Ft. Lauderdale, FL – Patriot National, Inc. (NYSE: PN), a national provider of technology and outsourcing solutions to the insurance industry, today announced its financial results for the third quarter ended September 30, 2015.
Recent Developments:
- Patriot Technology Solutions’ InsuranceExpert platform chosen to replace and modernize Missouri Employers Mutual’s current technology systems
- Added 16th turnkey carrier relationship during the third quarter
Management Commentary
“Our record third quarter results reflect solid execution across all of our business lines. We delivered very strong organic growth driven by our success in expanding relationships with insurance carriers, employers and agencies, and the successful onboarding of acquisitions made earlier this year,” said Steven M. Mariano, Chief Executive Officer of Patriot National.
“During the third quarter of 2015, fee income increased 86.2% to a record $58.5 million from $31.4 million for the third quarter a year ago. Organic fee income grew to $45.4 million, up 44.4% compared to the third quarter of 2014, driven primarily by the addition of new carriers, deepening relationships with current carrier partners and additional flow of business from insurance agencies. Adjusted EBITDA grew to a record $14.6 million up from $8.4 million for the third quarter ended September 30, 2014.
“In addition, our strong performance year-to-date reflects solid execution of both our organic and acquisition growth strategies. For the nine months ended September 30, 2015, fee income grew to $148.9 million, up 138.3% compared to $62.5 million for the corresponding prior-year period, primarily driven by organic fee income of $127.2 million, which grew 103.6% compared to the nine months ended September 30, 2014. For the nine months ended September 30, 2015, Adjusted EBITDA grew to $36.8 million up from $17.3 million for the nine months ended September 30, 2014.
“A key driver of our organic growth is our expanded carrier relationships. Since our IPO in January, we have grown our carrier relationships to 124 from 17, and we see a significant opportunity to further penetrate these carrier relationships. For example, since the IPO, we’ve increased the number of turnkey carriers to 16 from four. We continue to cross-sell our broadened service offering to our base of 108 non-turnkey carriers and increase revenue with our turnkey partners.
“Importantly, the overwhelming majority of upfront investments related to bringing these carriers on board is now behind us. This sets the stage for accelerated growth and profitability as we capitalize on cross-selling opportunities across this large base of carriers at minimal incremental cost. We believe our investment in onboarding this large group of carriers is an important component of achieving adjusted EBITDA margins above 30% over the next three to five years.
“In addition to organic growth, over the past ten months, we have acquired and seamlessly integrated 16 companies and we are just beginning to realize the cross-selling benefits of our acquisition strategy. In August, we closed the acquisition of GlobalHR, which brought us pre-employment background screening, and we’ve already begun the process of cross-selling these services through our network of more than 3,200 agencies.
“Patriot Technology Solutions has begun to sell our SaaS-based workers’ compensation insurance platform to carriers previously unaffiliated with Patriot National, and we are ahead of schedule in executing our technology roadmap. Since our acquisition of Vikaran Solutions, we have signed Missouri Employers Mutual, the largest writer of workers’ compensation in the state of Missouri.
“Since our IPO, we have focused on leveraging our experience in workers’ compensation to expand into other mandatory services for employers, such as self-funded health plans and employee pre-screening. Today, we are uniquely positioned both as a leading outsourced services provider to the property and casualty industry and as a preferred provider of mandatory services to employers.”
Mariano added, “I am very proud of our Patriot National team. We’ve executed above and beyond the goals we set at the time of our initial public offering in January. Today, we work with 124 carriers, our distribution spans more than 3,200 agencies and we provide services to more than 27,000 employers.”
Operating Results
Three Months Ended September 30, 2015
Total revenues were $58.5 million for the third quarter of 2015, compared with $45.5 million in the third quarter of 2014. Total fee income was $58.5 million for the third quarter of 2015, an increase of 86.2% compared with $31.4 million in the third quarter of 2014. The increase in fee income during the third quarter of 2015 was primarily due to an increase in customer relationships and an expanded number of service offerings. Organic fee income of $45.4 million grew 44.4% year-over-year.
Fee income from related party was 40% this quarter compared to 43% in the prior quarter and the Company is on track to achieve its goal of reducing fee income from related party to less than 20% by March 31, 2016.
Total expenses for the third quarter of 2015 were $53.3 million, compared with $19.4 million in the third quarter of 2014. The increase was largely attributable to the acquisitions closed during the nine months ended September 30, 2015.
Third quarter 2015 GAAP net income was $3.8 million, or $0.14 per diluted share, compared with net income of $16.9 million, or $0.46 per diluted share, in the third quarter of 2014. Adjusted earnings for the third quarter of 2015 were $6.4 million, or $0.23 per diluted share, compared with Adjusted earnings of $3.0 million, or $0.17 per share, in the third quarter of 2014. Patriot National defines Adjusted earnings or loss and Adjusted earnings or loss per share as net income (loss) adjusted for cost for debt payoff, non-cash stock compensation costs, net realized gains (losses) on investments, increase (decrease) in fair value of warrant redemption liability, acquisition costs, severance expense and gain on disposal of fixed assets.
Adjusted EBITDA for the third quarter of 2015 was $14.6 million, compared to Adjusted EBITDA of $8.4 million for the third quarter of 2014. Patriot National defines Adjusted EBITDA as net income (loss) adjusted for income tax, interest, depreciation and amortization, net realized gains (losses) on investments, increase (decrease) in fair value of warrant redemption liability, costs for debt payoff, non-cash stock compensation costs, acquisition costs, severance expense and gain on disposal of fixed assets. The increase in Adjusted EBITDA for the third quarter of 2015 was largely attributable to a combination of organic growth and the Company’s acquisitions closed during the nine months ended September 30, 2015.
Operating Cash Flow for the third quarter of 2015 was $10.8 million, compared to Operating Cash Flow of ($3.7 million) for the third quarter of 2014. Patriot National defines Operating Cash Flow as Adjusted EBITDA less income tax expense, interest expense, and capital expenditures.
Nine Months Ended September 30, 2015
Total revenues were $148.8 million for the nine months ended 2015, compared with $77.0 million in the same period a year ago. Total fee income was $148.9 million for the nine months ended September 30, 2015, an increase of 138.3% compared to $62.5 million for the corresponding prior-year period. The increase in fee income during the nine months ended 2015 was primarily due to an increase in customer relationships and expanded number of service offerings. Organic fee income of $127.2 million grew 103.6% year-over-year.
Total expenses for the nine months ended September 30, 2015 were $150.5 million, compared with $53.7 million in the corresponding prior-year period. The increase was largely attributable to the acquisitions closed during the nine months ended September 30, 2015.
For the nine months ended September 30, 2015, GAAP net loss was $8,000 or ($0.00) per share, compared with net income of $12.8 million, or $0.65 per diluted share, for the nine months ended September 30, 2014. Adjusted earnings for the nine months ended September 30, 2015 were $15.7 million, or $0.60 per diluted share, compared with Adjusted earnings of $2.9 million, or $0.18 per diluted share, in the prior-year period.
For the nine months ended September 30, 2015, Adjusted EBITDA grew to $36.8 million up from $17.3 million for the nine months ended September 30, 2014. The increase in Adjusted EBITDA for the nine months ended September 30, 2015 was largely attributable to a combination of organic growth and the Company’s acquisitions closed during the nine months ended September 30, 2015.
Operating Cash Flow for the nine months ended September 30, 2015 was $29.7 million, compared to Operating Cash Flow of $1.1 million for the same period a year ago.
Balance Sheet and Liquidity
At September 30, 2015, the Company had liquidity of $47.6 million, comprised of $18.5 million in cash on hand and $29.1 million available under the revolving credit facility. Additionally, the Company’s credit facility provides for an incremental $50 million term loan through an accordion feature.
At September 30, 2015, the Company had total debt of $121.5 million compared with $88.4 million last quarter. The Company’s leverage ratio, comprised of total debt to trailing 12 months Adjusted EBITDA (including the proforma effect from acquisitions), was 2.3x.
The complete earnings release is available here: Patriot National Third Quarter 2015 Results
Source: Patriot National