National Financial Partners Corp. has a market cap of $326.2 million; its shares were traded at around $8.18 with a P/E ratio of 3.2 and P/S ratio of 0.3.
Highlight of Business Operations:The Company is a leading independent distributor of financial services products primarily to high net worth individuals and companies. Founded in 1998 and commencing operations on January 1, 1999, NFP has grown internally and through acquisitions and as of March 31, 2009, operates a national distribution network with over 170 firms. During the three months ended March 31, 2009, revenue decreased $69.4 million, or 24.2%, to $217.0 million from $286.4 million during the three months ended March 31, 2008. The Company experienced a net loss of $515.8 million for the three months ended March 31, 2009, a decrease of $524.3 million from net income of $8.5 million during the three months ended March 31, 2008. The net loss was due to a substantial increase in the level of impairment of goodwill and intangible assets from $2.1 million for the three months ended March 31, 2008 to $607.3 million for the three months ended March 31, 2009. Excluding the after tax impact of impairments, the net income decline was a result of lower revenue partially offset by declines in cost of services and general and administrative expense.
The Companys firms earn revenue that consists primarily of commissions and fees earned from the sale of financial products and services to their clients. The Companys firms also incur commissions and fees expense and operating expense in the course of earning revenue. NFP pays management fees to non-employee principals of its firms and/or certain entities they own based on the financial performance of each respective firm. The Company refers to revenue earned by the Companys firms less the expenses of its firms, including management fees, as gross margin. The Company excludes amortization and depreciation from gross margin. These amounts are separately disclosed as part of Corporate and other expenses. Management uses gross margin as a measure of the performance of the firms that the Company has acquired. Gross margin declined from $49.5 million, or 17.3% of revenue, during the three months ended March 31, 2008 to $36.9 million, or 17.0% of revenue, during the three months ended March 31, 2009. Gross margin percentage remained largely stable despite the decrease in revenue as a result of the variable components of the Companys cost structure.
The Companys gross margin is offset by expenses that NFP incurs at the corporate level, including corporate and other expenses. Corporate and other expenses increased from $24.5 million during the three months ended March 31, 2008 to $633.6 million during the three months ended March 31, 2009. Corporate and other expenses include general and administrative expense, amortization, depreciation, impairment of goodwill and intangible assets, and loss (gain) on sale of subsidiaries. General and administrative expense includes the operating expenses of NFPs corporate headquarters and a portion of stock-based compensation. General and administrative expense declined from $16.2 million during the three months ended March 31, 2008 to $12.6 million during the three months ended March 31, 2009. General and administrative expense as a percentage of revenue increased to 5.8% during the three months ended March 31, 2009 from 5.7% during the three months ended March 31, 2008.
During the first quarter of 2009, the Company recognized an impairment charge of $607.3 million. This represented a significant increase from impairments of $2.1 million in the prior year period. The increase in the first quarter impairment charge was a result of the completion of the Companys most recent impairment analysis. The impairment recorded in the quarter reflected the incorporation of market data, including NFPs market value which has remained below net book value for a sustained period, the recent performance of the Company in the current economic environment, discount rates that are risk adjusted to reflect both company-specific and market-based credit spreads and other relevant market data. Among other items, the market value reflected the stressed macroeconomic environment and its impact on the Companys sales, particularly in the life insurance area, and the Companys capital structure. As a result, the Company recognized an additional charge of $605.2 million in the quarter as compared to the corresponding prior year period.
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