Patriot National, An incredible opportunity!

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%
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).


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.


PS A few more points:

  1. They also promised that they would not raise money in the equity market (sell stock and dilute) in 2016.

  2. I believe they indicated that stock based compensation in 2016 would be down about 40% in 2016 from 2015.

  3. If they do increase earnings at 54% as promised, if the stock price stayed the same and didn’t rise from here, their adjusted PE would be about 3.75. That’s three point seven-five (!) For a company growing earnings at 50%.

  4. You know there could be a lot wrong here. They do have a lot of debt (but plenty of operating cash flow), they could be exaggerating their adjusted earnings, they do have that fee income from related party (rapidly shrinking), BUT they have convinced 139 insurance carriers to work with them, they have over 30,000 employers as clients (I think he even mentioned Berkshire Hathaway as one of them in the conference call).

  5. And finally, a PE of 3.7 something, combined with a growth rate over 50%, gives a lot of cushion if some things go wrong.




Interesting company, Saul. Big % drop in stock price today (2-25). Any ideas what precipitated the drop?

What’s the difference between:
Patriot National (PN) NYSE
Patriot National (PNBK) NASDAQ

Saw this article today: Patriot National Inc Falls on Weak Outlook, Bottom-Line Concerns…

Patriot National Inc. (NYSE:PN) disclosed financial results for fourth quarter of fiscal year 2015 (4QFY15) after the markets closed yesterday. The company disappointed on bottom line, while posting meagerly better-than-expected revenue. It also guided for weaker-than-expected fiscal year 2016 (FY16), which triggered the downward momentum in stock price today, as it falls over 22%.

The financial service provider had earnings per share (EPS) of $0.19 for the quarter, compared to the consensus estimate of $0.25. Revenue for the quarter grew by 51.3% year-over-year (YoY) to $60.90 million, compared to consensus estimate of $60.44 million.

For FY16, the company guided for net income of $28-34 million, which falls short of expectations at the midpoint of $31 million—consensus estimate of $33.83 million. The earnings before interest taxes depreciation and amortization (EBITDA) is guided to be in $73-78 million range, compared to the consensus estimate of $79.28 million. Revenue for the quarter is forecasted to be $270-280 million, which is also below analysts’ forecasted $289.80 million.


Thanks, Smorgasbord1 for the link. Big miss.

Big % drop in stock price today (2-25). Any ideas what precipitated the drop?

I’ve been looking at PN since I noticed the price drop this morning. Looking at the company everything looks good. However, the analysts failed to predict the future accurately and as a result there are news stories about a huge earnings miss without even a mention of the good points Saul pointed out. Many investors probably saw those headlines and didn’t look at the company’s numbers.

Saul, thank you for posting your thoughts! New as I am to investing, it was hard not to question my own conclusions while looking at that 25% price drop!


Interesting company, Saul. Big % drop in stock price today (2-25). Any ideas what precipitated the drop?

Hi thiswillchange,
That’s what the whole introduction to my post was about.

What’s the difference between:
Patriot National (PN) NYSE
Patriot National (PNBK) NASDAQ

PN is the company we are talking about (and trades on the NYSE)

PNBK is a bank (and trades on the NASDAQ)

Big miss.

Miss? I guess if you consider quarterly:
Revenue up 51%
Adjusted Net up 205%
a big miss.

And annual:
Revenue up 104%
Adjusted Net up 230%

Wow, what a big miss for a stock at a PE of under 6.


Please note this is a tiny company compared to the typical companies discussed on this board. Micro cap. $130m.


Please note this is a tiny company compared to the typical companies discussed on this board. Micro cap. $130m.

That’s true! And microcaps are inherently more risky. Often lots more risky,


Which is also why I like to take a close look at who’s running the show, in this case, Steven Mariano.

Bloomberg profile:

His Personal Charity:

No immediately-apparent criminal record or complaints so that’s a positive :wink:

All in all, seems legit, with a strong track record. Also likes toys (see first item):

  • Khleb

Shares held by CEO
MARIANO STEVEN M. 12,066,175 as of Dec 16, 2015 (Y! finance)
Shares Outstanding 27,050,694

Is that a concern that the CEO holds almost 45% of the outstanding shares?


Is it weird for a company's EPS data to change after publishing, without a stock split or something like that?  I was looking at their press releases and I don't get this.  From today:

	Three Months Ended      Year Ended 
        December 31,            December 31, 
	2015	2014		2015	2014

Calculation of Adjusted Earnings (Loss) Per Common Share

Diluted	0.19	**0.10**		0.75	**0.38**

And from a year ago:

	Three Months Ended 	Twelve Months Ended 
	December 31, 		December 31, 

	2014	2013		2014	2013

Adjusted Earnings (Loss) Per Common Share

Diluted	**0.01**	(0.39)	        **0.18**	(0.32)

The numbers for Q4 and for the whole year 2014 between the two press releases don't match at all.  Probably the reason is in a footnote or something, or some normal reason I'm not familiar with.
I've seen plenty of small adjustments before but this is big.

Also another hypothesis for the negative sentiment is that the past 4 quarters' adjusted earnings have been relatively flat on a sequential basis:

0.18	0.18	0.23	0.19

I'm still a noob compared to most of you so welcome any feedback. Thanks.

Which is also why I like to take a close look at who’s running the show, in this case, Steven Mariano…All in all, seems legit, with a strong track record.

Thanks Khleb, for doing all that research on the CEO. It’s quite reassuring.

Is that a concern that the CEO holds almost 45% of the outstanding shares?

Hi nomb, I’d guess that that is sort of in the normal range in a stock that just IPOed a year ago. It also is positive for us investors as his interests are strongly allied with ours.


Additional data points to consider on culture from glass door:

12% approval of CEO from 14 reviews.

2.1 rating of company from 28 reviews.

From the reviews: (As always take with a grain of salt)

Advice to Management
Its very discouraging to daily experience the lack of care with making the company better. Management seems out to use Steve to get what they can while they can.

Growth company, opportunity to do new things, management’s not paying attention so you can do what you want. Great dating opportunities if you’re single.

Management in over their head, CEO is a sex addict and hires accordingly. Then his dates get promoted. He owns another company that takes up 1/2 his time. He’s constantly selling PN stock.

Advice to Management
Replace CEO and act like a real company, not his private playhouse.

Advice to Management
Hire experience and performance… Not another Mariano favor. It will make the company last longer. Unlike his previous companies. Stop having HR write the 5 star ratings and listen to the people. I am not a former disgruntle employee as a HR review would say. Check out Patriot National Insurance for more reviews. Same company, different entity.


The numbers for Q4 and for the whole year 2014 between the two press releases don’t match at all.

Chris, I’m no accountant but I could make two guesses.

First, they had an IPO in Jan 2015 and probably had a lot more shares after that, and I’m not sure how that affected it.

Second, they acquired a bunch of companies in 2015. If they had to consolidate their earnings and revenue retrospectively that may also have produced differences in what they reported in 2014.

But that’s just guesses.


Hi JC,

the Glassdoor reviews sound terrible but I’m not sure what I’d make out of a total of 14 reviews (which is a small enough number that one person could have written them all).

Whoever wrote the following, at least, which is the only thing I can check, is very unreliable:

He’s constantly selling PN stock

I checked on the site below and the CEO made 15 stock purchases between the IPO in Jan and August 25th, which was the last date they’d give me because I’m not a subscriber.

Openinsider goes to the present and shows the same thing with about 17 purchases and one recent sale associated with an option exercise that they listed as $0 value sold.

That Glassdoor writer, at least, is outright lying. (Maybe he or she meant to say “He’s constantly buying PN stock”)




Your thoroughness in researching a stock still blows me away even after 3 years of watching you.

Thanks so much from us all for your clear and decisive investing leadership.