Fortegra Financial Corporation Reports Second Quarter And Six Month 2011 Results

Fortegra Financial Corporation (the "Company") (NYSE: FRF) an insurance services company providing distribution and administration services and insurance-related products, today reported results for the second quarter and six months ended June 30, 2011:
  • Net revenues increased 12.6% to $27.3 million for the second quarter of 2011
  • Diluted earnings per share (EPS) on a GAAP basis were $0.07 for the second quarter of 2011 and $0.12 on a non-GAAP basis
  • Adjusted EBITDA for the second quarter of 2011 was $7.8 million

“We were pleased with our revenue growth in the quarter, as we posted double-digit growth in revenue led by our eReinsure and auto club acquisitions,” said Richard S. Kahlbaugh, Chairman and Chief Executive Officer of Fortegra. “At the same time, our expenses this quarter were higher than our initial expectations, and included significant operating costs during the quarter that we plan to reduce or eliminate in the second half of the year, as well as other non-recurring costs. Expense management is a top priority at the Company and we are taking steps to improve our cost structure, which we expect to yield results in the coming quarters.”

Second Quarter Results

Gross revenues increased 9.0% to $53.9 million for the second quarter of 2011 compared to $49.4 million for the second quarter of 2010. Net revenues (revenues net of losses, loss adjustment, and commission expenses) increased 12.6% to $27.3 million for the second quarter of 2011, compared to $24.2 million for the prior-year period. Net income for the second quarter 2011 was $1.6 million, or $0.07 per diluted share, compared to $3.8 million, or $0.22 per diluted share, for the quarter ended June 30, 2010. Net income for the second quarter of 2011 included $0.6 million in acquisition-related costs, as well as $0.4 million in other one-time charges. Net income for the second quarter of 2010 included $0.3 million in one-time re-audit professional fees and $0.1 million of costs related to acquisitions. Excluding these items, net income for the second quarter of 2011 was $2.6 million, or $0.12 per diluted share, compared to $4.1 million, or $0.24 per diluted share, for the prior-year period.

Adjusted EBITDA for the second quarter of 2011 declined 18.2% to $7.8 million compared to $9.5 million for the second quarter of 2010.

Net earned premium revenues increased 3.3% to $27.5 million from $26.7 million in the prior-year period, primarily due to growth in direct and assumed earned premium from new customers distributing Fortegra's credit insurance and warranty products, partially offset by an increase in ceded earned premiums.

Brokerage commission and fee revenues increased 43.8% to $9.2 million compared to $6.4 million for the second quarter of 2010, primarily due to higher fee revenue from the acquisition of eReinsure, as well as growth in contingent commissions, net commissions and fees.

Ceding commission revenue earned under coinsurance agreements declined 2.3% to $6.2 million from $6.4 million for the prior-year period, due to lower net investment income from assets held in trust and lower service and administrative fees, and partially offset by favorable underwriting performance.

Net investment income was $0.9 million for the second quarter of 2011, a slight decline from $1.0 million in the prior-year period due to lower income earned on cash and fixed income securities.

Service and administrative fee revenues were $8.8 million for the second quarter of 2011, comparable with the prior-year period, as increased revenues from the Payment Protection segment as a result of the first quarter 2011 acquisition of Auto Knight were offset primarily by lower revenues from lower debt collection as well as a reduction in revenues at the Business Process Outsourcing (BPO) segment.

Six Month Results

For the six months ended June 30, 2011, gross revenues increased 8.3% to $108.5 million compared to $100.2 million for the prior-year period. Net revenues (revenues net of losses, loss adjustment, and commission expenses) increased 15.2% to $54.1 million for the six months ended June 30, 2011 compared to $46.9 million for the prior-year period. Net income was $5.2 million, or $0.24 per diluted share, for the six months ended June 30, 2011 compared to $7.2 million, or $0.43 per diluted share, for the six months ended June 30, 2010. Net income for the six months ended June 30, 2011 included a $0.6 million loss on the early retirement of debt, $0.8 million of transaction costs related to acquisitions and $0.3 million in other one-time charges. Net income for the six months ended June 30, 2010 included $0.3 million in one-time re-audit professional fees and $0.4 million of costs related to acquisitions. Excluding these items, net income for the six months ended June 30, 2011 was $6.9 million, or $0.32 per diluted share, compared to $7.9 million, or $0.47 per diluted share, for the six months ended June 30, 2010.

Adjusted EBITDA for the six months ended June 30, 2011 declined 8.1% to $16.8 million, compared to $18.3 million for the prior-year period.

Net earned premium revenues for the six months ended June 30, 2011 increased 1.5% to $56.0 million from $55.2 million for the prior-year period, primarily due to growth in direct and assumed earned premium from new customers distributing Fortegra's credit insurance and warranty products and partially offset by a corresponding increase in ceded earned premiums.

Brokerage commission and fee revenues for the six months ended June 30, 2011 increased 30.0% to $17.1 million, compared to $13.1 million for the prior-year period, due to higher fee revenue related to the acquisition of eReinsure, which was completed on March 3, 2011, as well as growth in contingent commissions, net commissions and fees.

Ceding commission revenue earned under coinsurance agreements for the six months ended June 30, 2011 increased 10.7% to $14.4 million from $13.0 million for the prior-year period, driven principally by increased service and administrative fees and favorable underwriting performance.

Net investment income was $1.8 million for the six months ended June 30, 2011, a slight decline from $1.9 million in the prior-year period.

Service and administrative fee revenues for the six months ended June 30, 2011 increased 6.5% to $17.9 million from $16.8 million for the prior-year period, primarily due to increased revenues from the Payment Protection segment as a result of the first quarter 2011 acquisition of Auto Knight and partially offset by lower revenues from lower debt collection as well as a reduction in revenues at the BPO segment.

Segment Results

Payment Protection

Revenues for the Payment Protection segment increased 12.6% to $13.8 million in the second quarter of 2011 compared to $12.2 million for the equivalent prior-year period. The increase was driven by the three car club acquisitions completed over the past year, which contributed $1.3 million in additional revenues, as well as realized gains on the sale of investments, partially offset by a decrease in net underwriting revenue. EBITDA for the Payment Protection segment decreased 13.8% to $5.2 million for the second quarter of 2011 compared to $6.0 million for the prior-year period. Excluding transaction costs and other one-time expenses, adjusted EBITDA for the Payment Protection segment increased 1.6% to $6.2 million for the second quarter of 2011 compared to $6.1 million for the prior-year period.

For the six months ended June 30, 2011, revenues for the Payment Protection segment increased 27.1% to $28.1 million compared to $22.1 million for the prior-year period. The increase was driven by the three car club acquisitions completed over the past year, which contributed $3.8 million in additional revenues, as well as increased ceding commission revenue and realized gains on the sale of investments. For the six months ended June 30, 2011, EBITDA for the Payment Protection segment increased 1.9% to $11.0 million compared to $10.8 million for the prior-year period. Excluding transaction costs and other one-time expenses, adjusted EBITDA for the Payment Protection segment increased 9.2% to $12.1 million for the six months ended June 30, 2011 compared to $11.2 million for the prior-year period.

BPO

Revenues for the BPO segment decreased 14.7% to $3.7 million for the second quarter of 2011 compared to $4.3 million for the second quarter of 2010, primarily due to regulatory changes that temporarily slowed production at one of the Company's customers. EBITDA for the BPO segment decreased 49.0% to $0.9 million for the second quarter of 2011 compared to $1.7 million for the prior-year period. EBITDA for the BPO segment in the second quarter of 2011 included $0.1 million in transaction costs and other one-time expenses.

For the six months ended June 30, 2011, revenues for the BPO segment decreased 18.4% to $7.3 million compared to $8.9 million for the prior-year period, primarily due to regulatory changes that temporarily slowed production at one of the Company's customers. For the six months ended June 30, 2011, EBITDA for the BPO segment decreased 48.1% to $1.8 million compared to $3.5 million for the prior-year period, primarily related to the decrease in revenue. EBITDA for the BPO segment for the six months ended June 30, 2011 included $0.1 million in transaction costs and other one-time expenses.

Brokerage

Revenues for the Brokerage segment increased 28.1% to $9.8 million for the second quarter of 2011 compared to $7.7 million in the second quarter of 2010, primarily due to $2.5 million in fees from the acquisition of eReinsure. EBITDA for the Brokerage segment increased 21.8% to $2.3 million for the second quarter of 2011 compared to $1.9 million for the prior-year period. EBITDA for the Brokerage segment in the second quarter of 2011 included $0.1 million in transaction costs and other one-time expenses.

For the six months ended June 30, 2011, revenues for the Brokerage segment increased 17.5% to $18.7 million compared to $15.9 million for the prior-year period, primarily due to $3.3 million in fees from the acquisition of eReinsure. For the six months ended June 30, 2011, EBITDA for the Brokerage segment increased 8.6% to $4.4 million compared to $4.0 million for the prior-year period. EBITDA for the Brokerage segment for the six months ended June 30, 2011 included $0.1 million in transaction costs and other one-time expenses.

Subsequent Event

The Company has entered into a non-binding Letter of Intent to acquire a managing general agent that sells health, accident, critical illness and life insurance policies in a direct response marketing environment.

Balance Sheet

Total invested assets and cash amounted to $122.1 million as of June 30, 2011 compared to $119.6 million as of March 31, 2011. Cash and cash equivalents decreased slightly by $0.4 million to $18.0 million from $18.4 million as of March 31, 2011. Unearned premiums were $203.5 million as of June 30, 2011 compared to $200.6 million as of March 31, 2011. Total debt outstanding as of June 30, 2011 increased to $69.2 million compared to $61.5 million as of March 31, 2011. Stockholder's equity increased slightly to $127.5 million as of June 30, 2011 compared to $126.9 million as of March 31, 2011.

Outlook

Based on the Company's performance for the first six months of 2011 and management's operating assumptions for the remainder of the year, Fortegra is adjusting its previously provided outlook for the fiscal year ending December 31, 2011 as follows:
  • Net revenues in the range of $110 to $115 million
  • Diluted earnings per share in the range of $0.71 to $0.80 based on a weighted fully diluted share count of 21.6 million shares
  • Adjusted EBITDA in the range of $41 to $44 million

Conference Call Information

Fortegra's executive management will host a conference call to discuss its second quarter 2011 results later today at 5:00 p.m. Eastern Time. Analysts, media and individual investors are invited to participate in the conference call by calling (877) 407-9039, or for international callers, (201) 689-8470. A simultaneous Webcast of the conference call audio will be available online at http://investors.fortegra.com. Participants are encouraged to call or sign in at least 15 minutes prior to the scheduled conference call time to ensure participation and, if required, to download and install the necessary software. A replay of the call will be available shortly after the call until August 18, 2011, by dialing (877) 870-5176, or for international callers, (858) 384-5517. The passcode for the replay is 375727. A replay of the call will also be available online at http://investors.fortegra.com.

About Fortegra

Fortegra Financial Corporation is an insurance services company that provides distribution and administration services and insurance-related products to insurance companies, insurance brokers and agents and other financial services companies in the United States. It sells services and products directly to businesses rather than directly to consumers. Fortegra's brands include Life of the South®, Consecta, Bliss & Glennon and eReinsure.

Use of Non-GAAP Financial Information

Fortegra presents certain additional financial measures related to its Business Segments that are "Non-GAAP measures" within the meaning of Regulation G under the Securities Act of 1934. Fortegra presents these Non-GAAP measures to provide investors with additional information to analyze Fortegra's performance from period to period. Management also uses these measures to assess performance for Fortegra's segments and to allocate resources in managing Fortegra's businesses. However, investors should not consider these Non-GAAP measures as a substitute for the financial information that Fortegra reports in accordance with GAAP. These Non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled Non-GAAP measures presented by other companies.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Such statements are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project,'' "plan," "intend," "believe," "may," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

The forward-looking statements contained in this press release are based on assumptions that we have made in light of our industry experience and our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read this press release, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under Item 1A. - "Risk Factors" in Fortegra's Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this press release speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Further information concerning Fortegra and its business, including factors that potentially could materially affect Fortegra's financial results, is contained in Fortegra's filings with the SEC, which are available free of charges at the SEC's website at http://www.sec.gov and or from Fortegra's website in the "Investor Relations" section under "SEC Filings" at http://www.fortegra.com.

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(All Amounts in Thousands Except Share and Per Share Amounts)
   
For the Three Months Ended For the Six Months Ended
June 30, 2011   June 30, 2010 June 30, 2011   June 30, 2010
Revenues:
Service and administrative fees $ 8,800 $ 8,843 $ 17,916 $ 16,817
Brokerage commissions and fees 9,208 6,404 17,075 13,134
Ceding commission 6,243 6,389 14,401 13,013
Net investment income 894 986 1,835 1,935
Net realized gains 1,132 47 1,227 49
Net earned premium 27,536 26,669 55,973 55,162
Other income 38   45   120   126  
Total Revenues 53,851   49,383   108,547   100,236  
 
Net losses and loss adjustment expenses 9,251 7,316 18,624 16,093
Commissions 17,323   17,850   35,840   37,199  
Net Revenues 27,277   24,217   54,083   46,944  
 
Expenses:
Personnel costs 11,428 9,332 22,420 18,413
Other operating expenses 9,216 5,891 16,160 11,027
Depreciation 814 284 1,397 558
Amortization of intangibles 1,378 779 2,430 1,559
Interest expense 1,925   1,985   3,956   3,876  
Total Expenses 24,761   18,271   46,363   35,433  
 
Income before income taxes and non-controlling interest 2,516 5,946 7,720 11,511
Income Taxes 936   2,220   2,711   4,296  
Income before non-controlling interest 1,580 3,726 5,009 7,215

Less: net income (loss) attributable to non-controlling interest
2   (46 ) (172 ) (31 )
Net income $ 1,578   $ 3,772   $ 5,181   $ 7,246  
 

Earnings per share:
Basic $ 0.08 $ 0.24 $ 0.25 $ 0.46
Diluted $ 0.07 $ 0.22 $ 0.24 $ 0.43

Weighted average common shares outstanding:
Basic 20,510,254 15,742,336 20,487,549 15,742,336
Diluted 21,592,418 17,040,432 21,625,817 17,040,432

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(All Amounts in Thousands Except Share Amounts)
 

 
June 30, 2011

December 31, 2010
Assets:
Investments

Fixed maturity securities available-for-sale at fair value (amortized cost of $86,660 in2011 and $82,124 in 2010)
$ 89,668 $ 85,786

Equity securities available-for-sale at fair value (cost of $1,806 in 2011 and $1,955in 2010)
1,790 1,935
Short-term investments 1,070   1,170  
Total investments 92,528 88,891
Cash and cash equivalents 17,980 43,389
Restricted cash 11,558 15,722
Accrued investment income 998 880
Notes receivable 1,401 1,485
Other receivables 26,885 25,473
Reinsurance receivables 170,639 169,382
Deferred acquisition costs 63,487 65,142
Property and equipment, net 15,752 11,996
Goodwill 109,488 73,639
Other intangibles, net 40,090 40,405
Other assets 7,057   5,505  
Total assets $ 557,863   $ 541,909  
 
Liabilities:
Unpaid claims $ 30,878 $ 32,693
Unearned premiums 203,538 210,430
Accrued expenses, accounts payable and other liabilities 40,514 41,844
Deferred revenue 26,351 25,611
Notes payable 69,200 36,713
Preferred trust securities 35,000 35,000
Redeemable preferred stock 350 11,040
Deferred income taxes 24,541   24,691  
Total liabilities 430,372   418,022  
 
 
Stockholders' Equity:
Preferred stock, par value $0.01; 10,000,000 shares authorized; none issued

Common stock, par value $0.01; 150,000,000 shares authorized; 20,510,254 and20,256,735 shares issued in 2011 and 2010, respectively
205 203
Treasury stock (44,578 shares in 2011 and 2010, respectively) (176 ) (176 )
Additional paid-in capital 95,525 95,556

Accumulated other comprehensive income, net of tax (expense) of $(491) and $(1,235),in 2011 and 2010, respectively
913 2,293
Retained earnings 30,489   25,308  
Stockholders' equity before non-controlling interest 126,956 123,184
Non-controlling interest 535   703  
Total stockholders' equity 127,491   123,887  
Total liabilities and stockholders' equity $ 557,863   $ 541,909  

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME- Segments (Unaudited)

(All Amounts in Thousands)
   
(Unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 2011
 

June 30, 2010

June 30, 2011
 

June 30, 2010
Segment Net Revenue
Payment Protection
Service and administrative fees $ 4,481 $ 3,240 $ 9,009 $ 5,123
Ceding commission 6,243 6,389 14,401 13,013
Net investment income 894 986 1,835 1,934
Net realized gains (losses) 1,132 47 1,227 49
Other income 38 45 120 126
Net earned premium 27,536 26,669 55,973 55,162
Net losses and loss adjustment expenses (9,251 ) (7,316 ) (18,624 ) (16,093 )
Commissions (17,323 ) (17,850 ) (35,840 ) (37,199 )
Total Payment Protection 13,750 12,210 28,101 22,115
BPO 3,691 4,327 7,255 8,890
Brokerage
Brokerage commissions and fees 9,208 6,404 17,075 13,132
Service and administrative fees 628   1,276   1,652   2,807  
Total Brokerage 9,836 7,680 18,727 15,939
Corporate        
Total 27,277   24,217   54,083   46,944  
 
Operating Expenses
Payment Protection 8,562 6,191 17,060 11,285
BPO 2,828 2,635 5,447 5,409
Brokerage 7,527 5,785 14,346 11,904
Corporate 1,727   612   1,727   842  
Total 20,644   15,223   38,580   29,440  
 
EBITDA
Payment Protection 5,188 6,019 11,041 10,830
BPO 863 1,692 1,808 3,481
Brokerage 2,309 1,895 4,381 4,035
Corporate (1,727 ) (612 ) (1,727 ) (842 )
Total 6,633   8,994   15,503   17,504  
 
Depreciation and Amortization
Payment Protection 1,324 585 2,277 1,055
BPO 277 80 517 254
Brokerage 591   398   1,033   808  
Total 2,192   1,063   3,827   2,117  
 
Interest
Payment Protection 1,043 1,704 2,569 3,365
BPO 99 92 162 198
Brokerage 783   189   1,225   313  
Total 1,925   1,985   3,956   3,876  
 
Income before income taxes and non-controlling interest
Payment Protection 2,821 3,730 6,195 6,410
BPO 487 1,520 1,129 3,029
Brokerage 935 1,308 2,123 2,914
Corporate (1,727 ) (612 ) (1,727 ) (842 )
Total income before income taxes and non-controlling interest 2,516 5,946 7,720 11,511
Income Taxes 936 2,220 2,711 4,296
Less: net income (loss) attributable to non-controlling interest 2   (46 ) (172 ) (31 )
Net income $ 1,578   $ 3,772   $ 5,181   $ 7,246  

FORTEGRA FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME- Segments (Unaudited)

(All Amounts in Thousands)
   

For the Three Months Ended

For the Six Months Ended
(Unaudited)

June 30, 2011
 

June 30, 2010

June 30, 2011
 

June 30, 2010
Revenue
Payment Protection $ 13,750 $ 12,210 $ 28,101 $ 22,115
BPO 3,691 4,327 7,255 8,890
Brokerage 9,836 7,680 18,727 15,939
Corporate        
Segment revenue 27,277 24,217 54,083 46,944
Net losses and loss adjustment expenses 9,251 7,316 18,624 16,093
Commissions 17,323   17,850   35,840   37,199  
Total revenue 53,851   49,383   108,547   100,236  
 
Operating Expenses
Payment Protection 8,562 6,191 17,060 11,285
BPO 2,828 2,635 5,447 5,409
Brokerage 7,527 5,785 14,346 11,904
Corporate 1,727   612   1,727   842  
Total Operating Expenses 20,644 15,223 38,580 29,440
Net losses and loss adjustment expenses 9,251 7,316 18,624 16,093
Commissions 17,323   17,850   35,840   37,199  
Total expenses before depreciation, amortization and interest 47,218   40,389   93,044   82,732  
 
EBITDA
Payment Protection 5,188 6,019 11,041 10,830
BPO 863 1,692 1,808 3,481
Brokerage 2,309 1,895 4,381 4,035
Corporate (1,727 ) (612 ) (1,727 ) (842 )
Total 6,633   8,994   15,503   17,504  
 
Depreciation and Amortization
Payment Protection 1,324 585 2,277 1,055
BPO 277 80 517 254
Brokerage 591   398   1,033   808  
Total 2,192   1,063   3,827   2,117  
 
Interest
Payment Protection 1,043 1,704 2,569 3,365
BPO 99 92 162 198
Brokerage 783   189   1,225   313  
Total 1,925   1,985   3,956   3,876  
 
Income before income taxes and non-controlling interest
Payment Protection 2,821 3,730 6,195 6,410
BPO 487 1,520 1,129 3,029
Brokerage 935 1,308 2,123 2,914
Corporate (1,727 ) (612 ) (1,727 ) (842 )
Total Income before income taxes and non-controlling interest 2,516   5,946   7,720   11,511  
Income taxes 936 2,220 2,711 4,296
Less: net income (loss) attributable to non-controlling interest 2   (46 ) (172 ) (31 )
Net income $ 1,578   $ 3,772   $ 5,181   $ 7,246  

We present EBITDA and Adjusted EBITDA in this Earning Release to provide investors with a supplemental measure of our operating performance and, in the case of Adjusted EBITDA, information utilized in the calculation of the financial covenants under our revolving credit facility and in the determination of compensation. EBITDA, as used in this Earnings Release is defined as net income before interest expense, income taxes, non-controlling interest and depreciation and amortization. Adjusted EBITDA differs from the term "EBITDA" as it is commonly used. Adjusted EBITDA, as used in this Earnings Release, means "Consolidated Adjusted EBITDA" as that term is defined under our revolving credit facility, which is generally consolidated net income before consolidated interest expense, consolidated amortization expense, consolidated depreciation expense and consolidated tax expense, in each case as defined more fully in the agreement governing our revolving credit facility. The other items excluded in this calculation include, but are not limited to, specified acquisition costs and unusual or non-recurring charges. The calculation below does not give effect to certain additional adjustments that are permitted under our revolving credit facility which, if included, would increase the amount reflected in this table.

We believe EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in industries similar to ours. Adjusted EBITDA is also used by management to measure operating performance and by investors to measure a company's ability to service its debt and other cash needs. Management believes the inclusion of the adjustments to EBITDA and Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future.

EBITDA and Adjusted EBITDA are not recognized terms under accounting principles generally accepted in the United States, or U.S. GAAP. Accordingly, they should not be used as an indicator of, or alternative to, net income as a measure of operating performance. Although we use EBITDA and Adjusted EBITDA as measures to assess the operating performance of our business, EBITDA and Adjusted EBITDA have significant limitations as analytical tools because they exclude certain material costs. For example, they do not include interest expense, which has been a necessary element of our costs. Since we use capital assets, depreciation expense is a necessary element of our costs and ability to generate service revenues. In addition, the omission of the substantial amortization expense associated with our intangible assets further limits the usefulness of this measure. EBITDA and Adjusted EBITDA also do not include the payment of taxes, which is also a necessary element of our operations. Because EBITDA and Adjusted EBITDA do not account for these expenses, its utility as a measure of our operating performance has material limitations. Due to these limitations, management does not view EBITDA and Adjusted EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income. Because the definitions of EBITDA and Adjusted EBITDA (or similar measures) may vary among companies and industries, they may not be comparable to other similarly titled measures used by other companies.

The following table presents a reconciliation of net income to EBITDA and Adjusted EBITDA for each of the periods presented:

(Unaudited, all amounts in thousands)  

For the Three Months Ended
 

For the Six Months Ended
(in thousands)

June 30, 2011
 

June 30, 2010

June 30, 2011
 

June 30, 2010
Net income $ 1,578 $ 3,772 $ 5,181 $ 7,246
Depreciation 814 284 1,397 558
Amortization of intangibles 1,378 779 2,430 1,559
Interest expense 1,925 1,985 3,956 3,876
Income taxes 936 2,220 2,711 4,296
Net income (loss) attributable to non-controlling interest 2   (46 ) (172 ) (31 )
EBITDA 6,633 8,994 15,503 17,504
Transaction costs (a) 612 87 793 374
Corporate governance study 248 248
Relocation expenses 207 207
Statutory audits 98 98
Re-audit expenses   450     450  
Adjusted EBITDA $ 7,798   $ 9,531   $ 16,849   $ 18,328  
 
(a) Represents transaction costs associated with acquisitions.

FORTEGRA FINANCIAL CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION (Unaudited)

(All Amounts in Thousands Except Share and Per Share Amounts)
   
(Unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 2011
 

June 30, 2010

June 30, 2011
 

June 30, 2010
Net income $ 1,578   $ 3,772 $ 5,181 $ 7,246
Non-GAAP Adjustments, net of tax
Transaction costs associated with acquisitions 612 87 793 374
Corporate governance study 156 156
Relocation expenses 130 130
Statutory audits 62 62
Re-audit expenses 282 282
Retirement of debt 14     560  
Total Non-GAAP adjustments, net of tax 974 369 1,701 656
         
Net income - Non-GAAP basis $ 2,552     $ 4,141   $ 6,882   $ 7,902
 
Earnings per share - basic $ 0.08 $ 0.24 $ 0.25 $ 0.46
Non-GAAP adjustments, net of tax 0.05     0.02   0.08   0.04
Non-GAAP Earnings per common share - basic $ 0.13     $ 0.26   $ 0.33   $ 0.50
 
Earnings per share - diluted $ 0.07 $ 0.22 $ 0.24 $ 0.43
Non-GAAP adjustments, net of tax 0.05     0.02   0.08   0.04
Non-GAAP Earnings per common share - diluted $ 0.12     $ 0.24   $ 0.32   $ 0.47
 
Weighted average common shares outstanding:
Basic 20,510,254 15,742,336 20,487,549 15,742,336
Diluted 21,592,418 17,040,432 21,625,817 17,040,432

Copyright Business Wire 2010

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