NFP National Financial Partners Corp.

NEW YORK, Nov. 7 /PRNewswire-FirstCall/ -- Financial % 9 mos. 9 mos. % Highlights *3Q 2007 3Q 2006 Change 2007 2006 Change (Dollars in millions, except per share data) Revenue $311.2 $267.1 16.5% $838.4 $767.6 9.2% Net income 16.1 16.5 -2.4% 35.0 39.6 -11.6% Net income per diluted share 0.40 0.41 -2.4% 0.87 0.99 -12.1% Cash earnings 30.1 26.7 12.7% 73.5 73.2 0.4% Cash earnings excluding management agreement buyout, net of tax 30.1 26.7 12.7% 81.2 73.2 10.9% Cash earnings per diluted share 0.75 0.66 13.6% 1.84 1.82 1.1% Cash earnings per diluted share excluding management agreement buyout, net of tax $0.75 $0.66 13.6% $2.03 $1.82 11.5% "Same store" revenue growth 6.8% 1.0% -2.6% 12.1% Net "same store" revenue growth 10.8% 0.0% 0.5% 7.8% Acquired base earnings $4.1 $7.5 $23.1 $21.1 * This summary includes financial measures not calculated based on generally accepted accounting principles. National Financial Partners Corp. (NYSE:NFP), 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 financial results for the third quarter ended September 30, 2007. Third quarter 2007 net income was $16.1 million, or $0.40 per diluted share. Third quarter 2007 cash earnings were $30.1 million, or $0.75 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 is provided in the attached tables.) Cash earnings grew as a result of revenue growth from existing firms and additional revenue from new firms, offset in part by higher commissions and fees expense, operating expenses and management fees. Net income declined slightly in the quarter as it was additionally impacted by increased impairments. More detailed financial information can be found in the Company's quarterly financial supplement, which is available on the Company's Web site at http://www.nfp.com/. Jessica Bibliowicz, Chairman and Chief Executive Officer, said, "We are pleased with the revenue growth and, in particular, the return to positive 'same store' revenue growth during the third quarter. We believe this is indicative of improving market conditions, particularly in our life insurance business. We expect continued sequential improvement in 'same store' and total revenue growth and anticipate low to mid-single digit 'same store' revenue growth in 2007. Beyond this year, we are targeting high single digit 'same store' revenue growth. Given the third quarter results, our 2007 cash EPS growth is likely to be in the 15% to 20% range, consistent with our longer term objective." Acquisitions As a leading independent distributor of financial service products, the Company operates a national distribution network with over 180 owned firms. Understanding the Company's acquisition program is essential to understanding the Company's operating results. Third Quarter In the third quarter, the Company completed six transactions (including three sub-acquisitions), all of which are benefits firms. In aggregate, these firms represent $4.1 million in base earnings and approximately $16.0 million in 2006 revenue, the most recent full year prior to acquisition. (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 for these firms included approximately $19.5 million in cash and the issuance of approximately 56,000 shares of NFP common stock. October 1, 2007 through November 7, 2007 Subsequent to the third quarter of 2007, NFP completed the previously announced acquisition of Pro Financial Services, Inc. ("Pro Financial"), the Company's largest acquisition to date. Pro Financial is a specialized managing general underwriter that provides high-limit disability insurance to professional sports franchises, athletes, entertainers and highly compensated professionals. The acquisition enables NFP to increase its product offering in a niche disability market that targets the Company's existing and prospective clients. NFP paid approximately $73.0 million in a combination of cash and common stock for Pro Financial, and the acquisition represents $10.0 million in base earnings. The transaction was treated as an asset purchase for tax purposes, resulting in an estimated net present value tax benefit to NFP of approximately $12.5 million. Subsequent to the third quarter, NFP also completed one benefits sub-acquisition representing approximately $0.1 million in base earnings. Including the two firms acquired in December 2006, which management considers part of the 2007 acquired base earnings objective, the Company has completed 26 transactions representing $36.3 million in base earnings. These acquisitions generated revenue of approximately $105.0 million in the most recent full year prior to acquisition. Ms. Bibliowicz commented, "Our 2007 acquisitions develop our benefits product offering, enhance cross selling capabilities, highlight the flexibility of the NFP model and display the attractiveness of the NFP network. We have far exceeded our 2007 acquisition budget of $20 million in acquired base earnings, and the acquisition environment remains favorable. Accordingly, we are targeting $20 million in acquired base earnings in 2008." Third Quarter Results Revenue increased $44.1 million, or 16.5%, to $311.2 million in the third quarter of 2007 from the prior year period. Components of the increase included: -- "same store" revenue growth of $14.1 million, or 6.8%; -- revenue growth of $13.9 million, or 26.5%, to $66.5 million from NFP Insurance Services, Inc. ("NFPISI") and NFP Securities, Inc. ("NFPSI"); and -- $24.9 million of revenue growth from firms acquired subsequent to the start of the third quarter of 2006. These increases in revenue were offset by adjustments for dispositions and eliminations. The revenue decrease from dispositions largely related to the disposition of one firm in the first quarter of 2007. Net "same store" revenue growth was 10.8% during the third quarter of 2007. Firms included in the "same store" and net "same store" revenue growth calculations encompass firms that were owned by NFP for at least four full quarters at the beginning of the third quarter of 2007. More detailed definitions can be found in the Company's quarterly financial supplement, which is available on the Company's Web site at http://www.nfp.com/. Gross margin before management fees was $116.7 million in the third quarter of 2007, an increase of $10.7 million, or 10.1%, over the prior year period. Gross margin (including management fees) was $57.2 million in the third quarter of 2007, an increase of $5.0 million, or 9.6%, over the prior year period. As a percentage of revenue, gross margin was 18.4% in the third quarter of 2007 compared with 19.5% a year ago. The decrease in gross margin percentage was the result of higher commissions and fees expense and operating expenses as a percentage of revenue. The increase in commissions and fees expense as a percentage of revenue was primarily the result of the Company's broker-dealer, NFPSI, which typically has high commission payouts, contributing a larger percentage of total revenue during the third quarter than in the prior period. Operating expenses as a percentage of revenue increased largely as a result of two isolated initiatives that are substantially complete: -- Hiring at NFPISI, NFP's Austin, Texas-based insurance distribution utility, primarily related to key leadership, sales, marketing and support positions to further improve the resources available to NFP's owned and member firms. -- Strategic steps taken at a firm recently acquired from a larger institution to position it for future profitability and growth. As expected, subsequent to the acquisition, a new management team was put in place and the entity required certain modifications to its organizational structure to ensure its long-term success as a stand alone administrative platform within NFP. The increase in operating expense percentage was largely the result of entities not part of the "same store" revenue growth calculation. Management fees as a percentage of gross margin before management fees was 51.0% in the third quarter of 2007 versus 50.8% a year ago. The Company's firms are rewarded for achieving growth targets based on three-year performance cycles resulting in accruals for potential incentive payments. In the third quarter of 2007, incentive payment accruals were $5.9 million versus $1.6 million a year ago and represented 5.0% of gross margin before management fees in the third quarter compared with 1.5% a year ago. The higher incentive payment accruals related to the strong performance of firms at the end of an incentive cycle. Incentive payment accruals can vary from period to period based on the mix of firms participating in the incentive program and the level of their earnings. Excluding incentive payment accruals, management fees as a percentage of gross margin before management fees decreased in the third quarter of 2007 from the prior year period. The decrease was due largely to an increase in NFP's economic ownership percentage of its firms' earnings from 48% in the prior year period to 50% in the third quarter of 2007 resulting from acquisitions and one disposition, which was partially offset by accelerated firm earnings. Stock-based compensation included in cost of services was $1.3 million in the third quarter of 2007 compared to $0.8 million in the prior year period. General and administrative expense ("G&A") increased 8.3% to $14.3 million in the third quarter of 2007 from $13.2 million in the prior year period. G&A increased largely as the result of growth in the Company's cost structure, particularly in the areas of compliance, internal audit, accounting, technology, firm operations and human resources to support firm growth and meet increased regulatory needs. Stock-based compensation included in G&A was $1.8 million in the third quarter of 2007 compared to $1.4 million in the prior year period. As a percentage of revenue, G&A was 4.6% in the third quarter of 2007 versus 4.9% in the third quarter of 2006. Revenue growth outpaced G&A growth in the quarter, resulting in a decline in G&A as a percentage of revenue. Third quarter 2007 G&A also included $0.1 million of expense for legal fees related to regulatory investigations of the life settlements industry. The Company continues to cooperate with all governmental agencies and expects additional costs will be incurred in the fourth quarter of 2007. In the third quarter of 2007, the Company took a $2.6 million impairment charge related to two firms. The Company reviews and evaluates the financial and operating results of its acquired firms on a firm-by-firm basis throughout the year. The income tax rate in the third quarter of 2007 was 43.5% compared to 43.1% in the 2006 quarter. The increase was due to the impact of additional tax accruals included in income tax expense related to the adoption of FASB Interpretation No. 48. Earnings Conference Call The Company will conduct its third quarter 2007 earnings conference call and audio webcast on November 8, 2007, 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) 614-2710 (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 96533227. 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 (both including and excluding management agreement buyout, net of tax). 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 may from time to time participate in a management agreement buyout by acquiring an additional economic interest in one of its existing firms through the acquisition of a principal's ownership interest in a management company which has been contracted by the Company to manage and operate one of its wholly-owned subsidiaries. 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 (both including and excluding management agreement buyout, net of tax) 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 cash earnings per diluted share (both including and excluding management agreement buyout, net of tax), as well as 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 180 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 and effectively 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) the potential adoption, if required by the Financial Accounting Standards Board, of an accounting treatment for convertible debt instruments that would recognize incremental interest expense, negatively impacting operating results including earnings per share, (16) 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 or those arising from compliance with state or federal laws, and (17) 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 Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Revenue: Commissions and fees $311,191 $267,078 $838,410 $767,644 Cost of services: Commissions and fees 101,666 84,976 271,443 250,752 Operating expenses (1) 92,794 76,071 266,692 226,030 Management fees (2) 59,551 53,843 143,904 150,185 Total cost of services 254,011 214,890 682,039 626,967 Gross margin 57,180 52,188 156,371 140,677 Corporate and other expenses: General and administrative 14,288 13,225 43,849 38,681 Amortization of intangibles 8,555 7,133 24,963 20,652 Impairment of goodwill and intangible assets 2,642 771 5,655 6,197 Depreciation 2,855 2,314 7,965 6,655 Management agreement buyout - - 13,046 - (Gain) loss on sale of subsidiaries - (255) (1,984) 72 Total corporate and other expenses 28,340 23,188 93,494 72,257 Income from operations 28,840 29,000 62,877 68,420 Net interest and other (399) 4 (392) 339 Income before income taxes 28,441 29,004 62,485 68,759 Income tax expense 12,384 12,541 27,527 29,112 Net income $16,057 $16,463 $34,958 $39,647 Earnings per share: Basic $0.42 $0.43 $0.92 $1.05 Diluted $0.40 $0.41 $0.87 $0.99 Weighted average shares outstanding: Basic 38,244 38,070 37,897 37,614 Diluted 40,392 40,501 40,055 40,196 (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 Nine Months Ended September 30, September 30, 2007 2006 2007 2006 Total revenue $311,191 $267,078 $838,410 $767,644 Cost of services: Commissions and fees 101,666 84,976 271,443 250,752 Operating expenses (1) 92,794 76,071 266,692 226,030 Gross margin before management fees 116,731 106,031 300,275 290,862 Management fees (2) 59,551 53,843 143,904 150,185 Gross margin $57,180 $52,188 $156,371 $140,677 Gross margin as percentage of total revenue 18.4% 19.5% 18.7% 18.3% Gross margin before management fees as percentage of total revenue 37.5% 39.7% 35.8% 37.9% Management fees, as a percentage of gross margin before management fees (2) 51.0% 50.8% 47.9% 51.6% RECONCILIATION OF NET INCOME TO CASH EARNINGS (Unaudited-in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2007 2006 2007 2006 GAAP Net Income $16,057 $16,463 $34,958 $39,647 Amortization of intangibles 8,555 7,133 24,963 20,652 Impairment of goodwill and intangible assets 2,642 771 5,655 6,197 Depreciation 2,855 2,314 7,965 6,655 Cash Earnings $30,109 $26,681 $73,541 $73,151 Management agreement buyout, net of tax - - 7,681 - Cash Earnings excluding management agreement buyout, net of tax $30,109 $26,681 $81,222 $73,151 GAAP Net Income per share - diluted $0.40 $0.41 $0.87 $0.99 Amortization of intangibles 0.21 0.18 0.62 0.51 Impairment of goodwill and intangible assets 0.07 0.02 0.14 0.15 Depreciation 0.07 0.06 0.20 0.17 Cash Earnings per share - diluted (3) $0.75 $0.66 $1.84 $1.82 Management agreement buyout, net of tax - - 0.19 - Cash Earnings per share - diluted excluding management agreement buyout, net of tax (3) $0.75 $0.66 $2.03 $1.82 (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) September 30, December 31, 2007 2006 ASSETS Current assets: Cash and cash equivalents $88,674 $98,206 Cash, cash equivalents and securities purchased under resale agreements in premium trust accounts 63,382 57,443 Current receivables 141,701 141,866 Other current assets 33,385 24,144 Total current assets 327,142 321,659 Intangibles, net 444,322 390,252 Goodwill, net 564,981 466,391 Deferred tax assets 21,950 17,726 Other non-current assets 51,798 41,016 Total assets $1,410,193 $1,237,044 LIABILITIES Current liabilities: Premiums payable to insurance carriers $60,069 $57,581 Borrowings 80,000 83,000 Other current liabilities 149,152 191,547 Total current liabilities 289,221 332,128 Deferred tax liabilities 115,273 105,163 Convertible senior notes 230,000 - Other non-current liabilities 41,830 24,881 Total liabilities 676,324 462,172 STOCKHOLDERS' EQUITY Common stock at par value 4,194 4,019 Additional paid-in capital 762,241 706,512 Retained earnings 108,242 101,281 Treasury stock (140,808) (36,940) Total stockholders' equity 733,869 774,872 Total liabilities and stockholders' equity $1,410,193 $1,237,044 DATASOURCE: National Financial Partners Corp. CONTACT: Investor Relations, Marc Gordon, +1-212-301-4033, , or Media Relations, Elliot Holtz, +1-212-301-4060, , both of National Financial Partners Web site: http://www.nfp.com/

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