense |
1,555 |
868 |
4,343 |
2,731 |
||||
| Depreciation and amortization |
4,743 |
4,380 |
14,160 |
10,075 |
||||
| EBITDA |
9,362 |
10,367 |
31,979 |
11,065 |
||||
| Net losses on investments |
- |
58 |
295 |
149 |
||||
| Severance expense |
460 |
172 |
1,703 |
172 |
||||
| Stock compensation expense |
1,037 |
2,586 |
3,738 |
8,791 |
||||
| Acquisition costs |
383 |
1,453 |
1,408 |
4,372 |
||||
| Non-recurring claims cost |
149 |
- |
449 |
- |
||||
| Costs related to extinguishment of debt |
- |
- |
- |
13,681 |
||||
| Decrease in fair value of warrant redemption liability |
- |
- |
- |
(1,385) |
||||
| Increase (decrease) in fair value of earn-out liability |
19 |
- |
(1,913) |
- |
||||
| Gain on disposal of fixed assets |
- |
(7) |
- |
(7) |
||||
| Public offering costs |
13 |
- |
104 |
- |
||||
| Adjusted EBITDA |
$ 11,423 |
$ 14,629 |
$ 37,763 |
$ 36,838 |
||||
| Calculation of Adjusted EBITDA margins: |
||||||||
| Total Fee Income |
$ 60,220 |
$ 58,532 |
$ 181,557 |
$ 148,912 |
||||
| Adjusted EBITDA |
$ 11,423 |
$ 14,629 |
$ 37,763 |
$ 36,838 |
||||
| Adjusted EBITDA margins |
19.0% |
25.0% |
20.8% |
24.7% |
||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||
| In thousands, except per share amounts |
2016 |
2015 |
2016 |
2015 |
||||
| Reconciliation from Net Income (Loss) to Adjusted Earnings: |
||||||||
| Net Income (Loss) |
$ 1,876 |
$ 3,788 |
$ 19,436 |
$ (8) |
||||
| Net income attributable to non-controlling interest in subsidiary |
38 |
59 |
103 |
111 |
||||
| Income tax (benefit) expense |
1,188 |
1,331 |
(5,960) |
(1,733) |
||||
| Net income (loss) before income tax expense |
3,102 |
5,178 |
13,579 |
(1,630) |
||||
| Adjustments to Net income (loss) before income tax expense: |
||||||||
| Net losses on investments |
- |
58 |
295 |
149 |
||||
| Severance expense |
460 |
172 |
1,703 |
172 |
||||
| Stock compensation expense |
1,037 |
2,586 |
3,738 |
8,791 |
||||
| Acquisition costs |
383 |
1,453 |
1,408 |
4,372 |
||||
| Non-recurring claims cost |
149 |
- |
449 |
- |
||||
| Costs related to extinguishment of debt |
- |
- |
- |
13,681 |
||||
| Decrease in fair value of warrant redemption liability |
- |
- |
- |
(1,385) |
||||
| Increase (decrease) in fair value of earn-out liability |
19 |
- |
(1,913) |
- |
||||
| Gain on disposal of fixed assets |
- |
(7) |
- |
(7) |
||||
| Public offering costs |
13 |
- |
104 |
- |
||||
| Total |
2,061 |
4,262 |
5,784 |
25,773 |
||||
| Adjusted net income before income tax expense |
5,163 |
9,440 |
19,363 |
24,143 |
||||
| Income tax expense at statutory rate |
2,014 |
3,682 |
7,552 |
9,416 |
||||
| Adjusted Net Income Including Non-Controlling Interest in Subsidiary |
3,149 |
5,758 |
11,811 |
14,727 |
||||
| Net income attributable to non-controlling interest in subsidiary |
38 |
59 |
103 |
111 |
||||
| Adjusted Earnings |
$ 3,111 |
$ 5,699 |
$ 11,708 |
$ 14,616 |
||||
| Calculation of Adjusted Earnings Per Common Share |
||||||||
| Basic |
$ 0.12 |
$ 0.21 |
$ 0.44 |
$ 0.56 |
||||
| Diluted |
0.12 |
0.20 |
0.43 |
0.55 |
||||
| Weighted Average Common Shares Outstanding |
||||||||
| Basic |
26,427 |
26,802 |
26,740 |
26,006 |
||||
| Diluted |
26,728 |
27,940 |
26,938 |
26,388 |
||||
| Statutory Tax Rate |
39.0% |
39.0% |
39.0% |
39.0% |
||||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||
| In thousands |
2016 |
2015 |
2016 |
2015 |
||||
| Reconciliation from Net Income (Loss) to Operating Cash Flow: |
||||||||
| Net Income (Loss) |
$ 1,876 |
$ 3,788 |
$ 19,436 |
$ (8) |
||||
| Income tax (benefit) expense |
1,188 |
1,331 |
(5,960) |
(1,733) |
||||
| Interest expense |
1,555 |
868 |
4,343 |
2,731 |
||||
| Depreciation and amortization |
4,743 |
4,380 |
14,160 |
10,075 |
||||
| EBITDA |
9,362 |
10,367 |
31,979 |
11,065 |
||||
| Net losses on investments |
- |
58 |
295 |
149 |
||||
| Severance expense |
460 |
172 |
1,703 |
172 |
||||
| Stock compensation expense |
1,037 |
2,586 |
3,738 |
8,791 |
||||
| Acquisition costs |
383 |
1,453 |
1,408 |
4,372 |
||||
| Non-recurring claims cost |
149 |
- |
449 |
- |
||||
| Costs related to extinguishment of debt |
- |
- |
- |
13,681 |
||||
| Decrease in fair value of warrant redemption liability |
- |
- |
- |
(1,385) |
||||
| Increase (decrease) in fair value of earn-out liability |
19 |
- |
(1,913) |
- |
||||
| Gain on disposal of fixed assets |
- |
(7) |
- |
(7) |
||||
| Public offering costs |
13 |
- |
104 |
- |
||||
| Adjusted EBITDA |
11,423 |
14,629 |
37,763 |
36,838 |
||||
| Less: Income tax expense |
(1,188) |
(1,331) |
- |
- |
||||
| Less: Cash interest expense |
(1,394) |
(806) |
(3,870) |
(2,525) |
||||
| Less: Purchase of fixed assets and other long-term assets |
(1,337) |
(1,741) |
(3,548) |
(4,565) |
||||
| Operating Cash Flow (1) |
$ 7,504 |
$ 10,751 |
$ 30,345 |
$ 29,748 |
||||
|
(1) Operating Cash Flow is defined as Adjusted EBITDA less income tax expense, interest expense, and capital expenditures |
||||||||
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SOURCE Patriot National, Inc.
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