NFP National Financial Partners Corp.

Continued Progress in Expense & Debt Reductions NEW YORK, Aug. 4 /PRNewswire-FirstCall/ -- 2Q 2Q % YTD YTD % Financial Highlights* 2009 2008 Change 2009 2008 Change --------------------- ---- ---- ------ ---- ---- ------ (Dollars in millions, except per share data) Revenue $224.2 $287.5 -22.0% $441.2 $573.9 -23.1% Gross Margin % 18.1% 18.2% 17.5% 17.7% Net income (loss) 10.0 8.9 12.4% (505.8) 17.4 NM Net income (loss) per diluted share 0.23 0.22 4.5% (12.48) 0.42 NM Cash earnings 26.4 25.1 5.2% 44.5 49.3 -9.7% Cash earnings per diluted share $0.62 $0.61 1.6% $1.06 $1.20 -11.7% Organic revenue growth/ decline -21.9% -3.7% -21.3% 0.7% Organic gross margin growth/decline -22.1% -17.2% -22.5% -10.4% * This summary includes financial measures not calculated based on generally accepted accounting principles. NM indicates amount not meaningful. National Financial Partners Corp. (NYSE:NFP), a network of independent financial advisors specializing in corporate and executive benefits, life insurance and wealth transfer, and financial planning and investment advisory services, today reported financial results for the second quarter ended June 30, 2009. NFP reported second quarter 2009 net income of $10.0 million, or income of $0.23 per diluted share, compared with net income of $8.9 million, or income of $0.22 per diluted share, in the second quarter of 2008. Second quarter 2009 cash earnings was $26.4 million, or $0.62 per diluted share, compared with $25.1 million, or $0.61 per diluted share, in the second quarter of 2008. Cash earnings grew primarily as a result of $5.5 million in key-person life insurance proceeds and lower commissions and fees, operating, management fees and general and administrative expenses, offset in part by a decline in revenue. Excluding the key-person life insurance proceeds, cash earnings per diluted share was $0.49 in the second quarter of 2009. (Cash earnings is a non-GAAP measure, which the Company defines as net income excluding amortization of intangibles, depreciation, the after-tax impact of the impairment of goodwill and intangible assets and the after-tax impact of non-cash interest expense. A full reconciliation of net income to cash earnings is provided in the attached tables.) Jessica Bibliowicz, chairman, president and chief executive officer, said, "We continue to focus on our expense reduction efforts, driving solid cash flow and significantly reducing debt outstanding. As a result, during the second quarter, gross margin percentage remained largely constant, despite the decline in revenue, and the amount outstanding under NFP's credit facility was reduced by more than 20%." Ms. Bibliowicz continued, "Organic revenue increased slightly at group benefits firms, our largest product category. However, our life insurance businesses continued to be impacted by difficult market conditions and accounted for the majority of the organic revenue decline during the second quarter." As of June 30, 2009, the Company had $115.0 million outstanding under its credit facility. The second quarter 2009 consolidated leverage ratio (as defined in the amended credit facility) was 2.5x, well below the maximum consolidated leverage ratio allowable for the quarter of 3.25x. Compared with the corresponding prior year period, organic gross margin declined 22.1% in the second quarter of 2009. The decrease resulted from a decline in revenue largely offset by lower expenses for firms included in the organic growth/decline calculation. The organic metrics generally encompass firms that were owned by NFP for at least four full quarters at the beginning of the second quarter of 2009. As of the second quarter of 2009, the Company refers to its "same store" metrics as organic metrics. There are no changes to the corresponding definitions. More detailed definitions and 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/. Second Quarter Results Revenue decreased $63.3 million, or 22.0%, to $224.2 million in the second quarter of 2009 from the prior year period. The decrease was driven by an organic revenue decline of $47.2 million, or 21.9%, to $168.1 million. Over 75% of the organic revenue decline was concentrated in firms that specialize in life insurance. The Company's Austin, Texas-based facility, which includes NFP Insurance Services, Inc., a licensed insurance agency and marketing organization, and NFP Securities, Inc., a registered broker-dealer, experienced a revenue decline of $16.8 million, or 23.5%, to $54.5 million. In addition, dispositions accounted for $1.4 million of the quarterly decrease. The revenue declines were offset in part by $2.7 million of revenue growth from firms acquired subsequent to the start of the second quarter of 2008 as well as adjustments for intercompany eliminations. Gross margin before management fees was $70.5 million in the second quarter of 2009, a decrease of $22.6 million, or 24.3%, from the prior year period. Gross margin, which includes management fees as a component of cost of services, was $40.5 million in the second quarter of 2009, a decrease of $11.8 million, or 22.6%, from the prior year period. As a percentage of revenue, second quarter gross margin declined slightly to 18.1% from 18.2% in the prior year period, despite the revenue decline. Higher operating expenses as a percentage of revenue were offset by lower variable costs, which include commissions and fees and management fees expenses. In absolute terms, operating expenses declined 9.2% in the second quarter of 2009 compared with the prior year period largely due to expense reduction initiatives. Management fees as a percentage of gross margin before management fees declined to 42.5% in the second quarter of 2009 from 43.8% a year ago largely due to lower firm earnings. General and administrative expense decreased $4.0 million, or 24.7%, to $12.2 million in the second quarter of 2009 compared with the prior year period. The decrease was largely the result of previous headcount reductions and management's continued efforts to reduce other expenses. In the second quarter of 2009, impairment of goodwill and intangible assets was $2.9 million and related to nine firms. The Company generally evaluates the value of its intangible assets on a quarterly basis. Net interest and other included $5.5 million in proceeds from key-person life insurance. The Company maintains key-person life insurance on certain of its principals for risk management purposes. The tax rate was 37.5% in the second quarter of 2009, lower than the typical combined federal and state tax rates largely due to the non-taxable nature of key-person life insurance proceeds received during the quarter and a tax benefit from dispositions. Earnings Conference Call & Presentation The Company will conduct its second quarter 2009 earnings conference call and audio webcast on August 5, 2009, 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"). The conference call and webcast will be accompanied by a presentation. The presentation will be available for electronic download on the Company's Web site approximately one hour before the conference call and webcast is scheduled to begin. The presentation may also be viewed automatically upon connecting to the webcast. 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 6010224. 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, 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 is defined as net income excluding amortization of intangibles, depreciation, the after-tax impact of the impairment of goodwill and intangible assets and the after-tax impact of non-cash interest expense. A full reconciliation of net income to cash earnings is provided in the attached tables. Cash earnings per diluted share is calculated by dividing cash earnings by the number of weighted average diluted shares outstanding for the period indicated. Cash earnings and cash earnings per diluted share should not be viewed as substitutes for net income and net income per diluted share, respectively. 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 Company's quarterly financial supplement for the quarter ended June 30, 2009, 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 companies. NFP is headquartered in New York and operates a distribution network of over 165 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," "project," "will," "continue" and similar expressions of a future or forward-looking nature. Forward-looking statements may include discussions concerning revenue, expenses, earnings, cash flow, impairments, losses, 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 ability, through its operating structure, to respond quickly to regulatory, operational or financial situations impacting its firms; (2) the Company's ability to manage its business effectively and profitably through the principals of its firms; (3) a recessionary economic environment, resulting in fewer sales of financial products or services, including rising unemployment which could impact group benefits sales based on reduced headcount, the availability of credit in connection with the purchase of such products or services, consumer hesitancy in spending or the insolvencies of or difficulties experienced by the Company's clients, insurance companies or financial institutions; (4) the occurrence of events or circumstances that could be indicators of impairment to goodwill and intangible assets which require the Company to test for impairment, and the impact of any impairments that the Company may take; (5) the impact of the adoption or modification of certain accounting treatments or policies and changes in underlying assumptions relating to such treatments or policies (including with respect to impairments), which may lead to adverse financial results; (6) NFP's success in acquiring and retaining high-quality independent financial services distribution firms and various factors inhibiting the Company's ability to acquire and retain firms; (7) the performance of the Company's firms following acquisition; (8) changes in interest rates or general economic conditions 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; (9) adverse developments or volatility in the markets in which the Company operates, resulting in fewer sales of financial products and services, including those related to compensation agreements with insurance companies and activities within the life settlements industry; (10) securities and capital markets behavior, including fluctuations in the price of NFP's common stock, recent uncertainty in the U.S. financial markets or the dilutive impact of any capital-raising efforts to finance operations or business strategy; (11) any losses that NFP may take with respect to firm dispositions, firm restructures or otherwise; (12) the continued availability of borrowings and letters of credit under NFP's credit facility and NFP's ability to manage its indebtedness and capital structure; (13) adverse results or other consequences from litigation, arbitration, regulatory investigations or compliance initiatives, including those related to business practices, compensation agreements with insurance companies, policy rescissions or chargebacks, regulatory investigations or activities within the life settlements industry; (14) uncertainty in the financial services, insurance and life settlement industries arising from investigations into certain business practices and subpoenas received from various governmental authorities and related litigation; (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 and the uncertain impact of proposals for legislation regulating the financial services industry; (16) the reduction of the Company'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; (17) changes in laws, including the elimination or modification of the federal estate tax, changes in the tax treatment of life insurance products, or changes in regulations affecting the value or use of benefits programs, such as government-sponsored insurance programs or other healthcare reform, which may adversely affect the demand for or profitability of the Company's services; (18) developments in the availability, pricing, design or underwriting of insurance products, revisions in mortality tables by life expectancy underwriters or changes in the Company's relationships with insurance companies; (19) changes in premiums and commission rates or the rates of other fees paid to the Company's firms, including life settlements and registered investment advisory fees; (20) the occurrence of adverse economic conditions or an adverse regulatory climate in New York, Florida or California; (21) the loss of services of key members of senior management; (22) the availability or adequacy of errors and omissions insurance or other types of insurance coverage protection; and (23) the Company's ability to effect smooth succession planning at its firms. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited-in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- Revenue: Commissions and fees $224,198 $287,457 $441,179 $573,853 Cost of services: Commissions and fees 62,474 93,991 124,875 190,271 Operating expenses(1) 91,250 100,358 186,441 204,197 Management fees 29,954 40,818 52,461 77,587 ------ ------ ------ ------ Total cost of services 183,678 235,167 363,777 472,055 ------ ------ ------ ------- Gross margin 40,520 52,290 77,402 101,798 ------ ------ ------ ------- Corporate and other expenses: General and administrative 12,221 16,180 24,854 32,363 Amortization of intangibles 9,176 9,665 18,770 19,416 Impairment of goodwill and intangible assets 2,895 2,848 610,232 5,028 Depreciation 3,485 3,155 7,024 6,209 (Gain) loss on sale of subsidiaries (1,279) (463) (662) (7,087) ------ ---- ---- ------ Total corporate and other expenses 26,498 31,385 660,218 55,929 ------ ------ -------- ------ Income (loss) from operations 14,022 20,905 (582,816) 45,869 Net interest and other(2) 2,044 (4,030) (1,447) (8,054) ------ ------ -------- ------ Income (loss) before income taxes 16,066 16,875 (584,263) 37,815 Income tax expense (benefit)(2) 6,044 7,989 (78,486) 20,398 ------- ------ --------- ------- Net income (loss)(2) $10,022 $8,886 $(505,777) $17,417 ======= ====== ========= ======= Earnings (loss) per share(2): Basic $0.24 $0.22 $(12.48) $0.44 ===== ===== ======= ===== Diluted $0.23 $0.22 $(12.48) $0.42 ===== ===== ======= ===== Weighted average shares outstanding: Basic 41,144 39,562 40,541 39,501 ====== ====== ====== ====== Diluted 42,833 41,004 40,541 41,092 ====== ====== ====== ====== (1) Excludes amortization and depreciation shown separately in Corporate and other expenses. (2) Prior periods presented have been retrospectively adjusted for the adoption of FASB Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)" ("FSP APB 14-1") on January 1, 2009. CALCULATION OF GROSS MARGIN (Unaudited-in thousands) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- Revenue $224,198 $287,457 $441,179 $573,853 Cost of services: Commissions and fees 62,474 93,991 124,875 190,271 Operating expenses (1) 91,250 100,358 186,441 204,197 ------ ------- ------- ------- Gross margin before management fees 70,474 93,108 129,863 179,385 Management fees 29,954 40,818 52,461 77,587 ------ ------ ------ ------ Gross margin $40,520 $52,290 $77,402 $101,798 ======= ======= ======= ======== Gross margin as a percentage of revenue 18.1% 18.2% 17.5% 17.7% Gross margin before management fees as a percentage of revenue 31.4% 32.4% 29.4% 31.3% Management fees, as a percentage of gross margin before management fees 42.5% 43.8% 40.4% 43.3% RECONCILIATION OF NET INCOME TO CASH EARNINGS (Unaudited-in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- GAAP net income (loss) (2) $10,022 $8,886 $(505,777) $17,417 Amortization of intangibles 9,176 9,665 18,770 19,416 Depreciation 3,485 3,155 7,024 6,209 Impairment of goodwill and intangible assets 2,895 2,848 610,232 5,028 Tax benefit of impairment of goodwill and intangible assets (902) (937) (89,048) (1,789) Non-cash interest, net of tax (2) 1,732 1,514 3,289 2,988 ----- ----- ----- ----- Cash earnings (3) $26,408 $25,131 $44,490 $49,269 GAAP net income (loss) per share - diluted (2) $0.23 $0.22 $(12.48) $0.42 Amortization of intangibles 0.21 0.24 0.45 0.47 Depreciation 0.08 0.08 0.17 0.15 Impairment of goodwill and intangible assets 0.07 0.07 14.56 0.12 Tax benefit of impairment of goodwill and intangible assets (0.02) (0.02) (2.13) (0.04) Non-cash interest, net of tax (2) 0.04 0.04 0.08 0.07 Impact of diluted shares on cash earnings not reflected in GAAP net loss per share - diluted (4) - - 0.40 - ----- ----- ----- ----- Cash earnings per share - diluted (5) $0.62 $0.61 $1.06 $1.20 (1) Excludes amortization and depreciation shown separately in Corporate and other expenses. (2) Prior periods presented have been retrospectively adjusted for the adoption of FSP APB 14-1 on January 1, 2009. (3) Cash earnings is a non-GAAP measure, which the Company defines as net income excluding amortization of intangibles, depreciation, the after-tax impact of the impairment of goodwill and intangible assets and the after-tax impact of non-cash interest expense. (4) For periods where the Company generated a GAAP net loss, weighted average common shares outstanding - diluted was used to calculate cash earnings per share - diluted only. To calculate GAAP net loss per share, weighted average common shares outstanding - diluted is the same as weighted average common shares outstanding - basic due to the antidilutive effects of other items caused by a GAAP net loss position. (5) 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 (Unaudited-in thousands) June 30, December 31, 2009 2008 ---- ---- ASSETS Current assets: Cash and cash equivalents $49,822 $48,621 Cash, cash equivalents and securities purchased under resale agreements in premium trust accounts 79,258 75,109 Commissions, fees and premiums receivable, net 104,049 140,758 Due from principals and/or certain entities they own 21,334 16,329 Notes receivable, net 7,860 6,496 Deferred tax assets 8,926 9,435 Other current assets 18,897 19,284 ------ ------ Total current assets 290,146 316,032 Property and equipment, net 46,107 51,683 Deferred tax assets (1) 109,983 24,889 Intangibles, net 410,789 462,123 Goodwill, net 57,914 635,693 Notes receivable, net 32,191 23,683 Other non-current assets (1) 30,078 28,018 ------ ------ Total assets (1) $977,208 $1,542,121 ======== ========== LIABILITIES Current liabilities: Premiums payable to insurance carriers $81,126 $73,159 Borrowings 115,000 148,000 Income taxes payable (1) - 11 Deferred tax liabilities 7 - Due to principals and/or certain entities they own 17,000 38,791 Accounts payable 18,369 28,513 Accrued liabilities 47,127 54,380 ------ ------ Total current liabilities (1) 278,629 342,854 Deferred tax liabilities (1) 115,977 119,400 Convertible senior notes (1) 198,984 193,475 Other non-current liabilities 61,427 62,874 ------ ------ Total liabilities (1) 655,017 718,603 ------- ------- STOCKHOLDERS' EQUITY Preferred stock at par value - - Common stock at par value 4,409 4,388 Additional paid-in capital (1) 872,031 881,458 Retained (deficit) earnings (1) (440,230) 97,178 Accumulated other comprehensive income 98 (50) Treasury stock (114,117) (159,456) -------- -------- Total stockholders' equity (1) 322,191 823,518 ------- ------- Total liabilities and stockholders' equity (1) $977,208 $1,542,121 ======== ========== (1) Prior periods presented have been retrospectively adjusted for the adoption of FSP APB 14-1 on January 1, 2009. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited-in thousands) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2009 2008 2009 2008 ---- ---- ---- ---- Cash flow from operating activities Net income (loss) (1) $10,022 $8,886 $(505,777) $17,417 Adjustments to reconcile to net cash provided by (used in) operating activities: Deferred taxes (58) 266 (88,106) 414 Stock-based compensation 2,499 3,539 4,987 6,742 Impairment of goodwill and intangible assets 2,895 2,848 610,232 5,028 Amortization of intangibles 9,176 9,665 18,770 19,416 Depreciation 3,485 3,155 7,024 6,209 Accretion of senior convertible notes discount (1) 2,784 2,610 5,509 5,167 Gain on sale of subsidiaries (1,279) (463) (662) (7,087) (Increase) decrease in operating assets: Cash, cash equivalents and securities purchased under resale agreements in premium trust accounts (7,937) (960) (4,149) 2,114 Commissions, fees and premiums receivable, net 3,436 12,344 35,073 38,124 Due from principals and/or certain entities they own (6,312) (8,536) (5,005) (8,715) Notes receivable, net - current (113) (388) (1,364) (953) Other current assets (1) (869) (6,249) 420 (6,444) Notes receivable, net - non-current 2,968 (717) (3,987) (8,472) Other non-current assets (1) (777) 1,500 (1,132) (14,156) Increase (decrease) in operating liabilities: Premiums payable to insurance carriers 9,004 6,119 7,967 875 Income taxes payable (1) (1,231) (2,843) (11) (1,830) Due to principals and/or certain entities they own 7,118 8,828 (22,098) (42,464) Accounts payable (5,524) (2,057) (10,163) (11,486) Accrued liabilities 6,751 8,626 (9,556) (20,554) Other non-current liabilities (1) (1,899) 950 (5,399) 8,967 ------ --- ------ ----- Total adjustments 24,117 38,237 538,350 (29,105) ------ ------ ------- ------- Net cash provided by (used in) operating activities 34,139 47,123 32,573 (11,688) Cash flow from investing activities: Proceeds from disposal of subsidiaries 6,962 405 9,062 21,283 Purchases of property and equipment, net (1,538) (11,876) (3,142) (24,883) Payments for acquired firms, net of cash, and contingent consideration 1,278 (10,739) (979) (40,793) ----- ------- ---- ------- Net cash provided by (used in) investing activities 6,702 (22,210) 4,941 (44,393) Cash flow from financing activities: Repayments of borrowings (33,000) (31,000) (33,000) (85,000) Proceeds from borrowings - 26,000 - 128,000 Proceeds from stock-based awards, including tax benefit (327) 604 (3,104) 3,204 Shares cancelled to pay withholding taxes (12) (32) (159) (658) Payments for treasury stock repurchase - (12,593) - (21,921) Dividends paid 1 (8,296) (50) (16,467) - ------ --- ------- Net cash (used in) provided by financing activities (33,338) (25,317) (36,313) 7,158 ------- ------- ------- ----- Net increase (decrease) in cash and cash equivalents 7,503 (404) 1,201 (48,923) Cash and cash equivalents, beginning of period 42,319 65,663 48,621 114,182 ------ ------ ------ ------- Cash and cash equivalents, end of the period $49,822 $65,259 $49,822 $65,259 ======= ======= ======= ======= Supplemental disclosures of cash flow information Cash paid for income taxes $10,306 $14,517 $13,678 $22,019 Cash paid for interest $1,411 $1,690 $3,796 $4,919 (1) Prior periods presented have been retrospectively adjusted for the adoption of FSP APB 14-1 on January 1, 2009. 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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