Patriot National (PN), one of my small positions (initially brought to us by F1Fun), announced earnings for the quarter and the year today.
For the year:
Revenue (Fee Income) was up 104%.
Adj Earnings were up 204%
Operating Cash Flow was up more than 700% (from $4.5 to $37.1 million)
They started the year with relationships with 17 insurance carriers. At their January 2015 IPO they grandiosely predicted they’d sign 32 more during the year (almost tripling). Well, they signed 122 (!) additional carriers during the year, bringing them to 139 carriers they represent.
Pretty good results, wouldn’t you say? However they reduced their previously given guidance for 2016 slightly to:
Revenue up “just” 31%
Adj Earnings up “just” 54%
Adj EBITDA up “just” 31%
and
Op Cash Flow up “just” 38%
So based on that they sold off 25%, down to a PE of 5.8 !!!
I don’t usually say what I do during the month but I added to this position today. I felt that they are growing like mad but priced like they are going out of business, and the risk reward ratio is highly favorable, but that’s just my opinion and I’m no expert on the insurance business.
Here are my notes on the earnings. These are notes to myself so please excuse any sloppiness. I’d also recommend going to their website and listening to the conference call (which I did).
Saul
Recent Developments: .
• An expanded relationship with Travelers, the second largest writer of U.S. property and casualty insurance, whereby we will initially offer all lines of Travelers’ small business insurance in 15 states, with plans for national expansion.
Management Commentary.
We are very proud of what we accomplished in 2015. Our strong execution on our two-pronged growth strategy that combines organic growth with acquisitions helped us build one of the most powerful platforms in the insurance industry today.
The January acquisition of Mid Atlantic solidifies our position as a premier workers’ compensation exchange. Through our exchange, agencies and employers can access a minimum of five quotes and bind coverage in real time in 44 states.
We also continue to strengthen and diversify our platform. We now have relationships with 139 carriers, up eight-fold from 17 last year. (They expected to add 32 insurance carriers during the year, but signed 122 of them!)
Our distribution network stands at 4,100 agencies, which is four times larger than a year ago.
In addition, our menu of products and services is five times greater, going beyond workers’ comp to include a wide array of commercial property and casualty insurance as well as human capital management.
This extensive product depth, carrier choice and distribution directly translates into increased income, and also reduces revenue concentration by carrier, agency and product line.
We achieved this scale and diversification in an amazingly short time, partly due to the addition of 90 more carriers than we had originally anticipated at the time of our IPO. Adding these carriers strengthens our platform and sets the stage for accelerated growth and profitability over the long term as we capitalize on cross selling opportunities across a large base of carriers. We invested approximately $3 million of incremental costs in 2015 to integrate these carriers into our platform (about $35,000 per carrier to integrate them in).
We made great strides in advancing our technology platform and began to offer our solution on a standalone basis. We secured a major win with Missouri Employers Mutual who will implement our fully integrated SaaS-based suite of solutions across their entire insurance value chain. We are pleased with the pipeline of potential additional carrier customers and we expect standalone technology sales to accelerate in 2016. We are well positioned for long-term sustainable growth.
During the quarter
Fee income up 51% to a record $60.9 million from $40.2 million a year ago.
Organic fee income up 14.4%, to $46.0 million.
Adjusted EBITDA grew to a record $14.6 million up from $9.8 million a year ago.
Adjusted earnings were $5.5 million or 19 cents, up from $1.8 million.
For the year
Fee income up 104% to $210 million (from $103 million a year ago).
Organic fee income was up 69% to $174 million.
Adjusted EBITDA up 112% to $57.5 million up from $27.1 million.
Adjusted earnings were $20.1 million, up from $6.0 million.
A key driver of our organic growth is our expanded carrier relationships. Since our IPO in January, we have grown our carrier relationships to 139 from 17, and we see a significant opportunity to further penetrate these carrier relationships. For example, we continue to cross-sell our broadened service offering to our base of 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 12 months, we have acquired and seamlessly integrated over 15 companies and we are just beginning to realize the cross-selling benefits of our acquisition strategy.
We’ve 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.
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.
We’ve executed above and beyond the goals we set at the time of our initial public offering in January. Today, we work with 139 carriers, our distribution spans more than 4,100 agencies and we provide services to more than 30,000 employers.
Operating Results.
Fee income from related party was 30% this quarter compared to 40% in the prior quarter and we are on track to achieve our goal of reducing fee income from related party to less than 20% by March 31, 2016.
Total expenses for 2015 were $210.1 million, compared with $95.2 million in the prior year. The increase was largely attributable to organic growth and the acquisitions closed during the year.
Operating Cash Flow for the quarter was $5.6 million, up from $3.4 million a year ago.
They define Operating Cash Flow as Adjusted EBITDA less income tax, interest, and capex.
Operating Cash Flow for the year was $37.1million, up from $4.5 million a year ago.
Balance Sheet and Liquidity
At September 30, 2015, we had liquidity of $73.4 million, comprised of $11.4 million in cash and $22.0 million available under the revolving credit facility and the credit facility could include an incremental $40 million term loan.
We had total debt of $127 million compared with $123 million last quarter. The leverage ratio, comprised of total debt to TTM Adjusted EBITDA, was 2.3x.
