Pre-Paid Legal Services, Inc. ( PPD) Q1 2011 Earnings Call Transcript April 27, 2011 8:30 am ET Executives Randy Harp – President, Co-CEO and COO Steve Williamson – CFO Presentation Operator
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We expect the merger to close as we anticipated sometime in the late June, July timeframe. Additional information regarding the merger is included in a proxy statement we filed with the SEC and upon SEC approval will be provided to shareholders. So we will not be responding to any e-mail questions regarding the merger on this call.At this time, I'd like to ask our Chief Financial Officer, Steve Williamson, to step through the more significant financial highlights for the first quarter of 2011. Steve? Steve Williamson Thanks Randy. Total revenue for the first quarter of ’11 compared to '10 was down about $7 million. Expenses and taxes were down were down about $5 million, resulting in about $2 million or 10% decrease in net income. With 3% fewer shares diluted EPS was down 8%. On a sequential basis, the membership fees were down $2.2 million. Kind of stepping through on a kind of more detailed basis on a line item by line item, membership fees for the first quarter of 2011 decreased $4.8 million over the first quarter of 2010. It is about a 4.4% decline. Membership fees, as you all know by now are driven by average premium in force, which was down around 5%. That actually is equal to the product of the average number of members times the average annual fee that those members are paying. Associate Services revenue decreased $2.2 million, primarily due to the associate fee revenues, which was a result of a big drop in the new recruits, 16,000 versus 38,000, and partially offset by higher enrolment fee. We went through the higher Fast Start fees, which averaged $147 for the quarter versus $70 for the prior year’s quarter. We also saw a slight decline in e-Service fees. They were down $269,000 for this quarter compared to the last year’s quarter.
Other revenue, which is primarily that three year amortization of that $10 enrollment fee, they were down $32,000 at $851,000 for the quarter. Membership benefits decreased 4.5%, very consistent with the 4.4% decline in membership revenues. The benefit ratio for both quarters were 33.2%. In that we have all the benefits from the renegotiated Kroll contract, and expect that ratio to be pretty consistent on a go forward basis.Commissions were down 20% to $23.7 million primarily due to the decline in production, 24% decline in annual membership premium sold for a quarter. Commissions on a per unit basis or per member basis came in at $220, which is $4 higher than the first quarter 2010, represented 71% of new premiums sold. So pretty consistent with what we have had in earlier quarters. Associate Services costs was $648,000 higher than Associate Services revenue for the first quarter of 2011 versus in 2010 we actually had more revenues and costs to the tune of about $2.5 million. G&A increased $2.8 million, primarily due to the additional expenses associated with the advisers and special committee, both financial and legal. And those of course all resulted in the merger that Randy was talking about previously. We also saw an increase in legal fees, over $300,000 increase in legal fees, primarily due to the litigation that ensued around the merger. We did see some offsets, some decreases in employee costs, bank service costs, telco costs and postage, some of the items that can be tracked with the top line. Other expenses decreased $85,000 in the first quarter of 2011 versus 2010 due to a $218,000 decrease in interest expense, paid off the debt at the end of last year, so had no interest expense to speak of for the quarter. premium tax decreased 54,000, had a $244,000 decrease in depreciation and a $30,000 increase in interest income, and all that was partially offset about $500,000 litigation reserve. We did set up a litigation reserve this quarter. Read the rest of this transcript for free on seekingalpha.com