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Press Release

Patriot National Announces Third Quarter 2016 Financial Results

GAAP Earnings Per Share of $0.06 and Adjusted Earnings Per Share of $0.12

Company Release - 11/14/2016 6:45 AM ET

FORT LAUDERDALE, Fla., Nov. 14, 2016 /PRNewswire/ -- Patriot National, Inc. (NYSE: PN), ("Patriot National or "the Company") a leading provider of technology and outsourcing solutions, today announced its financial results for the quarter ended September 30, 2016.

Patriot National, Inc. is a leading provider of technology and outsourced services to the insurance industry. The company was founded by Fort Lauderdale based entrepreneur Steven Michael Mariano

Financial Highlights:
(For the quarter ended September 30, 2016, all comparisons correspond to the prior-year period)

  • Total Revenues increased 2.9% to $60.2 million
  • Total Fee Income increased 2.9% to $60.2 million
  • GAAP Net Income of $1.9 million, or $0.06 per diluted share
  • Adjusted Earnings1 of $3.1 million, or $0.12 per diluted share
  • Adjusted EBITDA1 of $11.4 million, down 21.9%
  • Operating Cash Flow1 of $7.5 million, down 30.2%

1See Reconciliation of GAAP net income to Adjusted EBITDA, Adjusted Earnings and Operating Cash Flow in the accompanying financial tables.

Management Commentary:

"While our financial results for the third quarter were lower than expected, we are encouraged by the strength of our business development pipeline. We have been leveraging our deep customer relationships and broad product portfolio to serve a greater share of our customers' needs and are seeing solid evidence of success, including a significant expansion of our partnership with one of our key carriers," said Steven M. Mariano, Chief Executive Officer of Patriot National. "We are also realizing increased productivity throughout our organization as measured by revenue per employee. With our powerful operating platform, innovative technology solutions and greater efficiency, we expect our efforts will deliver stronger top-line growth and profitability."

Financial Results for the Three Months Ended September 30, 2016

Total fee income was $60.2 million for the third quarter of 2016, an increase of 2.9% compared with $58.5 million in the third quarter of 2015. The increase in fee income during the third quarter of 2016 was primarily due to contributions from acquisitions made in the trailing twelve months ended September 30, 2016. Organic fee income of $58.2 million did not change significantly year-over-year.

Total expenses for the third quarter of 2016 were $57.1 million, compared with $53.3 million in the third quarter of 2015. The increase was largely attributable to acquisitions made during the trailing twelve months ended September 30, 2016.

Third quarter 2016 GAAP net income was $1.9 million, or $0.06 per diluted share, compared to $3.8 million, or $0.14 per diluted share in the third quarter of 2015. Weighted average diluted shares were 32.1 million on a GAAP basis, which includes 5.4 million shares relating to the warrants associated with the PIPE financing as discussed in the Company's previous 10-Q (the "Warrants"); and 26.7 million shares excluding the Warrants on a non-GAAP basis respectively. It is important to note that pursuant to the Back-to-Back Agreement between the Company and Mr. Mariano, Mr. Mariano has agreed to tender any shares back to the Company for any shares delivered by the Company pursuant to the Warrant Agreement.  

Adjusted Earnings for the third quarter of 2016 were $3.1 million, or $0.12 per diluted share, compared with Adjusted Earnings of $5.7 million, or $0.20 per diluted share, in the third quarter of 2015. In calculating the weighted average diluted shares, the Warrants previously mentioned have been excluded. Patriot National defines Adjusted Earnings and Adjusted Earnings 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, non-recurring claims cost, severance expense, public offering costs and the income tax effect related to reconciling items.   

Adjusted EBITDA for the third quarter of 2016 was $11.4 million, compared to Adjusted EBITDA of $14.6 million for the third quarter of 2015. 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, non-recurring claims cost, severance expense and public offering costs.

Operating Cash Flow for the third quarter of 2016 was $7.5 million, compared to $10.8 million for the third quarter of 2015. Patriot National defines Operating Cash Flow as Adjusted EBITDA less income tax expense, interest expense and capital expenditures.

As of September 30, 2016, the Company had $13.2 million in cash and approximately $135 million of debt outstanding inclusive of capital lease obligations, net of deferred financing charges.

Summary Financial Results



 Three Months Ended September 30,

In thousands, except per share amounts


2016


2015


Change

Total Revenues           GAAP


$         60,222


$         58,523


2.9%








Total Fee Income


$         60,220


$         58,532


2.9%

Organic


$         58,173


$         58,532


(0.6%)

Acquisitions


$           2,047


$                 -


n/a








Net Income (Loss)       GAAP


$           1,876


$           3,788


(50.5%)

Earnings (Loss) per diluted share


$             0.06


$             0.14


(58.7%)








Adjusted EBITDA


$         11,423


$         14,629


(21.9%)

Adjusted EBITDA margins


19.0%


25.0%


(24.1%)








Adjusted Earnings


$           3,111


$           5,699


(45.4%)

Adjusted Earnings Diluted EPS


$             0.12


$             0.20


(40.0%)








Operating Cash Flow


$           7,504


$         10,751


(30.2%)

Reconciliation of GAAP to Non-GAAP Financial Measures is provided in the following financial tables.

Outlook

The Company has withdrawn its previously issued financial guidance for 2016 and plans to provide guidance for 2017 at the time it announces its fourth quarter results.

Conference Call and Webcast

A conference call and audio webcast with analysts and investors will be held on Monday, November 14, 2016 at 9:00 a.m. Eastern Time, to discuss the Company's results.

  • Live conference call: 1-844-881-0136 (domestic) or 1-412-317-6745 (international)
  • Conference call replay available through December 14, 2016: 1-877-344-7529 (domestic) or 1-412-317-0088 (international)
  • Replay access code: 10095739
  • Live and archived webcast: ir.patnat.com

About Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, this press release provides information regarding Adjusted earnings and earnings per share (non-GAAP adjusted), Operating Cash Flow and Adjusted EBITDA.

A reconciliation of GAAP net income (loss) to both Adjusted earnings and Adjusted EBITDA can be found in the accompanying table. Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. Patriot National compensates for these limitations by relying primarily on its GAAP results and using Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA only as a supplement.

We have presented Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA in this release because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short and long-term operational plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA can provide useful measures for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted earnings and earnings per share, Operating Cash Flow and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are as follows:

  • Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;
  • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or tax payments that may represent a reduction in cash available to us;
  • Operating Cash Flow does not reflect changes in working capital that may represent a reduction in cash available to us; and
  • Other companies, including companies in our industry, may calculate Adjusted Earnings or Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.

About Patriot National

Patriot National, Inc. is a national provider of comprehensive technology and outsourcing solutions that help insurance companies and employers mitigate risk, comply with complex regulations and save time and money. Patriot National provides general agency services, technology outsourcing, software solutions, specialty underwriting and policyholder services, claims administration services, self-funded health plans and employment pre-screening services to its insurance carrier clients, employers and other clients. Patriot National is headquartered in Fort Lauderdale, Florida. For more information about Patriot National, please visit www.patnat.com.

Forward Looking Statements

This press release may include statements that may be deemed to be forward-looking statements. Words such as "may," "will," "should," "likely," "anticipates," "expects," "intends," "plans," "projects," "believes," "estimates," "positioned," "outlook," "Guidance," and similar expressions are used to identify these forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties, and there are important factors that could cause actual results to differ materially from those indicated in these statements, including the potential that we may not be able to deliver stronger top-line growth and profitability. For example, we may not be able to place insurance policies for our clients, our expenses may be higher than we expect, we may have difficulty integrating new acquisitions, new acquisitions may not perform as anticipated, as well as those matters contained in our filings with the Securities and Exchange Commission. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance or events and that results may differ materially from statements made in or suggested by the forward-looking statements contained in this press release. Any forward-looking statement that we may make in this press release speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments.

Media and Investor Contacts:
Cindy Campbell
Director of Investor Relations
Patriot National, Inc.
(954) 670-2907
CCampbell@patnat.com

 


 

Patriot National, Inc.

Consolidated Statement of Operations

(In thousands, except per share amounts)

(Unaudited)





















 Three Months Ended September 30, 


 Nine Months Ended September 30, 

In thousands, except per share amounts


2016


2015


2016


2015










Revenues









Total Fee Income


$           60,220


$           58,532


$         181,557


$         148,912

Net investment income


2


49


37


85

Net losses on investments


-


(58)


(295)


(149)

Total Revenues


60,222


58,523


181,299


148,848










Expenses









Salaries and related expenses


23,449


21,549


69,430


53,782

Commission expense


11,865


8,173


35,992


25,556

Outsourced services


3,930


2,369


11,125


7,623

Other operating expenses


10,139


11,967


29,437


25,252

Acquisition costs


383


1,453


1,408


4,372

Interest expense, including deferred loan fees


1,555


868


4,343


2,731

Depreciation and amortization


4,743


4,380


14,160


10,075

Stock compensation expense


1,037


2,586


3,738


8,791

Costs related to extinguishment of debt


-


-


-


13,681

Decrease in fair value of warrant redemption liability


-


-


-


(1,385)

Increase (Decrease) in fair value of earn-out liability


19


-


(1,913)


-

Total Expenses


57,120


53,345


167,720


150,478










 Net income (loss) before income tax expense 


3,102


5,178


13,579


(1,630)

 Income tax (benefit) expense 


1,188


1,331


(5,960)


(1,733)

 Net Income (Loss) Including Non-Controlling Interest in Subsidiary 


1,914


3,847


19,539


103

 Net income attributable to non-controlling interest in subsidiary 


38


59


103


111

 Net Income (Loss) 


$             1,876


$             3,788


$           19,436


$                  (8)










Earnings (Loss) Per Common Share









Basic


$               0.06


$               0.14


$               0.65


$             (0.00)

Diluted


0.06


0.14


0.64


(0.00)










Weighted Average Common Shares









Basic


31,316


26,802


29,881


26,006

Diluted


32,105


27,940


30,566


26,006

 

 

 Consolidated Balance Sheets 

 (In thousands) 

(Unaudited)













 September 30, 


 December 31, 

In thousands


2016


2015

 Assets 





 Current Assets 





 Cash 


$           13,193


$             8,372

 Short term investments 


-


3,173

 Total cash and investments 


13,193


11,545

 Restricted cash 


17,589


16,055

 Fee income receivable 


9,418


8,159

 Fee income receivable from related party 


35,306


27,036

 Net receivable from related parties 


2,698


499

 Other current assets 


1,769


2,046

 Total current assets 


79,973


65,340

 Fixed assets, net 


5,311


5,092

 Goodwill 


121,683


118,141

 Intangible assets 


75,344


75,681

 Forward purchase asset 


57,511


28,120

 Deferred tax asset, net 


13,626


-

 Advance on facilitation agreement 


1,547


2,000

 Other long term assets 


11,153


11,428

 Total Assets 


$         366,148


$         305,802






 Liabilities and Stockholders' Equity (Deficit) 





 Liabilities 





 Deferred claims administration services income 


$             9,432


$           10,639

 Net advanced claims reimbursements 


3,623


1,835

 Income taxes payable 


6,040


2,996

 Current earn-out payable 


4,746


10,556

 Accounts payable, accrued expenses and other liabilities 


42,867


32,809

 Deferred purchase consideration 


-


6,128

 Revolver borrowings outstanding 


33,932


18,032

 Current portion of notes payable 


6,875


5,500

 Current portion of capital lease obligation 


414


2,232

 Total current liabilities 


107,929


90,727

 Earn-out payable 


6,940


1,827

 Notes payable, net of deferred loan fees of $2,203 and $2,352 


93,437


98,648

 Warrant redemption liability 


57,511


28,120

 Total liabilities 


265,817


219,322






 Stockholders' Equity (Deficit) 





 Total Patriot National, Inc. Stockholders' Equity (Deficit) 


100,463


86,715

 Less non-controlling interest 


(132)


(235)

 Total Stockholders' Equity (Deficit) 


100,331


86,480

 Total Liabilities and Stockholders' Equity (Deficit) 


$         366,148


$         305,802

 

 










Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands)

(Unaudited)












 Three Months Ended September 30, 


 Nine Months Ended September 30, 

In thousands


2016


2015


2016


2015










Reconciliation from Net Income (Loss) to Adjusted EBITDA:









Net Income (Loss)


$             1,876


$             3,788


$           19,436


$                  (8)

Income tax (benefit) expense 


1,188


1,331


(5,960)


(1,733)

Interest expense


1,555


868


4,343


2,731

Depreciation and amortization


4,743


4,380


14,160


10,075

EBITDA


9,362


10,367


31,979


11,065

Net losses on investments


-


58


295


149

Severance expense


460


172


1,703


172

Stock compensation expense


1,037


2,586


3,738


8,791

Acquisition costs


383


1,453


1,408


4,372

Non-recurring claims cost


149


-


449


-

Costs related to extinguishment of debt


-


-


-


13,681

Decrease in fair value of warrant redemption liability


-


-


-


(1,385)

Increase (decrease) in fair value of earn-out liability


19


-


(1,913)


-

Gain on disposal of fixed assets


-


(7)


-


(7)

Public offering costs


13


-


104


-

Adjusted EBITDA


$           11,423


$           14,629


$           37,763


$           36,838










Calculation of Adjusted EBITDA margins:









Total Fee Income


$           60,220


$           58,532


$         181,557


$         148,912

Adjusted EBITDA


$           11,423


$           14,629


$           37,763


$           36,838

Adjusted EBITDA margins


19.0%


25.0%


20.8%


24.7%







































 Three Months Ended September 30, 


 Nine Months Ended September 30, 

In thousands, except per share amounts


2016


2015


2016


2015










Reconciliation from Net Income (Loss) to Adjusted Earnings:









Net Income (Loss)


$             1,876


$             3,788


$           19,436


$                  (8)

Net income attributable to non-controlling interest in subsidiary


38


59


103


111

Income tax (benefit) expense 


1,188


1,331


(5,960)


(1,733)

Net income (loss) before income tax expense


3,102


5,178


13,579


(1,630)










Adjustments to Net income (loss) before income tax expense:









Net losses on investments


-


58


295


149

Severance expense


460


172


1,703


172

Stock compensation expense


1,037


2,586


3,738


8,791

Acquisition costs


383


1,453


1,408


4,372

Non-recurring claims cost


149


-


449


-

Costs related to extinguishment of debt


-


-


-


13,681

Decrease in fair value of warrant redemption liability


-


-


-


(1,385)

Increase (decrease) in fair value of earn-out liability


19


-


(1,913)


-

Gain on disposal of fixed assets


-


(7)


-


(7)

Public offering costs


13


-


104


-

Total


2,061


4,262


5,784


25,773










Adjusted net income before income tax expense


5,163


9,440


19,363


24,143

 Income tax expense at statutory rate 


2,014


3,682


7,552


9,416

 Adjusted Net Income Including Non-Controlling Interest in Subsidiary 


3,149


5,758


11,811


14,727

 Net income attributable to non-controlling interest in subsidiary 


38


59


103


111

 Adjusted Earnings 


$             3,111


$             5,699


$           11,708


$           14,616










Calculation of Adjusted Earnings Per Common Share









Basic


$               0.12


$               0.21


$               0.44


$               0.56

Diluted


0.12


0.20


0.43


0.55










Weighted Average Common Shares Outstanding









Basic


26,427


26,802


26,740


26,006

Diluted


26,728


27,940


26,938


26,388










Statutory Tax Rate


39.0%


39.0%


39.0%


39.0%







































 Three Months Ended September 30, 


 Nine Months Ended September 30, 

In thousands


2016


2015


2016


2015










Reconciliation from Net Income (Loss) to Operating Cash Flow:









Net Income (Loss)


$             1,876


$             3,788


$           19,436


$                  (8)

Income tax (benefit) expense 


1,188


1,331


(5,960)


(1,733)

Interest expense


1,555


868


4,343


2,731

Depreciation and amortization


4,743


4,380


14,160


10,075

EBITDA


9,362


10,367


31,979


11,065

Net losses on investments


-


58


295


149

Severance expense


460


172


1,703


172

Stock compensation expense


1,037


2,586


3,738


8,791

Acquisition costs


383


1,453


1,408


4,372

Non-recurring claims cost


149


-


449


-

Costs related to extinguishment of debt


-


-


-


13,681

Decrease in fair value of warrant redemption liability


-


-


-


(1,385)

Increase (decrease) in fair value of earn-out liability


19


-


(1,913)


-

Gain on disposal of fixed assets


-


(7)


-


(7)

Public offering costs


13


-


104


-

Adjusted EBITDA


11,423


14,629


37,763


36,838

Less: Income tax expense


(1,188)


(1,331)


-


-

Less: Cash interest expense


(1,394)


(806)


(3,870)


(2,525)

Less: Purchase of fixed assets and other long-term assets


(1,337)


(1,741)


(3,548)


(4,565)

Operating Cash Flow (1)


$             7,504


$           10,751


$           30,345


$           29,748

 

(1) Operating Cash Flow is defined as Adjusted EBITDA less income tax expense, interest expense, and capital expenditures




 

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SOURCE Patriot National, Inc.