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National Financial Partners Corp. (NFP) filed Quarterly Report for the period ended 2011-09-30.
National Financial Partners Corp has a market cap of $585 million; its shares were traded at around $13.67 with a P/E ratio of 7 and P/S ratio of 0.6.
This is the annual revenues and earnings per share of NFP over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of NFP.
Highlight of Business Operations:
During the nine months ended September 30, 2011, revenue increased $26.6 million, or 3.8%, as compared to the nine months ended September 30, 2010. The revenue increase was driven by revenue increases within the CCG and ASG of $16.3 million and $27.9 million, respectively, and offset by a revenue decrease of $17.6 million within the ICG. Results in the CCG included commissions and fees revenue of $8.2 million from acquisitions in 2011 that had no comparable operations in the same period of 2010. After the impact from dispositions of $4.1 million, the remaining net increase of $12.2 million represented growth within existing firms in the CCG, driven by new clients and product sales. ASG revenue benefited from the sale of variable annuity products and a slight increase in assets under management. Results in the ICG were impacted by challenging conditions in the life insurance market, particularly with respect to transactions involving high net worth individuals. Excluding the impact of dispositions, revenue from existing firms within the ICG declined by $16.1 million.Management fees. NFP pays management fees to the principals and/or certain entities they own based on the financial performance of the business they manage. From a cash perspective NFP may advance monthly management fees that have not yet been earned due to the seasonality of the earnings of certain subsidiaries, particularly in the life insurance businesses in the ICG. NFP typically pays a portion of the management fees monthly in advance. Once NFP receives its cumulative preferred earnings, or base earnings, the principals and/or entity the principals own will earn management fees equal to earnings above base earnings up to target earnings. An additional management fee is paid in respect of earnings in excess of target earnings based on the ratio of base earnings to target earnings. For example, if base earnings equal 40% of target earnings, NFP receives 40% of earnings in excess of target earnings and the principals and/or the entities they own receives 60%. As of September 30, 2011 the ratio of base earnings to target earnings by segment was 61.7% for the CCG and 46.8% for the ICG. Since the ASG is primarily comprised of NFPSI, NFP’s broker-dealer and corporate registered investment advisor, no management fees are paid and no earnings are shared with principals.
The Company uses adjusted income before management fees, management fees as a percentage of adjusted income before management fees and management fees (excluding accelerated vesting of certain RSUs) to evaluate how much of the reportable segment’s margin and margin growth is being shared with principals. This management fee percentage is a variable, not a fixed, ratio. Management fees as a percentage of adjusted income before management fees will fluctuate based upon the aggregate mix of earnings performance by individual businesses. It is based on the percentage of the Company’s earnings that are acquired at the time of acquisition (as may be adjusted for restructures), the performance relative to NFP’s preferred position in the earnings and the growth of the individual businesses and in the aggregate. Management fees may be higher during periods of strong growth due to performance that reached target levels and/or the increase in incentive accruals. Where business earnings decrease, management fees and management fees as a percentage of adjusted income before management fees may be lower as a business’s earnings fall below target and incentive accruals are either reduced or eliminated. In addition, because management fees earned are based on a business’s cumulative performance generally through a calendar year, to the extent that a business’s performance improves through the year, whether by revenue growth or expense reductions, the management fee as a percentage of adjusted income before management fees may likewise increase through the year. For example, if a business has base earnings and target earnings of $1.0 million and $2.0 million, respectively, and if the business’s cumulative earnings are $0.7 million for the first nine months of the year, no management fee would be earned because the cumulative earnings were below the pro rata base earnings for the three quarters of $0.75 million and the management fee percentage would be zero. In the remaining fourth quarter, if the business was able to achieve cumulative earnings of $2.0 million, the management fee earned would be $1.0 million and the management fee percentage would be equal to approximately 77% for the quarter, while it would be 50% for the full year. Additionally, management fees for the three and nine months ended September 30, 2010 were disproportionately impacted by the one-time accelerated vesting of certain RSUs on September 17, 2010. Further, since NFP retains a cumulative preferred interest in base earnings, the relative percentage of management fees generally decreases as earnings decline. For businesses that do not achieve base earnings, principals typically earn no management fee. Thus, a principal generally earns more management fees only when business earnings grow and, conversely, principals earn less when business earnings decline. This structure provides the Company with protection against earnings shortfalls through reduced management fee expense; in this manner the interests of the principals and shareholders remain aligned.
For the three months ended September 30, 2011 and 2010, the corporate benefits business line accounted for approximately 81.8% and 84.5% of the CCG’s revenue, respectively. For the three months ended September 30, 2011 and 2010, the executive benefits business line accounted for approximately 9.4% and 10.6% of the CCG’s revenue, respectively. For the three months ended September 30, 2011 and 2010, the property and casualty business line accounted for approximately 8.8% and 4.9% of the CCG’s revenue, respectively.
Other, net. Other, net income, which primarily consists of income from equity method investments, rental income, and net expenses relating to the settlement of legal matters, increased $0.3 million in the nine months ended September 30, 2011 compared with the same period last year. The increase in other, net is due to increases in gains during the nine months ended September 30, 2011 relating to increases in the cash surrender value and depreciation in investment earnings relating to the Company’s deferred compensation plan of $0.6 million, an increase in rental income of $0.6 million, an increase in earnings from non-controlling interest in equity investments of $0.4 million, and $1.0 million relating to the satisfaction of amounts due from a principal. These gains were offset by a provision on a loss contingency, a payment that was attributable to the settlement of a legal matter involving a Company subsidiary, and the recognition of a gain in the third quarter of 2010, relating to a transaction that increased the Company’s equity investment from a non-controlling interest to a controlling interest, and as a result became a consolidated subsidiary of NFP.
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