Announces Initiatives to Address Current Environment NEW YORK, Nov.
5 /PRNewswire-FirstCall/ -- National Financial Partners Corp.
(NYSE:NFP), a 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, 2008. 3Q 3Q % 9 mos. 9 mos. % Financial
Highlights* 2008 2007 Change 2008 2007 Change ---- ---- ------
------ ------ ------ (Dollars in millions, except per share data)
Revenue $277.3 $311.2 -10.9% $851.1 $838.4 1.5% Net income 5.1 16.1
-68.3% 25.5 35.0 -27.1% Net income per diluted share 0.12 0.40
-70.0% 0.62 0.87 -28.7% Cash earnings 23.7 30.1 -21.3% 74.8 73.5
1.8% Cash earnings excluding management agreement buyout, net of
tax 23.7 30.1 -21.3% 74.8 81.2 -7.9% Cash earnings per diluted
share $0.58 $0.75 -22.7% $1.82 $1.84 -1.1% Cash earnings per
diluted share excluding management agreement buyout, net of tax
$0.58 $0.75 -22.7% $1.82 $2.03 -10.3% "Same store" revenue growth
-14.4% 6.8% -5.0% -2.6% Net "same store" revenue growth -11.3%
10.8% -4.3% 0.5% Acquired base earnings $4.3 $4.1 $16.4 $23.1 *
This summary includes financial measures not calculated based on
generally accepted accounting principles. Third quarter 2008 net
income was $5.1 million, or $0.12 per diluted share, compared with
$16.1 million, or $0.40 per diluted share, in the third quarter of
2007. Third quarter 2008 cash earnings was $23.7 million, or $0.58
per diluted share, compared with $30.1 million, or $0.75 per
diluted share, in the prior year period. (Cash earnings is a
non-GAAP measure, 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.) Net income
and cash earnings declined as a result of a decline in "same store"
revenue and an increase in operating expenses, offset in part by
revenue from new firms, and lower commissions and fees and
management fee expenses. 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, president and chief executive officer, said,
"We had a profitable quarter, but results were impacted by
extremely challenging economic and market conditions. While most
product lines experienced a 'same store' revenue decline during the
quarter, 'same store' revenue from group benefits remained stable
and our financial advisory business posted modest revenue growth.
Given the difficult environment, we are taking steps to maintain
our liquidity position and reduce corporate overhead." Ms.
Bibliowicz continued, "The long-term demographic trends of the
markets we serve remain strong. As conditions stabilize, we would
expect growth to resume." Initiatives to Address Current
Environment In light of the impact of the current environment on
recent results, the Company is taking the following steps: --
Corporate Expense Reductions: The Company is reducing headcount at
its New York-based corporate headquarters by 23 employees or
approximately 20%. Since the beginning of 2008, headcount has been
reduced by approximately 30%. The reductions are the result of a
careful review of corporate operations and the relocation of
certain functions to the Company's Austin, Texas-based facility.
The headcount reductions are expected to result in a severance
charge of approximately $1.5 million in the fourth quarter of 2008.
The Company expects the headcount reductions to result in an annual
G&A savings of approximately $6.4 million in 2009. A small
portion of the terminated positions will be replaced at the
Company's Austin, Texas-based facility, which will be included as a
component of operating expenses. The annual savings net of the cost
of establishing certain functions in Austin is expected to be
approximately $6.0 million. The Company continues to explore
further expense reductions. -- Reduced Acquisition Activity: With
the exception of certain sub-acquisitions, NFP does not anticipate
completing acquisitions until market conditions and financial
results stabilize. -- Suspension of Dividend: NFP's Board of
Directors has suspended the Company's quarterly cash dividend. --
Share Repurchases: For the foreseeable future, the Company does not
anticipate repurchasing additional shares under its current share
repurchase authorization. -- Credit Agreement: The Company is in
compliance with all covenants under its credit agreement. Like many
companies, NFP has initiated discussions with its bank group
regarding the potential need for additional flexibility to navigate
through the current downturn. Third Quarter Results Revenue
decreased $33.9 million, or 10.9%, to $277.3 million in the third
quarter of 2008 from the prior year period. Components of the
decrease included: -- a "same store" revenue decline of $33.0
million, or negative 14.4%, to $196.5 million; -- a decrease of
$9.8 million from dispositions primarily related to the sale of a
wholesale group benefits subsidiary in the first quarter of 2008.
These revenue decreases were offset in part by $9.3 million of
revenue growth from firms acquired subsequent to the start of the
third quarter of 2007 and revenue growth of $0.5 million, or 0.8%,
to $67.0 million from the Company's Austin, Texas-based facility,
which includes NFP Insurance Services, Inc., a licensed insurance
agency and marketing organization, and NFP Securities, Inc.
(NFPSI), a registered broker-dealer. Firms included in the "same
store" calculations generally encompass firms that were owned by
NFP for at least four full quarters at the beginning of the third
quarter of 2008. 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 $89.7 million in the third quarter of 2008, a
decrease of $27.0 million, or 23.2%, from the prior year period.
Gross margin, which includes management fees as a component of cost
of services, was $48.6 million in the third quarter of 2008, a
decrease of $8.6 million, or 15.0%, from the prior year period. As
a percentage of revenue, gross margin was 17.5% in the third
quarter of 2008 compared with 18.4% in the prior year period. The
decrease in gross margin percentage was the result of higher
operating expenses as a percentage of revenue, partially offset by
lower commissions and fees and management fee expenses as a
percentage of revenue. Operating expenses as a percentage of
revenue increased largely as a result of the decrease in revenue
and higher expenses at owned firms. Commissions and fees expense as
a percentage of revenue decreased primarily due to lower
commissions and fees expense as a percentage of revenue for firms
included in the "same store" revenue calculation, offset in part by
a greater contribution to revenue by NFPSI, which has high
commission payouts, as compared with the prior year period.
Management fees as a percentage of gross margin before management
fees was 45.9% in the third quarter of 2008 versus 51.0% 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 2008,
incentive payment accruals were $1.7 million versus $5.9 million in
the prior year period and represented 1.9% of gross margin before
management fees in the third quarter of 2008 compared with 5.1% for
the same period last year. Incentive 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
accruals, management fee percentage declined to 44.0% in the third
quarter of 2008 from 45.9% in the third quarter of 2007. This was
due largely to an increase in NFP's economic ownership percentage
of its firms' earnings from 50% in the prior year period to 52% in
the third quarter of 2008, resulting from an increased economic
ownership percentage in recent transactions. Stock-based
compensation expense included in gross margin was $1.4 million in
the third quarter of 2008 compared with $1.3 million in the prior
year period. General and administrative expense (G&A) increased
$2.3 million, or 16.1%, to $16.6 million in the third quarter of
2008 compared with the prior year period. G&A included $1.6
million in additional rent expense related to the relocation of the
Company's corporate headquarters that occurred in the second
quarter of 2008 and $1.6 million related to a note receivable
reserve. Stock-based compensation expense included in G&A was
$1.9 million in the third quarter of 2008 compared with $1.8
million in the prior year period. G&A increased as a percentage
of revenue to 6.0% in the third quarter of 2008 from 4.6% in the
prior year period. In the third quarter of 2008, the Company took a
$5.2 million impairment charge related to three firms. The Company
reviews and evaluates the financial and operating results of its
acquired firms on a firm-by-firm basis throughout the year.
Amortization of intangibles increased 15.1% in the third quarter of
2008 due to acquisition activity. The tax rate in the third quarter
of 2008 was 59.5% compared with a full year 2007 tax rate of 46.1%.
The increase in the tax rate was due largely to the non-deductible
nature of the impairments recorded in the quarter and an increase
in the ratio of non-deductible expenses to estimated pre-tax
income. Acquisitions Since NFP's second quarter earnings
announcement, the Company has completed a small number of
sub-acquisitions. Year-to-date, the Company has completed 17
transactions (including 10 sub-acquisitions) representing $16.4
million in base earnings. These acquisitions generated revenue of
approximately $59.4 million in 2007, 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.) Share Repurchases During the third quarter of
2008, NFP repurchased approximately 0.1 million shares of its
common stock for $2.7 million at an average cost of $20.22 per
share. Year-to-date, NFP repurchased approximately 1.0 million
shares of its common stock for $24.6 million at an average cost of
$24.75 per share. Earnings Conference Call The Company will conduct
its third quarter 2008 earnings conference call and audio webcast
on November 6, 2008, 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) 213-8836 (when prompted, callers should
provide the access code "NFP"). To listen to the conference call
over the Internet, visit http://www.nfp.com/ir. 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
77284060. 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), gross margin before management fees and
percentages or calculations using these measures. 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 net income
and net income per diluted share, respectively. Cash earnings is
defined as net income, excluding amortization of intangible assets,
depreciation, and impairment of goodwill and intangible assets.
Cash earnings per diluted share is calculated by dividing cash
earnings by the number of weighted average diluted shares
outstanding for the period indicated. Gross margin before
management fees should not be viewed as a substitute for gross
margin. A full reconciliation of these non-GAAP measures to their
GAAP counterparts is provided in the attached tables as well as the
Company's quarterly financial supplement, 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 companies. NFP is headquartered in
New York and operates a distribution network of over 180 owned
firms. For more information, please visit http://www.nfp.com/.
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 or strategy. 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 high
net worth individuals and companies, (4) NFP's ability, through its
operating structure, to respond quickly and effectively to
regulatory, operational or financial situations, (5) NFP's ability
to manage its business effectively 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) developments in the
pricing, design or underwriting of insurance products, revisions in
mortality tables by life expectancy underwriters or changes in
NFP's relationships with insurance companies, (8) changes in
premiums and commission rates and the rates of other fees paid to
NFP's firms, including life settlement and registered investment
advisory fees, (9) adverse developments or volatility in the
markets in which NFP operates, resulting in fewer sales in
financial services or products, including the availability of
credit in connection with the purchase of such products or
services, or consumer hesitancy in spending, (10) adverse results
or other consequences from litigation, arbitration, regulatory
investigations and inquiries, or internal compliance initiatives,
including those related to compensation agreements with insurance
companies and activities within the life settlements industry, (11)
uncertainty in the financial services, insurance and life
settlements industries arising from investigations into certain
business practices and subpoenas received from 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 and the adoption of internal initiatives to enhance
compensation transparency, including the transparency of fees paid
for life settlements transactions, (13) changes in interest rates
or general economic and credit market conditions, including changes
that adversely affect NFP's ability to access capital, such as the
global credit crisis that began in 2007 and continues today, (14)
securities and capital markets behavior, including fluctuations in
the price of NFP's common stock and recent uncertainty in the U.S.
financial markets, (15) 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, (16) the impact of the adoption of
certain accounting treatments, including FASB Staff Position APB
14-1, "Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement)" and SFAS No. 141 (revised 2007), "Business
Combinations," (17) 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, (18) the continued availability of borrowing
and letters of credit under NFP's credit facility, and (19) other
factors described in NFP's filings with the Securities and Exchange
Commission (the "SEC"), including those set forth in NFP's Annual
Report on Form 10-K for the year ended December 31, 2007, filed
with the SEC on February 19, 2008. 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, ------------- ------------- 2008
2007 2008 2007 ---- ---- ---- ---- Revenue: Commissions and fees
$277,282 $311,191 $851,135 $838,410 Cost of services: Commissions
and fees 85,216 101,666 275,487 271,443 Operating expenses (1)
102,384 92,794 306,581 266,692 Management fees (2) 41,140 59,551
118,727 143,904 ------ ------ ------- ------- Total cost of
services 228,740 254,011 700,795 682,039 ------ ------ -------
------- Gross margin 48,542 57,180 150,340 156,371 ------ ------
------- ------- Corporate and other expenses: General and
administrative 16,537 14,288 48,900 43,849 Amortization of
intangibles 9,907 8,555 29,323 24,963 Impairment of goodwill and
Intangible assets 5,198 2,642 10,226 5,655 Depreciation 3,497 2,855
9,706 7,965 Management agreement buyout - - - 13,046 Gain on sale
of subsidiaries (578) - (7,665) (1,984) ---- ------ ------ ------
Total corporate and other expenses 34,561 28,340 90,490 93,494
------ ------ ------ ------ Income from operations 13,981 28,840
59,850 62,877 Net interest and other (1,284) (399) (4,354) (392)
------ ------ ------ ------ Income before income taxes 12,697
28,441 55,496 62,485 Income tax expense 7,556 12,384 29,950 27,527
------ ------- ------- ------- Net income $5,141 $16,057 $25,546
$34,958 ====== ======= ======= ======= Earnings per share: Basic
$0.13 $0.42 $0.65 $0.92 ===== ===== ===== ===== Diluted $0.12 $0.40
$0.62 $0.87 ===== ===== ===== ===== Weighted average shares
outstanding: Basic 39,670 38,244 39,493 37,897 ====== ====== ======
====== Diluted 41,187 40,392 41,164 40,055 ====== ====== ======
====== (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, -------------
------------- 2008 2007 2008 2007 ---- ---- ---- ---- Total revenue
$277,282 $311,191 $851,135 $838,410 Cost of services: Commissions
and fees 85,216 101,666 275,487 271,443 Operating expenses (1)
102,384 92,794 306,581 266,692 ------- ------ ------- ------- Gross
margin before management fees 89,682 116,731 269,067 300,275
Management fees (2) 41,140 59,551 118,727 143,904 ------ ------
------- ------- Gross margin $48,542 $57,180 $150,340 $156,371
======= ======= ======== ======== Gross margin as percentage of
total revenue 17.5% 18.4% 17.7% 18.7% Gross margin before
management fees as percentage of total revenue 32.3% 37.5% 31.6%
35.8% Management fees, as a percentage of gross margin before
management fees (2) 45.9% 51.0% 44.1% 47.9% RECONCILIATION OF NET
INCOME TO CASH EARNINGS (Unaudited-in thousands, except per share
data) Three Months Ended Nine Months Ended September 30, September
30, ------------- ------------- 2008 2007 2008 2007 ---- ---- ----
---- GAAP Net Income $5,141 $16,057 $25,546 $34,958 Amortization of
intangibles 9,907 8,555 29,323 24,963 Impairment of goodwill and
intangible assets 5,198 2,642 10,226 5,655 Depreciation 3,497 2,855
9,706 7,965 ----- ----- ----- ----- Cash Earnings $23,743 $30,109
$74,801 $73,541 Management agreement buyout, net of tax - - - 7,681
----- ----- ----- ----- Cash Earnings excluding management
agreement buyout, net of tax $23,743 $30,109 $74,801 $81,222 GAAP
Net Income per share - diluted $0.12 $0.40 $0.62 $0.87 Amortization
of intangibles 0.24 0.21 0.71 0.62 Impairment of goodwill and
intangible assets 0.13 0.07 0.25 0.14 Depreciation 0.08 0.07 0.24
0.20 ----- ----- ----- ----- Cash Earnings per share - diluted (3)
$0.58 $0.75 $1.82 $1.84 Management agreement buyout, net of tax - -
- 0.19 ----- ----- ----- ----- Cash Earnings per share - diluted
excluding management agreement buyout, net of tax (3) $0.58 $0.75
$1.82 $2.03 (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, 2008 2007 ----
---- ASSETS Current assets: Cash and cash equivalents $67,444
$114,182 Cash, cash equivalents and securities purchased under
resale agreements in premium trust accounts 81,942 80,403 Current
receivables 146,673 171,219 Other current assets 30,953 34,447
------ ------ Total current assets 327,012 400,251 Intangibles, net
473,384 475,149 Goodwill, net 658,558 610,499 Deferred tax assets
22,869 20,561 Other non-current assets 102,855 53,620 -------
------ Total assets $1,584,678 $1,560,080 ========== ==========
LIABILITIES Current liabilities: Premiums payable to insurance
carriers $81,719 $78,450 Borrowings 173,000 126,000 Other current
liabilities 121,327 196,908 ------- ------- Total current
liabilities 376,046 401,358 Deferred tax liabilities 122,173
116,115 Convertible senior notes 230,000 230,000 Other non-current
liabilities 59,613 49,440 ------ ------ Total liabilities 787,832
796,913 STOCKHOLDERS' EQUITY Common stock at par value 4,380 4,244
Additional paid-in capital 833,010 780,678 Retained earnings
119,831 119,197 Accumulated other comprehensive income (21) -
Treasury stock (160,354) (140,952) -------- -------- Total
stockholders' equity 796,846 763,167 ------- ------- Total
liabilities and stockholders' equity $1,584,678 $1,560,080
========== ========== DATASOURCE: National Financial Partners Corp.
CONTACT: Investor Relations: Marc Gordon, +1-212-301-4033, , or
Media Relations: Barbara Willis, +1-212-301-1039, , both of
National Financial Partners Web Site: http://www.nfp.com/
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