First Acceptance Corporation (NYSE:FAC) today reported its
financial results for the three and nine month periods ended
September 30, 2015.
Operating Results
Revenues for the three months ended September 30, 2015
increased 34% to $87.6 million from $65.6 million in the same
period in the prior year. Revenues for the nine months ended
September 30, 2015 increased 25% to $243.4 million from $195.3
million in the same period in the prior year.
Loss before income taxes for the three months ended
September 30, 2015 was $4.5 million, compared with income
before income taxes of $2.4 million for the three months ended
September 30, 2014. Net loss for the three months ended
September 30, 2015 was $3.0 million, compared with net income
of $2.1 million for the three months ended September 30, 2014.
Basic and diluted net loss per share were $0.07 for the three
months ended September 30, 2015, compared with basic and
diluted net income per share of $0.05 for the same period in the
prior year.
Excluding litigation settlement costs of $3.4 million and
acquisition and integration costs (see “Titan Acquisition”) of $0.7
million, for the three months ended September 30, 2015, loss
before income taxes was $0.4 million or $0.01 per basic and diluted
share.
Loss before income taxes for nine months ended
September 30, 2015 was $3.0 million, compared with income
before income taxes of $6.6 million for the nine months ended
September 30, 2014. Net loss for the nine months ended
September 30, 2015 was $2.2 million, compared with net income
of $6.1 million for the nine months ended September 30, 2014.
Basic and diluted net loss per share were $0.05 for the nine months
ended September 30, 2015, compared with basic and diluted net
income per share of $0.15 for the same period in the prior
year.
Excluding litigation settlement costs of $3.6 million and Titan
acquisition and integration costs of $1.0 million, for the nine
months ended September 30, 2015, income before income taxes
was $1.6 million or $0.04 per basic and diluted share.
Joe Borbely, President and CEO, commented, “During the quarter,
our sustained revenue growth and positive results from the
newly-acquired Titan operations were unfortunately overshadowed by
elevated claims frequency, adverse loss development and a
litigation settlement. However, this potentially-lengthy litigation
is now behind us and 83 former Titan stores are integrating
successfully. I also believe that our loss ratio will soon begin to
fully reflect the impact of our recent rate actions which will
complement our 18.9% expense ratio.”
Premiums, Commissions and Fee Income. Premiums
earned increased by $13.1 million, or 24%, to $67.5 million for the
three months ended September 30, 2015, from $54.4 million for
the three months ended September 30, 2014. For the nine months
ended September 30, 2015 premiums earned increased by $35.4
million, or 22%, to $197.4 million from $162.0 million for the nine
months ended September 30, 2014. This improvement was
primarily due to an increase in the average policy life which
resulted in an increase in PIF from 161,330 at September 30,
2014 to 184,524 at September 30, 2015, in addition to higher
average premiums.
Commission and fee income increased by $8.9 million, or 88%, to
$19.0 million for the three months ended September 30, 2015,
from $10.1 million for the three months ended September 30,
2014. For the nine months ended September 30, 2015, commission
and fee income increased by $13.0 million, or 44%, to $42.3 million
from $29.3 million for the nine months ended September 30,
2014. Revenue from the former Titan retail locations acquired on
July 1, 2015 accounted for $6.9 million of these increases. The
remaining increase in commission and fee income was a result of
higher fee income related to commissionable ancillary products sold
through our previously-existing retail locations and the increase
in PIF noted above.
Loss Ratio. The loss ratio was 85.0% for the
three months ended September 30, 2015, compared with 76.2% for
the three months ended September 30, 2014. The loss ratio was
81.2% for the nine months ended September 30, 2015, compared
with 73.7% for the nine months ended September 30, 2014. We
experienced unfavorable development related to prior periods of
$2.2 million for the three months ended September 30, 2015,
compared with favorable development of $0.4 million for the three
months ended September 30, 2014. For the nine months ended
September 30, 2015, we experienced unfavorable development
related to prior periods of $0.6 million, compared with favorable
development of $4.5 million for the nine months ended
September 30, 2014. The unfavorable development for the three
and nine months ended September 30, 2015 was largely the
result of an increase in bodily injury loss adjustment expenses
(primarily outside legal costs) driven by the overall increase in
claim frequency.
Excluding the development related to prior periods for the three
months ended September 30, 2015 and 2014, the loss ratios were
81.8% and 77.0%, respectively. Excluding the development related to
prior periods for the nine months ended September 30, 2015 and
2014, the loss ratios were 80.9% and 76.4%, respectively. The
year-over-year increase in the loss ratio was primarily due to
higher than expected claim frequency and severity across multiple
coverages principally in property damage liability and collision
claims. We believe that an increase in the number of miles driven
by insured drivers as a result of lower gas prices and a favorable
economy has been a contributing factor to an industry-wide increase
in frequency. In response, we have continued to implement
aggressive rate and underwriting actions as warranted at a state
and coverage level.
Expense Ratio. The expense ratio was 16.3% for
the three months ended September 30, 2015, compared with 20.2%
for the three months ended September 30, 2014. The expense
ratio was 18.9% for the nine months ended September 30, 2015,
compared with 23.4% for the nine months ended September 30,
2014. The year-over-year decrease in the expense ratio was
primarily due to the increase in premiums earned which resulted in
a lower percentage of fixed expenses in our retail operations (such
as rent and base salaries).
Combined Ratio. The combined ratio increased to
101.3% for the three months ended September 30, 2015 from
96.4% for the three months ended September 30, 2014. For the
nine months ended September 30, 2015, the combined ratio
increased to 100.1% from 97.1% for the nine months ended
September 30, 2014.
Titan Acquisition
Effective July 1, 2015, we acquired certain assets of Titan
Insurance Services, Inc. and Titan Auto Insurance of New Mexico,
Inc. (the “Titan Agencies”). These agencies sell private passenger
non-standard automobile insurance through 83 retail stores,
principally in California (48), but also in Texas (12), Arizona
(10), Florida (4), Nevada (4) and New Mexico (5). Approximately 240
employees accepted offers of employment with us as a part of this
acquisition. The Titan Agencies were previously owned and operated
by Nationwide. The stores are in the process of being rebranded
under our Acceptance Insurance name and completion is expected by
the end of this year.
These new Acceptance stores have continued to write policies for
both Nationwide and other unrelated insurance companies. Going
forward, we plan to develop our own products for California,
Arizona, Nevada and New Mexico, and introduce our current Texas and
Florida products into stores in those states. One of our insurance
companies has applied for an insurance company license in
California and is already licensed in the three other states where
it does not currently write business.
We anticipate introducing our own products in the states in
which we currently have an insurance company license in early 2016.
However, a California product is not expected to be available until
later in 2016, subject to the approval of our California insurance
company license application by the California Department of
Insurance. Therefore, it is anticipated that for the remainder of
the year, the Titan acquisition will operate primarily as an
insurance agency operation for which our revenues will be in the
form of commission and fee income.
Revenues and income before income taxes of the acquired retail
locations included in our results for the three months ended
September 30, 2015 were $6.9 million and $0.4 million (excluding
acquisition and integration-related costs), respectively.
Next Release of Financial Results
We currently plan to report our financial results for the three
months and year ending December 31, 2015 on March 15, 2016.
About First Acceptance Corporation
We are principally a retailer, servicer and underwriter of
non-standard personal automobile insurance based in Nashville,
Tennessee. Our insurance operations generate revenues from selling
non-standard personal automobile insurance policies and related
products in 17 states. We conduct our servicing and underwriting
operations in 13 states and are licensed as an insurer in 12
additional states. Non-standard personal automobile insurance is
made available to individuals because of their inability or
unwillingness to obtain standard insurance coverage due to various
factors, including payment history, payment preference, failure in
the past to maintain continuous insurance coverage or driving
record and/or vehicle type. In most instances, these individuals
are seeking to obtain the minimum amount of automobile insurance
required by law.
At November 10, 2015, we leased and operated 438 retail
locations and a call center staffed with employee-agents. Our
employee-agents primarily sell non-standard personal automobile
insurance products underwritten by us, as well as certain
commissionable ancillary products. In most states, our
employee-agents also sell a complementary insurance product
providing personal property and liability coverage for renters
underwritten by us. In addition, retail locations in some markets
offer non-standard personal automobile insurance serviced and
underwritten by other third-party insurance carriers for which we
receive a commission. In addition to our retail locations, we are
able to complete the entire sales process over the phone via our
call center or through the internet via our consumer-based website
or mobile platform. On a limited basis, we also sell our products
through selected retail locations operated by independent agents.
Additional information about First Acceptance Corporation can be
found online at www.acceptance.com.
This press release contains forward-looking statements,
including statements about the expected effects of the recently
completed acquisition. These statements, which have been included
in reliance on the “safe harbor” provisions of the federal
securities laws, involve risks and uncertainties. Investors are
hereby cautioned that these statements may be affected by important
factors, including, among others, the factors set forth under the
caption “Risk Factors” in Item 1A. of our Annual Report on
Form 10-K for the year ended December 31, 2014 and in our
other filings with the Securities and Exchange Commission. Actual
operations and results may differ materially from the results
discussed in the forward-looking statements. Except as required by
law, we undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
FIRST ACCEPTANCE
CORPORATION AND SUBSIDIARIES |
Consolidated
Statements of Income |
(unaudited) |
(in thousands,
except per share data) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned |
|
$ |
67,508 |
|
|
$ |
54,369 |
|
|
$ |
197,423 |
|
|
$ |
161,971 |
|
Commission and fee income |
|
|
18,974 |
|
|
|
10,097 |
|
|
|
42,252 |
|
|
|
29,323 |
|
Investment income |
|
|
1,144 |
|
|
|
1,142 |
|
|
|
3,695 |
|
|
|
3,936 |
|
Net realized gains (losses) on
investments, available-for-sale |
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(13 |
) |
|
|
36 |
|
|
|
|
87,620 |
|
|
|
65,604 |
|
|
|
243,357 |
|
|
|
195,266 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment
expenses |
|
|
57,367 |
|
|
|
41,440 |
|
|
|
160,304 |
|
|
|
119,323 |
|
Insurance operating expenses |
|
|
29,309 |
|
|
|
20,624 |
|
|
|
78,039 |
|
|
|
65,739 |
|
Other operating expenses |
|
|
295 |
|
|
|
244 |
|
|
|
881 |
|
|
|
722 |
|
Litigation settlement |
|
|
3,406 |
|
|
|
30 |
|
|
|
3,645 |
|
|
|
106 |
|
Stock-based compensation |
|
|
37 |
|
|
|
39 |
|
|
|
109 |
|
|
|
151 |
|
Depreciation |
|
|
424 |
|
|
|
423 |
|
|
|
1,224 |
|
|
|
1,303 |
|
Amortization of identifiable
intangibles assets |
|
|
254 |
|
|
|
- |
|
|
|
261 |
|
|
|
- |
|
Interest expense |
|
|
1,052 |
|
|
|
427 |
|
|
|
1,924 |
|
|
|
1,275 |
|
|
|
|
92,144 |
|
|
|
63,227 |
|
|
|
246,387 |
|
|
|
188,619 |
|
Income (loss) before income taxes |
|
|
(4,524 |
) |
|
|
2,377 |
|
|
|
(3,030 |
) |
|
|
6,647 |
|
Provision (benefit) for income taxes |
|
|
(1,506 |
) |
|
|
257 |
|
|
|
(813 |
) |
|
|
547 |
|
Net income (loss) |
|
$ |
(3,018 |
) |
|
$ |
2,120 |
|
|
$ |
(2,217 |
) |
|
$ |
6,100 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.07 |
) |
|
$ |
0.05 |
|
|
$ |
(0.05 |
) |
|
$ |
0.15 |
|
Diluted |
|
$ |
(0.07 |
) |
|
$ |
0.05 |
|
|
$ |
(0.05 |
) |
|
$ |
0.15 |
|
Number of shares used to calculate net income
(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
41,041 |
|
|
|
40,995 |
|
|
|
41,026 |
|
|
|
40,981 |
|
Diluted |
|
|
41,041 |
|
|
|
41,297 |
|
|
|
41,026 |
|
|
|
41,285 |
|
FIRST ACCEPTANCE CORPORATION AND
SUBSIDIARIES |
Consolidated Balance Sheets |
(in thousands, except per share
data) |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Investments,
available-for-sale at fair value (amortized cost of $131,614 and
$119,119, respectively) |
|
$ |
135,745 |
|
|
$ |
125,085 |
|
Cash and cash
equivalents |
|
|
107,207 |
|
|
|
102,429 |
|
Premiums, fees, and
commissions receivable, net of allowance of $461 and $392 |
|
|
74,458 |
|
|
|
56,486 |
|
Deferred tax assets,
net |
|
|
18,241 |
|
|
|
16,521 |
|
Other investments |
|
|
12,087 |
|
|
|
10,530 |
|
Other assets |
|
|
7,530 |
|
|
|
5,962 |
|
Property and equipment,
net |
|
|
3,875 |
|
|
|
3,173 |
|
Deferred acquisition
costs |
|
|
5,428 |
|
|
|
3,459 |
|
Goodwill |
|
|
30,200 |
|
|
|
- |
|
Identifiable intangible
assets, net |
|
|
8,745 |
|
|
|
4,800 |
|
TOTAL ASSETS |
|
$ |
403,516 |
|
|
$ |
328,445 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Loss and loss
adjustment expense reserves |
|
$ |
115,009 |
|
|
$ |
96,613 |
|
Unearned premiums and
fees |
|
|
86,877 |
|
|
|
67,942 |
|
Debentures payable |
|
|
40,245 |
|
|
|
40,211 |
|
Term loan from
principal stockholder |
|
|
29,747 |
|
|
|
- |
|
Accrued expenses |
|
|
11,661 |
|
|
|
3,262 |
|
Other liabilities |
|
|
16,207 |
|
|
|
13,453 |
|
Total liabilities |
|
|
299,746 |
|
|
|
221,481 |
|
Stockholders’
equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.01
par value, 10,000 shares authorized |
|
|
- |
|
|
|
- |
|
Common stock, $.01 par
value, 75,000 shares authorized; 41,041 and 41,016 issued
and outstanding, respectively |
|
|
411 |
|
|
|
410 |
|
Additional paid-in
capital |
|
|
457,395 |
|
|
|
457,242 |
|
Accumulated other
comprehensive income, net of tax of $314 and $923,
respectively |
|
|
3,959 |
|
|
|
5,090 |
|
Accumulated
deficit |
|
|
(357,995 |
) |
|
|
(355,778 |
) |
Total stockholders’ equity |
|
|
103,770 |
|
|
|
106,964 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY |
|
$ |
403,516 |
|
|
$ |
328,445 |
|
FIRST ACCEPTANCE CORPORATION AND
SUBSIDIARIES |
Supplemental Data |
(Unaudited) |
|
|
|
|
|
|
|
PREMIUMS EARNED BY STATE |
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Gross premiums earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgia |
|
$ |
13,079 |
|
|
$ |
10,284 |
|
|
$ |
37,619 |
|
|
$ |
30,186 |
|
Florida |
|
|
10,231 |
|
|
|
8,363 |
|
|
|
30,639 |
|
|
|
24,982 |
|
Texas |
|
|
8,990 |
|
|
|
6,998 |
|
|
|
26,365 |
|
|
|
20,636 |
|
Ohio |
|
|
6,688 |
|
|
|
5,605 |
|
|
|
19,814 |
|
|
|
16,511 |
|
Alabama |
|
|
6,238 |
|
|
|
5,437 |
|
|
|
18,333 |
|
|
|
16,294 |
|
Illinois |
|
|
6,030 |
|
|
|
5,205 |
|
|
|
18,213 |
|
|
|
15,026 |
|
South Carolina |
|
|
5,115 |
|
|
|
4,042 |
|
|
|
14,691 |
|
|
|
12,284 |
|
Tennessee |
|
|
4,486 |
|
|
|
3,131 |
|
|
|
12,141 |
|
|
|
9,526 |
|
Pennsylvania |
|
|
2,303 |
|
|
|
1,861 |
|
|
|
6,923 |
|
|
|
6,265 |
|
Indiana |
|
|
2,003 |
|
|
|
1,542 |
|
|
|
5,869 |
|
|
|
4,535 |
|
Missouri |
|
|
1,451 |
|
|
|
1,224 |
|
|
|
4,315 |
|
|
|
3,637 |
|
Mississippi |
|
|
852 |
|
|
|
745 |
|
|
|
2,540 |
|
|
|
2,285 |
|
Virginia |
|
|
138 |
|
|
|
— |
|
|
|
232 |
|
|
|
— |
|
Total gross premiums earned |
|
|
67,604 |
|
|
|
54,437 |
|
|
|
197,694 |
|
|
|
162,167 |
|
Premiums ceded to reinsurer |
|
|
(96 |
) |
|
|
(68 |
) |
|
|
(271 |
) |
|
|
(196 |
) |
Total net premiums earned |
|
$ |
67,508 |
|
|
$ |
54,369 |
|
|
$ |
197,423 |
|
|
$ |
161,971 |
|
COMBINED RATIOS (INSURANCE OPERATIONS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Loss |
|
|
85.0 |
% |
|
|
76.2 |
% |
|
|
81.2 |
% |
|
|
73.7 |
% |
Expense |
|
|
16.3 |
% |
|
|
20.2 |
% |
|
|
18.9 |
% |
|
|
23.4 |
% |
Combined |
|
|
101.3 |
% |
|
|
96.4 |
% |
|
|
100.1 |
% |
|
|
97.1 |
% |
POLICIES IN FORCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Policies in force –
beginning of period |
|
|
183,829 |
|
|
|
159,293 |
|
|
|
163,712 |
|
|
|
143,077 |
|
Net change during period |
|
|
695 |
|
|
|
2,037 |
|
|
|
20,812 |
|
|
|
18,253 |
|
Policies in force – end
of period |
|
|
184,524 |
|
|
|
161,330 |
|
|
|
184,524 |
|
|
|
161,330 |
|
FIRST ACCEPTANCE
CORPORATION AND SUBSIDIARIES |
Supplemental
Data (continued) |
(Unaudited) |
|
|
|
|
|
|
|
NUMBER OF RETAIL
LOCATIONS |
|
|
|
|
|
|
|
Retail location counts
are based upon the date that a location commenced or ceased writing
business. |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Retail locations –
beginning of period |
|
|
359 |
|
|
|
353 |
|
|
|
356 |
|
|
|
360 |
|
Opened |
|
|
— |
|
|
|
1 |
|
|
|
5 |
|
|
|
— |
|
Acquired |
|
|
83 |
|
|
|
— |
|
|
|
83 |
|
|
|
— |
|
Closed |
|
|
(4 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
|
|
(7 |
) |
Retail locations – end
of period |
|
|
438 |
|
|
|
353 |
|
|
|
438 |
|
|
|
353 |
|
RETAIL LOCATIONS BY STATE |
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
June 30, |
|
|
December 31, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
|
Alabama |
|
|
24 |
|
|
|
24 |
|
|
|
24 |
|
|
|
24 |
|
|
|
24 |
|
|
|
24 |
|
Arizona |
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
California |
|
|
48 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Florida |
|
|
39 |
|
|
|
30 |
|
|
|
35 |
|
|
|
30 |
|
|
|
31 |
|
|
|
30 |
|
Georgia |
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
Illinois |
|
|
58 |
|
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
|
|
60 |
|
|
|
61 |
|
Indiana |
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
Mississippi |
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
Missouri |
|
|
9 |
|
|
|
10 |
|
|
|
9 |
|
|
|
10 |
|
|
|
10 |
|
|
|
11 |
|
New Mexico |
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Nevada |
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ohio |
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
|
|
27 |
|
Pennsylvania |
|
|
14 |
|
|
|
16 |
|
|
|
15 |
|
|
|
16 |
|
|
|
15 |
|
|
|
16 |
|
South Carolina |
|
|
25 |
|
|
|
25 |
|
|
|
25 |
|
|
|
25 |
|
|
|
25 |
|
|
|
25 |
|
Tennessee |
|
|
23 |
|
|
|
19 |
|
|
|
23 |
|
|
|
19 |
|
|
|
22 |
|
|
|
19 |
|
Texas |
|
|
68 |
|
|
|
58 |
|
|
|
57 |
|
|
|
58 |
|
|
|
58 |
|
|
|
63 |
|
Total |
|
|
438 |
|
|
|
353 |
|
|
|
359 |
|
|
|
353 |
|
|
|
356 |
|
|
|
360 |
|
INVESTOR RELATIONS CONTACT:
Michael J. Bodayle
615.844.2885
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